AI, Device Refresh Open Channel Opportunities In Education Market

Circana’s Mike Crosby shares insight on channel trends in the education market, including the opportunities around AI in higher education and the potential rise of device as a service.

[video transcript]

Jennifer Follett, Executive Editor, CRN: This is Jennifer Follett with CRN, and I'm here with Mike Crosby of Circana. Mike, thanks so much for joining me.

Mike Crosby, Executive Director, Circana: You're welcome. Thanks for having me.

Follett: We are here to talk about the education market and what partners—solution providers—should expect as they finish out 2024 and as they gear up for 2025. Give us the high-level overview of what's on the horizon.

Crosby: As we know, we've continued to emerge from post-pandemic. And again, the benefit of that was there was pretty significant investment that was going on with regard to both technology, to people, to all types of resources, really tying it back to help stimulate the economy, but also again, getting a lot of this modernization going for education. And as we head now into [the second half of] 2024, we're kind of finding ourselves a little bit of a crossroads. I think it's going to be a little bit of a mixed bag. And what I mean by that is you have a lot of push funding coming from the federal government, a number of programs, you also had pretty good, pretty deep, coffers where I think there was still opportunity for a lot of investment to go on in education.

A lot of those things have now started to dry up. So the federal funding is just about completed. You're also seeing where a number of states actually made some tax cuts that ultimately is now cut down a little bit relative to state revenue. So as you see these things going on, you're seeing a little bit of a slowing now coming in, especially if we're coming into that period where we're likely to see a pretty good chunk of refresh around devices that have aged, roughly running that four-year life cycle. So, it's a little bit of a mixed bag. I think there's demand there for core devices to be refreshed and other investments, but at the same time, I think you're seeing a slowing of budgets that they're going to have to get a little bit more creative in where and how they want to spend.

Follett: And those elements you discussed, the petering out of the funding, the budget cuts, those are all things that impact both K-12 and state universities?

Crosby: They do. Yes, they do. And again, K-12, with universities, there's other means, there are other supplements to the budget overall. But I think with K-12 specifically, one of the things they really prioritized, especially when this funding became available, was really around people. And it was hiring—incremental hiring—and wage increases. Because again, traditionally teachers are not paid necessarily maybe at a level that many feel like they should be paid. So there was a lot of balancing up of what occurred there, but now that bar is set and now the budgets are starting to get depleted. Now you come to that position of now what do we do and how do we want to prioritize?

A couple of things too, I think, as we go into this, and I know we're going to talk more about it here on this session, but a lot of schools right now are really trying to [figure out] how do I prioritize the investment I've already made? Can I get additional legs and can I get additional life out of what I've already purchased and/or are there alternatives to maybe the way that we traditionally buy technology that might be a little bit more flexible and a little bit more scalable?

Because in both K-12 and in higher ed, we're actually seeing enrollment on a kind of a modest decline. You still continue to see it, birth rates are lower, you're seeing those numbers come down. And so there's a different dynamic that's going on. And I think like many things, right, the technology is certainly an advancement in the curriculum, but I think they're also trying to be creative in not only what we're purchasing, but also maybe how do we purchase. And these are some of the things that I think are really being pondered by a lot of these big school districts.

Follett: You and I have had several conversations about the expected PC refresh that's expected to start later this year and really come into full force next year. How does that play out here in the education market?

Crosby: Yeah, it's big, I think, because a lot of the devices that were purchased, and again, if you look at K-12 as an example, the concentration is significantly higher on [Google] Chrome versus necessarily [Microsoft] Windows and [Apple] Mac. And what we're seeing is we're actually seeing these devices become even more concentrated in a little bit of the lower grades. If you look at K-8, you actually see that concentration going up from a Chrome standpoint, but you're seeing it decline as you move into the middle grades and the higher end into high school where they're migrating to different technologies, different operating systems where maybe there is more capability and the ability to manage some of the higher-end software requirements that are now kind of embedded into the curriculum.

So again, easier word to say it, I think you're seeing Chrome is still core and they're still going be a need for these devices that are going to be refreshed, but their concentration is going to be more in the lower grades, K-8. And again, you're going to continue to see likely a little bit of erosion in Chrome on the middle and higher grades as those expand more to Windows and Mac.

But as I'd said earlier, one of the real questions right now is, with budgets being kind of depleted a little bit, how do we find a comfortable middle? We have to buy new devices, clearly, but is there also a way that we can extend the life of some of these that are still relatively young or in reasonable shape? And/or do we look at other ways? Do we look at things like [refurbishment] even as a consideration, especially at the lower grades?

