The Business of Education Technology
This is part three of my annual review of the year in ed-tech
In previous years, when I’ve written about this topic, I’ve saved “The Business of Ed-tech” for one of the last articles in my “Top Ed-Tech Trends" series. If nothing else, I’ve wanted as many days in December to pass as possible so that my calculations for the total amount of venture funding invested during the year were as accurate as I could get them to be when I hit ”publish.“ This year, however, I’ve scheduled this topic earlier, which means I can’t really offer a finalized list of the year’s ”Most Well-Funded Startups“ or ”Most Active Investors." I will do that in a separate article at the end of the year.
But even without knowing the funding data for the month of December, I can say a lot.
I think it’s safe to say, for example, that venture capital investment has fallen off rather precipitously this year. True, 2015 was a record-breaking year for ed-tech funding – over $4 billion by my calculations. But it appears that the massive growth that the sector has experienced since 2010 stopped this year. Funding has shrunk. A lot. The total dollars invested in 2016 are off by about $2 billion from this time last year; the number of deals are down by a third; and the number of acquisitions are off by about 20%.
To the entrepreneur who wrote the Techcrunch op-ed in August that ed-tech is “2017's big, untapped and safe investor opportunity.” You are a fool. A dangerous, exploitative one at that.
“This Tech Bubble Is Bursting,” The Wall Street Journal pronounced back in May. That’s not a new prediction, by any means. We’ve heard this for years now. “The Tech Bubble Didn’t Burst This Year,” Bloomberg cautioned in October, “Just Wait” – suggesting that what the future might hold instead of an outright bust is “several years of relative stagnation.” (But who knows what shape tech investment will take under a President Trump.)
Bust or not, companies across the tech sector, particularly those with high “burn rates”, faced tough choices in 2016: “cut costs drastically to become self-sustaining, or seek additional capital on ever-more-onerous terms,” as The WSJ put it – that is, if they were able to raise additional capital at all.
Even without providing you the final tally of funding for 2016, I can point to other signals about what’s happened to ed-tech startups over the course of the last twelve months – their sustainability, their viability. (Or lack thereof – see “The 2016 Ed-Tech Dead Pool.”)
You can read these signals in the phrases used by Edsurge and other publications to describe startups’ press and product releases. “Tweaking the business model.” “Crossing the chasm to profitability.” “A path to profitability.” “A path to revenue.” “Focus turns to money.” Phrases like these were repeated again and again and again this year, as many ed-tech companies have, for years now, relied on venture capital as their primary source of revenue – a source that’s no longer readily available.
You might read the signals of the health of ed-tech startups in the departure of their founders – both from leadership positions and from their companies altogether. Daphne Koller left Coursera this year. Sebastian Thrun stepped down as Udacity’s CEO. Jen Medbery stepped down as CEO of Kickboard. Remind co-founder Brett Kopf was replaced as CEO by Brian Grey, formerly CEO of the Bleacher Report. NovoEd co-founder Amin Saberi was replaced by Ed Miller, a former Blackboard exec. That’s what happens when you raise millions of dollars in venture capital: venture capitalists have a greater say in how your company is run, in who runs your company.
You might read the signals of the health of ed-tech startups – how they’re “cutting costs drastically to become self-sustaining” – in their downsizing. Layoffs at MasteryConnect (30% of staff). Layoffs at Noodle.com (80% of its marketing and editorial teams). Layoffs at Treehouse (20% of staff). Layoffs at General Assembly (7% of staff). (These are just the ones that were reported by the press, of course.)
In fairness, startups weren’t the only education companies experiencing this sort of upheaval this year: Amplify, News Corps’ education division, continued to sell off various parts of its failed business. Blackboard replaced its CEO. Houghton Mifflin Harcourt’s CEO resigned. ISTE’s CEO left “unexpectedly.” Dale Dougherty returned as the CEO of Maker Media, following layoffs there. The CEO of Safari Books left the company “amidst massive layoffs.” Pearson cut 4000 jobs – 10% of its staff. K12 Inc got a new CEO. DeVry Education Group got a new CEO." (I’ll chronicle the layoffs at for-profit universities in more detail in the next article in this series.)
Clearly ed-tech startups weren’t the only ones facing financial struggles in their quest for profitability, as neither testing nor textbooks nor online education nor for-profit education has proven to be as wildly lucrative as the hype of “the digital” promised.
You can find stock market data about publicly-traded education companies at funding.hackeducation.com.
Who’s to blame that companies aren’t selling enough stuff to schools? Why, schools of course.
What Do Venture Capitalists Want?
