George A. Kuhnreich, director of corporate planning for Tandy Corp., sits in his spacious office atop one of the twin Tandy Towers in downtown Fort Worth, looking and sounding very much like a general plotting a campaign. In fact, he is. "Your big play," he says, biting down on the stem of his pipe, "is going to come in the next 18 months," and the big victory he adds, will go to the one "who's there first with the most."
The battleground that has engaged Tandy, proud parent of Radio Shack and its TRS-80 microcomputer -- and other major micro manufacturers, such as Apple Computer, IBM, Atari, Hewlett-Packard, and Commodore Business Machines -- is the educational market and its 40 million schoolchildren. Students in that hotly contested target group -- kindergarten through 12th grade -- are the prize in an undeclared war for market share that will help determine the fortunes not only of the major vendors, but also of hundreds of small computer suppliers, peripherals manufacturers, and software publishers.
The key participants have already launched impressive campaigns. Apple Computer Inc., whose annual sales are approaching $1 billion, is lobbying to give free computers to all 100,000 elementary and secondary schools in the country. Tandy/Radio Shack, whose revenues last year totaled $2 billion, has offered to give the country's 2.7 million teachers free computer training. Last February, Hewlett-Packard Co. announced it would donate enough computer equipment to outfit a classroom in each of 14 California high schools. And on Capitol Hill, both houses of Congress are currently debating six pieces of legislation, any one of which would contain enough tax incentives to guarantee a rash of computer donations to schools.
Ironically, this high-tech largess is occurring at a time when schools are hard-pressed to pay teachers' salaries, when there are outraged calls for a return to basics, and when a federal report on the quality of education in the United States is titled "A Nation at Risk."
The San Jose, Calif., school district seems somehow incongruous. In February, two of its high schools received computer classrooms from Hewlett-Packard, and three months later, the district filed for protection under the Federal Bankruptcy Act. Although the computers were free, next year the schools will earmark an estimated 15% to 18% of their materials budget for computer-related purchases.
Not even the computer's severest critics believe that the mad rush can be slowed. A. Daniel Peck, a professor of education at San Francisco State University who heads The Committee on Basic Skills Education, a group opposed to rapid introduction of computers, responds with a grim, unequivocal "No," when asked if the pell-mell pace can be checked. "The best we can hope for," he adds, "is some degree of sanity."
Manufacturers have recognized the importance of the educational market from the outset. Tandy had its TRS-80 Model I's in Dallas classrooms as soon as they were assembled. Apple Computer already derives 25% of its revenues from educational sales. But only recently have companies begun to realize the market's true potential and started to shift their resources accordingly.
If predictions prove accurate, the payoff for these computer makers will come soon and be well worth the effort. Educational hardware sales alone are expected to hit $1.5 billion in 1985, and analysts say that educational software sales (about $30 million this year) will soon surpass that $1.5 billion. In June, there was an installed base of 417,000 micros, nearly double that of just one year ago.
Being the first manufacturer in a school is crucial for a number of reasons, explains Anne Wujcik, director of research for Talmis Inc. of Chicago. It prompts a school to purchase complementary hardware and/or software from the same vendor. The school's investment may lock it into that vendor when expansions are planned; and teachers and students trained on a system may develop a product loyalty that pays off when they purchase computers of their own.
Chris Bowman, once with Tandy's educational division and now manager of Apple Computer's home and educational marketing arm, concurs. "Common sense will tell you," he says, "that if a school lands a particular brand, buys software for it, becomes comfortable with it . . . the chances are extremely good that future purchases will be that brand . . . so it's fairly important to be the first one in."
At the moment, it is not clear who is first. The market is only four years old, too soon for an established front-runner to emerge. Tandy, for example, relies on reports by state departments of education, which show it to be out front, while Apple Computer prefers surveys by analysts such as Talmis, which give Apple the edge.
