Can Pearson shape the future of Education?

Marc Andreesen coined the phrase “software is eating the world”. Will Pearson be eating or will it get eaten?

Marc Andreesen coined the phrase “software is eating the world” but major disruption is lagging in the world of education.

 

Pearson is the largest education company in the world[1]. It is a publicly traded company based in London that generated U$7.3B in 2015 and whose market capitalization hovers around U$8B. Roughly 73%[2] of its’ revenues come from the education business; mainly in the form of textbook sales and standardized tests.

 

The debate around the future of education is certainly a heated one; few things are more sensitive than shaping the minds of the future. Most agree on the fact the current education system reflects that of the early 20th century in a world that has dramatically changed through technology.

 

Pearson’s business model was perfect for the legacy system. The customer promise was to provide professional, curated, trusted content in print format accessible to the masses. The school districts were the way to reach the masses in education. The districts had all the power when it came to deciding which content the kids would receive at school. Hence, the Pearson model could be defined as “one-to-many” relying heavily on the barriers of entry that the school districts represented; especially since these government agencies tended to be slow and bureaucratic.

 

The first trends in the educational technology revolution seriously threaten the core of Pearson’s customer promise. First, the rise of “many-to-many” is proving that many teachers trust their peers as much as any other expert. A clear of example of this is a startup called “Teachers Pay Teachers”[3]. On this platform, teachers can buy and sell lessons created by other teachers for a few dollars. It has been estimated that around one of three teachers in the U.S have downloaded coursework from the platform. Second, online learning completely changes the distribution system. The barrier to entry that distribution once represented is being eroded. While it may not replace in-person learning, online learning certainly represents a shock to the education industry. An interesting example is Khan Academy, a non-profit that creates world-class, free educational content. Around 2 million students watch Khan Academy videos every month[4]. Targeting teachers and students directly means that Pearson can no longer own the end-to-end educational journey which is results in stiff competition. Third, the price of online content is significantly lower than Pearson’s legacy model can offer. While Teachers-pay-Teachers charges around U$2 per lesson and Khan Academy is absolutely free. This phenomenon makes it really hard for the school districts to keep on justifying the Pearson contracts.

 

Having been founded in 1844, roughly 172 years ago, makes Pearson a company that is perhaps slower to innovate than most others. However, the company has been making interesting strategic decisions.

 

The first move was to laser focus on education. After 58 years of owning the Financial Times Group—publisher of the Financial Times, The Economist and others—Pearson decided to sell off this unit to reduce its’ publishing footprint and dedicate all resources to education[5]. The second was to becoming the largest investor in Learn Capital[6], the leading venture capital firm focused exclusively on educational technology. To date, Learn Capital has invested in over 50 startups around the world. The third was to actively acquire education startups that could propel the company forward. A staple example is the acquisition of EmbanetCompass for U$650M[7]. EmbanetCompass is a company that provides the full suite of online learning to over 100 universities worldwide. The fourth initiative was called Pearson Catalyst; a startup accelerator operated by Pearson directly[8]. The goal of the accelerator is to provide funding and a three-month intensive training program to very early-stage education startups. These companies also benefit from the extensive experience and network that Pearson can provide in order to help the grow.

 

The shift in education has been slower than in other industries but the disruption is happening. Pearson is in a unique position to lead the change and capture the value created in the digital revolution. While they are taking the steps in the right direction, it remains to be seen whether they can fully incorporate the digital world into their DNA.

 

 

[1] “Pearson, world’s largest education company, laying off 10 percent of workforce”. Strauss, Valerie. The Washington Post. January 22nd, 2016.

 

[2] Pearson Annual Report, 2015.

[3] “Etsy for teachers? TpT becomes hub for education materials”. Best, Izzy. CNBC. OCT 11th, 2015.

[4]“How Khan Academy Is Changing the Rules of Education”. Thompson, Clive. Wired Magazine. July 15th, 2015.

[5] “Nikkei to buy FT Group for £844m from Pearson”. Mance, Henry. The Financial Times. July 23rd, 2015.

[6] “Pearson’s Presence in Edtech Investing”. EdSurge. February 22nd, 2012.

 

[7] “Pearson Doubles Down Online”. Lederman, Doug. Inside Higher Ed. October 17th, 2012.

[8] “Pearson Launches Catalyst, An EdTech Incubator That The Publisher Hopes Will Give It More Startup Mojo”. Lunden, Ingrid. TechCrunch. February 20th, 2013.

 

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8 thoughts on “Can Pearson shape the future of Education?

  1. Cool blog post! I think HBP (Harvard Business Publishing) is another interesting concept in this world. It can support a lot of different types of content (teaching notes, cases, interactive simulations like Everest, etc.). It’s also pretty dynamic in that new content is constantly flowing in. It’s not hard to imagine a world where more teachers/professors (beyond the business school context) are assembling their own “course materials” from sources that operate kind of like HBP (or even Teachers Pay Teachers for that matter).