Do they look at things like, as we've talked about a couple of different times, services like devices of service? Are they looking at alternatives? So, as I'd said earlier, it's not even so much as much only what they're needing to buy and what the needs are, but more importantly, maybe how they buy. And are there different options that maybe haven't been explored that I think out of necessity now, they're likely to be explored maybe a little bit further.

Follett: So, some of the drivers that we expect to be behind this PC refresh on the business side, such as hardware requirements for Windows 11, as well as a push toward AI PCs, those things are less relevant, you think, in the education market where Chromebooks are a little more in vogue?

Crosby: Yeah, I think you're going to see, as we have said, right, if you look at it, it's interesting on the AI topic. It's a topic I'm having conversations about multiple times per day. But if you look at it from a B2B standpoint specifically, we've seen B2B adoption of AI PC, there's clear use cases and a need and a requirement in traditional business for AI versus the consumer. Look at that same way from an educational perspective, you see more demand and likely increased need and requirement at higher ed, where you're still seeing K-12 that's likely to be a little bit slower adopting. Mainly because the age, and the sophistication, the requirements, other things like that. However, I do think you're going to see more AI become more influential through different tools. If you look at like LMS systems, learning management systems, where they're integrating grading, curriculum, assignments, calendaring, all of this stuff, grading, you're going to start to see AI not only affect the student, where it may be a little bit more personalized learning in that personalized curriculum, where AI will be a factor, but think more system than physical hardware, but you're also likely to see a little bit more from the standpoint of teachers and educators, where how are they utilizing that to scale more efficiently, more effectively, grade management, tutoring. There's a whole host of things that are really kind of on the forefront.

But to answer your first part of your question, I think from a pure device standpoint, I think you're going to see AI PCs in that traditional sense lean a little bit more towards higher ed, a little bit later adopting in the K-12 or K-8 range.

And again, as we'd said in B2B, I think we're seeing business to business really starting to accelerate a little bit where consumer is still likely to lag a little bit. So very similar parallel.

Follett: Maybe this is a good point to actually get into some of the numbers. What are the forecasts that Circana is putting out there for expectations?

Crosby: So if you look at this year, and again, as we talked about before, if you look at the peak volumes that we saw were in 2020 and 2021. So if you look at it on an average, roughly about a four-year life cycle of many of these devices, we're going to start to see mainly in this year and back to school period, a little bit of resurgence. And so we're going to see some of those early devices that were purchased begin to be refreshed. One caveat to that, and a positive too, if you think back of when some of those were purchased, there was a pretty significant gap in demand and supply, where there was much more demand than supply. And a lot of it, you had to buy what was available, not necessarily what you needed or wanted. So that's also going to help stimulate a little bit of demand.

We think it's definitely going to be second-half driven and again, core timing around back to school. So, this year 2024, we're about 4.3 million units combined if you look at Chrome, Windows and Mac. That’s up about 7 percent year over year. And then we're expecting a little bit of an acceleration in 2025, running a little bit north of 5 [million], so about 5.1 [million], 5.2 million. That's going to be up significantly. We're guessing that to be up about 21 percent. And again, that's where you see that big wave, where that bubble of devices that were purchased during that period matures, and that's when you're likely to see quite a bit of refresh. And then in 2026, we'll start to see it normalize a little bit. Think more of 5.4 [percent], 5.5 [percent], again, still up about 6 percent though. So really kind of going to be a bell curve really is what we're anticipating.

Follett: That expected four-year cycle, I have to wonder if that's even less on the Chromebooks just because I see the condition of the ones that my kids use. Those things go through the wringer, you know, the video doesn't work anymore, it's missing a key, you know, that kind of thing. Does it hold, the four years, even for the lower-end devices?

Crosby: You know what, it's interesting you say that because it is an average that I'm giving you because to your point on the lower grades, we typically see a little bit higher churn from the standpoint of just durability, to your point. They're dropped, they're broken, they're spilled on, there are a number of things that are going on as they get a little bit more life to them a little bit. But again, it's a much different thing where you see how long the devices are actually supported from a software [standpoint] versus what's really kind of where we're seeing they're practically being used in the environments.

