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Apple faces education threat

Education, long Apple's crown jewel, is now the target of Microsoft and others in the Windows world.

It's no coincidence that Bill Gates spoke at the National Educational Computing Conference this week. The education market, the crown jewel of the Apple Computer (AAPL) marketing department, has become the latest growth market for the Windows world.

Just ask high-flying Dell Computer (DELL). The Austin, Texas-based mail-order giant just announced a new education sales division designed to exploit an 80 percent annual growth rate in the education market. Microsoft (MSFT) too, is expanding rapidly in the area.

"We're growing at greater than 60 percent a year. That makes it one of the fastest-growing sectors in Microsoft," said Elizabeth King, general manager of Microsoft's education customer unit, a new unit formed 18 months ago to focus attention on education.

One reason for the trend is that schools want to work with the same computers that businesses use. Another undeniable catalyst for the growth has been the Internet.

"We're seeing two to two-and-a-half times the spending growth [in education] than what you would typically find in other areas," said Brian Wood, Dell's vice president of state and local government. "The Internet has been a huge catalyst."

As a result, districts are no longer buying low-end computers, he added, but are purchasing more advanced machines with fast Pentium processors.

New figures from International Data Corporation indicate a growing market for Windows-Intel computer makers and a shrinking one for Apple.

PC shipments in education
CompanyQ1 1996Q1 1997
Apple86,096 (35.4%)79,755 (25.7%)
Dell12,078 (5%)31,305 (10.1%)
IBM 12,644 (5.3%)22,288 (7.2%)
Micron10,554 (4.4%)18,074 (5.7%)
Compaq14,119 (5.9%)16,118 (5.2%)
Total240,148310,778
Source: IDC Research

In the first quarter of 1996, Apple accounted for 35.4 percent of PC units shipped into the education market, while Compaq, IBM, and Dell accounted for around 5 percent each. But in the first quarter of this year, Apple's share had shrunk to 25.7 percent.

Meanwhile, Dell's share jumped to 10.1 percent, nearly tripling the number of units shipped. IBM nearly doubled its growth, shooting up to 7.2 percent.

Indeed, Apple has been losing some of its air of invincibility in this market. In a poll of district-level officials earlier this year, Quality Education Data (QED) found that the Macintosh platform constituted 56 percent of the projected hardware purchases for the 1996-1997 school year, down from 61 percent for the three previous years. Projected purchases of DOS-based computers, on the other hand, increased from 37 to 40 percent.

However, QED did release data on June 30, 1997 showing more positive trends for 1997-1998. For future purchases, school districts throughout the U.S. have indicated that Macintosh is still the favorite over machines using Intel processors and the Windows operating system, according to QED.

According to research conducted in March, 1997 by QED, 59 percent of the planned computer purchases by K-12 school districts in 1997-98 are intended to be Macintosh, a 3 percent increase over last year.

Apple executives in charge of educational marketing were not available for comment.

Despite this good news, the company is also under pressure to revamp its educational channel. Education Access, Apple's largest K-12 dealer, parted ways with the company earlier this week.

Apple would not approve the company's acquisition of two other education dealers, sources said. Education Access, which covered a wide swath of the U.S. education market, will now sell computers for IBM (IBM) and others.

Finally, the dominance of the Windows-Intel alliance has begun to permeate the educational world. Nearly all major educational software titles are available on Windows.

But growth in the Intel arena won't come without pain. Although educational hardware and much of the software differs little from the goods in the corporate channels, according to Dell executives and education computer dealers, it sells for a lot less. As a result, gray marketers--dealers who get educational product and sell it to business--have sprung up.

"We've closed down about 23 partners," King said.

In addition, some believe that the market will be tougher than it looks, especially in these times of budget austerity.

"Everybody's getting into the market right now. It is an untapped market, but the question is how big it is," said Rand Morimoto, general manager of Inacom Oakland, a systems integrator.