Around the World in a Day: Business Models There Lend Insight Here (Part I)
Nelson B. Heller, President, The HellerResults Group — Friday, June 29, 2012
Being a K-12 market futurist can be lonely work. When readers focus on this quarter’s or month’s sales, pointing out that the stars are aligned for big changes down the road loses luster fast. Readers of this column know I’ve been highlighting a trail of bread crumbs pointing toward a significant uptick in the globalization of the K-12 market. For one marvelous day earlier this month, my futurist loneliness evaporated at the June 3 International Markets Forum (IMF) pre-conference day for the Content in Context (CIC) Conference, co-organized by AEP and AAP. I chaired the IMF. Some 123 registrants from around the world, whose numbers blew past the event’s goals of 80 and then 100, shared their insights into this globalization, what business strategies are working, and the opportunities and challenges of cross-border educational commerce. In terms of shear theater, given CIC’s mainly domestic draw, participants came from—or talked firsthand about doing business in—Australia, Brazil, Canada, China, Columbia, England, France, Germany, India, Ireland, Latin America, New Zealand, Poland, Russia, Thailand, and the U.S. What was even more powerful was the realization, which grew throughout the event, that we’re of one community, confronting remarkably similar problems and opportunities. And yes, Virginia, there’s globalization out there.
I’m hoping to share the excitement and flavor of the day’s key business insights in this series of articles by highlighting some of my own take-aways. I’ll start with the three keynotes (yes, three, a product of the IMF’s active Advisory Board) and go into the other sessions another time.
Ten Top Challenges for Education Publishers
Catherine Lucet, CEO, Editions Nathan and Managing Director, Editis Education and Reference, of France, the day’s first keynoter, outlined ten top challenges for education publishers. While Lucet has spent her publishing career in France, she’s been quite active in the International Publishers Association (IPA)’s Education subgroup, giving her a much more global perspective. I was still struck by how applicable her observations, drawn largely from outside the U.S., were for us in the U.S. Other, non-U.S., participants seemed to acknowledge their relevance for their own markets. She divided the challenges into four categories:
• R&D: Increasing scientific focus to demonstrate efficacy
• Product Development: Preschool becoming school, creating comprehensive digital “textbooks,” in modular formats, and making the most of crowd-sourcing and OER
• Production: Indexing content and dealing with technical heterogeneity
• Going to Market: Funding uncertainty and new business models, setting up new relationships with education ministries, directly accessing teachers and learners, and moving toward international curricula
Sharing just one of her many examples, putting together OER and relationships with education ministries, she pointed out troubling situations around the world where government-sponsored OER is threatening commercial publishers’ ability to compete. A situation in Norway, she said, is one of the worst cases. There the National Digital Learning Arena (NDLA) is a project to offer free digital learning resources for secondary schools with development funded by government textbook money. According to a Creative Commons web page, last updated in March of this year, “The NDLA is an open educational resources (OER) project and open source platform for sharing OER in secondary education. It’s a joint initiative by different provinces in Norway that allocate a portion of state funds to ensure free access to textbooks for Norwegian students and to develop digital resources (or purchase from publishers or other producers) that are released under ‘CC Attribution-ShareAlike.’ In just a few years, the project has produced a large amount of OER.” In 2010, the Norwegian publishers association took the matter to a European court. Lucet was not aware of the outcome. Years earlier in the UK, the British publishing community successfully challenged a somewhat similar initiative in court, although funding complications also played a major role in quashing the project (e.g., see my story on the UK’s 2003-2006 BBC Jam initiative).
In related discussions at the IMF, people familiar with issues of concern to the IPA, which recognizes the importance of digital instructional resources in future classrooms, expressed concern about the development of ”wild” 1:1 digital device programs offering a laptop or tablet to every child. “In too many cases,” one said, “there’s very little prior notice to publishers regarding resources, and usually no teacher training or pedagogical concept regarding usage in the classroom.” This is apparently currently going on in Poland, Thailand, and Turkey. “Recent past examples,” they said, “include Portugal and Catalonia in Spain.” Sadly, an individual related, “this is often a pre-election political initiative and results in a big waste of money.”
Global Markets, Content, and the Globalization of Education
The day’s second keynoter was Karan Khemka, Head, International Education Practice, The Parthenon Group, who spoke about global markets, content, and the globalization of education. Khemka, based in Mumbai, India, when he’s not globetrotting, has extensive experience in the Indian, Asian, European, and Middle Eastern education sector and has completed projects in the higher education, vocational training, and schools sectors in over 30 countries. He focused on business models for emerging market educational publishing, using China as a case study.