In their attempts to grab, if not the whole market, at least some profitable share of it, manufacturers generally follow a certain strategy. At the outset, they make small, selective gifts or loans of equipment -- seeding, as Bowman calls it -- followed by development of a national educational marketing division, capped by special training of dealers or, in Tandy's case, of the sales staffs of its 6,500 Radio Shack stores. Tandy also set up some 400 computer learning centers. Its approach to courseware -- software used to provide instruction in a given subject -- now considered the foundation of repeat sales to school districts, differed. Tandy reached agreements with some three dozen educational publishers but also developed much of its own course material. Apple Computer also signed contracts, but it invited everyone to get into the act. When it introduced the Apple II, it made it an open machine, giving away circuit, system, and board designs to facilitate software development. IBM, playing catch-up with Apple, broke with its tradition of secrecy when it unveiled the innards of the IBM Personal Computer.
If the impetus toward a national give-away can be laid at the feet of a given corporation or individual, that corporation is Apple Computer, and that individual is Steven Jobs. Two years ago, Jobs, the 28-year-old founder of Apple, appeared in a rather Mephistophelian pose on the cover of INC. (October 1981); "This Man Has Changed Business Forever," the headline said of the dark young man with searching eyes. Today, Jobs is having a similar impact on education.
Early in 1982, during a flight from Washington to San Francisco, Jobs met Rep. Fortney H. "Pete" Stark (D-Calif.), and the conversation turned to education. Stark was concerned about the declining quality of public education, and Jobs was equally vocal on the subject of computer literacy.
The two concerns quickly came together in H.R. 5573, a bill introduced by Stark in February 1982. The basic notion of the legislation, soon dubbed the "Apple Bill," was to provide a tax incentive large enough to make it possible for Apple to donate a computer to virtually every elementary and secondary school in the country. The bill would have boosted the charitable deduction allowance to 30% from 10% of normal taxable income for a given year, allowing a deduction of up to 200% of basis (the actual cost of manufacturing). Apple, which pays a corporate tax rate of 46%, estimated that, under provisions of such a bill, it would recover all but 8% of its costs of the donated equipment.
Drafted by Apple's director of taxes, attorney Michael Rashkin, and soft-pedaled on Capitol Hill by Jobs, the bill encountered a surprisingly warm reception. Although the American Electronics Association and the National Education Association -- consulted after the fact -- gave it "no chance," particularly in light of budgetary concerns (the bill would have cost an estimated $300 million in lost revenues), they miscalculated the depth of Congress' passion for high-technology projects. "We were caught unawares," says Lynn Smith, manager of the government relations program of the Computer and Business Equipment Manufacturers Association; while Ken Hagerty, vice-president of government operations at the American Electronics Association, jokes, "This city is filled with people who had egg on their face because of that bill . . . being pushed by these amateurs."
H.R. 5573 was commonly and somewhat mistakenly considered a "one-company" bill: It reflected Apple Computer's needs and desires, as well as its corporate style and strengths, but would, in fact, have facilitated donations by a number of manufacturers. It had little outside support. The electronics and educational lobbies, feeling left out and miscalculating the bill's chances, stuck to the sidelines, while other manufacturers, caught even more off guard and alarmed by the Apple bill, prayed for its demise (only Hewlett-Packard, used to playing the giveaway game, publicly supported it). Tandy, less than eager to revise its marketing program to Apple's specifications, strongly opposed the legislation.
"It was an excellent marketing strategy on the part of Apple," grumbles Tandy's Kuhnreich, "but look at the major players -- IBM, Apple, Tandy. All three of us pull down 40% pretax on equity . . . a 20% pretax net profit on sales. You don't give these people a 200% write-off, for God's sake!" Tandy kept tabs on the bill and watched, in amazement, as it came out of House and Senate committees and was heralded, in the House, with a 323-62 vote. The adjournment of the 97th Congress was apparently all that kept the bill from passage. "Even people in Congress were surprised by the reception," remarks one legislative aide.
