Apple iBooks

Apple recently announced that it intends to compete with the textbook industry by selling electronic copies of books at a low cost to K-12 schools. I was thinking about how Porter's Five Forces applies to this decision.

Threat of new competition

I would say the threat of new competition would be high. It does not seem that the potential for high profit margins in this segment would invite other technology companies to join in. It seems like Amazon would be well-suited to compete in this market with its Kindle. Apple may be able to create high barriers to entry through programs to get iPads into school districts nationwide. If schools invest large amounts of money into purchasing iPads, the cost to switch to another platform could potentially limit the viability of new entrants in the market.

Threat of substitute products

The physical textbooks are the current competition to electronic textbooks. However, the cost of making a physical textbook is significantly higher than a digital copy, so the electronic copies could sell for much cheaper. The Kindle has a lot of eBooks currently, but does not market them to the K-12 schools. Amazon is probably the best suited to come up with a substitute product.

Bargaining power of customers (K-12 school districts)

In this case, the schools seem like they would have limited buyer power because of budget restraints. Physical textbooks are an enormous expense for school districts, so electronic versions would come much cheaper, but still at a healthy profit margin for Apple.

Bargaining power of suppliers

In this case, the suppliers are the textbook writers and publishing companies. Apple may have a difficult time purchasing copyrights for textbooks. The limited number of textbook publishing companies may give the suppliers a great deal of power, but Apple certainly has sufficient capital to overcome any barriers with suppliers.

Rivalries

If Apple is able to effectively flood the K-12 schools with iPads, the first-mover advantage could definitely give them a favorable position. However, when Apple introduced the iPad, competitors were quick to come up with their own tablet. These same companies could come up with similar e-Books that could create a fierce rivalry in this market.