Apple, Inc.'s iPad is Running Into Trouble in the Education Market

The iPad holds enormous potential to change education. Yet, Apple's tablet has run into some notable challenges within the educational market.

Aug 31, 2014 at 11:47AM

Teaching

Source: Apple.

The education market has always been a stronghold for Apple (NASDAQ:AAPL). The company unveiled a big push into digital textbooks in 2012, but the move has fallen short of revolutionizing education. In recent years, Apple has diligently tried to get the iPad into classrooms, but it's running into some notable challenges.

The last but not least
The most recent and prominent setback is the Los Angeles Unified School District's recent decision to suspend its $1 billion program to supply iPads to students. At issue was the bidding process and implementation of the program, which seemingly favored Apple and Pearson. Apple provided the iPads while Pearson delivered the electronic curriculums.

The program has been plagued with numerous other problems. L.A. Unified ended up paying about $100 more per iPad than budgeted. Students figured out how to bypass content restrictions intended on limiting the devices to educational use.

As a result, the district is suspending the controversial iPad purchase program and will start a fresh bidding process. Apple will still compete for the contract by participating in the new bidding process, which should be completed by February.

The Atlantic also reported earlier this month on a New Jersey school district that has decided to sell all of its iPads in favor of laptops. Another example is Fort Bend ISD in Texas, which ended its $16 million iPad program last year. Various districts around the country have piloted iPad and tablet programs, and many are giving up on them.

The Chromebook rises
Meanwhile, Google (NASDAQ:GOOG)(NASDAQ:GOOGL) Chromebooks are being seen as viable alternatives to iPads and tablets. Chromebooks are very affordable and aren't hindered by a perception of being "fun" gaming devices like iPads, while the inclusion of a traditional keyboard promotes them as favorable for productivity.

Google Apps for Education also facilitates collaboration among students better than the iPad, and the cloud-based nature of Chrome OS also means data is accessible on any device. The iPad can utilize cloud-based services as well, but Chrome OS is more of a cloud-centric operating system to begin with.

Apple currently enjoys an 85% share of the U.S. education tablet market, according to the most recent IDC estimates. But it's not a question of Apple's share of the U.S. education tablet market; rather, the tablet segment's penetration of the broader education market.

If you look at the education market for mobile computing devices (tablets plus laptops, excluding desktops) through this lens, it becomes clear that Apple still has plenty of work cut out for it. In 2013, Chromebooks grabbed 19% of this market, with Apple's share hovering around 40%. Chromebook's rise from just 1% of the education market in 2012 is rather impressive.

What kind of opportunity are we talking about?
To date, Apple has sold 13 million iPads into the education market, according to CFO Luca Maestri. That would be just 6% of total cumulative iPad unit sales, which currently stands at 225 million. The iPad has been on sale for 17 quarters, so on average, that translates into approximately 760,000 iPads per quarter sold to education customers. Those are respectable figures, but they represent just a fraction of the broader computing market.

Apple is well aware that its primary goal should be driving tablet penetration within education.  IDC estimates that the K-12 education sector comprised about 13% of the market for computing devices in 2013. Here's Tim Cook on the April conference call:

And so the focus in education is on penetration, is on getting more schools to buy, and my belief is the match has been lit and it's very clear to the educators that have studied this, is that student achievement is higher with iPad in the classroom than without it. So I'm confident we've got a really great start in education, far beyond the U.S. now. This is happening in many, many parts of the world.

Within the U.S., K-12 schools are expected to spend nearly $10 billion on educational technology this year, a 3% increase from 2013.

That total doesn't include any spending from higher educational institutions, but Cook also acknowledged that the higher education market is "still very much notebook-oriented," so there's relatively less opportunity there on the institutional side. That's not to say college students aren't buying iPads personally, but those sales would be classified within the consumer market.

The show's not over, folks
As iPad unit growth slows, Apple continues its search for new growth avenues for its popular tablet. Enterprise and education are the two most obvious opportunities. At the same time, it is a real possibility that the iPad and tablets won't enjoy overwhelming success in the education market.

Despite the recent slowdown, Apple remains very bullish on the tablet market in the long term. Tim Cook recently told Walt Mossberg that the current situation is merely a "speed bump" in his view.

Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.

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