The Coming Revolution in Textbook Publishing

Gone is the textbook?  With big players Pearson and Cengage changing the textbook model are we finally witnessing an inflection point?

Last week Pearson, PLC launched a direct-to-student content app that give student subscribers access to Pearson’s entire 1500 textbook catalog. Cengage bravely launched something similar a few years ago and the strategy was seen almost as a hail Mary pass to save the company’s business model. As most will understand, the textbook sales model – particularly in undergraduate education – has been challenged for many years. In the eighties and nineties textbook companies consolidated and textbook prices started to increase which slowly eroded sell-through. At the same time, the secondhand market became more organized as retailers saw margin benefits in their efficient buy-back programs. Later, further dislocation occurred via the Internet and new company entrants like Chegg brought rental to the college market. 

MediaWeek (Vo 14, No 3) Clarivate to buy Proquest in $5.3B deal, Remember Reading, RB Media Acquires, Controversial Book Deals

Clarivate (ex Thomson Reuters company) announced their intention to acquire Proquest.  From the press release:

Clarivate plc (NYSE: CLVT), a global leader in providing trusted information and insights to accelerate the pace of innovation, today announced a definitive agreement to acquire ProQuest,  a leading global software, data and analytics provider to academic, research and national institutions, from Cambridge Information Group, a family-owned investment firm, and other partners including Atairos, for $5.3 billion, including refinancing of ProQuest debt. The consideration for the acquisition is approximately $4.0 billion in cash and $1.3 billion of equity. The transaction, which is subject to customary closing conditions, including regulatory approvals, is expected to close during the third quarter of 2021.

With a mission to accelerate and improve education, research and innovation, ProQuest delivers content and technology solutions to over 25,000 academic, corporate and research organizations in more than 150 countries. The acquisition will establish Clarivate as a premier provider of end-to-end research intelligence solutions and significantly expand its content and data offerings as the addition of ProQuest will materially complement the Clarivate Research Intelligence Cloud™. 

Why We Remember More By Reading (The Conversation)

The benefits of print particularly shine through when experimenters move from posing simple tasks – like identifying the main idea in a reading passage – to ones that require mental abstraction – such as drawing inferences from a text. Print reading also improves the likelihood of recalling details – like “What was the color of the actor’s hair?” – and remembering where in a story events occurred – “Did the accident happen before or after the political coup?”

Studies show that both grade school students and college students assume they’ll get higher scores on a comprehension test if they have done the reading digitally. And yet, they actually score higher when they have read the material in print before being tested.

Educators need to be aware that the method used for standardized testing can affect results. Studies of Norwegian tenth graders and U.S. third through eighth graders report higher scores when standardized tests were administered using paper. In the U.S. study, the negative effects of digital testing were strongest among students with low reading achievement scores, English language learners and special education students.

 New Order: Audio First (WSJ - Paid)

“The Bomber Mafia” is part of an effort by Pushkin Industries Inc., an audio company that Mr. Gladwell co-founded, to become a major provider of highly produced “original” audiobooks. Such projects sound more like podcasts than traditional audiobooks, since they often feature original scores, as well as archival and interview tape.

Industry giants including Bertelsmann SE’s Penguin Random House and Amazon.com Inc.’s Audible also produce high-production original audiobooks with sound effects and a cast of multiple actors, representing significant competition for Pushkin.

RBmedia Acquires McGraw Hill Professional Audiobook Publishing Business

RBmedia, the largest audiobook producer in the world, today announced the acquisition of McGraw Hill Professional’s audiobook publishing business, which includes its catalog of previously published titles, as well as a multi-year agreement to become the exclusive audio publisher for all of McGraw Hill Professional’s new titles.

“We are excited to participate more fully in the rapidly expanding audiobook category by partnering with RBmedia,” said Scott Grillo, President of McGraw Hill Professional. “Leveraging RBmedia’s unique abilities in spoken audio will help us reach business and trade professionals and all those striving to advance their education or careers. RBmedia creates exceptional audio productions that serve our authors well and will help them monetize audio rights at a high level. Our publishing program will be stronger because of this unique collaboration.”

Note: Overdrive purchased RB Digital the company's library platform in 2020 (Press Release) 

Who Deserves a Book Deal - Just about Anyone? (Vox)

Is the industry’s purpose to make the widest array of viewpoints available to the largest audience possible? Is it to curate only the most truthful, accurate, and high-quality books to the public? Or is it to sell as many books as possible, and to try to stay out of the spotlight while doing so? Should a publisher ever care about any part of an author’s life besides their ability to write a book?

These questions are becoming more and more urgent within the private realms of publishing, amid debates over which authors deserve the enormous platform and resources that publishers can offer — and when it’s acceptable for publishers to decide to take those resources away.

Within the media watering hole of Twitter, it can look as though these concerns are being imposed from the outside: by progressive authors calling on their publishers to abstain from signing right-wing writers; by angry YA fans and Goodreads readers; by petitions and boycotts and special interest groups. But the conversation about who deserves a publishing deal is also happening within the glass-and-steel walls of the industry itself.

Employed but Pissed at Simon & Schuster (The New Republic)

Inside Merger Mania: (The Wrap - Register)

On the tail of massive acquisitions in the entertainment and media space, such as AT&T’s $85 billion purchase of Time Warner in 2018, thew 2019 re-merger of ViacomCBS and Disney’s $71 billion acquisition of 21st Century Fox in 2019, major book publishers are embarking on their own consolidations in an effort to cement their place in an increasingly competitive environment. But are any of these major acquisitions anti-competitive, as critics have argued?

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Are you considering an investment in new technology?  Check out my report on software and services providers.  (PubTech Report)

PND: Digital Transformation: A Seminar for Management

PND: Blockchain for Publishers

PND: Technology News

PND: The Price is Right for Cengage  

PND: The Opportunity in 200MM Students

PND: Mediaweek Reports 

Michael Cairns is a business strategy consultant and executive.  He can be reached at michael.cairns@infomediapartners.com or (908) 938 4889 for project work or executive roles.

 

Thomson Reuters Up in the Clouds

Almost 10 years ago, Thomson Reuters embarked on the development of their Elektron Data Platform and sold it as a mechanism to get faster as a data provider and closer to their customers.  As part of this effort they built data centers around the world to support their objectives and the efforts were highly successful.  That said, the rapidity by which technology advances is now encouraging the company to place their financial data into the cloud supported not by their own technology but by Amazon and the AWS products.

Financial data is highly transacted and Thomson Reuters counts as clients most financial companies of any consequence.   As a result of this implementation to AWS, their clients will gain increased flexibility in how they use data and how clients can develop new products based on this data.   Not only do clients not have to build and maintain their own data centers (obviously they can if they want) but they can build their own applications on AWS which in turn will allow them to be more flexible in how they service their customers.  The model Thomson Reuters is establishing could be revolutionary in the manner in which users manage financial data and service customers. 

"The enhancement to the Elektron Data Platform will initially provide access to real-time data on the secure and scalable Amazon Web Service (AWS) Cloud in North America, with plans to expand to Europe and Asia later this year. With the cloud API, data can be consumed natively on AWS, directed to applications based in other cloud environments, or to an on-premise environment.

As a simplified, conflated real-time service, the real-time in the cloud service can power up to three client applications at three updates per second across 50,000 instruments at the same time, which can be selected from the full universe of over 70 million instruments covered by the Elektron Data Platform."

No less important from this announcement is that by using AWS, Thomson Reuters will be buying in to a set of standards and protocols which will encourage application development, experimentation and likely broader usage.  This will lower the barriers to entry for many existing and new customers.