  2. Nico – Great post! I had a similar thought about the future of printed educational materials when I was studying for the GMAT and GRE. I recall picking up these very large study books (Pearson, Kaplan, etc) from the library only to find an online code in that book to access all the material online, making the printed book completely obsolete. It dawned on me that day that these publishers may be trouble because the purchase of these books was one of their main sources of revenue, however, these codes could be used anyone even though they didn’t purchase the book. Pearson’s should make sure that their online platform has licensing and access controls so they are not losing money from unauthorized use. My recommendation to Pearson’s is to move their emphasis away from physical study guides and books and more towards selling licenses to the online content to ensure they extract revenue from this alternative source. Not to mention that the consumer is expecting educational materials in an digital format and it is better for the environment.

  3. Since Pearson is focusing more on education, they appear to focusing heavily outside of the United States. According to Fortune, Pearson has spent $2 billion on international adult education since 2010, “The purchases include a 75% stake in CTI, a chain of computer-training schools in South Africa; Wall Street English, an English-language school business in China; and, a Multi chain of English-language schools in Brazil, for $721 million” [1] Do you feel that these investments are going to allow for their digital strategy? To me, these appear to be more of the “legacy model” you reference in your article. Pearson appears internationally at least to be trying to gain a foothold in English speaking schools to continue its old ways.

    [1] Jennifer Reingold, “Everybody hates Pearson,” Fortune, January 21, 2015, http://fortune.com/2015/01/21/everybody-hates-pearson/,accessed November 2016.

  4. Nico, this is a great article! Having worked with education for a while, I saw very closely the magnitude in which the digital era is reshaping the currently education landscape.
    However, I think that since the pace of such transformation greatly varies across different countries, and that’s why Pearson is still making investments based on the “legacy model” you mentioned. For example, in 2013 Pearson acquired the Multi Group, owner of the largest chain of English schools in Brazil. The idea behind this acquisition was capturing the emerging middle class individuals who want to learn the language and who still demand the “traditional teaching method”. The point is that since Brazil is getting more and more connected to the digital world, the prospects of this investment do not seem to be very attractive in the long run.
    Another interesting question that your article raises is: how will governments adapt to such transformation? For example, Brazil has approximately 3 million teachers, and most of them aren’t well prepared to teach their students through the use of technology. Thus, this fact creates some barriers (at least in the short term) for companies such as Pearson to penetrate in emerging economies at large scale.
    Anyways, the disruption is happening and the fact is that the education industry will be completely reshaped. The only doubt resides on when and at what pace.

  5. While it is true that Pearson is facing challenges due to the distribution of educational content opening up, the size of the educational opportunity is growing fast. Larger populations, decreasing poverty and growing smartphone penetration are allowing much more people to try online courses. Pearson’s initiatives seem relevant to take advantage of digital opportunities.

    Naturally there is a risk of this market also being “winner takes it all” (such as search), but I believe that there is enough segmentation of customer needs to allow for many different competitors in this fast growing space.

  6. Interesting post, Nico! I’d love to learn more about how Pearson’s content revenues are distributed across age cohorts. I imagine that the digital revolution in education is likely to impact different age groups at different rates. Specifically, is there any evidence of how much new technology is impacting their elementary, secondary, or higher education segments? While we’ve seen an emergence of digital secondary and higher education with the success of Khan academy, Coursera, and EdX, I imagine that many elementary schools, both in the US and abroad are likely to move much more slowly towards digital. To what extent might the financial resource constraints that many schools at the elementary level struggle with slow the uptake of digital in the classroom?

  7. I agree that Pearson needs to hasten its pace to innovate, but I still do think that their legacy gives them a significant edge in the digitization and democratization of education. People still want a brand they can trust. Take, for instance, The Discovery Channel, which has moved into online education (http://www.discoveryeducation.com/); they work with corporation’s CSR programs to build company-specific content that they can then push to their 3.5M teacher network…all for a tiny price tag of $1-2M. Why can they charge so much? Brand equity. Even in Boston alone, there are about 300-400 EdTech start ups and their biggest barrier to entry is still getting into the schools through the principles and superintendents. Pearson, with their long-standing relationships, can much more easily enter schools and scale technology quickly. I don’t think we’ll see a true revamping of technology in education until players like Pearson come up with a catalytic solution, even with thousands of EdTech startups popping up around the world; Pearson has what startups lack – access to schools – and that issue isn’t going away for startups any time soon. Curious to debate with you more on this!!

  8. Thanks for your post, Nico. What does it say about our society that technology has solved for our every millennial consumption need, but lags in democratizing and advancing the quality of our education system? The company Knewton (https://www.knewton.com/approach/platform/) provides an interesting example in the ed tech space — it has designed an adaptive learning platform for students to learn at different paces, and it sits atop the content provided by Pearson and other publishers to make it dynamic and flexible. Whether the algorithm is scalable is another question, but the idea seems like a nimble way for content providers to migrate quickly into the digital era.

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