What the iPad Price Cut Means for Your Kids

Back in January, when Apple (Nasdaq: AAPL  ) outlined its vision of future digital textbooks facilitated by the iPad, there were backers and skeptics. The Mac maker tapped major content publishing partners McGraw-Hill (NYSE: MHP  ) , Pearson (NYSE: PSO  ) , and Houghton Mifflin Harcourt.

I argued that Apple had just begun a revolution in education, while fellow Fool Patrick Martin argued the exact opposite.

The naysayers ...
The biggest drawback that most skeptics saw was the upfront costs that seemed inevitable and naturally led to the question of who would foot the bill. Patrick argued that "Many families simply cannot afford to buy their kids new iPads every couple of years" and that "odds are the school system will be forced to foot the bill, and I doubt many school systems have the ability to take on that extra expense to go digital."

A commenter on my original article, BOSPAT, asked:

Who is going to pay for the iPads? The schools, or the parents? Asking a parent to invest in a tablet computer on top of all the other school related expenses is a bit much. Then what happens if it breaks?

... are right ...
Those are some very valid concerns and justifiable reasons to be skeptical. The iPad does have a high upfront cost that can hold back adoption of textbook digitization and broader acceptance of using iDevices in education.

The cost component needs to be tackled in a way that can be approachable from school districts, large and small. That's why it's notable that Apple has helped in that department by bringing down the entry-level price from $499 to $399 for an iPad 2.

... until they're not.
That price point is still hefty, but it's quickly moving in the right direction. In an interview with Talking Points Memo, Vineet Madan, McGraw-Hill Education VP of new ventures, sees the new discounted iPad 2 price as a potential catalyst for more districts to consider taking the plunge:

I've long thought that the tipping-point price for a tablet is between $200 and $300. Now that the entry-level iPad 2 has dropped by $100, and it's now $399 for a 16-gigabyte version, we'll see much more uptake. The iPad 2 still a phenomenally powerful device. Our content performs incredibly well on that device. At the same time, we can build better things for new iPad.

Apple has established a strategic trend with the iPhone of lowering entry-level prices for older generations each year. The iPhone lineup has three price levels: $0 / $99 / $199 (on contract) for the iPhone 3GS / 4 / 4S, respectively.

If Apple were to aggressively keep this up and continue producing the iPad 2 next year, as it does with the iPhone 3GS, we could potentially see it go as low as $299 in about another year -- within Madan's estimated "tipping-point price" for adoption.

A year may seem like an eternity in the tech world, but not so much in the world of education, especially when we're talking about a content medium (traditional textbooks) that has endured little to no fundamental change for decades on end.

It doesn't have to be this way
There are other ways to overcome the upfront costs. Apple works with districts to set up leasing programs than can span up to four years, which could alleviate some of the budgetary pressures. There are also lease-to-own programs that some schools are exploring.

For example, the Webb School in Knoxville has a three-year lease-to-own program that costs a total of $690 ($230 per year) and includes maintenance, taxes, and interest, while insurance, protective gear, and apps are not. Webb is a private prep school, though, so it's hardly representative of your average public school district.

Cape Elizabeth School District in Maine is leasing out roughly 400 iPads to its high schoolers.

McAllen ISD in Texas recently opted to outright buy an arsenal of iPads and iPod Touches and looks at it as an investment. It's plunking down $20.5 million in the initiative but knows it will recoup some of that upfront cost by saving on hard copies of textbooks that cost the district $200 each. Parents are on the hook for only a $40 refundable deposit, and McAllen is a small town near the Mexico border, with a median household income of roughly $41,000 in 2010 -- not your high-end prep school.

The list goes on and is likely to get longer before it gets shorter, especially as costs inevitably come down over time.

Revolutions take time
I mostly still stand by the idea that tablets and digital textbooks will revolutionize education, led by the iPad but including lower-cost offerings. Amazon.com (Nasdaq: AMZN  ) seems like another perfect candidate to make a major push with its low-cost Kindle Fire and dominant position in the e-book market.

This will take time, but it'll be well worth the wait, especially for your kids.

The iPad has started a revolution, but Apple is hardly the only winner. Some of the winners are hard to see because they're buried deep inside the gadgets. Check out this new special free report on "3 Hidden Winners of the iPhone, iPad, and Android Revolution" that names a handful of companies that provide the crucial components that these gadgets rely on. It's free.

Fool contributor Evan Niu owns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple and Amazon.com. Motley Fool newsletter services have recommended buying shares of Apple and Amazon.com and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2012, at 10:11 PM, fluffheadsr wrote:

    college students would KILL to pay $399 for an iPad 2 and then a much cheaper per book cost.. they pay far more than that every semester for books.. i don't see the issue.

  • Report this Comment On March 14, 2012, at 12:25 AM, liam233 wrote:

    "McAllen is a small town near the Mexico border." Not that small, according to Wikipedia its population was 129,877 in 2010 and is the 187th largest city in the US.

  • Report this Comment On March 14, 2012, at 12:48 AM, jdwelch62 wrote:

    Won't benefit my kids in HS, or college (that daughter has a MacBook Pro she got from me for graduating 6th in her HS class of >350; she can use that for the ebooks just fine, I reckon). (OK, blatant brag on my daughter...) :-)

    However, for my grandkids, who haven't been born yet, but which I'm fully expecting out of at least one of my three offspring, I see this as a real possibility.

    However, in AZ, where I currently live, it's totally unrealistic to expect school districts to pony up the cost of an iPad2 for every HS student in the public schools, for way into the foreseeable future.

    Suggestion to Tim Cook: Use some of that $97B cash horde of yours to significantly subsidize the cost of iPad2s to school districts, starting with the poorest (or poorest-funded) ones. A little of that could go a long way... (Oh, and while you're at it, Tim, please don't forget to institute a dividend...)

    Fool on!... :-)

  • Report this Comment On March 14, 2012, at 7:48 AM, jdmeck wrote:

    The one point this story does not mention is that no school will ever have to pay retail.

  • Report this Comment On March 14, 2012, at 10:02 AM, ericcurts wrote:

    Rather than being tied to any one device, if we pursue web-based textbooks, then they can be viewed on any web-capable device, including tablets, smart phones, laptops, desktops, and many eReaders. This gives more options for schools and families. Organizations such as CK-12 Foundation have done this with their free, open-source digital textbooks. Likewise we have seen teacher-made and even student-made digital textbooks. For practical examples of each of these options, see this video: http://www.thestateoftech.org/2012/03/episode-12-podcast-dig...

  • Report this Comment On March 14, 2012, at 6:33 PM, jdwelch62 wrote:

    Agree with ericcurts in that future etextbooks shouldn't be proprietary to Apple hardware or iOS. I can see where using an iPad to view/read them could be made a better experience on an iPad, but they should be "open" enough that the ultimate consumer, whether its a school district or the parents (or students) aren't forced to use a specific, proprietary platform in order to participate in something as fundamental as getting a basic (or even advanced) education...

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