Consolidation in the e-learning market? Why it ain’t going to be easy

A couple of items crossed my desk recently that suggests that the e-learning market is ripe for mergers and acquisitions. See for instance:

Kim, J. (2010) 4 reasons I’m obsessed with Ed-Tech acquisitions Inside Higher Education, December 13

Hampson, K. (2011) ASU’s Education Innovation Network: An Interview with Michael Moe Higher Education Management Group, January 13

In particular, see:

Moe, M. (2010) 2020 Vision NextEdu, January 2

Comment

Is it different this time round? These predictions of a huge opportunity to make money from online education were all over the place in 1999 and 2000, then came the dot.com bust. Indeed, it was a paper by Michael Moe and Henry Blodgett when they were at Merrill Lynch that was a major spur for investment in for-profit online educational institutions around 2000. These projects almost all burned and crashed (remember NYU Online, Virtual Temple, Harcourt Virtual College, and the United States Open University, the UK e-University, U21 Global, Fathom?) For an analysis of the reasons why these failed, see Chapter 2, the Impact of technology on the organization of distance education, in my book, Technology, e-Learning and Distance Education.

As any investor knows, when Wall Street analysts say: ‘But it’s different this time,’ beware. However, in some ways, it IS different now. What Joshua Kim is talking about is not investing in new start-ups, or even new private online universities, but very successful large companies, such as Google, Facebook and the Apollo Group (University of Phoenix) acquiring, merging or partnering with smaller, well-established commercial companies such as Blackboard or Desire2Learn.

Another difference is that many states in the USA are basically financially bankrupt. They haven’t the money to fund state higher education at the level previously. This opens up the market for for-profit higher education. (Will the Apollo Group take over a bankrupt state education system? It has the cash to do this.) The UK is in a similar position to the USA. However, this is not the case in many other developed countries (such as Canada, Scandinavia, and other parts of Northern Europe) where the state-funded system is still relatively well financed.

What is not different is the mistaken view that American companies can make a killing by offering online courses into rapidly developing countries such as India, China and Brazil. Basically, forget it. Companies in these developing countries are more likely to end up owning American institutions or companies, because in these rapidly developing countries, they are able and motivated to innovate more fundamentally and rapidly, and increasingly have the cash to do so. But the biggest barrier to exporting online learning was, is and will continue to be cultural and language differences. You can’t just ship American content – even in relatively culturally neutral subjects such as physics and math – successfully to India or Indonesia (or vice versa). Partnerships with local providers, indigenous development and delivery, and local adaptation are critical factors for success, and these rapidly increase costs and complexity.

The other complicating factor is open source. e-Learning products and services such as Moodle, Sakai and open educational resources bring a different perspective into the market. The big mistake before the dot.com bust by investors was to think of education as being mainly about content: bundle up the content and sell it as an educational service. Indeed, content now is moving towards becoming free. However, high quality education is a transactional process between teachers and learners. This is where the main costs lie. Where the costs remain are in designing effective learning environments and providing learner support services, such as feedback and assessment. These remain labour intensive, and in many subject areas difficult to computerize without losing quality. Incidentally, countries such as India and Brazil are able to offer these transactional services at a lower labour cost than in the USA. The main issue then will remain quality, and how it is defined, particularly by potential learners.

Thus although there are elements of the education market that lend themselves to commercialization, significant areas do not. Whether commercial operations will be successful will also depend on the strength – or rather the weakness – of the state education system. It is in the interest of private companies to weaken the state system; we should be vigilant to ensure that this does not happen, but at the same time, state institutions need to ensure that they are providing high quality transactional services and not just crowding more students into large lecture halls.