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Four Reasons Why Enterprises Should Lease, Not Buy, the iPad 3

Four Reasons Why Enterprises Should Lease, Not Buy, the iPad 3

Summary: The days of PCs moseying their way from CEO to office worker to mailboy over a long decade are, thankfully, long gone.Today's mobile devices take a lot more abuse from employees (though there are always surprising exceptions).

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The days of PCs moseying their way from CEO to office worker to mailboy over a long decade are, thankfully, long gone.

Today's mobile devices take a lot more abuse from employees (though there are always surprising exceptions). They are also improving at a much faster rate. In 2011 alone, we saw the state of the art in tablets go from the single-core iPad to the quad-core (4) Asus Transformer Prime.

As a result, the sweet spot for tablets like the coming iPad 3 is a two-year lifespan, though thriftier organizations are doing three years.

That's according to data from First American Education Finance. The Rochester, NY-based company has leased 12,000 tablets and laptops to schools in the past two years, said Michael Hoke, a leasing officer with FAEF.

Customers include Tower School of Massachusetts, which rolled out 300 iPad 2s to grade 3-8 students last fall, and a private university in the southeast which began last fall what it hopes will be an annual rollout of 600 iPads to incoming freshmen.

Other schools on my iPad Deployment List using this strategy include the Cape Elizabeth School District in Maine, which is leasing 400 iPads for its grade 9-11 students, and The Webb School in Knoxville, Tennessee, which is leasing 1,000 iPads from Apple for 3 years.

FAEF published this short white paper on how to manage and finance 1:1 tablet programs in schools (its parent company, First American Equipment Finance, does leases to schools).

So besides the short lifespan and fast pace of technology, what are the reasons to lease rather than buy tablets?

1) The upfront cost is lower. For CIOs with limited capital budgets but fatter operational budgets, this can be a huge advantage. It also makes sense cashflow-wise, such as when you want to pass the cost of the tablets onto students/parents or employees. For instance, the southeastern university that is a customer of FAEF funded its iPad lease by charging its students $89/semester - much more palatable than a one-time fee of $500 or more, said Hoke.

2) It makes sure organizations don't do their employees/students a disservice. By that, I mean the above-mentioned tendency for IT departments to hold onto PCs until their insides are dusty and cobweb-filled. Leases ensure that organizations keep refreshing their gear at an optimal rate, rather than trying to pawn off obsolete equipment onto insulted new employees.

3) It's easier to manage and dispose. Some leasing companies will help you track your tablets or provide software to help you do so. And most can help to wipe the data off the tablets when the leases are done, to erode privacy concerns, Hoke said.

4) It can cost less overall than paying cash. Leasing companies like FAEF will lease iPads below retail price. Take FAEF customer, Tower School. "We have a three year lease with a built in residual value repurchase at the end of the term. The total lease payments are equal to about 97 percent of purchase value," Tower School's business manager Dean Sidell told Campus Technology magazine.

FAEF can offer the iPads below cost because it will arrange for the iPads to be shipped back back at the end of the lease, which it can then resell. That frees up cash that FAEF can reward customers with in the form of upfront discounts. Those discounts are larger if they lease the iPads for two years, when they still retain more of their value, rather than three.

For companies that didn't want to dispose of obsolete gear, returning the iPads is probably a blessing. And let's compare leasing to a scenario where a company borrows money from the bank to buy the iPads and then must pay interest on the repayments. Compared to that, leasing and returning iPads to FAEF is like paying a "negative [implied] interest rate," says Hoke.

It sounded compelling to me. In fact, the biggest argument I could think of why tablet leasing may not take off is this: most enterprises are still trying to avoid the deployment cost altogether by relying on Bring Your Own Device (BYOD) programs instead.

According to Strategy Analytics, the ratio of employee owned tablets to business-owned tablets is still 5:1.

Can you think of any other reasons against leasing? What has your organization's experience been?

Topics: UberMobile, CXO, iPad, Mobility, Social Enterprise

Eric Lai

About Eric Lai

I have tracked technology for more than 15 years, as an award-winning journalist and now as in-house thought leader on the mobile enterprise for SAP. Follow me here at ÜberMobile as well as my even less-filtered musings on Twitter @ericylai

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2 comments
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  • Cons

    1. What happens if there is damage done, or scratches? What's the hidden fee/penalty?

    2. No resale or auction value.

    3. Upfront costs are lower as an incentive, but there are always fees...

    I'll let the companies decide what they want to do, either way.
    HypnoToad72
    • What Cons?

      HypnoToad raises some VERY important points, but one must understand that those issues are company specific and not industry-wide. For example, First American Education Finance:
      1. Has never charged one penny for cosmetic damages (many companies will)
      2. Allows you to purchase equipment at the end of lease for it's fair market value (determined with input from the customer)
      3. Has a NO FEE master lease - No UCC Filing Fees, No Restocking Fees, No Administrative Fees, nothing. (many companies show purposely misleading pricing informaiton because they know most pepole only review the lease payment and don't have the expertise to know where hidden fees are actaully "hiden.")
      Mhoke