A bite out of Apple's stronghold

Electronic News, Jan 26, 1998 by Carolyn Whelan

Cupertino, Calif.--Apple Computer's stronghold is under siege. The education market, long the high ground of the beleaguered computer maker. has now been targeted by relative newcomers Dell, Compaq and Gateway. If Apple rests on its market share much longer, direct marketers are sure to take over the market segment, as they lure schools and colleagues away from Apple towards the Wintel platform.

Last week Dell Computer unveiled its higher-education online mall, offering special promotions and pricing discounts for both PCs and Microsoft software. Later that week Acer America broadcast its entrance into the K-12 market by launching its Extensa Scholar notebook line, with a durable case built to fit into a backpack, along with mobile education software that it is jointly developing with Microsoft. The company is also sponsoring educational con- ferences and offering flexible financing to parents. And in early January Compaq unveiled its ES education line for K-12 schools, colleges and universities which are specially priced for educational institutions. Compaq also partners with Microsoft to provide professional development courses in technology across the U.S., has partnerships with large Campus bookstores, and offers leasing programs to schools. Gateway, too, has made significant inroads into the education space and offers special programs and sponsorships. Packard Bell NEC and Toshiba are also building a presence there.

Apple has been silent since April about its education offerings, although it continues to tout its commitment to the education market. The company hasn't announced anything in that space since Steve Jobs took over as acting CEO, and hasn't spoken specifically on the subject since Spring, the typical computer buying season for schools and universities. At MacWorld in January, the educa- tion market was barely mentioned, though graphics, advertising and publishing were referred to frequently.

Education is still one of Apple's strongest markets, and one of the company's few growing areas. But Apple's revenues from education are growing at a slower pace than the market. And it is a segment in which Apple continues to lose market share. What should be worrisome to Apple management is this decline takes place even as, as Eric Lewis, manager of Personal Systems Research at market researcher International Data Corp. puts it, "It's one of their strong- holds, and they're putting a lot of effort and interest into that market," The company has its biggest share in the early elementary grades, but its market share steadily decreases moving in the higher grades and larger schools. Also, the more business-oriented schools are, the less likely they'll be to buy Macs, particularly in schools or colleges that "train people to go out into the world", since nearly all offices now use Wintel machines. Nevertheless, many major universities still prefer Macs.

"There's also a fair amount of loyalty to Macinthosh products that varies according to whether the school is wholly Mac-based or only partial," Mr. Lewis added.

Nevertheless, last year Apple lost 2 percent market share to Wintel machine makers, mainly to Compaq, Gateway, and Dell. Gateway more than tripled its market share there--from .6 to 2.1 percent. Compaq, Dell and Gateway together, nearly doubled their combined presence from 4.3 to 8.3 percent overall. IBM, which saw its share fall 5 percent, from 22.2 to 16.3 percent, (among Wintel suppliers to education, IBM's share dropped from 49 percent to 35 percent), may also be taking the market for granted, too. All figures are from IDC.

Many thought--and still believe--that pulling the Apple education faithful from their Macs would be tantamount to prying away superglue. The company has been the long time leader in education. And already-wired schools remain fier- cely loyal to Apple. The company has been an ongoing advocate and participant in education since 1977, sponsoring forums and workshops on that subject. Over the last 18 years, Apple has awarded Apple Education Grants to more than 500 schools, totaling over $29 million in products and training, among many other projects that are still ongoing but hardly mentioned of late.

Still Apple is losing market share to Wintel PC makers. In 1997 it held 53 percent of the computer market share for U.S. schools (IDC), a number expected to drop by 10 percent this year based on IDC surveys of planned computer pur- chases for 1997-98 as schools move towards the Wintel platform (see table).

Poor timing Much of Apple's diminishing share has to do with poor timing, shifting dynamics in PC procurement, and turmoil in Apple's management ranks. Against this backdrop, fierce competition has emerged to "get them while they're down" as they exploit issues of pricing, standardization, com- patibility and longevity to seek new green fields.

The total installed base of computers in the K-12 market grew from 4.5 million units recorded in 2Q96 to 6.4 million units in 2Q97, according to Dataquest, for an astounding two-year growth of 42 percent.