As the sheer amount of data increases and complexity grows, Thomson Reuters have taken the view that making data accessible can reduce complexity and help companies focus more on the delivery of analytics, machine learning applications and other innovations.   Enabling this without a cumbersome back end technical architecture will be the strategy all data managers will begin to execute.

(Press Release)

Michael Cairns is a business strategy consultant and executive.  He can be reached at michael.cairns@infomediapartners.com for project work or executive roles.  See here for examples of recent work.

MediaWeek Report (Vol 10, No 1): Some of The Big News Stories from 2016

2016 was a tumultuous year and one we are glad to see the back off.  From the constant stream of celebrity departures to Brexit to Trump, we all deserve a breather; but it won't come and I expect 2017 will be an even more intense year.  Things don't look promising.

Many of the biggest media stories of 2016 revolved around the election but, while there were other big stories in media this year, it was arguably a quiet year for publishing and media.  Here is my list of top media and publishing stories from the past year (in no particular order):

• Gawker lost a libel case to fake wrestler Hulk Hogan with a judgement against that effectively bankrupted the company.  The escrow amount required for an appeal was so high they couldn't afford it and the company was eventually sold to Univision for $135million.  Most troubling to many was the legal sponsorship provided by Silicon Valley investor Peter Thiel.  This verdict and the legal sponsorship that enabled it have people concerned about press freedoms in the future. (NYTimes)
• Thomson Reuters sold their IP and Science business unit for $3.5Bill to a Canadian equity fund with little previous experience in publishing.  The purchased business is now named "Clarivate Analytics".  There's a saying: Never be a buyer when Thomson is a seller.  Not sure where I heard that; however Thomson, in transforming itself over the past 15 years, has shown itself to be very adept at moving out of failing businesses ahead of time - newspapers, educational publishing - and moving on into new markets.  (Reuters)
• During 2016 we saw a significant increase in social publishing for advocacy - no single news story here but the activities of athletes and celebrities together with advocacy groups such as "black lives matter" using their profiles and notoriety to push social commentary and raise awareness for causes seemed to gain stream during the year.  Whether this "movement" exhausts itself flailing against trolls and fake news remains to be seen during 2017.
• Small bundles made a comeback in 2016 mostly in video/television content but with the likes of ESPN, Hulu, HBO, SlingMedia and others showing the way the long term viability of the big package offering we've all been used to for 30 years may be fracturing.  Obviously, the web combined with the proliferation of devices is driving this trend as audiences - particularly the younger crowd - look to make their own bundles. (WSJ)
• That said, the proposed ATT/Time Warner merger is a bet that content and distribution will drive value and also protect each company strategically.   The Comcast/NBC combination has been a success with average annual subscriber revenue well over $1000 - very near the top of the range. ATT/TM will expect to benefit from that level of revenue but they will also hope to project themselves against any adverse effects of the content market fracturing.  With HBO and Warner Studios, ATT would be a stronger business particularly in competing with Comcast and others. (NPR) 
• After the election, there was a mini renaissance in subscriptions to old line news sources such as The New York Times, Washington Post and magazines.  Will this be sustainable is the question? (NiemanLabs)
• Follet emerged from a protracted period of management upheaval and strategic review where they contemplated selling the business with the purchase of Baker & Taylor.  The combined company now has revenues over $3.5Billion with strong positions in library and school distribution and educational retailing.  Industry watchers are hopeful that years of under investment in B&T will be reversed and significant operational improvements made to the combined business.  (ChicagoTrib)
• Wiley acquired the content management platform Atypon both as a strategic asset and a technology provider to their existing business.  Atypon will remain a separate business unit but will also support and supply Wiley with technology to support the re-platforming of their existing product suite.  Assuming Wiley manages the integration well, this stands to be a great deal for both sides.  In related news, Highwire Press acquired Semantico (UK) to further consolidate the content solution market supporting academic and scholarly publishers.  Highwire is owned by Accel/KKR and is generally considered the largest business in this segment. (PND) 

I've probably forgotten something important....

Looking forward to 2017 anyone?

Michael Cairns is interested in discussing c-level executive management and/or board and advisory positions.  He has served as CEO and President of several technology and content-centric business supporting global media publishers, retailers and service providers and can be reached at michael.cairns@outlook.com and he blogs at personanondata.com

MediaWeek (Vol 7, No 26) Dangerous Literature, Newspapers, Ranking Publishers, MOOC Feedback + More

More here: Personanondata - The Magazine  via @flipboard

From The Chronicle of Higher Ed, a discussion on when books were dangerous:

The American Library Association, which designates the final week of September as Banned Books Week, has no problem finding titles to fill its annual lists of books under siege. However, these are generally books that have been removed from particular libraries or schools, not the kind of total proscription imposed on Ulysses, as well as Lady Chatterley’s Lover, Tropic of Cancer, Naked Lunch, Lolita, and other works that have since become staples of literary study. Over the decades since the Woolsey decision, authors, publishers, and judges have struggled to parse the differences between "indecent" and "obscene" and determine the meaning of such terms of art as "prurient interest" and "redeeming social value." However, the upshot is that, though sexual explicitness and offensive language are the most frequently cited reasons for which books are now challenged, neither is now a legal barrier to publication or sale.

Publishers Weekly has updated their hugely useful listing of top publishers by revenues:

Although there was a fair amount of deal making among the global book publishing giants last year, those mergers and acquisitions did not have much of an impact on the top of Livres Hebdo/Publishers Weekly’s annual ranking, based on annual revenue, of the world’s largest publishers in 2013. Pearson came in first, with $9.33 billion in revenue, followed by Reed Elsevier, Thomson/Reuters, and Wolters Kluwer. All four educational and professional publishers held the same respective positions on the list in 2012.

Wired Campus blog at CHEd has a look at digital versus print from the AAUP annual meeting last week in New Orleans.

Christopher Schaberg, an associate professor of English at Loyola University New Orleans, said he appreciates well-done print books more now than before the rise of e-books. Mr. Schaberg is not averse to e-publishing; he is a co-editor of the Object Lessons book and essay series, which appears in both print and digital formats. But he pointed out that e-texts aren’t necessarily more efficient for teaching purposes; he recalled a class in which everybody had an iPad but it took much time to get all the students on the same page, so to speak.

On a global scale it has long been arguable that newspapers are dying and here is another look by The Atlantic.

This captive readership is also the bedrock of the business model. Businesses seeking to target immigrant communities often find more value in advertising in these small publications than the mainstream press.

Disruptions like Craigslist, which has bled dry classified sections of large print publications, have had limited impact on these publications. The foreign-language ethnic press is reaching an audience that isn’t necessarily online and doesn’t always understand English. Nearly a quarter of New York’s population, according to the U.S. Census data, isn’t proficient in English.

The result is that many of these publishers can still support their operations with revenue from print advertising. Castaño, for example, makes 90 percent of his money from print ads, with the majority coming from local businesses. “I’ve been profitable since the beginning,” he told me.

That’s also partly because the Queens Latino only has one full-time employee: Castaño. The rest of the work is done by freelancers, and Castaño’s wife does the layout and design.

At the Urdu Times, Rehman has outsourced most of his newspaper’s operations to a small production unit in Pakistan. “I have 18 people working for me in Lahore,” he explained. The copies are drafted there and then emailed to the basement in Queens for proofreading, as are all the page layouts. Rehman and his wife approve everything, and then forward it to the printers. His only full-time employee in New York is an advertising manager, who has his own desk at the back of the store above the basement.