Here are the areas that have seen the most ed-tech investment activity so far this year:
Learning to code: Investments include Galvanize ($45,000,000), Codecademy ($30,000,000), Andela ($24,000,000), Wonder Workshop ($20,000,000), Revature ($20,000,000).
Tutoring and test prep: Investments include Byju’s ($125,000,000), Zuoyebang ($60,000,000), Jerry Education ($40,000,000), Smartstudy ($29,540,000), Entstudy ($18,210,000), Brainly ($15,000,000), Zhiyou Education ($9,200,000).
Private student loans: Investments include Affirm ($100,000,000), Incred ($75,000,000, CommonBond ($30,000,000), College Ave ($20,000,000), Indian School Finance Company ($6,000,000).
Online education (admittedly, a very generic category): Investments include Udemy ($60,000,000), DigiSchool ($15,700,000), MasterClass ($15,000,000), UNICAF ($12,000,000), OpenClassroom ($6,740,000).
I maintain a dataset of all education technology investments and all education technology investors. Again, I’ll publish a finalized list of “who,” “what,” and “how much” at the end of the year.
Some of these areas that are popular for investment do coincide with the popular narratives about “the future of education” – “everyone should learn to code,” for example. But some of them, like the explosion in startups offering private student loans, suggest something is happening quite contrary to the narratives of “free and open,” not to mention to a tradition of publicly funded education or the policies of federal financial aid.
Glaring in its absence from this list: “personalization,” one of the most trumpeted technology “solutions” this year. (I’ll look at “personalization” in more detail in a forthcoming article in this series.) Certainly “personal” and “personalized” showed up in lots of funding announcements, as it’s an adjective that gets inserted quite easily into almost any press release. Even without funding data to underscore its importance, “personalization” can’t be dismissed.
The word is a crystallization of ed-tech ideology: through technology, teaching will become radically individualized as learners’ lessons are reduced to the smallest possible piece of content, then presented to them algorithmically. Moreover, per this ideology, without the aid of algorithms and “personalization” technology, human educators and traditional institutions have historically failed to meet the needs of individuals as individuals. The responsibility for education therefore must shift to technology, away from the institution, to the individual, away from the public or civic.
The ideological and financial shift from public to private is exemplified by venture philanthropy – that is, venture capital investments framed as charity.
Last year, Mark Zuckerberg made headlines when he announced he would donate 99% of his Facebook shares to his philanthropic LLC, the Chan Zuckerberg initiative. This investment vehicle is often described as a charity; it’s not. As political science professor Rob Reich recently told Buzzfeed’s Nitasha Tiku in her story on "free market philanthropy,
Wealthy individuals often assume that philanthropic donations should be received in gratitude, Reich said, because it’s better for the public than purchasing another house or another boat. “That’s just false to me,” he said. “It’s an exercise of power aimed at the public, and in a democratic society, power deserves attention and scrutiny, not gratitude.”
The Gates Foundation is perhaps the best known organization for furthering political advocacy through its funding mechanisms. It is a profoundly undemocratic force whereby unelected billionaires funnel money into efforts to reshape public education policies – expanding charter schools, pursuing alternative forms of teacher certification, promoting the Common Core State Standards, encouraging merit-based pay for teachers, and popularizing the narrative that education technology is the key to “personalization.” The agendas of other foundations – big and small – often echo those of Gates. The Chan Zuckerberg Initiative is no exception.
You can find the list of education technology companies the Chan Zuckerberg has invested in this year at funding.hackeducation.com. The list of recipients of Gates Foundation grants can be found on its website.
In May, the Chan Zuckerberg Initiative announced that Jim Shelton would head its education investment endeavors. Shelton had been named president of the online education company 2U earlier in the year. Previously, he’d been the deputy secretary of the Department of Education. Before that, he’d been at the Gates Foundation. Before that, he’d been at NewSchools Venture Fund. Before that, he’d run a school management company acquired by the charter school chain Edison Schools.
“If You Had $45 Billion, What Would You Do to Improve Education?” The Chronicle of Higher Education’s Goldie Blumenstyk recently asked Shelton. Me, I’d probably take it and divvy it up among the 15 million children who live in poverty in the US, but clearly I’d make a terrible venture capitalist.
Shelton’s hardly the only person who’s gone through the revolving door from the Gates Foundation to the Department of Education to venture capital and back again. Ted Mitchell, the current Under Secretary of Education, was the president of NewSchools Venture Fund. And former Secretary of Education Arne Duncan, who stepped down from his position at the end of 2015, joined the venture philanthropy firm Emerson Collective – founded by Laurene Powell Jobs, Steve Jobs’ widow – as a partner in March. (A former basketball star, Duncan also joined the Knight Commission on Intercollegiate Athletics this year.)