This is also something that, and again, we're going to touch on it, but I think as you look at some of the alternatives, this is really putting into question, are school districts buying in the traditional sense where they do procurement and they leverage a budget and they purchase these devices and take ownership, and then you manage them through the life cycle. And there's still a huge chunk of durability where if a screen is broken or if there's something that's been damaged, there's a backlog of these devices that ultimately someone on-site has to repair or you bring in the third party to ultimately do that. But there's cost, there's time, there's a number of things there. Or are there other ways to look at these devices in a more efficient way, I guess, to manage the budget more efficiently and more effectively that it keeps the uptime, maximizes the uptime, but when devices are down, they get replaced quickly and you’re backup and running.

So, to your point, it's an interesting dynamic, but yeah, on average, I would say we operate roughly on that four-year [lifecycle,] and some are three, some are five. Traditionally, what we'd see too is on the Chrome side of the equation, I think it's right around that four [years]. On some of the other platforms, you may get a little bit longer. Again, depending on the environment and depending on what level was purchased. If they were entry-level devices, typically that's not going to be able to extend. If they're a little bit higher-end configurations, a lot of times you can get a little bit more legs out of a device. It's another year possibly.

Follett: So maybe let's talk about some of those selling model options. How should solution providers be approaching these kinds of customers? How popular is device as a service? And is that really a preferred route at this point? Is that still in the minority?

Crosby: Yeah, great question. It is still a minority, but I think it is gaining traction. I think you're starting to have administrators, people that are managing the financial aspects of these budgets, because they are significant, but looking at are there more efficient, effective ways to utilize these dollars that maximizes the uptime for the student, minimizes the downtime or loss or damage or all of those other issues, and also is allowed to scale based on the needs and the size of the number of students that are enrolled. So, if we're seeing declining enrollment, do you have ability in a model that could flex downward versus if it starts to accelerate, do you have the ability that could scale up?

Those are the things that are still really good key drivers for devices as a service, and I think the familiarity is getting better. But this is where I think that relationship between the OEM, between the channel partner, and between the school district, I think really can work very efficiently and very effectively at looking at what are some of those options. And I think we will see and hear about this more, because when you look at, I mean, specifics of devices of service, right, the cost now becomes significantly more predictable. It's a fixed cost, much less than that larger investment upfront where ultimately you see that pulled back a little bit. They certainly can scale as we just talked about it. If the population expands or decreases, it's also pretty easy to manage. The other thing that we're starting to see and hear more of is larger corporations are starting to look at potentially providing devices to service sponsorships. So they would cover the cost of subscriptions or augment the cost of subscriptions, as part of a maybe a tax beneficial sponsorship. So you're looking at now integrating larger companies and larger organizations potentially in ways you can defer some of the cost. But at the end of the day, the goal is to maximize the uptime, making sure everyone and everyone that is there and attending has access to the same levels of technology to really make sure you've got a real consistent ability to educate the kids.

Follett: What about from the solution provider perspective, what are the pros and cons of going with a device as a service model versus a more traditional model?

Crosby: The best part always with a solution provider is certainly it's that local grade, local level of relationship. There's a trust there. They're really that trusted advisor for that. So it could be everything from not only helping identify what do we think are the best solutions ultimately for the environment that are in there. Are there other things that can be done, other value-added services, if it's configuration, if it's disposal, ultimately that can work with the OEM? There's a whole host of things I think that, again, in that triangle of the school district, definitely the solution provider and then with the OEM. A lot of times, too, the challenge with devices as a service is I think there's a little bit of an implied risk that they're stuck with the same OEM, the same config, the same requirements. So that while that could be good from a consistency [standpoint], if they're unhappy with the performance or whatever else, that can also be a challenge. But see, this is where I think the solution provider really becomes the advocate really for the client, for the customer, for the school district. And I think they're part of the evaluation process and looking at a majority of the leading OEMs and making that right decision in concert with them to make sure is, you know, it does the things that we're needing it to do in a way that we need them to be functioning.

And I think that's where, again, we've heard it and it sounds cliche, but it's really not. It's the relationship and that value being that trusted advisor for the school district. They really know and understand their environment. They have personal relationships and investment that's been made. And I think it makes a huge difference. Then it's not a transaction. It's really a relationship that you're managing and the channel has always been super good, always very good at that.

Follett: What do you see from the business metrics? The recurring revenue of a managed service offering is, of course, enticing. But what about the profitability for the partner? Does that stack up?