Jobs, who had stolen into Washington, slipped as quietly back to California, where, with the help of State Assemblyman Chuck Imbrecht, a statewide version of the Apple bill was enacted. Since then, Apple has discreetly put together a giveaway program entitled "Kids Can't Wait." Beginning last May, Apple mailed advisories to 11,000 school superintendents, administrators, and principals in California announcing its offer to their schools -- an Apple IIe computer with CRT monitor, one disk drive with controller cards, Logo software, an educational program, manuals, and a software coupon book -- a package that would retail for $2,400. A school simply sends a teacher to an Apple dealer to be trained, then returns a dealer-signed certificate to Apple, which ships a system within 30 days. The company, which scheduled deliveries over the summer, was forced to increase its production runs to meet the need.
"We won't deny for a moment that this program is good for Apple," admits David Beaver, Jobs's assistant, while emphasizing that the company's principal motive is "philanthropic" -- the desire to make sure that American children are computer literate. "We want to do a good thing for the kids," he says, "but a lot of people don't believe it." Among them is San Francisco State's Peck, who regards the program as a "kind of giant scam . . . for Apple's sales aggrandizement."
Tandy, for its part, has adopted a higher profile with its "freebie" computer courses. Putting its own Washington counsel to work, it first obtained the assistance of the White House Office of Private Sector Initiatives and then the endorsement of the Department of Education; in March, Secretary T.H. Bell applauded Tandy's offer to train every teacher in the country, observing, offhandedly, that he hoped the corporation "made a lot of money out of it." A short while later, Tandy mailed out 103,455 packages to school districts, touting its "America's Educational Challenge" program, with a second, more elaborate pack, including slides and filmstrips, available on request. Last year, without fanfare, Tandy put 125,000 teachers through its 10-hour courses; this year, it expects to do considerably better. Tandy also has authored its own version of an Apple bill, introduced by Rep. Jim Wright (D-Tex.).
Hewlett-Packard, which has a long history of major donations to colleges and universities, and IBM are also receiving tax credits for their California largess, but have adopted different approaches. HP's $51,000 classroom packages include 10 HP-86 personal computers, 10 monitors, 10 printers, two graphics plotters, two graphics software packages, and other software, in addition to a liaison to each school to ensure the program's success. IBM has donated similar packages to 12 colleges, where teachers from 85 secondary schools will receive two-to-three weeks of computer training before receiving PC classrooms of their own (secondary schools, colleges, and universities in New York and Florida also will get free IBM PCs, bringing the total donation to 1,500 systems). Commodore Business Machines Inc. has thus far adopted a wait-and-see attitude to giveaways, as have Atari and Texas Instruments Inc. (Some analysts sense that the latter two, having failed to achieve a significant share, are backing away from the educational market.)
Meanwhile, the six pieces of legislation -- including the Stark and Wright bills, as well as bills introduced by Senators John C. Danforth (R-Mo.) and Lloyd Bentsen (D-Tex.) and by Rep. Brian J. Donnelly (D-Mass.) -- are working their way through Congress. They differ in particulars, betraying the strengths and weaknesses of the authors. Apple is quick to point out that the Wright bill, supported by Tandy, includes standards for a disk drive with a minimum storage capacity of 184 kilobytes (the Tandy standard, but not Apple's), and requires training by "employees" of the donor (Tandy operates 400 training centers, but Apple relies on its dealers to provide orientation).
The most broadly supported bill is the Danforth bill, an attempt at a compromise, crafted by the American Electronics Association and endorsed by, among others, the Association of American Universities, the National Association of Secondary School Principals, and the National Association of Elementary School Principals. Such a compromise, which would facilitate donations by a wide spectrum of hardware, peripherals, and software vendors, is seen as inevitable and would negate Congress' principal objection to the original Stark proposal -- that it seemed to be a one-company bill. The National Education Association, one of the nation's most formidable educational organizations, hasn't endorsed a single bill but favors the notion of donations. It is working with sponsors to fashion "ideal" legislation, which would consider such things as equitable distribution teacher training, software support, and warranties. "We want these machines to be used effectively and efficiently," says NEA legislative specialist Michael Edwards.
