A Classroom Comeback for Apple?

On Oct. 15, Apple Computer (AAPL) reported what, at first glance, appeared to be another disappointment in the education market. In its fourth fiscal quarter, ended Sept. 27, Mac sales to schools fell 15% vs. a year earlier. Chief Financial Officer Fred Anderson conceded that Apple, which booked revenues of $1.7 billion for the quarter, had experienced widespread weakness in the K-12 marketplace because of the "reluctance of school districts to spend their budgets, given the uncertain funding environment."

That seemed to be further evidence of Apple's continuing slide in education, where Dell Computer's (DELL) onslaught has relegated Apple, the former market leader, to No. 2 (see BW Online, 8/13/03, "Apple's School Days Are Numbered").

Yet, a closer look at the situation shows that Apple may be on the verge of a revival in a sector that accounted for 11 million PC sales worldwide in 2002, according to tech tracker IDC. While its overall education sales were down in the quarter, Apple reported that sales to colleges and universities were the best in seven years.

CATCHING UP. Moreover, an October survey by education technology tracker Quality Education Data (QED), a unit of Scholastic Corp., predicted that over the next 12 months Macs should account for 30% of PCs purchased by K-12 school districts across the country vs. Dell's 37%, as administrators opt to buy more laptops. That would be up nine points from fiscal 2003 and would be the highest figure for Apple in four years.

If that prediction pans out, it could foretell a long-awaited reversal of fortune for Apple in its former stronghold. Pair that with Apple's good news in higher ed, and the Mac could be about to bounce back at school.

This promising news for Apple comes on the heels of a precipitious decline for it in education. In fiscal 2002, its unit sales to the overall education market fell about 14%, to 733,000. By comparison, Dell's education sales during calendar 2002 rose 19%, to about 1.9 million units. While Apple still holds the largest installed base in the K-12 market -- some 28% -- Dell's share has risen to 27%, according to QED. And it's on pace to overtake Apple in the coming year.

SELF-INFLICTED WOUND. A combination of problems caused Apple's dismal showing in 2002. Years of premium pricing on Macs and the relative youth of OS X, Apple's Unix-based operating system, conspired to reduce orders from schools. And over the past few years many districts have hired former corporate managers to run their technology departments. They approached the job as they had in the business world, standardizing to one computer platform to save money and gain bargaining power with PC manufacturers.

Apple also shot itself in the foot. In the summer of 2000, top sales executive Mike Lorion quit, and Apple tried to switch from a freelance sales force to an in-house one in the middle of the education buying season. Suddenly, many school tech buyers had trouble contacting Apple at a time when Dell reps were pounding on their doors (see BW Online, 11/8/2000, "How Apple Flunked Out of Schools"). Then in October, 2002, Cheryl Vedoe, Apple's vice-president for the education market, left under pressure. Soon after, key Apple sales and marketing staffers jumped ship to Palm Computing (PLMO), which was starting an education unit.

To repair the damage, Apple turned to John Couch, who worked as software vice-president for Steve Jobs back in the 1980s. Under Couch and the close eye of Jobs himself, Apple has mounted a drive to reverse its education losses. Apple has raised its profile at industry conventions and cut prices on its education products -- twice in the past six months.

LAPTOP EDGE. The Cupertino (Calif.) outfit has improved customer service as well. Case in point: Last summer, Apple established a repair and maintenance depot in Henrico County, Va., near Richmond to service the 28,000 iBooks (deployed in grades 6-12)

that the county leases from Apple. "That lets us have a 24- to 48-hour turnaround for repairs," says Mark Edwards, the superintendent of Henrico County School District, which spends $6 million a year on technology. "We have seen a real strong effort from Apple to be responsive and make this work."

Plenty of other factors now appear to be aligning in Apple's favor. As it emphasizes laptops over desktops in education, the complaints about price gaps have largely disappeared. "The company has managed to get its notebooks on par with the Windows world," says Roger Kay, vice-president of client computing at IDC. "In the past they were always more expensive."