Among its investments this year, the Emerson Collective funded a $100 million contest this year to “rethink high school,” perpetuating the old and tired narrative that “high school hasn’t changed in 100 years.” Of course, schools have changed – in both substantial and incremental ways – over the last century, while many recent reformers efforts to radically reshape public school have failed. But, as New York Magazine quipped, “Laurene Powell Jobs is undaunted by these facts.”
You can find the list of education technology companies the Emerson Collective has invested in this year at funding.hackeducation.com.
The Elephants in the Ed-Tech Room
For the last five or six years, education technology has been largely talked about in terms of “startups,” something that helps position the industry as an outsider and an underdog. Of course, most of ed-tech is neither. It’s built and sold by giant corporations.
These are the companies that sell the textbooks; these are the companies that sell the tests.
But as I noted above, these two products haven’t been as lucrative in recent years as companies had hoped, and their to “digital” hasn’t been smooth. In part, their struggles are a result of controversies surrounding the Common Core State Standards, which were supposed to streamline and procurement the development of curriculum and assessment. Pushback against Common Core tests specifically and against standardized testing more generally have also prompted states and districts to rethink the kind and frequency of assessments they buy. “The number of states planning to use the new tests dropped from 45 in 2011 to 20 in 2016,” Education Next observed this fall, and many states and districts have opted to use the SAT or ACT instead of those assessments created by the Common Core consortia, SBAC and PARCC.
Schools, for their part, also continued this year to experience difficulties with the move to computer-based testing, some having to revert to paper-and-pen assessments when online systems went down. In turn, states including Tennessee, Texas, Nevada, Indiana, and New Jersey fined their testing vendors, froze their contracts with testing vendors, or claimed their vendors were in breach of contract.
In response to all these ongoing problems with testing, the Obama Administration said in April it would “take action” in order to “ensure fewer and better tests for students.” “Taking action,” in this case, meant releasing some case studies and posting a notice on the Federal Register about how a competitive grant program could provide a more “innovative” way to build assessments.
Everything’s a business opportunity.
The move away from the Common Core consortia for assessment and towards the (Common Core-aligned) SAT has been a boon for the College Board, no surprise, which reported over $840 million in revenue in 2014 (the last year it’s tax forms are available online).
The College Board released an updated version of the SAT this year that it claimed would make the test more equitable – I’ll look at this claim more closely in the final article in this series. The College Board also boasted about its partnership with Khan Academy, which would make SAT test prep materials freely available online. The College Board insisted that this move – free test prep – would also serve to make the assessment better reflect student capacity rather than parental income, something probably belied by the fact that test prep remains one of the most active areas for education technology investment.
The pressure to move towards digital assessments has fueled schools’ investments in hardware and software more than any other argument about the importance of ed-tech. (According to Edsurge, changes to the Elementary and Secondary Education Act will soon be another “win for ed-tech vendors.” So congrats, ed-tech vendors.) Schools do continue to turn away from the iPad as the tablet hasn’t proven to be quite as revolutionary as some predicted. Surprise, surprise. But the rationale for choosing a certain type of computing device is almost always about testing, not about any other benefit the device might offer teaching and learning.
“Personal Computer Sales to K–12 Education Continue to Rise as OS War Hots Up,” FutureSource Consulting pronounced in March. By June, the same market research firm said that the K–12 market was in decline. (In ed-tech, never forget: “The Best Way to Predict the Future is to Issue a Press Release.”)
But this notion of an “OS War” shouldn’t be too quickly dismissed. “Apple, Microsoft, Amazon and Google Are Fighting a War for the Classroom,” Edutechnica wrote in June, with a look at how many colleges have adopted their competing “pseudo-LMSes.” The “war” extends beyond the productivity suite of tech tools and it extends beyond operating system in the classroom. It’s about building brand allegiance with students and/as workers, and it’s about building data profiles to sell ads and other products.
Although Amazon has provided the infrastructure for many education companies for quite some time now with Amazon Web Services, its cloud-based offering, it attempted to make more inroads into education this year: trying to lure college students to become Prime members, reaching a deal whereby Prime would be the exclusive streaming service for PBS for Kids content, toying briefly with the idea of getting into the student loan business with Wells Fargo, becoming the e-book platform for New York City school system, and launching a digital marketplace for K–12 instructional materials (which I’ll look at more closely in the next article in this series).