Rowling may be telling the publishing industry what she thinks about the industry in her newest book as contemplated by The New Republic:

It’s also one of ego-maniacs. And the writers, or would-be writers, are the worst of the batch. When the amateur author of erotica describes her work to Strike in rehearsed phrases and sound bites, he wonders how many people “who sat alone for hours as they scribbled their stories practiced talking about their work during their coffee breaks.” (One wonders: Did—or does—Rowling do this?) Meanwhile, Quine’s agent describes him “as a bigger glutton for praise than any author I’ve ever met, and they are most of them insatiable.” Of course, this agent, a wannabe writer with a first in English from Oxford but no novels to her name, turns out to be pretty insatiable herself.

Instant gratification can be a double edge sword for academics serving online courses (The Conversation):

When your classroom is a global one, filled with well-informed online learners, they don’t cut you much slack. Hundreds of people pore over every element of your course, making well-informed and sometime acerbic comments. Academics who run Massive Open Online Courses (MOOCs) are finding that they can’t afford any sloppy reasoning, one-sided arguments, or narrow perspectives when teaching to a massive global audience.

As academic lead at FutureLearn, a company offering free online courses from UK universities, I’ve seen that this instant feedback can be eye-opening for course designers.

On a university campus, students stick around even though the teaching may be dreadful, because they need the degree qualification. In MOOCs they leave as soon as they lose interest.

So far, much of the debate in the United States about MOOCs has focused on the dropout rate. Typically, just 7-10% of students enrolled on a course from a US MOOC provider reach the end. But that assumes completion should be the goal of online learning, and that students who drop out early are failures. Much of the early publicity around free online courses focused on them as alternatives to an expensive campus university education. It’s hardly surprising that the simplest measure of failure, student dropout, has been picked up by commentators hoping to burst the MOOC bubble.

For the music lovers, something from Salon on Led Zeppelin

Led Zeppelin, Led Zeppelin II, and Led Zeppelin III have recently been given deluxe reissues by Atlantic Records. Each package contains a remastered version of the original album, along with a generous helping of bonus tracks. The first boasts a live set from a concert in Paris in 1969 (which has been floating around the Internet for years) while the second two include collections of rough mixes from the sessions from Led Zeppelin II and Led Zeppelin III, respectively.

The remastering is pretty superfluous: These are, and always have been, three of the most perfect sounding rock albums ever made. The rough mixes of II and III, though, are a revelation, casting light on Jimmy Page’s immense talents as a producer and giving us the opportunity to rediscover this band as they were, four absurdly gifted young people making music together, as opposed to the rock deities they’d forever after be imagined as. You can hear Page’s pick scraping string on a demo-ish “Whole Lotta Love,” Robert Plant feeling his way through an early pass at “Ramble On,” Bonzo counting the band back in on a skeletal version of “Moby Dick,” the careful interplay of Page’s acoustic and John Paul Jones’ mandolin on a rough cut of “Gallows Pole.” Listening to the ragged life behind these recordings reminds us, on the one hand, that four guys made these records. It also reminds us, on the other, that four guys made these records. Sometimes being made human only heightens your immortality.

James Bridle in the Guardian tells us why digital art matters:

Given this, it seems crucial that it is also accessible to all; not merely engineers, scientists, politicians and policy-makers, but also artists, commentators and the general public. There has never been a greater need for critical engagement with the role technology plays in society, but there's a corresponding problem with that engagement, as severe now as it was when CP Snow diagnosed it in 1959: the lack of understanding between the sciences and the humanities.

If anything, digital technologies have rendered this problem even more acute, as the vast and smoking industrial architectures of the 20th century give way to the invisible, intangible digital architectures of the 21st. If technological literacy is going to rise, it's going to need the help of artists to enlarge its vocabulary, and the leadership and guidance of cultural institutions to frame the discussion.

Different institutions are approaching this in their own way. This summer, the Barbican unveils its take, called Digital Revolution. The Barbican has form in this area: in 2002, it staged the hugely popular Game On, a retrospective of video games which included everything from original Space Invaders arcade games to Grand Theft Auto. Digital Revolution aims to walk a similar line through the entire history of digital creativity, showcasing not only some of its signature events and works, but also the stories of their creators. According to the curator Conrad Bodman, "It's not a show that just looks at contemporary art, but film, music, video games and design, the way they relate to each other, and sometimes merge into one."

Columbia Journalism Review looks into investments in media for millenninials

This problem goes deeper than man-buns and Lena Dunham, though. This month, for example, the GroundTruth Project, which trains young reporters as international correspondents, launched a project called “Generation TBD: Despair and opportunity for millennials in an uncertain global economy.” It will deploy 21 reporting fellows in 11 countries to dig into an issue legacy media has, at times, treated like a joke—the place of millennials in the economy today.

Although GroundTruth Project isn’t explicitly targeted towards any generation, it is distinctively millennial in its desire to make a difference in the world.

“It’s such a rough time—it’s risky to care too much. We’re trying to build an environment in which caring is fine,” says Kevin Grant, the managing editor.

GroundTruth Project grew out of the international news site GlobalPost; the initial idea was to raise nonprofit funding to cover social justice issues in more depth. The project, says Grant, works “to identify these big stories that impact a lot of people, and we try to identify them before our colleagues at other organizations.” And for “Generation TBD,” the GroundTruth Project, with its team of young reporting fellows, has an in and an angle to this story that older media organizations might not

NFAIS Workshop Presentation: Predictions for Publishing 2013

Presentation given at a workshop for NFAIS in April 2013.

Page 1 – Introduction

Thank you again for the opportunity to speak all of you today.  As some of you, know I also spoke last month at the annual NFAIS meeting here in Philadelphia and on that occasion I spoke how I see the immediate future for education publishing.  Some of that presentation remains in what I am going to speak about today but I was also asked to speak about some of the current divestiture and acquisition activity.

Acquisitions, Corporate Restructuring and the Future. NFAIS Workshop2013 from Michael Cairns

For anyone interested, I have posted the presentation from the annual meeting on slideshare and I believe it is also available on the NFAIS site.
Our industry has a multitude of facets but is generally is broken down into three segments: Trade publishing, academic and scholarly publishing and professional or information publishing.  I routinely tell people that it is always good to remember that our industry really isn’t that big in revenue terms.  It has also not been a particularly dynamic industry over the past 600 years or so.  As we go further into the 21st century, both of those characterizations are increasingly debatable and I am going to lead with that in a minute.

Page 2 – Change:
It will be obvious to everyone here that everything is changing in publishing today.  By ‘everything’, I mean all the underlying drivers and assumptions about how our industry is defined and how it works. 
We fight to find solutions for growth – even stability - and our natural tendency is to seek an emphatic view of the future.  Which of course is near impossible.  The task is made harder as change comes faster and faster and more unanticipated scenarios occur than any of us have ever had to deal with.   MOOCs could destroy education, GOOGLE becomes a database owner and Netflix produces and sells serialized stories.  These and many other disruptors like them keep all of us awake at night.   Or perhaps we dream of being a disruptor just once.
Focus on the customer is critical of course but these days not always in the way you may think.  The publishers I note in this presentation spend significantly to understand theirs but some savvy publishers are also looking at the customers in other industries for insight into how they can deliver their content and services.  One publisher in particular notes their current strategy is the direct result of 2 years of intense research into their customers’ needs and requirements.  Another, references consumer websites as an inspiration for their delivery platform development.