Crosby: Yeah, I think that's the question. And I think that's where, is it a one and done? So in other words, if you're helping to identify that opportunity and manage all of that process through the transaction and it's done, then ultimately is the partner still involved in some way, which they need to be. And I think this is where the intricacies of this model have to continue to be fleshed out, where there is something on a continuing, there's a longer tail for the partner. It can't be just a kind of a one and done. You did all the heavy lifting, identified the opportunity, managed through that process and closed it. And yes, you earned something on that. There is certainly an earn there, but at the same time, what’s the ongoing [opportunity]? And there needs to be an ongoing. And I think that's where these, again, these two people, these two partners between the OEM and the solution provider, are working through those details, I think now. And as soon as we get, I think the model that is repeatable and scalable and feel like that one is not advantaged or disadvantaged from the other, I think that's going to be the solution that really will start to take off. Because if you think about it from the standpoint of the spend, that's going on for education and the obsolescence and the durability and all the things that we just talked about. Intuitively, you know there's more efficient ways to use those dollars to accomplish your goal, what you're trying to do. And I think it's just thinking a little bit differently, a little bit more creatively around there are ways that we can do this and leaning on … what I like too is hearing, as I'd said, other major corporations that are looking to provide either a subsidy and/or covering, potentially, it'd be a tax benefit for the organization potentially, but also could alleviate a significant amount of those expenses and then that those monies can be ultimately used in other areas that I think are certainly going to be critical.

Follett: There are a couple of emerging technology areas that are swirling around. We touched a little bit on one of them, AI, already. There's augmented reality and virtual reality. How are those things starting to creep into the education market?

Crosby: It's interesting on the AI side, one, we touched on it, but I think to add, think about ways that you can personalize the education experience for a student. And I think that's where you're going to start to see AI really take off a little bit. And what I mean by that is things like gamification, where you're going to see different ways to learn. I think they're already finding there are many different ways to learn [other] than the traditional instruction at the front of the room and students listening, taking notes, and then ultimately being tested on what they've heard or what they've listened to.

Now they're participating in more levels, which is again, where you're seeing AR and VR. There's a whole different level of experience, and I think there's a whole different level of stickiness to the learning. I think it's staying with students where there's really an experience of this learning rather than just reading about it or taking notes and trying to repeat it back to whatever’s required. So definitely there's there in a starting point, it's still cost challenged right now. So you're still seeing where a lot of that technology is still fairly expensive. And I think there are challenges with that. But as, again, if we can find money in other areas, we can balance around, if we can find lower-cost solutions ultimately, or if we can find other ways or means of subsidy on some of these technologies, it could be huge. And I think it's going to continue to get more and more visible and more and more active.

Ever since the pandemic, we really saw that, where technology really took on now that lead position and has even accelerated relative to augmenting curriculum and ways students learn and how can we learn remotely, on-premises, hybrid, all the different aspects of all of that. Technology really is now the leader in that and continues to accelerate. And I think the adoption has gotten much better. I think it's gotten less reticence on the part of how much technology do we need. I think there's a lot more interest in how do we make this better?

And the one point that I raised earlier that I think is also really, really interesting, my daughter's just finishing up with her master’s [degree], and they use a tool very specific, again, to that platform, to the learning management systems, like a Canvas, as an example. Well, what's interesting is you look at it, it's a comprehensive way to see your classes, speak to the instructor, speak to other students within your class, track your homework, track your test scores. If you need additional information or additional whatever, it's all integrated in this platform.

So again, this is that whole collaborative, integrative approach now to learning that is just, it's phenomenal. And I think it's just going to get more.

Follett: From my seat, anecdotally, I feel like there's still a lot of tech illiteracy, almost I would say, among the school districts, especially in the K-12 segments. So I would wonder about the, as more and more millennials and younger generations that are digital natives become teachers and become higher level teachers, some of this acceptance of technology would increase as well.

Crosby: It's interesting you say that because I actually think there's almost a little bit of a gap, to your point, between administrators and instructors than the students themselves. Because the kids that have grown up that, to your point, it's tech-native. They've been utilizing technology from the day they were able to pick up a device and use it. And if you have some teachers or instructors or administrators that are maybe at the tail end of their careers, maybe they're not nearly as sophisticated. So I think as that continues to evolve and catch up, I think you're going to see an acceleration. I really do, because to your point, it's amazing what kids now have the knowledge and understanding and capability, you know, in teaching your parents how to configure just about anything that goes on from a new PC to a new phone to whatever, you know, kids definitely are very, very familiar.