It’s probably a stretch to argue, however, that – even with their deep pockets and engineering talent – these big technology corporations are, as Edsurge implied this fall, on a “march to replace learning management systems.” Or if it’s a march, it’s a very very slow one – one that I’m going to leave in the capable hands of Mindwires Consulting’s Phil Hill and Michael Feldstein to monitor. If those two say “the LMS market glacier is melting,” it’s probably melting. (I’m not sure how that changes the march, to be honest. Metaphors in ed-tech are so confusing.) Throughout the year, Hill and Feldstein dutifully chronicled all the updates (or lack of updates) to Blackboard, Pearson, Instructure, Schoology, D2L, and the like. (So thankfully, I didn’t have to.) In May, their company began offering a subscription service for a report on the LMS market – a signal, perhaps, that “the march to replace the learning management system” won’t be over anytime soon.
The LMS, of course, needn’t be a permanent line item in schools’ budgets. And its supposed primacy might actually overlook that there’s a great deal of “shadow” technology utilized by instructors who eschew the official LMS for something they find better suited to their classroom needs and goals.
The Procurement Problem
The learning management system is a piece of “enterprise” software after all. That is, it’s built and bought to satisfy the needs of the institution rather than the needs of individual. Purchasing an LMS – or more correctly, signing a contract to license an LMS – requires its own enterprise-level bureaucracy.
For the last couple of years – at the very least since the resurgence in venture-back ed-tech startups – there’s been a steady drumbeat of complaints that the procurement process at both the K–12 and college levels is broken. It’s inefficient. It’s “dysfunctional.” I’ve heard the complaint from entrepreneurs. I’ve heard it from their investors, many of whom argue that the challenges of selling to schools is one of the things that makes education a difficult market to crack (and in turn ed-tech startups a poor investment).
There’s a lot that’s wrong with the process, no doubt. For starters, the hefty RFP requirements almost by design tilt purchasing decisions towards big companies and incumbent players. The folks who make the decisions about what to buy typically aren’t the people who are using the products in the classroom.
There’s not a lot of transparency in the procurement process; nor is it easy to find out afterwards which products schools bought or use – although that’s not something you hear companies moan about, funnily enough. You’re just supposed to trust them when they brag they’re used in 90% of schools. (USC professor Morgan Polikoff’s research on textbook adoption, for example, has made this painfully clear. He’s sent FOIA requests to school districts, and in many cases they have been unwilling or unable to share their textbook data. And when they do, the data is often a mess.)
In the last few years, lots of consulting firms and organizations have offered their suggested solutions for fixing (what they see as) procurement problems. Last year Edsurge launched a “concierge” service in which it said it would help schools identify its tech needs and then buy things based on those needs (and then take a cut of the contracts, of course), and it continues to position itself as a liaison between startups and schools.
This spring, Harold O. Levy, executive director of the Jack Kent Cooke Foundation, launched the Technology for Education Consortium in order to offer “price transparency” around procurement. The organization’s first target was Apple, which it found charged different districts different prices for identical iPads. (Apple disputed the organization’s assertions.)
This fall, the EducationSuperHighway released a price comparison tool so that districts could see neighbors’ broadband costs and ideally leverage that information to get a better deal.
(All of these organizations – Edsurge, EducationSuperHighway, the Technology for Education Consortium – are funded by the Gates Foundation. And the beat goes on.)
Some schools made efforts to tackle procurements problems too. UNC, for example, launched a Yelp-like review site for ed-tech tools, where, according to The Chronicle of Higher Education, “it is asking professors to review and comment on how useful various digital services were in their classrooms.”
But by and large, procurement issues are a problem identified by companies that companies decide they will “fix” in turn: “Try Before You Buy,” Edsurge reported in June. “Clever’s ‘Co-Pilot’ Aims to Help Schools Pilot and Purchase.” Indeed, an increasingly popular service offered by ed-tech companies and ed-tech investors is “research” into how to buy ed-tech and into which ed-tech products are best, which “work” (whatever that means).
(These companies almost all share the same investors too. And the beat goes on.)
One of the ways in which ed-tech startups have found success in getting their products widely adopted is to sell to charter schools, particularly charter school chains. (Again, they often share the same investors.) Charter school chains, in turn, have started to license their products and franchise their models to others. As such, it’s difficult to separate “the business of education technology” from “the business of charter schools” – and why it’s difficult, as I noted in the previous article in this series, “the politics of education technology” from “the politics of education reform.”
