This may seem unthinkable, but Pearson–the mega-giant British publisher of tests and textbooks–might lose its $500 million dollar testing contract for the state of Texas. So says the British publication,
The Telegraph. The entrepreneurs and profiteers of education are worried about the future. How sad. Will they buy each other up? Will they make money or lose money? So many problems when you live or die by profit margins. So many lobbyists to hire. So many campaign contributions to make. Welcome to the new and tawdry world of the education industry.
Katherine Rushton writes:
Most people have, at some point in their lives, felt a bout of nerves as they awaited a crucial set of exam results. Pearson’s chief executive, John Fallon, could be forgiven for having the same feeling.
Next month, the London-listed education giant will face its own version of this peculiar kind of torture, as it learns whether Texas plans to renew its contract for Pearson to provide testing in schools. The deal is a valuable one, worth around $500m (£310m) over five years. It is also a matter of particular strategic importance.
Texas is amongst America’s biggest and most influential states when it comes to education spending – the linchpin in the North American market, which accounts for 59pc of Pearson’s revenues and 66pc of its profits. And it has a long history of doing business with the British company, whose chief executive cut his teeth in the US textbook market, and whose former boss, Dame Marjorie Scardino, is herself American.
If the educational testing business were an election, this would count as Pearson’s safe seat. Yet there are signs Pearson may be about to lose its grip on its traditional stronghold. An audit of the Texas Education Agency recently found problems with the way the Pearson contract was tendered and managed.
Pearson has had other setbacks, like the loss of the Apple-Pearson iPad deal in Los Angeles.
The e-industry is facing difficulties, says Rushton:
“In this transition from print to digital, we don’t have all the infrastructure, but directionally things are moving the right way,” a Pearson spokesman said.
“There are short-term headwinds and long-term opportunities. It is not going to be a clear, straight path. It’s hard work. It’s a case of trial and error as you innovate. The question is, ‘How quickly do you learn?’”….
Some analysts argue that Dame Marjorie carefully timed her exit at the end of 2012. Pearson expanded enormously under her tenure, using a series of acquisitions to develop digital products and expand in emerging markets, notably China.
Mr Fallon, these analysts argue, is now unfairly having to grapple with a ragtag bag of companies, shouldering the blame for a combination of changing market dynamics and decisions taken by his predecessor.
Others claim Dame Marjorie is the one being scapegoated. They argue that the FTSE 100 business she led for 16 years is wobbling because of much more recent decisions, and that Fallon has lost key staff and contracts because of a reduction of investment in digital projects.
Whichever interpretation one adopts it is clear that Pearson’s troubles are not all of its own making. Its current turbulence started at a time when the tectonic plates of the education industry were already shifting rapidly. Part of this is down to a redrawing of the battle lines between established rivals. In America, McGraw-Hill Education has lately sharpened its focus on digital products under new chief executive David Levin, the former boss of UBM.
News Corp’s education division has also upped its game, under the guidance of Joel Klein, the former New York City schools chancellor.
But there are also a number of new rivals bearing down on the sector: Some of these are start-ups. We are in the midst of an unparalleled splurge in investment in new digital education businesses. In 2008, venture capital firms ploughed just $200m into the sector. This year, that sum is on course for $1bn.
Meanwhile, established technology giants like Amazon, Google, Apple, Microsoft and Samsung are all making inroads into the industry, in the hope that they will build loyal audiences to sell other products to down the line. “We’ve handed education to the big software and hardware providers,” says a senior industry figure. “Google is slated to have 20m teachers working on Google apps, and it’s all free. The margins are different because the motivations are different. Google can give away education because it is securing customers for the future.”
At the moment, the big technology companies tend to partner with the traditional players – Apple was supposed to provide the iPads for LA’s $1bn digital project, for example, but Pearson was responsible for the content. However, we have already seen this story play out in other industries. It is only a matter of time before these technology giants start producing their own content, and try to disintermediate the traditional publishers altogether.
“Partnering with one of these guys is like going to bed with a serial rapist,” one senior source says. “It is only a matter of time.”
He identifies Amazon as the biggest single threat. Its motivation is clear. The more educational content it provides, the more likely it is users will become dependent on its ecosystem and use it for future purchases.
Organisations that are not trying to make money arguably pose an even greater challenge, however. In 2011, Facebook’s founder Mark Zuckerberg and his wife, Priscilla, ring-fenced between $1.5bn and $2.5bn to fund education projects. The endowment, informally dubbed the Zuckerberg fund, is a relatively low-key operation at the moment, but industry figures speculate that he will end up tackling education, in much the same way as Microsoft founder Bill Gates established the Bill and Melinda Gates Foundation to improve world health.
Those sorts of initiatives should only ever be welcomed, but they do not make life easier for traditional education companies.
One former Pearson executive argues that “for-profit” organisations in education are “seriously under threat”, and could end up losing their footing altogether.
But the Pearson’s spokesman feels differently. “The private sector has a pivotal role to play,” they say.
Either way, Pearson has reached a crucial moment in its trajectory. Fallon has to whip the ragtag bag of businesses he inherited into a smart, digital company. Otherwise, the venture capital firms could soon start circling and pick-pick-pick it away.