Inkling’s interactive ebook publishing platform, Habitat, also now supports iPhone.

Inkling is based in San Francisco and backed by Sequoia Capital as well as major textbook publishers like McGraw-Hill and Pearson.

Titles include popular undergraduate textbooks as well as specialized MBA, medical and scientific titles. Students can purchase the entire textbook or “‘Pick 3′: a cost-saving alternative that allows students to buy just three chapters for a fraction of the price of a full textbook.” Then they can read the textbooks on the Inkling iPad app or on Inkling’s soon-to-be-launched web platform.

Inkling, based in San Francisco and backed by Sequoia Capital as well as major textbook publishers like McGraw-Hill and Pearson, recently launched its own e-book publishing platform and sells consumer titles as well as textbooks.

Apple announced this week that it is partnering with the three largest K-12 educational publishers to sell iPad textbooks. It will be entering an $8 billion industry where most of the funds are controlled by state governments and school districts, which can mean long and politically charged funding discussions. Unlike in the college market, startups in the K-12 market have struggled to gain venture capital. One reason, on top of the bureaucracy that companies have to deal with: the digital infrastructure in many K-12 schools is weak, with an average of three students for every device as well as more mundane problems like too few electrical outlets.

That said, there’s clearly some real opportunity: While many assume the K-12 market is largely controlled by the three big companies that Apple is partnering with, in fact, more than half of that $8 billion market isn’t. Here’s a look at some of the challenges and opportunities awaiting Apple.

How big is the K-12 education market?

The market is estimated at $8 billion. There are 50 million K-12 students in public schools in the U.S.

K-12 school publishing — including elementary and high school textbooks and other teaching materials — is the second-largest publishing category in the U.S. after trade. Net sales revenue was $5.5 billion in 2010, according to the Association of American Publishers. (K-12 publishing net sales revenue fell 12.4 percent between 2008 and 2009, but increased by 7.1 percent between 2009 and 2010. Overall, net sales revenue between 2008 and 2010 declined by 6.2 percent.)

How is the K-12 publishing market different from trade and higher-ed publishing?

The main difference is that state governments and school districts procure about 90 percent of the books. “It’s very much unlike the consumer market where we decide to go into Barnes & Noble (NYSE: BKS) and buy a book,” says Jay Diskey, executive director of the AAP’s school division. “A school district will decide it needs a new reading program for its elementary school students and will request proposals from publishers. If the state likes the proposal, the contract is negotiated.”

Publishers don’t always sell the books individually; a parent may not be able to buy a single textbook, for instance. The AAP notes the average net unit price of a K-12 title was $65 in 2010, but extensive pricing data is difficult to obtain because so many books are bought in bulk by state governments and school districts.

Textbook rental doesn’t yet factor into K-12 education the way it does in higher ed, although some private and parochial schools are trying it.

Who are the main textbook publishers?

The K-12 textbook market is often seen as being dominated by just a few big companies, but that’s not entirely accurate, says Diskey. It’s true that three companies–McGraw-Hill (NYSE: MHP), Pearson (NYSE: PSO) and Houghton Mifflin Harcourt, the same three companies that are partnering with Apple in its new digital textbook store — capture about 85 percent of the K-12 core textbook market, which is worth roughly $3.2 billion. (The rest of that core market is made up of books from niche publishers on subjects like foreign languages, art and music, and books for technical and vocational schools.)

With the whole market estimated at $8 billion, though, there is still about $5 billion up for grabs outside of core textbooks. That portion includes many players, publishers and technology companies. They publish supplemental materials like workbooks, encyclopedias, books for teachers and reference works, all in print and digital formats. “There is far more diversity in the market than I think a lot of people understand,” Diskey says.

What is the role of digital?

Digital products are becoming a more important part of the K-12 school publishing market. Revenues from digital products increased by 45.6 percent between 2008 and 2010, to $638.7 million, according to the AAP. (The market for print books is still much larger but revenues from print products declined 13.7 percent between 2008 and 2010, to $2.6 billion.)

Spending on e-learning as a percentage of overall K-12 education expenditure is small, according to the September 2011 White House report “Unleashing the Potential of Educational Technology” — it makes up just $0.46 of every $100 spent, for a total of $2.9 billion. (Expenditure on e-learning in higher education is over ten times greater: $5.60 per $100 spent, a total of $24.4 billion.)

K-12 publishers all offer digital products now, but school districts have to decide how to buy them. The digital products are often bundled with print, but “a lot depends on the digital infrastructure in the school district and whether it can support digital learning,” says Diskey. “Not too many states have one-to-one student-to-hardware ratios. In order to have full-blown digital learning, students should have access to their own devices in the same way you had access to your own textbooks when you were in school.”