To put the K-12 markets in China and some of the worlds’ other awakening giants in perspective, in my View From the Catbird Seat presentation at last September’s EdNET Conference, I spoke about fast-growing non-U.S.companies like India’s publicly traded Educomp Solutions. Having launched in 1994, by EdNET 2011, Educomp had a total enterprise value of over $1 billion and margins near 30%. India has about 361 million kids eligible for K-12 education, of which some 219 million are enrolled in a million public schools. Some 100,000 private schools, whose numbers are growing about 20% per year, serve the rising middle class not satisfied with government-funded schools struggling to keep up. Educomp’s principal business model is to place turnkey ICT infrastructure—including hardware; instructional, productivity, and assessment software; and an on-site PD and tech support person—in private schools with no outlay from the schools, one classroom at a time. In return, client schools commit to a multi-year agreement of about $3 per student per month, which they pass along to parents as a small premium for providing a 21st century learning experience. It seemed like a license to print money, too good to be true. Judging by Educomp’s current market valuation, a shadow of its lofty position last fall, it was too good to be true. From conversations with IMF attendees from India, for a host of reasons, customers have soured on the firm’s instructional depth and support, and many are abandoning their lease obligations.
The Parthenon Group’s research shows that for emerging markets, digital content offerings are not big winners. Digital IP, aside from being vulnerable to piracy, has lots of competition from low-priced alternatives and needs expensive support. Businesses that get closer to “the point of instruction,” such as those operating schools, are the ones getting real traction and generating impressive returns. In Khemka’s words, “The profit pool is shifting to direct delivery.” Driving home the point, he added, “There are about 20 $1 billion USD education companies, of which seven are publishers, one is in assessment, and the others are engaged in the 'direct delivery' of education demonstrating the eventual scale potential for school operating companies.” Like a number of other developing countries, China’s government-funded education has struggled to meet demand, and its rising middle class families are willing to pay a substantial portion of income for better education for their children. Growing affluence and the enhanced social status associated with foreign education are key drivers. What’s more, employees with greater proficiency in English can achieve higher income levels and more readily progress to senior positions. Khemka indicated China’s affluent households spend an average of 9.5% of their tax adjusted disposable income on education. As an example, Khemka reviewed the Houghton Mifflin Harcourt RISE (Riverdeep Immersion Subject English) Learning Centers joint venture in China. RISE schools offer a “combination of subject-based English language learning and Houghton Mifflin Harcourt’s award-winning interactive curriculum-based software.” As outlined at their website, “Using English as the language of instruction, the program combines subject knowledge acquisition learning with opportunities for practicing core competency skills, fundamental and unique skills, which enable people to become successful competitors and leaders in the international working environment.”From a business perspective, Khemka said, “The RISE value proposition provides a perfect synthesis of consumer needs and desired outcome, educational content and delivery, and the integration of technology.” As of August 2011, having launched only a few years previously, RISE was serving nearly 35,000 Chinese students at 20 self-owned centers and 82 partner/franchisee centers, with the number of centers expected to reach 153 by the end of 2012. Commenting on RISE’s marketing channels, he said, “Parent satisfaction has translated into some 40% of enrollments coming from word-of-mouth marketing.” Their other channels are the Internet, newspapers, outdoor, and brand, in decreasing order of significance.
The Parthenon Group has a remarkable—probably unique—perspective on education industry business models and trends, and Khemka’s global experience makes his presentations some of the most salient and insightful I’ve heard. A video of his IMF keynote presentation is here, including a downloadable PDF of his slides. You can hear him yourself at EdNET 2012, where he’ll be keynoting with “What the Rest of the World Says About Doing Business Here (and There).”
The Developing World: Publishers Needed But Scarce
The day’s final keynoter was Harry Patrinos, Lead Education Economist, Education, World Bank, in a session moderated by Jim Teicher, CEO, CyberSmart. CyberSmart has been working in under-developed parts of Africa since 2007. Along with Africa’s skyrocketing telecommunications growth, it’s experiencing a youth bubble unlike any other in the world, with exponential growth in school attendance and an unprecedented need for new teachers. As one measure of the resulting digital publishing opportunities, Ambient Insight estimates Africa’s self-paced eLearning market five-year growth rate for 2010-2015 at 17%, trailing only Asia, Eastern Europe, and Latin America (and more than four times higher than for North America).
