Microsoft Is Quietly Losing This Battle

Chromebooks continue to march forward in the education market, leaving Microsoft and Apple on the defense.

Jul 21, 2014 at 5:15PM

Microsoft (NASDAQ:MSFT) has a lot of avenues it needs to improve on. Perhaps that's why the company's CEO Satya Nadella is laying off about 18,000 employees following the purchase of Nokia's mobile division. Though I'm a bit skeptical the mass layoffs are all that beneficial.

But the company's mobile ambitions aren't the only thing Microsoft should worry about. Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Chromebooks have successfully crept into the education market, and Microsoft doesn't have much power to stop the advancement.

Chromebook Google

Source: Google

Google as the underdog
Not too long ago Google would have been considered the underdog in the education market. Chromebooks have gone from just 1% of the K-12 computing market in 2012, to 19% in 2013. And these latest numbers show Google may be closing in even more on Microsoft's 28% share of the market.

The latest data from NPD Group shows that in the first five months of this year Chromebooks accounted for 35% of all channel notebook sales, and that sales of the inexpensive laptops spiked during the first few weeks of June. Meanwhile, NPD reports that Windows laptop sales remained "flat."

The most recent bump in Google's laptop sales comes as schools make purchases before the new school year starts. But it's not just NPD that's seeing a rise in Chromebook sales. Just last week Google said that it sold one million Chromebooks in Q2 2014.

Nothing to lose
Part of Google's strength in education is that it isn't focused on hardware sales, like Microsoft and Apple (NASDAQ:AAPL) are. Microsoft has recently announced plans for $199 laptops, likely to combat the rising sales of Chromebooks. The company will achieve this by encouraging original equipment manufactures to sell some Windows-based laptops at lower prices by lowering or eliminating the Windows licensing fee they pay to Microsoft.

Windows Chromebook
Microsoft's education website takes Chromebooks head-on. Source: Microsoft

Apple's iPad and MacBooks are coming under attack from Chromebooks as well. The cheapest iPad Mini sells for $399 and the lowest-end MacBook Air starts at $899. Even with an education discount, those prices don't come close to Google's -- or even Microsoft's -- pricing.

But Chromebooks have more than an initial cost advantage. If a Chromebook stops working, Google replaces the device at no cost to schools. The company also frequently updates its apps, as do Apple and Microsoft, but the simplicity and frequency make the process easy for education IT departments.

Foolish final thoughts
As Google increases its Chromebook sales in the education sector, Microsoft may start running out of strategies. The company can only persuade OEMs to lower prices so far, and in the end the PC makers will decide whether not making the cheap laptops are worth it.

Ipad Air

iPad Air. Source: Apple

Though Apple has conveyed it's not worried about Chromebooks, it should be. Google makes its money from advertising and getting users into its software app ecosystems. It doesn't make money from hardware sales as Apple does, so it can easily out-price Apple when selling to schools. Add on top of that free replacements for Chromebooks and it's easy to see why schools would opt for Google's laptops.

In NPD's report, the research firm said:

The next test for Chrome will clearly be the most difficult, as both Apple and Microsoft get more aggressive in pricing and deal making over the next few months. By the end of the third quarter we will have a much clearer picture of the long-term impact Chromebooks will have in the commercial channel.

According to Futuresource Consulting, global spending on educational technology in classrooms was $13 billion in 2013. Of that total, 62% -- a little more than $8 billion -- went directly to PC, tablet and notebook sales. Global classroom technology spending is expected hit $19 billion by 2018, with mobile PC sales the driving that growth. With those numbers, and increasing growth, it's clear why Microsoft, Apple, and Google all want to dominate the education sector. 

I agree that Apple and Microsoft won't cede the education space to Google very easily, but I find it hard for Apple, who is always thinking about margins, to stifle Chromebooks' advancements. Microsoft is trying, but with school systems constantly concerned about their budgets, it'll be hard for them to pass up a $200 Chromebook, with free software, automatic updates, and a free replacement plan. If Microsoft and Apple don't have a major change in course, the education sector may soon belong to Google.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information