How Apple Won The War For Education

Oct.20.13 | About: Apple Inc. (AAPL)

On November 1st, 2012, I wrote an article entitled "Will iPads Replace Textbooks in K-12 Classrooms?" Nearly a year has passed, and the verdict is a resounding yes. At the time, there were questions as to whether Google (NASDAQ:GOOG), with its ubiquitous, lower-priced alternative tablets, might upstage Apple (NASDAQ:AAPL) in the K-12 space. It hasn't. A new survey by an education app developer "Apps in My Pocket" found that 87 pre-schools and primary institutions within the U.K. utilize iPads in their educational system, with only six primary schools choosing Android tablets.

Apple is signing up schools both in the U.S. and abroad at a frenetic pace, including a $30 million deal with the Los Angeles Unified School District in June at $678 a device. That's three times the size of Apple's signature 2012 deal with the San Diego Unified School District (SDUSD). In Downers Grove District 58, Illinois - roughly 22 miles west of Chicago - students are preparing for a rollout of 1,500 iPad minis. Southern Oregon University has installed a new Mac lab. 70% of the new iPad deployments are in schools: San Diego (26,000), McAllen School District, Texas (25,000), Coachella Valley Unified Schools, California (20,000), Long Island University (19,000), Oxnard School District, California (17,000), Lexington County School District 1, South Carolina (17,000), Rochester (MN) District (15,000)., Raleigh County Public Schools, West Virginia (12,340), Mansfield County Schools, Texas (10,720), Prince George's County, MD (10,000), Chicago Public School District, IL (10,000), Teachers For America (10,000), the list goes on and on.

Of course, there have been a few pot holes along the way. Security concerns came to the fore recently when LA school students hacked their iPads to visit banned social networks and XXX sites, and Houston recently canceled its plan to purchase 16,000 iPads after test schools failed to improve, highlighting the dangers of a public school system that is increasingly reliant on performance improvement for continued local, state, and federal government funding.

To date, however, the post-Pilot trend has been one of increased commitment rather than decreased commitment. For every Houston there's half a dozen school districts like Dodge City, KS School Board, that has just voted increase its spend from 1,200 devices in 2013 to 6,500 in 2014. Apple is also making impressive inroads into the traditional stomping ground of enterprise business solutions, until now the exclusive domain of companies like IBM (NYSE:IBM), Cisco (NASDAQ:CSCO) (HP (NYSE:HPQ) and Microsoft (NASDAQ:MSFT). AIA Insurance (Hong Kong) has ordered 50,000 iPads. SAP AG ordered 20,000. US Air Force (Air Mobility Command) bought 18,000. Cisco Systems purchased 16,000. Roche Industries signed an agreement for 13,070. And these figures are old. Just this week, Salesforce donated $2.7 million to the city of San Francisco for the purchase of iPads.

Apple's strategy is currently prevailing over Microsoft, Google, and Amazon educational initiatives for two reasons: One, is a simple lack of educational apps for Android, a strategic blunder that the folks in Mountain View are working around the clock to remedy. Microsoft has the programs, but the Surface has yet to gain the kind mass adoption and cachet of the iPad and iPad mini. Google has the tablet, but not the apps.

More importantly, choosing the more expensive alternative allows the school boards to engage in conspicuous status signalling. Conspicuous status signalling is the reason why lower income families will skimp on virtually everything but the box of Tide in the laundry room and the 60-inch HD TV in the living room. It projects a well-heeled image that translates to social capital, provided that the true state of the families' financial affairs is well guarded.

Public schools are no different in this respect. Most schools are funded directly through local taxes (i.e. beer, property, and cigarettes), and most parents visit their kids' schools at least a few times a year. A classroom filled with iPads and classrooms that look like the deck of the U.S.S. Enterprise comes in handy the next time the school board proposes another 1-cent tax to fund future projects. By purchasing iPads instead of cheaper Android devices, school administrators are touting visual proof that they are providing the best educational experience that your tax money can buy.

Bottom Line

No tech company has made this kind of run at institutional contracts since Microsoft released Windows 3.1. An iPad in the hands of every K-12 student in the U.S. would mean an additional $37 billion in gross revenue on a revolving contractual basis every 3 years. All in, the revenues from the accelerating adoption of the iPad in education has the potential to increase Apple's revenues by 20% a quarter going forward. However, that figure is almost incidental compared with the precedent Apple is setting.

When I attended high school, we were still using overheated projectors built with vacuum tubes and sharing one rolling TV/VCR hookup between 15 different classrooms. The library had two x486 computers and a single Microsoft Encarta DVD that only the librarian was allowed to touch that cost $600. The odds that school districts will dump their new volume deals with Apple for Google Android based on a lower price point are slim indeed.

Apart from government, educational institutions are typically the last to upgrade. Schools are conservative and generally prefer to stick with the company that brought them to the dance. More importantly, those kids will graduate iPad enabled high schools to attend iPad enabled colleges. When the first crop of IT managers graduate, what company do you think they'll purchase their tablets from in order to minimize the learning curve for new and existing employees?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.