Page 3 – Change leads to Opportunity
As I go through my comments I want to look at the business from a macro perspective and challenge the statement I made earlier about the size of the industry.  Then I will attempt to communicate how I believe publishers are reinventing themselves to compete on a different level and in a very different context than their most recent history.     
This is not the business many of us grew up with.  To paraphrase a comment attributed to John Ingram: “it’s not our fathers’ business anymore”  

Page 4 – What is this business?
First, two basic questions:  What business is this and how big is it?  Perhaps obvious questions on the surface but as with many things in recent times the questions are beginning to generate new definitions.
Any item sold, described, broadcast, advertised and even printed is dependent on information published in some form.
How about databases, data sets from experiments, market research, polling information, transaction data and usage information?  We should include information in company files describing products, diagrams, plans, documents, records, and more.  Much of this material that used to remain private or hard to access is becoming accessible but not however, necessarily readily available.
In my opinion, all companies are publishers in some fashion and their ‘published material’ is of increasing importance to them.  The good news for traditional publishers (all of us) is that most of these companies outside our industry aren’t particularly good at publishing or distribution. As more continues to be published, we as publishers are presented with significant new opportunities to help these content producers achieve their goals. 
Publishing is in the process of being redefined as traditional barriers to publication and distribution collapse for everyone from individuals to corporations.  There’s immense opportunity in that process for companies with expertise.

Page 5 – $500Mm?
This leads me to my second question: how big.
All that ‘published material’ has market value but is not accurately counted by anyone.  Perhaps it can’t be.  If you agree our market size is larger than we recognize then we should also have more opportunity than we might otherwise believe.
Through the 1990’s the US market was estimated around $25-28Billion. The Book Industry Study Groups ‘under the radar’ report estimated the market to be worth many billions more. The ‘non-publishers’ BISG counted ranged from Mattel a major toy manufacturer to individuals delivering monthly real estate seminars at their local Holiday Inn. Currently, the US market is generally thought to be worth around $35bill.  Give or take.

Page 6 – Ask Pearson
The question of how big, is also increasingly complicated by how some publishers are redefining themselves.  There is a school of thought in business education that says if you find yourself tapped out of a market – then redefine the boundaries.  I’ve a good example of this later but this chart from Pearson’s annual report is interesting because they don’t measure themselves against ‘publishers’ exclusively.  This is chart tells you everything you need to know about Pearson’s business strategy.   And by the way, just the revenues on this page add to $32bill

Page 7 – Content platforms are the future
I’ve am very interested in the concept of content delivery ‘platforms’ which aggregate, serve and engage users around specific types of activity.  And this is a concept I discussed at the conference earlier in the year when thinking about education publishing.  I will use the example of Lexis Nexus in this presentation to show how they have used the platform construct to radically redefine their competitive marketplace.  Delivery platforms aren’t a new idea and professional and information publishers have done a lot of work with the concept over the past ten – fifteen years.  It is still true however that many content owners and publishers have trouble with the idea that their traditional product – books, journals, etc.  – must be extensible to include applications, source data, user data, third-party content and “functionality”.

Page 8 – A bigger boat
Looking back on 2012 for a minute:  We saw a slowdown in the growth rate of eBook unit sales; indications of a possibly significant substitution of tablets for eBook readers; a reconfirmation in several examples of a lack of enthusiasm by students for eBook based learning; a major strategic publishing merger destined to create a trade publishing goliath; and the sale of one of the big three education companies. 
I think we will see more of the same in 2013 and 14. 

Page 9 –  Where to look
The expectation that the big trade houses would consolidate has persisted for at least five years: In fact, it is more surprising that the Random House/Penguin deal didn’t happen sooner, and now that it has, it’s a foregone conclusion that there will be another trade merger announced in the next few months, involving some combination of Harpercollins, Simon & Schuster and Hachette.  Perhaps all three will combine which would equal the deal announced last year in scale and significance.  But that’s unlikely.  One publisher will almost certainly end up the “odd one out” and it will be interesting to see which it is and what they do next. 

Page 10 – Bringing gifts
On the education front, there has been widespread speculation that some merger of Cengage and McGraw-Hill Education will take place this year, since the two companies may end up with a common owner.  If they do, there may not be a full combination in the short term but some trading of assets may take place immediately to rationalize the respective businesses with deeper integration to come, perhaps, in 2014-2015.  Ultimately, 2013 may bring more significant change in the trade and educational landscape than we’ve seen in many recent years.  There will be a lot of focus on the big trade merger and, the industry’s other players will have to fight aggressively not to lose any advantage.  “Bigger will be better” when it comes to applying economies of scale in a business whose underlying business model is changing radically.  In education, we may be paying attention to McGraw-Hill and Cengage but Pearson, as the market leader, is likely to embark on even more aggressive strategies this year.  Under its new CEO, and with the divestiture of Penguin and possible sale of the FT Group, the company has forcefully declared education to be its focus.  In summary, a fairly active last 12 months with indications that there is more to come.   

Page 11 – Change is coming
Just to return to the concept of changing circumstances, I think it is important to note that each segment of the publishing industry is clearly at a different stage in their evolution as they migrate to electronic based publishing.  Based on their different starting points, I see a different set of key imperatives for each segment as they continue their evolution.
Hardest to predict is the information segment because the business in many respects is already so advanced.  They will continue to integrate content and technology and offer customers more flexibility in how they gain access to these integrated products via software as a service, application providers, outsource partners and embedded content. 
Interestingly, the changes in the amount of content to be curated, managed, organized etc. may hit this segment hardest.  While this segment is the most sophisticated of all publishing segment publishers they will still find it difficult to keep on top of the data explosion and provide meaningful actionable data for their users.  In order to cope you will start to see publishers open up their platforms so that third parties can build applications on top of the publisher owned data, the use of taxonomies, and ontology’s will be increasingly important and probably the employment of content curators – perhaps librarians – or more accurately one part curator one part mentor who will curate and guide users in the use of the technology available to them.
Education publishers are following the lead of the information publishers in expanding their value chain to serve more educational segments and in the process they become solutions providers rather than textbook publishers.  These publishers will also increasingly offer custom content creation for consumers/students, administrators, academics and state systems.  The education segment will begin to catch up to the level of sophistication that the information publishers continue to exhibit.
Trade will generate the most attention but change will be slow.   All major publishers are currently reevaluating their value chain and redefining what it means to be a publisher.  For example, they are changing their workflows to rely more on xml and changing their author contracts.  How their activities evolve will be interesting to watch but don’t expect much.  Trade publishers will also continue to experiment with direct to consumer models and will develop subscription products.

Page 12 – 2600+ transactions in the last six months
Across the industry deal growth continues apace across all publishing segments but is now broader in scope than ever before.  Deals reflected here cover software, content, services, people/talent, outsource service bureaus, and process providers such as financial transaction providers.   A business deal in the publishing industry can now mean almost anything.  Represented here are deals for seed money in the low thousands for startups to multi-million dollar deals for investment and acquisition. 
Investment money is flowing to new companies seeking to take advantage of a business in transition which is why private-equity investment in education – for example - is rapidly increasing year on year from $100 million in 2007 to nearly $400 million last year.  What is happening in education is very exciting.  The manner in which teaching is delivered, how content is created and how success is measured are all under stress.  A primary enabler of this change is technology, and specifically, the Web – which will be obvious to most of us here.  A lot of the deal activity is related to education.

The scene is very vibrant – some say it is almost too frothy.

