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Analysis: Apple faces uphill battle in US education market


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Analysis: Apple faces uphill battle in US education market

Apple Inc.'s newest and more modestly priced iPad is aimed at the education market, but closing the sales gap between iPads and lower-cost devices such as Chromebooks at schools is likely to remain a challenge for Apple in the near term, analysts said.

Apple on March 27 unveiled a new 9.7-inch iPad that includes a faster processing speed and higher resolution than previous models. It also works with the Apple Pencil, which allows for note taking and illustration. Powered by iOS 11, the new device sports advanced sensors capable of delivering augmented reality features that, for instance, allow students to walk through a virtual museum or dissect a virtual frog. The press event that announced the new iPad took place at a Chicago school, in a nod to the company's ambition at capturing more of the education market.

For consumers, the base version of the iPad will cost $329 and the compatible Apple Pencil is priced separately at $99. Schools will receive a $30 discount on the new base iPad and a $10 discount on the Apple Pencil, lowering the pricing to $299 and $89, respectively. While the lower pricing is a step towards broadening the iPad's appeal among educations, analysts said Apple will still be hard pressed to compete with already popular devices marketed in the under $200-range, particularly for cash-strapped schools.

"When you think about education, it's really Microsoft and Google that own the market," said Daniel Ives, head of technology research at GBH Insights, adding that the new, lower-priced Apple iPad might capture "incremental share."

Greg Potter, an analyst with Kagan, a media research group within S&P Global Market Intelligence, said Apple has just 18% share in the U.S. education market, far below Google Inc.'s roughly 60% and also behind Microsoft Corp.'s 22%. That gap in market share for devices already on the market and difference in pricing is likely to weigh on the iPad's appeal to schools, he added.

"In a cash-constrained market like the education market, price is pretty important, [and] that's why a cheaper Chromebook is going to be more appealing than a $299 iPad," Potter said, adding that Apple must further slash prices on its iPad to make meaningful market share gains in schools.

The education market isn't the only area where iPad sales have been lagging, however. After rapid growth early in the device's lifecycle, iPad sales peaked in late 2013, with 26 million units sold in the December quarter of that year. Four years later, the December 2017 quarter saw just 13.2 million iPad units sold. Apple's iPad sales growth rate has largely flattened out in recent years, outside of holiday sales seasons.

Overall, iPads also account for a relatively small portion of Apple's sales. During the company's fiscal 2017, which ended in September of last year, iPads comprised 8.3% of Apple's $229.2 billion total revenue. By comparison, iPhone sales accounted for about 62%.

Deutsche Bank analyst Sherri Scribner said in a March 25 research note prior to the iPad event that the education market presents a crucial opportunity for technology companies to hook future consumers on their brands and software. Although tech revenue generated by the education segment comprises less than 10% of the market, "the products used in schools are important as they set a precedent for future use," Scribner wrote.

In addition to the new iPad, Apple also introduced various software and support offerings for schools, including a cloud-based app known as Schoolwork that enables teachers to monitor students' progress on assignments.

"Education is such a big part of who we are as a company and has been for 40 years," Apple CEO Tim Cook said at the event. "Technology [can] help teachers deliver a unique and personalized experience to all kids [and] we've never stopped believing this."

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