Other criticisms are more difficult to address. Columnist Jack Anderson, editorials in The Washington Post, and high-tech critics excoriated Apple for asking taxpayers to foot 92% of the tab. Educators who witnessed another great giveaway during the late 1960s -- of audiovisual and other "modern" educational technology -- as a result of special tax legislation noted that it had yielded a wholesale, and largely unproductive, "dumping" of equipment on schools. One federal evaluation of the program indicated that as much as 70% of the equipment had gone unused.
"I was a part of that," Peck, an educational technologist for the past 35 years, admits somewhat sheepishly. "We introduced language labs into schools all across the country. You'd go into a school in Podunk, and you'd find a language lab. . . . Well, those labs are 95% defunct." Now, Peck says, he is beginning to see schools where computers have been relegated to closets.
That is a concern that even the manufacturers take seriously. Kuhnreich grows somber when he considers what might happen if computers proliferate, but there isn't the enthusiasm, training, and software support to fashion meaningful programs. "The one thing we can't afford," he says, "is to have some 13-year-old running around saying, 'Oh, yeah, we've got a piece of that Radio Shack junk in our room.' " That, he admits, could turn off an entire generation to the technology, rather than whetting its appetite for it. "It is a major danger," he concedes.
Even more fundamental is the question of whether schools need computers at all. The consensus, both informed and uninformed, claims that they do, but many wonder why. "I have a stack of letters on my desk about eight inches high," notes Peck, "99% of it from teachers, school-board members, and administrators who say, 'What can we do about this steamroller that's rolling over us?' It's an evangelistic frenzy, and Apple is the new true faith."
Infidels point out that even free computers require future expenditures, when most schools can ill afford them. Moreover, studies indicate that computers are no more successful in teaching the basic skills than traditional methods. Even those who endorse computer teaching concede that currently available courseware rarely equals the textbooks it sometimes replaces. The amount of courseware is impressive: Thousands of titles cover such basics as reading and writing, as well as such subjects as history, science, social studies, foreign languages, and literature.
But quality has lagged, and critics question the "depth" of understanding made possible by what are essentially question-and-answer format programs. In addition, critics claim that computer-literacy courses distract teachers from more valuable pursuits and often require the hiring of teacher aides. And the very goal of computer literacy may be an empty one -- "Computers are learning to speak our language," says Peck. "By the time these children graduate, learning to use a computer will probably take a few hours . . . which means that thousands of dollars and endless hours of the teachers' and students' time will have been wasted." Apple, he claims, is not preparing kids to be computer literate but rather to be "computer obsolescent."
No one suggests, however, that computers won't play a prominent role in education. For better or worse, there will be computers in most of the nation's schools within a few years. If federal legislation passes, it may happen almost immediately. Although most manufacturers shy away from discussions of a giveaway war, Apple's Beaver notes that the strike force that oversaw California's "prototype" program can be reassembled overnight, is much better prepared, and, given the right tax incentives, could achieve its goal of one system per school within a year. Tandy, for its part, promises a "prompt and adequate" response to any challenge of its market share.
The development would have a major impact on the composition of the market, as it has in California, where Apple, by virtue of a three-month initiative, now dominates in the elementary and secondary school arena. The "first with the most" would likely remain the leader for an indefinite period, benefiting small peripherals and software vendors with complementary offerings. "If Radio Shack were to give away 90,000 or 100,000 computers, it wouldn't help us at all," admits Bodie Marx, vice-president of the computer software division of Milliken Publishing Co. in St. Louis, which has geared its courseware to Apple. Initially, smaller companies, unable to match massive donations by large competitors, might find themselves at a distinct disadvantage.
The long-term implications are even more sobering. The battle for the classrooms will determine, in a way that no other single development ever has, how and what our children will learn for the foreseeable future, at the same time that it programs their computer-buying patterns. "The schools have been taken advantage of by marketing schemes many times," concedes Ron G. Stegall, vice-president of computer marketing at Tandy. "There's no question about it." But, he adds, virtually in the same breath, this is not going to be one of those times.