Page 13 – Corporate dev 101
To segue slightly and to think about the merger activity, the justification for a merger is often presented as an opportunity to save cost and expense, apply economies of scale and/or gain access to a new market.  At this point, expense and efficiency gains are more likely to be the primary drivers in both the McGraw-Hill and Random House Penguin cases.   Let’s look at three quick examples.

Page 14 – Why Random Penguin?
Each publisher will reduce headcount, facilities, distribution and other areas in order to deliver the same total quantity of titles.  They will be able to apply their investment over a larger number of products particularly important as they take full advantage of the move to digital.  In all publishing segments the value chain is compacting, making it far easier for content producers/authors to reach consumers directly.  This in turn, is changing the financial model on which publishing is based.  The functional areas where publishers added margin in order to make a profit – overhead, distribution, marketing & sales--are becoming less important (though not unimportant).  The implications of these changes for publishing houses in the context of the transition to digital have been clear for many years, but addressing how their businesses must change to cope with them is nowhere near complete in the larger houses in both trade and educational publishing.  Smaller, more nimble trade publishing companies like Hay House and SourceBooks have travelled much further down this path.

Page 15 – Innovation is still on the fringe
Most of the innovation and change in publishing is happening on the edges of the publishing industry.  In trade in particular, it seems that we’ve entered a period of stasis as publishing transforms itself.  By the end of 2011, it seemed to me that many publishers had absorbed the implications of their transition to electronic content delivery and have developed collectively tunnel vision in addressing the practical implications of this transition.  (That’s not the same thing as saying they have solved their problems.)   While traditional publishers take a break, we see a lot of new start-ups and investments being made in companies offering many new ideas from serialization platforms, custom magazine like platforms and many other niche offerings.

Page 16 –  Trade publishing is a mess
This was a quote taken from an interview I did during a consulting project recently.  In context, the opinion was that innovation and new thinking doesn’t go very deep and is concentrated at the top of the organizational pyramid. 
Most medium and small publishers are really no-where when it comes to understanding how to operate in an e-Content world.  In my various engagements over the past three years it hasn’t been unusual to come across publishers who have their content on fewer than three eBook retailer sites.  Some have no eBook strategy.  This lack of knowledge and experience has another more insidious impact in that some of these less informed publishers are particularly reactionary on the negatives with respect to e-Content and the issue of piracy.

Page 17 – McGraw Hill Divestiture
Looking at the MGH divesture the similarities to the Cengage deal that took Thomson Learning out of what is now Thomson Reuters are obvious.   One segment of MGH was growing rapidly and had far better margins and the education segment was on the cusp of a significant market change requiring new investment, management, significant risk and perhaps a loss of market dominance.  At Thomson, the seeds of their strategic decision to divest was long apparent while at MGH the divestiture seems to have been conducted under duress due to intense shareholder pressure.   That said, now that MGH is out from under the corporate parent one thing they probably will not have to deal with is the crushing debt that Cengage appears to suffer.  MGH may be better positioned to make the investments and take the risks than Cengage and without Wall Street reporting requirements that may have dogged their performance over the years.

Page 18 – Education faster than expected
Education has been rapidly digitizing content, building digital workflows and creating ‘born digital’ educational materials for the past five or six years.   Pearson in particular has had success here with their My Labs series.
As their markets mature, College has become more accepting of the migration to electronic but experiments with E-readers  have largely failed both because of functionality and because of content ownership.  That said, there are a lot of new initiatives in higher ed and K-12 that depend on electronic delivery of content and these will grow in popularity in the short term.
Education publishers are following the path of information publishers in building content and service platforms that broaden the publishers offering beyond simply content.  Several of the larger publishers now provide course and school administration software, student assessment products, schools and learning institutions and other similar companies that expand their market.  With a services model for example, publishers are able to offer numerous options from ‘build your own textbook’ functionality to testing and remediation tools.

Page 19 – What do you mean there’s a test?
Assessment and adaptive learning tools also garner significant attention but so far mostly in K-12.  While K-12 hogs the limelight at the moment, it is my belief that assessment in higher ed. will eventually be bigger than anything we will see in K-12 because only through assessment and adaptive learning will we be able to bridge the gap between higher education and industry.  Assessment in higher ed. will be used to evaluate and test a student’s mastery of what they learned in college as a basic criteria for the career they want to start.  As students navigate through college they and their faculty will be able to monitor performance and remediate where needed.  The basis of their ‘assessments’ will be more closely tied to their career objectives.  Adaptive learning tools will also enable students to see how their approach and behavior impacts their ability to learn.  In the old world, students have to wait to be graded but it is conceivable that these new tools will lead students to take more responsibility for their own education, empowering them to ensure success.  There should be little surprise that assessment will be used for career advancement in more fundamental ways and to support education programs for people already advanced in their careers.  There are already many examples of community colleges collaborating with local businesses to produce workers for them, and new companies, like UniversityNow, are developing cost-effective degree programs correlated to industry and business requirements.  There will be many more.

Page 20 – Google buys ITA software
There are many examples of acquisitions being made in the professional and information space.  Thomson Reuters which I alluded to earlier is a case in point.   Google’s purchase of ITA is an interesting one since it shows that competitive challenges can sometimes appear to come from nowhere.   ITA is a very sizable business providing B2B data and services to the travel industry.  Google wants to improve their user experience since they know many people search Google looking for travel information.   Suddenly the landscape has changed fundamentally for any other company in this space and for the customers of ITA who had B2C sites and businesses dependent on ITA content.  
Because professional publishing is more advanced in many ways from the other publishing segments the boundaries of their businesses are no longer clear cut and they become susceptible to unconventional competitive threats.  Of course the opposite could also be true.

Page 21 – Driving M/A Activity
Here are just a few of the acquisitions you may have heard of over the past year.  I’ve made a characterization as to the primary motivation for the deal and you can see I think motivations can be highly varied.   Buying products is an obvious motivation but in a start-up culture we are also seeing many acquisitions for talent.  This would be for the immediate work a team may be doing but also for the cultural change new innovative talent may bring to a staid older company.    Newer companies can also build something of value in much shorter time frames.  For example, on the tutor.com acquisition an executive noted that tutor.com had done the hard part in building a network of high quality tutors ready to help students improve their learning across the US.   The acquirer recognizes they can’t do this to the same degree of effectiveness.

Page 22 – To name a few

Page 23 – What’s the platform Kenneth?
I’d like to discuss how all publishers are likely to evolve over time as many professional publishers already have in their development of a platform approach to customer engagement.

Educational publishing as a segment is currently implementing their version.  Pearson began their adoption of the theory ten years ago.

Page 24 – A successful platform
In education generally, all education-content companies are only at the beginning of their transition from content providers to embedded content and services providers.  Professional information publishers such as Bloomberg, Thomson and Elsevier have long been able to provide aggregated content and services at the point of need and education publishers will be doing the same thing in the not-too-distant future.  At the Consumer Electronics Show in January, McGraw-Hill made some interesting announcements about product development investments they have been making which presage how this “services approach” may take shape.  But it is still early days.  We will see an aggregation model emerge in education, where content ‘platforms’ deliver content and services based on a different financial model than the current retail or ‘student buys the book’ model.  Publishers are being pushed by some important customers: Initiatives underway in California, Minnesota and Indiana for example show that experimentation is starting to happen with more frequency and publishers are being challenged to think differently about their market.

Page 25 – Platforms network transitions
What platforms do is ‘normalize’ a set of behaviors that occur when people/customers communicate and transact information, goods and services.  As the platform attracts more users – presumably because they create value for the user – the cost of providing the platform becomes cheaper. 