Current models of technology use, including laptops and computer rooms, aren’t working in Africa for a variety of reasons—too few computers, lack of electricity and under-trained teachers, among other challenges. Early on, CyberSmart, which has developed a kind of e-learning classroom in a box, including a solar-powered, ultra-lightweight interactive whiteboard, learned it shared similar concerns with some international development organizations’ funded education initiatives. Based on his experience, Teicher concluded that while millions of dollar of these funds are going into the development of K-12 instructional materials, a substantial portion of the bids are being won by international contractors and think tanks, not by traditional education publishers. He’s been on a personal mission to make the educational publishing community more aware ever since. At the same time, the World Bank has initiated, under Harry Patrinos, an outreach to education publishers, including a recent meeting with the International Publishers Association in London and keynoting at the IMF.
In 2011, the World Bank’s International Bank for Reconstruction and Development (IBRD) and its International Development Association (IDA, the part of the World Bank that helps the world’s poorest countries) made some $43 billion in loans worldwide, of which 5% ($1.7 billion) went to education projects. More than three-fourths of this went to PreK-12. Many other funding organizations from various nations also provide similar kinds of international development support. To get a feel for what’s being asked of bidders for these types of projects, I skimmed through the U.S. Agency for International Development (USAID)’s “Request for Applications (RFA) Number RFA-663-12-000003, Reading for Ethiopia's Achievement Developed (READ) Technical Assistance Project,” a five-year $45 million project for which bidding opened this past February and closed in March. For a traditional education publisher, it’s a good news/bad news story. The good news is the $45 million, a big part of which goes to fund the creation of reading textbooks. The challenges include having to create versions in about nine Ethiopian languages, train teachers on-site to use the materials, and facilitate the growth of Ethiopia’s indigenous educational publishing industry so it can sustain this sort of development. Before throwing your hands up about even considering this sort of work any further, keep in mind that the projects are often won by consortia of organizations bringing different skills and resources to the effort, so you don’t have to tackle it solo.
Patrinos cited four major global trends:
• A fast-growing global market for education (rising from $2 trillion in 1999 to $3.5 trillion in 2012)
• Increased global demand for learning measurement
• A worldwide evidence revolution to demonstrate efficacy and empower accountability
• A significant rise in private sector schooling
(The latter is a salient reverberation of Khemka’s theme earlier in the conference.) By way of encouragement, Patrinos cited private sector education initiatives in Columbia, Pakistan, and Venezuela, which produced large, positive results in student achievement.
We’re Less and Less an Island – And the Market’s Growing Faster Offshore
The experience of listening to Catherine Lucet, a French educational publishing executive, Karan Khemka, based in India but sharing insights from commercial and government education projects in over 30 countries, and Harry Patrinos, looking at the developing world from the perspective of the global development community, had an eerie “déjà vu” feel to it. The digital revolution, economic development imperative, globalizing markets for products and services, and the Internet are just a few of the market drivers affecting the entire world and educational publishing business models along with everything else. They matter as much in California and Illinois as in Thailand, Brazil, China, and India. What’s really different “over there” is the exponential growth of their education markets compared with the U.S. Tapping these opportunities is no cake walk, but if you’ve been figuring that you’ll have a serious look at what this means for your business “tomorrow,” judging by the IMF’s keynotes, tomorrow’s arriving faster than you think.
The sequel to this article will look at what IMF speakers had to say about how these same themes—and evolving business models—are playing out in major markets in Australia, China, India, Latin America, the Middle East, New Zealand, and Russia.
(Many of the CIC and IMF presentations are available to event attendees at the AEP website through August 1, after which they’ll be available to all AEP members.)
Dr. Nelson Heller is President of The HellerResults Group, a global strategic consultancy serving business and non-profits seeking growth opportunities in the education market. He’s the founder of The Heller Reports newsletters and EdNET: The Educational Networking Conference, both started in 1989. The EdNET News Alert, successor to The Heller Reports publications and now published by MDR, reaches over 31,000 education executives worldwide every week and features a regular column from The HellerResults Group each month. You can learn more about Nelson and his industry leadership at The HellerResults Group. If you need strategic insight, business partners, international connections, stronger boards, keynoters, or entrepreneurial savvy and want the insight of 30 years at the business and technology crossroads of the education market, you can reach Nelson at 858-720-1914, by email at firstname.lastname@example.org, and on Twitter @NelsonHeller.