This change is key, since more and more schools and universities buy laptops. "They're the fastest growing segment in the education market, and last quarter we were rated No. 1 in that category," says Couch. "That's a good position to be in."

HEALTHY FAMILIARITY. Apple's adoption of a Unix-based operating system, the basic software that runs a PC, is also starting to help Jobs & Co. in school. Developers say they can more easily create software for OS X than for previous Apple operating systems, saving money and manpower. "We no longer need two fully staffed development teams," says Kevin Custer, director of sales and marketing at Vancouver (Wash.) educational software concern Hosts Learning. "We have one development team for both [OS X and Windows] platforms."

OS X has also answered another complaint against Macs by making them easy to integrate on networks that also include PCs. At the same time, the switch to Unix has allowed schools to use Unix specialists to support networks with Macs attached -- an impossibility with Apple's previous operating systems, which bore little resemblance to either Windows or Unix.

That's particularly important in higher education, where Unix is the lingua franca in many tech groups. "Universities have been familiar with Unix for years," says Greg Joswiak, vice-president for hardware product marketing at Apple. "It makes them more comfortable recommending and supporting Macs."

MUSICAL LURE. In higher education, Apple appears poised to gain ground, thanks to its new G5 desktops. Techies love their ability to run Microsoft Office and Unix on the same platform. And Apple scored a coup with Virginia Tech in October, when the university purchased 1,100 Apple G5s and linked them together into what VT officials claim to be the third-fastest supercomputer on the planet (see BW Online, 9/10/03, "A Mac-Style Supercomputer").

At the same time, Apple's strength in digital music and its popular iPod player have helped nudge incoming college students towards Macs. Last summer, Apple offered a $200 discount on iPods to Mac buyers. Though it won't reveal numbers, Apple claims the promotion proved extremely successful, particularly in tandem with direct mailings sent to both graduating seniors and incoming freshmen.

And in Europe, where Mac is stronger in higher education than in K-12, some think an incipient Windows backlash could help Apple grab market share.

LOTS OF LITTE DEALS. None of this is to say that Apple's main competitors, Dell and Hewlett-Packard (HPQ), are standing down. Dell, in particular, looks unstoppable. While Apple gear is far more compatible with other systems than ever before, Dell's sales pitch of standardization continues to resonate in school districts that want a single operating system. "Standardization drives down costs," says Scott Campbell, vice-president of Dell's K-12 education sales unit. "The school districts aren't compelled to support dual platforms, because our platforms can do everything they need."

Dell has also taken on Apple in laptops, matching its use of laptop-stocked carts enabled with wireless access that can roll from room to room. While Apple has grabbed big headlines with its deal in Henrico and an additional $37 million deal to provide 34,000 Maine seventh and eighth graders with laptops, Dell has done fine with smaller, quieter deals -- but more of them.

In higher education, both Dell and HP continue to sell more computers than Apple. And Dell has even signed several deals to cluster PCs to create hybrid supercomputers for universities.

SOFTWARE AVAILABILITY. Furthermore, parents continue to request Windows machines because they believe those are what their kids will use down the road at work. "A good portion of them are going to end up in the business world, and there has been the argument made" -- by Dell, among others -- "that you need to train kids on the kind of technology they will later use," says Karin Bruett, Dell's director of education programs.

Then there are administrators like Jim Hirsch, who oversees 28,000 computers as the associate superintendent for technology at the Plano Independent School District outside Dallas. The ratio of PCs to Macs in Plano's classrooms is 27 to 1. Hirsch says this reflects not hardware costs but software availability. Plano often works with developers to build specific software, and the developers generally seem to be more willing to write for PCs. "The cost of the equipment is pretty much the same across the board," he says.

That could change in the near future as more software is delivered to Web browsers via the Internet, a development that's rapidly leveling the playing field for Apple. And while Dell has gained ground, the 45% of the market that neither Apple nor Dell controls could provide plenty of room for future growth. Hirsch notes that Apple has made big improvements with OS X, which is much easier to manage now than Apple's early operating systems. Should enough school purchasers agree, Apple could find new prosperity in classrooms. By Alex Salkever, Technology editor for BusinessWeek Online

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