Page 26 – Lexis Nexis
I would like to run through one example to show how Lexis Nexus approached their product development around platforms.  LN spent 2 years understanding the workflows, needs and requirements of their customers and implemented their solutions accordingly.   Customer insight is very important and LN made it the center of their development activity; however, sometimes looking beyond your current customer base can also be instructive.

Page 27 – Trailblazers help
This was a quote taken from the keynote presentation at last year’s SIIA education summit in San Francisco and it was almost an off-hand comment.   The insight is important in that we can become too embedded in our natural market when our customers are exposed to many more influences.  If your interaction with your customer via your website isn’t as intuitive or easy as Google then you may be in for a struggle because this may be what many of your users expect.

Page 28 – 4x Market size
The context of the LN development effort is also instructive.  Remember I suggested redefining the boundaries of your market?  As a total solutions provider, LN has redefined the marketplace in which they operate.
1972:      They operated in a print market worth $2bn
1990:      A legal research market: $7Bn
2004:      A Legal Research and Tools Market: $12bn
2008        As a ‘total solutions provider’ their market is worth $48B
How did this happen?  It is not because their market has suddenly exploded; rather, they now offer services and solutions to a much wider segment of the legal industry. 
I don’t think there is anyone in this room who wouldn’t want to see their market opportunity quadruple from $1mm to $4mm or $10mm to $40mm.  At least I hope not.  Anyway you cut it that represents a massive change in expectations and opportunity.  Remember my market size estimate and perhaps it starts to look more reasonable if LN thinks the value of their legal publishing market to be $48B

Page 29 - Lexis Nexis model
In practical terms this is how LN views their market.  Each of the practice areas across the top of the chart are supported by the content, applications, databases, etc. below.  The company started with significant content but has aggregated companies with particular content (recently public records) and purchased solutions providers that support their client’s requirements.  LN supports all levels of the legal community from small office, to large partnership to corporate counsel.
To their customers they provide a range of products including specific legal content, business & client news, accounting and practice management software and even social networking.

Page 30 – Education model
What would the LN model look like in education?  Pearson is already there - years ahead of their market.  In the coming years, with the influx of PE into this market we will see a ‘race’ develop as the larger players build models similar to one I described at LN.   Cengage didn’t get off to a particularly good start in this respect but MGH will do better.
Pearson has consolidated content: K-12, college and distance learning.  They have acquired educational material developers, assessment & testing companies, remediation tools, course management tools and school administrative management products.  These acquisitions include traditional content but importantly software and services application providers.   Pearson – an educational publisher – also owns a chain of schools. 
 
Page 31 – Another look at Pearson
Pearson operates in a market segment significantly larger than the one they operated in five years ago.  And this chart tells the story.  Here they see themselves competing with for-profit educational companies, traditional education companies and other media companies.   As I said before, all you need to know about Pearson’s strategy is documented on this chart.
They also have a complete offering just as LN has for corporate attorney.  Pearson is in a position to say to schools and colleges we have all this content but we can also do far more to help you manage your institution more effectively.

Page 32 – The innovators
Opportunities for innovators will continue to emerge in all segments   However, many of the niche or narrow solutions currently on offer--whether they be assessment, content-delivery or search tools-- will ‘run out of market-space’ as these solutions become embedded in, subsumed by and/or offered as an attribute of the platform solution. 

Page 33 – Competition from Customers
Over the past 18 months, the higher education establishment has been rocked by the development of these Massive Open Online Courses or MOOCs.  And I almost feel compelled to mention them here.

So compelling are the opportunities to launch MOOC-based ‘institutions’ that high-profile faculty have quit their boring professorships and started new companies delivering MOOCs.  Even big-name traditional schools have banded together (like a Big East or PAC10 for MOOCs).  You will have heard of these companies with names like Coursera, EdX and Udacity.
On the content side, the textbook still reigns; however, faculty are seeking more choice and power over the course materials they assign their students and, increasingly are looking for custom solutions from their primary textbook publisher.  Permissions revenues – for individual chapters and journal articles – are growing faster than overall textbook revenues, signaling that faculty are making more specific content choices for assignments.  Custom textbook publishing is also growing faster than the overall education market as the largest publishers have upped their game by being able to provide tailored products to their customers. 
Where MOOCs begin to produce their own content and some already are – or they use open resource content – the implications for traditional textbook publishers could be profound.

Page 34 – It was all about Access not Content.
The rapid rise of the MOOC suggests big opportunities when education can be ‘freed-up’ outside the constraints of the traditional model.  In simple terms, what MOOCs address is the disparity between supply and demand.  Stanford can only accept so many students; but on the Web, all bets are off.  To give you perspective, some of the early classes registered over 150,000 students.  In one Stanford MOOC, of the top ten students who completed the class, none were full-time “Stanford” students.  Not only could Stanford not address this audience but when they did some of the students performed better than the ‘real’ Stanford students.  The reason many elite schools jumped so quickly on the MOOC band wagon and formed the companies I mentioned earlier is that they know they must be positioned to leverage their ‘brands’ on a global scale.  They don’t want to be locked out of markets serving China, the Middle East and India, which represent vast new student populations they can suddenly reach effectively.  It is very early days yet for the MOOC movement and there are some particular issues that need to be addressed including the revenue model, accreditation, certification/degree granting, cheating and security.  But since this movement, as we know it now, is less than 24 months old, some latitude is due in addressing what don’t appear to be insurmountable problems.

Page 35 – Your new customer experience
Adoption of all or some of the elements of the publishing platform approach result a more comprehensive experience for your customers. When generated from a clear understanding of the needs and requirements of your customer base your position as a publisher is solidified. Utility is maximized.  User stats support customer objectives and new product development.

Page 36 – What Happens Next?
In summary publishing is undergoing tremendous change but that’s really not the headline.  What is different is that our markets are different, customers may be competitors, partners and suppliers, cheap innovation can destroy a key market or channel, expensive innovation can fail and big beefy competitors can enter our traditional market without warning.   Some publishers are adapting but in my experience working with many types of publishers over the past five years I believe that there will be a very small cadre of successful publishers that will emerge from what we know of the traditional publishing market.  The remaining content producers – trade publishers, academic and education publishers, professional publishers etc. will be forced to align themselves with intermediaries in order to gain access to customers.  For the vast majority of content owners I don’t believe they will be able to compete for access and innovation like companies like Pearson, Random Penguin, McGraw-Hill and Google are able to.   Innovation around the fringes will continue but as these companies become successful they will either be bought by larger companies or their functionality or unique offering will be embedded into a platform offer.
In closing my comments from the speech I made earlier this year, I see the platform approach I’ve described as looking increasingly like an operating system for users and over time that’s what users will expect.  Supplying the equivalent of the print button in that environment will not represent a sustainable business model.  On the other hand supplying the breadth of functionality of the operating system won’t be attainable for most.
Thank you,

Presentation at NFAIS Conference on 2013 Predictions

Nfais 2013 from Michael Cairns

Presentation to NFAIS Annual Conference, February 25th, 2013

Thank you for inviting me.

Slide 1: Many years ago, I moderated a strategy workshop with a group of executives.  To kick things off, I wrote 12 potential business scenarios that could impact the future of the business and placed each separately on posters around the room.  I then asked each of the participating executives to agree or disagree with the premise of each scenario which they were to do without speaking to each other.  Once done we convened and discussed the results.  This exercise can be lots of fun and drive intense discussion about strategy and is always useful in breaking the ice if you have a group of executives who don’t know each other that well.  My client was a trade publisher and one of the scenarios was titled “Oprah is elected President” which was intended to drive discussion about what would happen when Oprah’s book club ended.  Such was Oprah’s power at the time that all the participants agreed she would be elected. 

