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Computers Firms Said Uncertain of Potential of School Market

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Despite talk of a rush on the education market by computer manufacturers, many experts say the companies are skeptical of the potential profits to be made from sales to schools compared with other areas of the market.

The school market is now so unsettled, the experts say, and the software that educators demand is of use to so few people, that manufacturers fear they cannot make substantial profits on any one product.

That situation--when added to the manufacturers' concern over the illegal copying of software and what many consider to be the unfair market advantage of nonprofit institutions--is discouraging many producers from placing much emphasis on the school market.

For the moment, the market appears to be more enticing to hardware manufacturers than to software publishers. School officials are usually content to buy the same makes and models of computers that are widely used in the home and in small businesses, so manufacturers are not faced with risky research and development efforts.

No major companies have produced computers specifically for school use. Producers regard the school market as "small potatoes," said Martha Ramirez, a partner at Computer Literacy Inc., in Berkeley, Calif.

And a new study suggests that the schools' attractiveness as a hardware market will not improve until the software market improves.

Creative Strategies International, a California-based research firm, says in a report to be released next month that the computer industry is moving from a hardware-intensive to a software-intensive market.

If the hardware market in the schools is to reach its full potential, the report says, "falling hardware costs must be complemented by increased availability of quality, user friendliness, cost-efficient applications, and systems software."

Hardware producers say they have long seen their sales tied to developments in software. Industry officials say the development of the "VisiCalc" program dramatically increased the sales of computers to businesses and that computer companies are quick to adapt other popular software to their machines.

$28.5 Million in Sales

One indication of the schools' position in the software market is that only $28.5 million in sales last year out of a total of $885 million that was generated by schools and colleges, according to a survey made last December by an Illinois research firm.

Even that figure overstates the school market, said officials at Technology-Assisted Learning and Management Information Services (talmis), because it includes educational software sold to families. Various estimates place annual purchases of educational software at around $40 per computer for homes and $70 per computer for schools.

Marc S. Tucker, the director of the Project on Information Technology and Education funded by the Carnegie Corporation of New York, said software firms must spend at least $100,000 to develop a sophisticated program--and that sales often fail to cover that investment.

"The development costs are absolutely independent of the sales," Mr. Tucker said. "Why in God's green earth would you go after that market? This is a crazy market to go after."

The reason that software-sales revenues lag behind development costs, say Mr. Tucker and others, is that schools usually demand programs that address only a small part of the total school curriculum--such as a particular unit of a mathematics course. As a result, sales are usually restricted to one subject and one grade level.

In other markets, software has broader appeal and producers can earn a faster and larger return for their investment. For example, VisiCalc generated about $40 million in software sales last year--a sum greater than the total of all software sales in education.

More Than One Specific Lesson

Some educational programs can be used for more than one specific lesson plan and therefore appeal to more school buyers. logo, for example, is a set of graphics programs originally designed for young children, but it can also be used to do sophisticated programming.

Before schools can be considered attractive markets for software producers, they must show an interest in more "multi-level" programs, said Mr. Tucker. He said programs for writing, music, and the analysis of data in some social sciences would fit that description.

Barbara Garris, a marketing specialist with Educational Products Information Exchange, said such flexible programs would someday capture about one-third of the school market. Now, she said, such programs make up about 10 percent of the market.

If software producers are to make more sophisticated programs to fill the other two-thirds of the school market, said Ms. Garris, the industry and the government must assume a philanthropic attitude toward education.

"Their altruistic nature has to be stimulated," she said. So far, she added, hardware and software producers have "not by far" shown much interest in significant philanthropic programs.

Software publishers also see risk in the school market because of the increased number of colleges and universities and nonprofit groups that produce educational software.

Such software producers have an unfair position that discourages the development of good software by commercial firms, said Kenton Pattie, the senior staff vice president of the International Communications Industry Association.

The nonprofit producers not only receive tax benefits and are able to pay employees with outside money, he said, but they usually have direct ties to the market.

Mr. Pattie noted the National Education Association's recent announcement that it would start a program to develop and evaluate computer software. "It's draining off the funds and the purchasing dollars, [and results in] work being done by people with less [programming] experience," he said.

The association has supported legislation before the Congress that would restrict the market activities of the nonprofit firms to areas that have not already attracted profit-making companies.

(The National Science Foundation last month told universities not to use grant money to sell products or services that are "in direct competition with private companies that provide equivalent services.")

Illegal Copying of Programs

Yet another risk comes from the illegal copying of programs by schools. Mr. Tucker said that many teachers have adopted "a Robin Hood view" of copying programs for the benefit of students and that the widespread practice discourages software producers from making a significant investment in the educational market. (See Education Week, January 12, 1983.)

Perhaps the biggest challenge to the schools' attractiveness as a market comes from the home, say researchers at Future Computing Inc.

According to a report released in December by the Dallas-based firm, educational software will be a $1-billion business by 1987, with homes responsible for 70 percent of that market.

Already, private users buy more educational software than schools, said Tricia Parks, the research firm's vice president for business development. She said schools were responsible for about $25 million in a $60-million educational-software market last year.

Ms. Parks said the way schools commonly use computers has discouraged many manufacturers. Programs for language and mathematics dominate the school market, she said, because they are relatively inexpensive to produce--and therefore are not as risky to develop as more sophisticated software.

"They are at a threshhold," Ms. Parks said of the schools' approach to computers. "As the basic middle-American parent believes that the quality of education is going down ..., they're turning to personal computers. If parents continue to have that per-ception, there is the danger that the school would be more of a socializing than an educational institution."

Several computer companies have announced plans to donate computers and software to schools, and one firm has started a free computer-training program for any interested teacher. But those programs do not play a big role in schools' computer plans, officials say.

Booming Computer Sales

Adeline Naiman, a market researcher for the Technical Education Research Centers, said booming computer sales and most teachers' poor background in the technology discourages computer companies from making special efforts on behalf of the schools.

Ms. Naiman said that the number of computer giveaways to schools has decreased in recent months and that the remaining philanthropic programs are concentrated in the home regions of the companies. "A dealer can't keep an Apple II-e in stock now [because of healthy sales]. Why give away what you can sell?"

An Education Department survey of nine large-city school districts found little involvement by computer manufacturers in the introduction of computers into schools. Only one of the districts had been part of a donation program, said Jay Moskowitz, a Washington-based consultant who worked on the study.

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