It’s a business that, much like the business of for-profit higher education, seems to be poised for growth with the election of President Trump. Shares in K12 Inc, a virtual charter school with notoriously poor performance, are up rather dramatically from this time last year. (The history of the future of ed-tech and venture capital: Oracle’s Larry Ellison was one of the first investors in the company.)
In July, California Attorney General Kamala Harris announced a $168 million settlement with K12 Inc over charges the company had published misleading advertisements about the academic performance of students, among other things. “As part of the agreement,” The Wall Street Journal reported, “the attorney general’s office maintains that K12 will forgive about $160 million in debt accrued by the nonprofit schools it manages, which was a result of the fee structure in the K12 contract. The company also will pay $8.5 million to address all claims.” K12 denied any wrongdoing.
California’s virtual charter schools weren’t the only ones that found themselves in trouble legally and/or academically. There were problems in Ohio, Pennsylvania, Colorado, Idaho with virtual charters. And yet, despite the poor performance, these remain in business.
It’s the business of funneling taxpayer money into private companies. And that is, at the end of the day, the business of education technology.
Disrupting the Culture of Public Education
I’ve argued elsewhere that education technology serves as a “Trojan horse” of sorts, carrying with it into public institutions the practices, politics, and a culture of private business and the ideology of Silicon Valley. This is evident in the ways in which you hear many investors and entrepreneurs talk about what needs to happen to schools – that they need to become more efficient; they need to be more like “lean startups” and redesign themselves as a “minimum viable product”; they need to “unbundle,” “unbundle,” “unbundle”; they need to rename job titles and rethink job roles – “learning engineers” or “entrepreneurs-in-residence,” for example; they need to turn to markets, not politics or publics, for solutions.
Edsurge wrote in March about how schools could bring “Shark Tanks” to their schools. Shark Tank is a reality TV show featuring investor Mark Cuban in which entrepreneurs pitch their ideas to a panel of judges, hoping to win some investment. The Chronicle of Higher Education ran a “Shark Tank” contest at SXSWedu this year. One of the entrants was a startup that made it easier to hire adjunct instructors. For what it’s worth,“Shark Tank funds fewer women than men, with less money,” Mashable observed earlier this year, but I’m sure things’ll be swell if schools adopt the practice.
If you’re looking for a quick read – one that’s hilariously awful – about the culture of startups in order to convince yourself this is the last thing we should bring to public education, I recommend Dan Lyon’s book Disrupted: My Misadventure in the Start-Up Bubble, published this spring.
What VC Spells for Sesame Street
Last year, Sesame Street made the sad and surprising announcement that it had struck a five-year deal with HBO, giving the premium cable channel the first-run rights to new episodes of the beloved television show. As media scholar Siva Vaidhyanathan wrote at the time, “The Sesame Street move is not a horrible thing in itself. After all, the new episodes will show up for free on Public Broadcasting Service stations nine months after HBO viewers got them. Instead, the move is a symptom of how Americans view our collective obligations to each other – especially to our poorest children.” The mission of Sesame Street had, since its founding been to serve underprivileged children, offering them a televised educational enrichment free of charge, free of advertising.
“New money has ruined Sesame Street,” The Guardian wrote in January. "In its new format the show’s theme tune is a little brighter and the street scene a little ritzier than one remembers from earlier versions.
The charm of Sesame Street was always in its scruffiness and allegiance to the theory that kids like dirt – or rather, don’t dislike it the way adults do – and Sesame Street’s row of brownstones was clearly the pre-gentrified version."
Now, as the camera pans over Big Bird’s new-look neighbourhood, and in keeping with the times, those houses seem to have been remodelled by developers
Elmo has a new apartment. Oscar the Grouch no longer lives in a trash can. The puppets that are featured the most are the ones with the best-selling product lines. And then there are the humans. Some of those humans – those most dearly beloved humans of Sesame Street, Gordon, Luis, and Bob – were fired (and then brought back due to the uproar).
In February, Sesame Workshop, the maker of Sesame Street, announced it was launching a venture capital arm in order to invest in startups because everything is terrible. It’s first startup investment – a tutoring app. It also invested $53 million in a VC fund run by Reach Capital, formerly NewSchools Venture Fund.
Of course, what drives the programming on Sesame Street now isn’t education research; it’s market research. It isn’t “equity” as in social justice; it’s “equity” as in the financial stake a VC takes in a company.
And that’s what “the business of education technology” gets us.
This post first appeared on Hack Education on December 5, 2016. Financial data on the major corporations and investors involved in this and all the trends I cover in this series can be found on funding.hackeducation.com. Icon credits: The Noun Project