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Apple losing education share

A new report from a major market research firm says Apple lost over 14 percentage points during 1997.

Though Apple Computer (AAPL) managed to post a profit for its most recent quarter, it is still plagued by shrinking market share, according to a new report from a major market research firm.

The report states Apple lost over 14 percentage points of market share in the education segment during 1997.

The tale of Apple's rapid decline in market share isn't new. But the company is evidently coming upon hard times in sales to the education market, which Apple has consistently identified as one of its key markets.

According to figures just released by Dataquest, Apple had a commanding 41.4 percent of computer sales to the K-12 and higher education market in 1996, but dropped to a 26.8 percent market share in 1997 amid instability in the company's executive ranks and a succession of quarterly losses.

Apple spokesman John Santoro took issue with Dataquest's numbers, citing third-party surveys showing no less than 29 percent market share. "That's more than twice the market share of any other vendor," including Compaq or Dell, he said.

But the news barely improves when sales of Mac clone computers are added in, according to Dataquest, with the overall Mac market holding down 27.4 percent of the education market in 1997. And since the latter half of 1997, two of the three major clone companies were pushed out of the market by Apple, essentially leaving Apple to fend for itself.

On its own, questions remain about whether Apple can prevent any further erosion in one of its more loyal markets.

"Apple has made some channel changes in the education [market], but it hasn't done a whole lot of products or solutions addressed for that space within the last year," said James Staten, an analyst with Dataquest.

Apple's Santoro noted the company is aware of what the education market wants: low-cost computers. The emergence of sub-$1,000 PCs last year caused a lot of schools to start buying Windows-based machines instead of Macs because they could simply buy more of them, he added. Apple's lowest priced education offering is about $1,400.

"Apple is looking hard at that [sub-$1,000] price point. We've noticed that. We won't leave it to the competition forever," Santoro said.

Judging by market conditions, Apple should be offering inexpensive computers to both the education and consumer markets. Apple missed out on a large growth opportunity last year as the market for sub-$1,000 eventually reached almost 40 percent of new sales, according to some surveys.

Overall, Apple market share in the United States continued to shrink, landing at 4.1 percent for the year, down from 6.7 percent in 1996. Interestingly, when Dataquest added in results from sales of Mac clones, the overall Mac market had 5.2 percent market share for 1997. Dataquest's Staten thinks that curtailing the licensing of the Mac OS stunted Apple's chances to grow the Mac platform.

"With the Mac cloners, the platform had a lot more innovation, a lot more voices marketing the Mac message, and thus had potential for much more positive momentum," said Staten. "When that got shut off, it stopped that moment entirely, then Apple had to start again [by itself] to bring forth momentum," he added.

Analysts say that eradicating the cloners has helped Apple's bottom line, however.

"Eliminating clones helped in terms of opportunity cost more than anything else. Apple was effectively losing a couple hundred dollars every time a system was sold," said Lou Mazzuchelli, a financial analyst with Gerard Klauer Mattison.

"In the meantime, G3 sales are [now] contributing to improved margins, and a lot of positive things are happening as a result of reigning in the clones," he added. Other positive elements include Apple's recently quarterly profit of more than $45 million in its first fiscal quarter and warm acceptance of the Power Mac G3 systems, introduced in November of last year.