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While reviewers pick over Apple's (NASDAQ: AAPL ) recent line of products and analysts comb though the iPhone 5, Apple's push into America's classrooms is being largely ignored. Back in 2000, Steve Jobs stated that the education market was a top priority for the company. Phil Schiller, Apple's senior VP of worldwide marketing, made headlines when he told an audience at the Guggenheim that "education is in Apple's DNA."
Yet, even I wasn't prepared for the speed with which Apple penetrated the education market until my 8-year-old son -- we'll call him Jim -- pointed it out to me.
Jim (pointing to my iPad Mini): "The classroom across the hall's got those."
Me: "One of your friends brought an iPad to school? Did the teacher take it?"
Jim: "The teacher's got one, too. They've all got one. For learning and homework and tests and everything."
Me: "Wow! I bet you wish you were in that class."
Jim: "Nah, my teacher said we're all getting iPads next year."
There's a reason why stock analysts go blind poring over surveys of the Millennial Generation: Kids live on the bleeding edge of secular growth trends.
Federal, state and local governments will spend $916 billion on education in 2013, of which $644.9 billion (about $11,655 per student) is spent on K-12 education. An iPad in the hands of every student could mean billions in new annual revenue from the K-12 market, with an implicit replacement cycle of two to three years.
Apple's sales performance is impressive from a purely geographical standpoint. Federal and state improvement grants are being used to launch iTunes U pilot programs in New Hampshire, Ohio, Virginia, North Carolina, South Carolina, Florida, Illinois, Wisconsin, Texas, Tennessee, Kentucky, Alabama, Iowa, Nebraska, Louisiana, Colorado, California, and Washington. The funds also provide for the cost of teacher training, which is key to the success of Apple's global education initiative.
Synergies with current market leaders
Apple is also tapping the $8 billion textbook market by developing partnerships with McGraw-Hill, Pearson, and Houghton Mifflin Harcourt. Taken together, these three companies provide 90% of the textbooks available to high schools.
Academic effectiveness: teachers vs. students
In the past, public schools have generally lagged universities when it comes to adopting new and expensive technology. The only way iPads will ever replace textbooks is if it results in higher classroom engagement and correspondingly higher academic performance. So does it?
An evaluation by the Inter-American Development Bank's One Laptop Per Child initiative yielded dismal results for Peruvian children, who showed no improvement in reading or arithmetic after being supplied with 800,000 low-cost laptops. However, the IDB concluded that the reason for this disparity had nothing to do with the children, and everything to do with their teachers, who had no idea how to instruct the children to use the program.
Kids are their own best teachers
On the other hand, giving illiterate children the laptops and teaching apps without the teachers yielded different results. The One Laptop Per Child organization delivered fully loaded, solar-powered Xoom tablets to two villages in Ethiopia -- with no instructions -- to see what would happen.
The results were encouraging, to say the least. By the first week, the children were using 47 apps per day. By the second week, children were playing games and saying their ABCs. The children were still using the tablets a few months later; some were even seen to be spelling the names of animals.
By the fifth month, the children had hacked the Android operating system itself. The tablets had originally come with software that prevented then user from customizing the desktop wallpaper, but the village children somehow found a way around this obstacle. The cameras on the device had also been deactivated by an OLPC employee, but the children had reactivated them.
Foolish bottom line
Paperless classrooms present a massive opportunity just waiting to be exploited by Apple. A tipping point has been reached. Mobile device penetration of the K-12 student market has now hit 50%, according to an analysis released in October at the Wireless EdTECH conference by Blackboard and Project Tomorrow.
The iPad took classrooms by storm in 2012, with Apple's third quarter sales to the education market nearly doubling year over year, to just under 1 million units. This trend is likely to accelerate dramatically in 2013, as early adopters shift from pilot programs to a 1:1 tablet/student ratio.
Apple's expansion into the education market isn't limited to the U.S. One of the company's largest customers is the United Arab Emirates, which distributed 14,000 iPads to first-year students in the country's three higher education institutions.
Investors take note: This is just the beginning.
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