In the US, Suzie co-ed may be looking at graduating with
over $100k in tuition debt and, it’s even true that her younger brother is
going to end up with considerably more since tuition rises inexorably each
year. Seen in this context, it may be
hard to understand why publishers get beaten up each year over the $4,000 that
a student may spend on educational content over the course of their four years
in College. Despite being asked to spend
just 4% of their educational ‘budget’ on content, students (and to some extent
their parents) frequently voice their opposition to the high price of textbooks
and often gain the attention of media and government. Publishers may be excused for wondering ‘why
us’ when the cost of tuition continues to grow year over year but the annual
value of the textbook market has remained stagnant at approximately $7.5billion. Why textbooks are viewed this way is hard to define:
Perhaps the student pays for their textbooks out of their own pocket versus
tuition paid by parents or, the utility of the textbooks assigned by professors
is questioned when they are not used in full or, the shortened shelf life of
textbooks means students can’t resell their books. Maybe all of the above and other reasons as
well.
For publishers the dissatisfaction is problematic but they
may not actually care too much about the student even though it is the student
that makes the purchase. Their customer
is the faculty member. After all, the
professor is often making an annuity-like decision to select one textbook over
another and that decision can often stand for several years meaning recurring
revenue for the publisher. Increasingly the institution where the faculty teaches
is also important and, while the professor remains vital publishers may be
increasingly interested in the $100K spent for tuition.
A number of years ago, I made a presentation at theFrankfurt Bookfair Supply Chain Interests Group where I used the example of
Reed Elsevier to show how a business could realign its’ business to compete in
a much larger market where the opportunities were potentially significantly
greater. Jack Welsh ex-CEO of General
Electric, (when not suggesting conspiracy theories) used to challenge his
executives to look beyond their traditional markets to expand their
opportunities to grow revenue. As Reed
evidenced, it may better to be a smaller player in a $40billion market than to
dominate a $100million market. Strategically
redefining your business can’t be done easily but becomes the driver in
business planning and over a defined period a business can move itself into one
with significantly more opportunity.
At a conference earlier this year, when the student spending
numbers were discussed it occurred to me that fighting over an annual spend of
$1,000 per student versus an opportunity to grab some of the $25K spent per
year would be a strategic win for a publisher.
With the education market expanding – both in pricing and market
penetration – and traditional the textbook market flat, where else could a
publisher go? A strategic rethink and
change in direction may appear beyond comprehension for the average book
publisher but this is what business strategy is all about. When we were defining Bowker’s business in
2001/2 we could have stayed in low-margin, low-growth metadata management for
libraries and struggled. Instead the
company moved into high-margin, high-growth transaction businesses and market
intelligence for publishers and we were able to grow the company. Strategically for Bowker, this transition was
logical but was only achieved by stabilizing the legacy business and making a
series of strategic acquisitions.
In publishing, there is a more impressive example in the
manner in which Pearson looks to be rethinking how they define their educational
market. Pearson has long been the leader
in education publishing both in K-12 and Higher Ed since the big acquisitions
from Simon & Schuster in the late 1990s.
Indeed in recent interviews, Majorie Scardino the outgoing CEO of
Pearson, recalled realizing education was the growth vehicle for Pearson soon
after she became CEO 15 years ago. During
her tenure, the company realigned their operations, redefined their market,
invested in content transformation and made many strategic acquisitions thereby
broadly expanding the content and services customers in k-12 and higher ed can
now purchase (and license) from Pearson.
One only need look at the chart below from their recent annual report to
recognize how fundamental has the change in market approach been for Pearson.
Pearson PLC Annual Report: Competitors |
The companies we in the ‘publishing’ market would consider
their historical competitors – McGraw Hill, Cengage, HMH – are only bit players
in comparison with Apollo, Benesse, Kaplan and others. Pearson is not only a content producer but
they are also (via a series of key acquisitions) a distribution point for
educational learning on par with Kaplan and the University of Phoenix. Pearson recently won a contract to deliver
“Cal State Online” for the California State University System (CSU) which will
enable the delivery of a selection of undergraduate degree and professional
master’s programs. In competing to
deliver this solution for CSU it is unlikely that Pearson was competing with
their ‘traditional’ publisher competitors.
Other publishers may be starting to take notice and John Wiley’s
recently announced acquisition of an educational provider is evidence of this
attention. Yet, Pearson looks to have a
significant head start and looking at this chart it’s interesting to speculate
what the impact of mergers and acquisitions may have on these players over the
next few years. It seems logical that
for some the fastest way to catch up to Pearson would be to merge with someone
else. For example, Kaplan doesn’t have
much owned content but wide market penetration; whereas, Cengage is a content
developer focused on traditional education delivery. This type of strategic combination may make
sense as these players begin to re-think their markets.
An interesting aspect of the discussion about Scardino’s
departure has been focused on what Pearson’s new CEO may divest as though
divesture at Pearson is something new.
That’s not the case, as Pearson has divested many businesses over the
past ten years. Whether the company
divests the Financial Times or Penguin seems far less interesting to me in
contrast to what their education business can become over the next five
years. Leveraging what is increasingly a
content platform for creation and delivery looks far more interesting and
compelling for Pearson in my view and is a direct result of how they re-thought
their market to go beyond the parameters of the traditional publishing
market. Looking at the chart from their
annual report, all educational companies are going to struggle to keep up.
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