Slide 2 I bring this up now because when we predict the future, which is what I am about to do, we sometimes leave ourselves open to ridicule later on.  I hope I don’t leave you all laughing by the end of this presentation.  I’ve been blogging for seven years and each year I spend some time thinking about the industry and post my predictions in the first week of January.  It is not intended to be comprehensive; just what interests me about what I see happening.  I have around 10,000 subscribers – who they are I have no idea - but I am fairly confident that 1% of this number are actual readers.  I say that facetiously, but if you happen to be one of the 1%, firstly thanks and secondly, I apologize that some of what I’ll be talking about today is duplicative.  Thanks to Jill O’Neil, who is clearly one of the 1% and, who asked me to speak today.

Slide 3 I’ve am very interested in the concept of content delivery ‘platforms’ which aggregate, serve and engage users around specific types of activity.  Several years ago I spoke at the Frankfurt Bookfair where I used the example of LexisNexis to show how they had used the platform construct to radically redefine their competitive marketplace.  Delivery platforms aren’t a new idea and professional publishers have done a lot of work with the concept over the past ten years.  It is still true however that many content owners and publishers have trouble with the idea that their traditional product – books, journals, etc.  – must be extensible to include applications, source data, user data, third-party content and “functionality”. 

Slide 4: Even using the word “functionality” together with ‘book’ or ‘journal’ bemuses them.
As I thought about this year’s predictions, I was especially interested in how the platform construct would apply to educational publishing.  This is actually my little secret: Blogging, in particular the longer pieces I’ve written – predictions being an example – flow from my need to make sense of what I see going on in the markets where I work. 

Slide 5: Blogging represents an important aspect of my knowledge and understanding of the business.  My specific interest in higher education has been fueled by my recent work with several education companies.  I’ve seen firsthand how the influences I will speak about are starting to become main stream.   Before we get into that, let’s catch-up on what has happened in publishing over the past year or so.

Slide 6: Most of the innovation and change in publishing is happening on the edges of the publishing industry and we’ll get to that in a minute.  To most traditionalists – or those still clinging to traditional publishing - it might seem that we’ve entered a period of stasis as publishing transforms itself.  At the end of 2011, it seemed to me that in their routine operations many publishers had realized the transition to electronic content delivery and absorbed the implications.  (That’s not the same thing as saying they have solved their problems.) So, perhaps, the past twelve months have been about catching our collective breath given the huge changes the Kindle and the iPad forced on publishers. 

Slide 7: That said, anyone who thinks the big changes are behind us is probably fooling himself, and may be lulling himself into catastrophic inaction.  Harbingers of dislocation and change are easy to see: You don’t have to go far. 

Slide 8: In the second half of 2012, we saw a slowdown in the growth rate of eBook unit sales; indications of a possibly significant substitution of tablets for eBook readers; a reconfirmation in several examples of a lack of enthusiasm by students for eBook based learning; a major strategic publishing merger destined to create a trade publishing goliath; and the sale of one of the big three education companies. 

Slide 9: Each of these would be significant in their own right but taken as a group suggest to me that more-- rather than fewer-- changes are on their way.  The expectation that the big trade houses would consolidate has persisted for at least five years: In fact, it is more surprising that the Random House/Penguin deal didn’t happen sooner, and now that it has, it’s a foregone conclusion that there will be another trade merger announced in the next few months, involving some combination of Harpercollins, Simon & Schuster and Hachette.  Perhaps all three will combine which would equal the deal announced last year in scale and significance.  But that’s unlikely.  One publisher will almost certainly end up the “odd one out” and it will be interesting to see which it is and what they do next.

Slide 10: To segue slightly and to think about the merger activity, the justification for a merger is often presented as an opportunity to save cost and expense, apply economies of scale and/or gain access to a new market.  At this point, expense and efficiency gains are more likely to be the primary drivers in both the McGraw-Hill and Random House Penguin cases. 

Slide 11: Each publisher will reduce headcount, facilities, distribution and other areas in order to deliver the same total quantity of titles.  They will be able to apply their investment over a larger number of products particularly important as they take full advantage of the move to digital.  In all publishing segments the value chain is compacting, making it far easier for content producers/authors to reach consumers directly.  This in turn, is changing the financial model on which publishing is based.  The functional areas where publishers added margin in order to make a profit – overhead, distribution, marketing & sales--are becoming less important (though not unimportant).  The implications of these changes for publishing houses in the context of the transition to digital have been clear for many years, but addressing how their businesses must change to cope with them is nowhere near complete in the larger houses in both trade and educational publishing.  Smaller, more nimble trade publishing companies like Hay House and SourceBooks have travelled much further down this path and I should make a clarifying point here.  Professional publishing is far, far down Transition Highway.  I’ve frequently used examples from professional publishing such as LexisNexis to show what change may look like to some of the laggards in the other segments.

Slide 12: On the education front, there has been widespread speculation that some merger of Cengage and McGraw-Hill Education will take place this year, since the two companies may end up with a common owner.  If they do, there may not be a full combination in the short term but some trading of assets may take place immediately to rationalize the respective businesses with deeper integration to come, perhaps, in 2014-2015.  Ultimately, 2013 may bring more significant change in the trade and educational landscape than we’ve seen in many recent years.  There will be a lot of focus on the big trade merger and, the industry’s other players will have to fight aggressively not to lose any advantage.  “Bigger will be better” when it comes to applying economies of scale in a business whose underlying business model is changing radically.  In education, we may be paying attention to McGraw-Hill and Cengage but Pearson, as the market leader, is likely to embark on even more aggressive strategies this year.  Under its new CEO, and with the divestiture of Penguin and possible sale of the FT Group, the company has forcefully declared education to be its focus.  In summary, a fairly active last 12 months with indications that there is more to come.  Now, I’d like to return to discussing the changes in education and the potential for change in educational publishing. 

Slide 13: As noted, I expect the platform construct to impact educational publishing.  In fact, Pearson began their adoption of the theory as long as five years ago.  You’d have to be living in a hole in the ground – or certainly somewhere without Internet – not to know there are vast changes underway in the higher education market.  These changes will alter everything we currently know and assume about how higher education functions such as “what, where, how, and when”.  Indeed, ‘who’ a student is may be one of the most fundamental changes we’ll see, relative to how we define a student today.

Slide 14: In education more broadly, all education-content companies (other than Pearson) are only at the beginning of their transition from content providers to embedded content and services providers.  Professional information publishers such as Bloomberg, Thomson and Elsevier have long been able to provide aggregated content and services at the point of need and education publishers will be doing the same thing in the not-too-distant future.  At the Consumer Electronics Show in January, McGraw-Hill made some interesting announcements about product development investments they have been making which presage how this “services approach” may take shape.  But it is still early days.  We will see an aggregation model emerge in education, where content ‘platforms’ deliver content and services based on a different financial model than the current retail or ‘student buys the book’ model.  Publishers are being pushed by some important customers: Initiatives underway in California, Minnesota and Indiana for example show that experimentation is starting to happen with more frequency and publishers are being challenged to think differently about their market.  As I prepared this presentation, I used my predictions post as the framework but I also did some additional research.  Not least because if I had relied entirely on my blog post we would be done by now.  One of the research nuggets I came across concerned the effectiveness of education. 