Follett: So just kind of in summary, even as budgets get a little tighter and some of those funding sources dry up, still really looking at 2025 as a big year for education spending on devices.

Crosby: Yes, we still see that again because of this refresh. Again, we're anticipating, as you'd mentioned, we've had a number of conversations on the B2B side and specific to education, it's not going to be separate from that. You're going to see that similar kind of track where you have a number of these devices that were purchased and they're nearing their end of life. And that will be the next big thing that we're going to see.

It will be interesting, I think, as we get into 2025 and 2026, because I still believe AI PCs are still at the fairly innovator/early adopter stage of tech adoption, but that's going to accelerate extremely fast. And as you even lean into 2025 and 2026, that may ultimately become the majority of the mix. And then we'll understand a little bit more on what that rate of adoption may be for K-12. Maybe it's going to accelerate. Maybe it's going to happen even more so. It'll be interesting. It'll be interesting to see.

Follett: Outside of the client device piece of it, what about the security piece? I mean, there's a lot of security risks to schools right now, like obviously lots of other segments of the market as well, but what kind of conversation should solution providers be having specifically around security with these educational districts?

Crosby: Exactly, even more so, because as we see more technology, more reliance on technology, and again, in many cases, you don't necessarily see the level of sophistication from a risk mitigation standpoint from the client or the school district themselves. They're just unaware. But I think where you have, you're going to have to lean more on specialists that really know and understand the technology, know how to evaluate technology properly and provide recommendations and guidance, ultimately, on what they should do, not only for today's need, but more importantly, the partner can provide them that visibility of something that's going to scale. And so they start looking at more efficient, more effective solutions. But again, coming from that expertise, it's absolutely critical. I think you're going to see them lean even heavier, back to that comment earlier, on the whole trust advisor. It's absolutely key. And I think security will not become less of a factor. It's going to continue to become more. Last year, we saw record numbers of challenges with viruses and other things that were going on, ransomware specifically with schools, not just larger schools, but even smaller schools. So it's becoming more prevalent, and I think they're ill-prepared to really do it themselves. And this is where they really need to lean on a third party, really that expertise that gives them comfort because the exposure is huge.

Because as technology kind of on one side makes things easier and more efficient, it's infinitely more complex kind of behind. And you have to know and understand that how to make it easy on the front end doesn't make it easy on the back end. There's a lot of moving parts to ensuring that we've got a highly secure environment that scales. So yeah, I think this is more than ever. And this is where I think, again, that just the expertise and that relationship combined, it's just a great recipe for a very successful business and a relationship with a school district.

Follett: And what differences, if any, do you see in the conversations that solution providers should be having with the K-12 customer versus a higher education customer?

Crosby: From a K-12 perspective, I think it's more around, as we touched on, scalability, the flexibility, looking at these alternatives and ways that they can integrate themselves into this device lifecycle, be it as a service or ultimately being it as an asset.

I think what we're seeing on the higher ed side is aligning a little bit closer to what we are seeing more on the traditional B2B side, where you're seeing a need and a level of sophistication and collaboration, some of the latest technologies. Because as you look at higher ed, you certainly see specialized need and requirement.

You're going to see very heavy workload in AI, very similar to what you would see in a large pharmaceutical company or a large manufacturer, where you've got a lot of research and other aspects of what's going on within these higher ed environments that I think you're going to see more mirroring a little bit closer to that than what you would see traditional.

You almost see that K12 is kind of horizontal, just a very efficient model, and certainly still introducing new technology, but just making sure that things were operating at the highest level of efficiency and scaling effectively and making it cost effective. On the higher-end side, like I said, I think you're going to see a little bit more technology-leaning discussions and needs of support. Security, again, continues to be ultra-critical, definitely in higher ed, especially where some of these are research environments where a lot of this is confidential data and information. And I think there's risk. I think there's risk of people looking to do bad things and looking to find exposure and opportunity where there may find some.

So those are some of the different changing needs, unique needs, but in some same case, I think you're going to see the need for the quality expertise and the need for that willingness to invest in a long -term relationship. Those are the common things across both K-12 and higher ed.

Follett: Always a strong role for the solution provider to play.

Crosby: Big time, yeah, always. Now more than ever. In fact, yeah, I would agree.

Follett: Great. Well, Mike, thanks so much for joining me and shedding a little light on what partners can expect from the education market. Really appreciate it.

Crosby: You bet. Always a pleasure. Thanks, Jen.

Follett: Thank you.

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