In fact, the national average ratio of students to hardware devices is three-to-one (three students for every computer, tablet, etc.) “That makes learning very difficult,” Diskey says — and is another way K-12 is different from higher ed. About 90 percent of students arrive at college with at least one electronic device like a laptop. netbook or tablet. “By and large, K-12 students do not arrive with these devices,” Diskey says. This raises questions about who will pay for the devices — family or school districts.

School districts must deal with more mundane issues as well, such as whether there are enough electrical outlets to charge devices. “Behind all this, there’s the backdrop of schools providing textbooks,” Diskey says. In many states, schools are required to fund textbooks, but those mandates don’t always extend to digital materials. It will take “massive funding” to provide the 50 million K-12 public school students with hardware.

How will digital adoption change in the next year or so?

“I think you’ll see more partnerships between publishers and hardware producers such as Apple and others,” says Diskey. “For a long time at the K-12 level, content providers and hardware developers have operated in different silos, but they need to be partnered. (The announcement by Apple) is very good for publishers — new softwtare tools and applications being developed means that more publishers, particularly smaller ones, can get into the digital market at the K-12 level. But there’s still a hangup at the school level with funding and availability of devices.”

What will encourage more entrepreneurship in the area? The White House report reiterates the challenges of selling new products into the market:

An important feature of the market for K-12 educational technology products is the large number of institutional purchasers, each with its own distinct curriculum and procurement process. The school district is the relevant decision unit for most institutional purchases. Selling an educational product to a school district may require substantial contact with a diverse set of actors, including state and local procurement officers who oversee funding streams, academic consultants who advise districts, key school board members, and principals and teachers in individual schools. Moreover, decisions about purchases often involve an extended timeline.

Those barriers help explain why very little venture capital is spent on K-12 education: “In the last five years, estimates suggest that venture capital has totaled perhaps $200 million annually for education companies, backing an average of 25 new businesses per year. This venture capital investment compares to $4.4 billion for biotechnology, $3.0 billion for medical devices, and $4.8 billion for software.”

In a paper on K-12 entrepreneurship, Larry Berger and David Stevenson, the founders of K-12 tech product company Wireless Generation, describe some of the “relatively simple steps that districts, policymakers, foundations and entrepreneurs themselves could take to work around the barriers or dismantle them entirely.” They suggest that school districts and states could form consortia “in which they pool their resources and their expertise to help bring a new product or service to market.”

Berger and Stevenson also say states should comission more research and development instead of requiring a finished product. “When NASA wants a new spacecraft, it does not expect Boeing and Lockheed to build it on their own dimes in the hope of getting the contract,” they note. “It invites the industry to submit proposals and sometimes even funds the early development of competing designs — and then it picks a team with which it will work closely to bring a new product into existence.”

Finally, Berger and Stevenson note, “Entrepreneurship is often driven by the search for, and discovery of, ‘disruptive’ technologies and business models that transform a sector. It is not easy to figure out how the education sector should welcome disruptions and innovations that do not exist yet, but a simple first step would be to ask for them — to articulate the demands that would inspire entrepreneurs to try to create a supply.”

Sources:
– The Association of American Publishers, interviews and statistics
– National Center for Education Statistics
– “K-12 Entrepreneurship: Slow Entry, Distant Exit” by Larry Berger and David Stevenson. PDF here.
– “Unleashing the Potential of Educational Technology,” Executive Office of the President Council of Economic Advisers, September 2011. PDF here.

According to a report in the WSJ, Apple (NSDQ: AAPL) is forging partnerships with educational publishers to produce the new “iTextbooks”.

Ars Technica goes one step further and describes the event as the first step in a new platform for e-book publishing on iOS — a “Garage Band” for e-books — which will work on iPad and iPhone devices, but also be compatible with other devices because it will run on the new ePub 3 standard; Apple currently supports ePub 2, which is sometimes not compatible with other e-reader platforms beyond iBookstore, depending on the extensions that publishers use.

The WSJ story further notes that Apple has been working with McGraw-Hill (NYSE: MHP) since June 2011 on an announcement. Another publisher that focuses on higher education, Cengage, is also attending the event on Thursday, but declined to comment for the article. Other publishers named in the article but not specifically in connection with the event on Thursday are Pearson (NYSE: PSO) and Houghton Mifflin Harcourt.

Neither article had details on how these publishing deals or educational services would be structured: Apple currently takes a 30 percent cut on apps and other content that it publishes for iOS devices; will the same apply in the educational sphere when the intended “customers” are non-profit schools and students?

Whatever precise direction the announcement takes, it will be another step in how Apple is using its already-strong base in one sector — in this case, education — to expand its wider product offering, by using services to help drive more sales in its higher-margin, higher-value devices business.

As we noted last week when the event was formally announced, Apple has made a lot of inroads into educational services — not just with special discounts for students and teachers, but also in the form of iPad donations to special educational projects.

Inkling works with textbook publishers to rebuild existing textbooks for the iPad, incorporating search, quizzes, note-sharing, audio and video other interactive features. Students can preview free sample chapters and can also buy textbooks by the chapter, starting at $2.99, through Inkling’s store.

