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. 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% 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”. 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. 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. The second was to becoming the largest investor in Learn Capital, 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. 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. 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.
 “Pearson, world’s largest education company, laying off 10 percent of workforce”. Strauss, Valerie. The Washington Post. January 22nd, 2016.
 Pearson Annual Report, 2015.
 “Etsy for teachers? TpT becomes hub for education materials”. Best, Izzy. CNBC. OCT 11th, 2015.
“How Khan Academy Is Changing the Rules of Education”. Thompson, Clive. Wired Magazine. July 15th, 2015.
 “Nikkei to buy FT Group for £844m from Pearson”. Mance, Henry. The Financial Times. July 23rd, 2015.
 “Pearson’s Presence in Edtech Investing”. EdSurge. February 22nd, 2012.
 “Pearson Doubles Down Online”. Lederman, Doug. Inside Higher Ed. October 17th, 2012.
 “Pearson Launches Catalyst, An EdTech Incubator That The Publisher Hopes Will Give It More Startup Mojo”. Lunden, Ingrid. TechCrunch. February 20th, 2013.