In March, Inkling raised funding from McGraw-Hill (NYSE: MHP) and Pearson, the world’s two largest textbook publishers. Inkling now has 33 textbooks in its library, up from 14 in March, and has agreements to develop the top 100 undergrad titles from McGraw-Hill Education, as well as other titles from McGraw-Hill, Pearson and Wolters Kluwer Health.

Inkling’s announcement comes a day after CampusBookRentals.com, which rents textbooks of the paper variety, announced that it raised over $20 million.

The company’s Information & Media segment’s operating profit rose 40.6 percent to $45.9 million, thank in part to the BusinessWeek sale, which was officially turned over to Bloomberg on December 1st. But revenues, including the last two months it owned BusinessWeek, revenue fell 11.4 percent to $253.3 million. Specific results for BusinessWeek or any of the other titles in the segment, including Aviation Week, J.D. Power and Associates, McGraw-Hill Construction and Platts, were not broken out.

Still, it’s safe to say that BusinessWeek did not end its association with McGraw-Hill on a positive note, except for the gains resulting from the sale to Bloomberg. BusinessWeek’s ad pages fell 33.8 percent in 2009, according to the Publishers Information Bureau data released earlier this month.

Bloomberg execs chose the people who would make the transition and that act alone is transforming — even though what it is becoming isn’t entirely clear to outsiders. Bloomberg is already dismantling the BW offices and moving the remaining staff into its own spaces. The new BW starts with lower overhead — and vastly different expectations. At McGraw-Hill (NYSE: MHP), it had an aura all its own. At Bloomberg, it will be the leading consumer brand and just one part of a very different constellation.

On the edit side, in a shift that shows some of the priorities, Maria Bartiromo, a leading light for cable biz news competitor CNBC, is being replaced as a columnist by Charlie Rose, whose show is on Bloomberg’s own network. Editor Josh Tyrangiel comes from Time Inc., where he worked with Norm Pearlstine, now Bloomberg’s chief content officer and the person responsible for making the acquisition work. Bloomberg already has committed to making BW a “true” weekly with 52 issues a year; hiring Tyrangiel reinforces that and shows a willingness to go outside both news organizations for editorial leadership. But Bloomberg execs have made it quite clear that Bloomberg News E-I-C Matt Winkler is firmly in charge of the editorial strategy; he told ContentSutra in a recent interview that the two have very little overlap but share journalistic values. They don’t share much in the way of style, though, and I have no doubt that Bloomberg’s style will prevail.

It’s Bloomberg’s BusinessWeek now.

The official take: McGraw Hill release | Bloomberg release

Of course none of that matters now, since Zelnick’s group didn’t win the bid. But one conspiracy theory about the doomsday story: to make sure the BW staff feel better about Bloomberg, even if their new owners ends up gutting the place. Relative misery index might be lower that way.

Second exec casualty, though no surprise: Keith Fox, the publisher of the mag, under whose disastrous regime the company spent crazy money on the website, and sunk major money into a print redesign, to no effect. He is staying at McGraw-Hill, Peter reports. The first senior exec to go was Stephen Adler, who was editor-in-chief of BusinessWeek for four years. So essentially, dumping off all the top management, the right move by Bloomberg.

Changing minds: Bloomberg shifted course during the BW sales process, sliding from “maybe” to “no” to a last-minute bid. What happened to change minds?

Pearlstine: “I think like others we took an initial look at it and it took us a while to figure out what the opportunities were and to get excited about it. The initial observation was that it was a publication struggling financially in a narrow category lumped together with Fortune and Forbes that were also struggling. The more we thought about it, the more we looked into it, the more we saw the opportunity to invest in a weekly magazine about global business — and that in doing so we could differentiate ourselves from what is typically thought of as competition for Bloomberg.” By combining the two, they decided, we can “create a unique and powerful brand that can do a lot of good things for us strategically — and over time will reward the investment that we put into it.”

All about editorial: But that doesn’t change the financial realities. How will Bloomberg break out of the financial struggle when McGraw-Hill (NYSE: MHP) couldn’t and Forbes and Fortune haven’t been able to? For Pearlstine, who was managing editor and executive editor of the Wall Street Journal and editor-in-chief of Time Inc., it all centers on editorial. “Every magazine begins with editorial and what we bring together … is a very talented editorial staff at BusinessWeek and at Bloomberg, 2,200 editorial employees in 146 bureaus in 72 countries. That distinguishes us from anybody else who’s going to be putting out a magazine. We have the resources to provide depth and breadth of coverage that will result in an extraordinary magazine. I have no doubt about it.” When I asked later what one quality he brings from his tenure at Time Inc. that will help him as chairman of BusinessWeek, Pearlstine said, “a gut appreciation of the editorial talent” at BW and Bloomberg. (Before joining Bloomberg, Pearlstine was senior advisor to The Carlyle Group