Slide 15: A study found that 45 percent of students surveyed said they had had no significant gain in knowledge after their first two years of college.  That is the students saying they haven’t learned anything!

Slide 16: Higher education is straining to prove its relevance and effectiveness in the 21st century while simultaneously saddling the average student with more than $100,000 in tuition debt, which the student will then strain to pay because she hasn’t acquired the right skills for employment and has to take a low paying job.  We are starting to see how the Internet and technology are helping to drive change in education to break this cycle.  Of course, change can be worrying especially for the incumbents with the most to lose and no one takes on change willingly if it hurts.  In education, we have an industry that is especially structured and entrenched where ‘tradition’ is almost its defining characteristic.  For a lot of players, this is a cushy existence but it will not last much longer. 

Slide 17: Using the example of other industries, transformation has often shown that change can be liberating and has the capacity to unleash new economic value.  As more and more experimentation in education takes place, steadfast resistance to change will wilt as new models, wider access and better outcomes help create new economic value.  I couldn’t find hard data on how much new economic ‘value’ Craigslist unleashed as it redefined the newspaper classified advertising business.  Maybe the data doesn’t exist, but I think the value considerable.  Craigslist is easy, cheap and measurably effective and newspapers failed by comparison.  Anyone know AirBnB? Using AirBnB you can turn your spare room – or your pool house - into a hotel room.  AirBnB has been around for about four years and is booking more room nights than Hilton.  Think about that.  My friend’s pool house in Beverly Hills was unmonetized but now it helps pay the mortgage. 

Slide 18: ZipCar is another example and there are many others.  In the media world, Facebook, Amazon and iTunes are the obvious examples but WalMart could also be considered a “platform”. 

Slide 19: What platforms do is ‘normalize’ a set of behaviors that occur when people/customers communicate and transact information, goods and services.  As the platform attracts more users – presumably because they create value for the user – the cost of providing the platform becomes cheaper.  The delivery of education is also a network of transactions between suppliers, faculty (university) and students.  Most of these transactions are ‘physical’ but are rapidly going electronic and in the process they take advantage of ‘network’ effects that make communication, transactions and services easier, more affordable and widely available.
The examples of recent radical change in disparate businesses such as music, newspapers, airlines and advertising confirms the inevitability that education will become yet another industry to evolve in the same fashion.  Investment money is flowing to new companies seeking to take advantage of a business in transition which is why private-equity investment in education is rapidly increasing year on year from $100 million in 2007 to nearly $400 million last year.  What is happening in education is very exciting.  The manner in which teaching is delivered, how content is created and how success is measured are all under stress.  A primary enabler of this change is technology, and specifically, the Web – which will be obvious to most of us here. 

Slide 20: Over the past 18 months, the higher education establishment has been rocked by the development of these Massive Open Online Courses or MOOCs.  This direct-to-student model isn’t encumbered by the physical limitations of a traditional campus – nor, it should be said, by things like accreditation, student outcomes or a business model.  At least not yet. 
So compelling are the opportunities to launch MOOC-based ‘institutions’ that high-profile faculty have quit their boring professorships and started new companies delivering MOOCs.  Even big-name traditional schools have banded together (like a Big East or PAC10 for MOOCs).  You will have heard of these companies with names like Coursera, EdX and Udacity.  Has anyone signed up for a course? I think we all should.  On the content side, the textbook still reigns; however, faculty are seeking more choice and power over the course materials they assign their students and, increasingly are looking for custom solutions from their primary textbook publisher.  Permissions revenues – for individual chapters and journal articles – are growing faster than overall textbook revenues, signaling that faculty are making more specific content choices for assignments.  Custom textbook publishing is also growing faster than the overall education market as the largest publishers have upped their game by being able to provide tailored products to their customers.  Additionally, new technology-based companies are emerging, such as Ginkgotree, Symtext and CourseLoad, which offer faculty-driven solutions for the creation and delivery of customized learning materials that support text, video and audio formats delivered to the student in print or digital versions.

Slide 21: Assessment and adaptive learning tools also garner significant attention but mostly in K-12.  That’s not an area where I spend a lot of my time.  But while K-12 hogs the limelight at the moment, it is my belief that assessment in higher ed. will eventually be bigger than anything we will see in K-12 because only through assessment and adaptive learning will we be able to bridge the gap between higher education and industry.  Assessment in higher ed. will be used to evaluate and test a student’s mastery of what they learned in college as a basic criteria for the career they want to start.  As students navigate through college they and their faculty will be able to monitor performance and remediate where needed.  The basis of their ‘assessments’ will be more closely tied to their career objectives.  Adaptive learning tools will also enable students to see how their approach and behavior impacts their ability to learn.  In the old world, students have to wait to be graded but it is conceivable that these new tools will lead students to take more responsibility for their own education, empowering them to ensure success.  There should be little surprise that assessment will be used for career advancement in more fundamental ways and to support education programs for people already advanced in their careers.  This is what I referred to when I speculated about the change in ‘who’ we will think of as a “student”.  To this end, we are beginning to see deeper collaboration between education and business to correct a very particular problem - that students are not being taught the right stuff.  There are already many examples of community colleges collaborating with local businesses to produce workers for them, and new companies, like UniversityNow, are developing cost-effective degree programs correlated to industry and business requirements.  There will be many more.

Slide 22: The rapid rise of the MOOC suggests big opportunities when education can be ‘freed-up’ outside the constraints of the traditional model.  In simple terms, what MOOCs address is the disparity between supply and demand.  Stanford can only accept so many students; but on the Web, all bets are off.  To give you perspective, some of the early classes registered over 150,000 students.  In one Stanford MOOC, of the top ten students who completed the class, none were full-time “Stanford” students.  Not only could Stanford not address this audience but when they did some of the students performed better than the ‘real’ Stanford students.  The reason many elite schools jumped so quickly on the MOOC band wagon and formed the companies I mentioned earlier is that they know they must be positioned to leverage their ‘brands’ on a global scale.  They don’t want to be locked out of markets serving China, the Middle East and India, which represent vast new student populations they can suddenly reach effectively.  It is very early days yet for the MOOC movement and there are some particular issues that need to be addressed including the revenue model, accreditation, certification/degree granting, cheating and security.  But since this movement, as we know it now, is less than 24 months old, some latitude is due in addressing what don’t appear to be insurmountable problems.

Slide 23: To summarize, here’s a quote from Nathan Harden in the American Interest Magazine from last month:
“In fifty years, if not much sooner, half of the roughly 4,500 colleges and universities now operating in the United States will have ceased to exist.  The technology driving this change is already at work, and nothing can stop it.  The future looks like this: Access to college-level education will be free for everyone; the residential college campus will become largely obsolete; tens of thousands of professors will lose their jobs; the bachelor’s degree will become increasingly irrelevant; and ten years from now Harvard will enroll ten million students.
That’s because recent history shows us that the Internet is a great destroyer of any traditional business that relies on the sale of information.  The Internet destroyed the livelihoods of traditional stock brokers and bonds salesmen by giving everyone access to the proprietary information they used to sell.  The same technology enabled bankers and financiers to develop new products and methods, but, as it turned out, the experience necessary to manage it all did not keep up.”
While his predication is truly dire for educators (except Harvard), I actually believe the change will take place faster than Harden’s 50 years.  There is just too much pressure from businesses that can’t get qualified candidates, the student debt issue, unaccountable administrators, public funding problems and the increasing amount of high-quality learning material that can be accessed for free.  There are also strong challenges to the idea that education has to be personal.  Real-life experience from Stanford shows that technology-enabled learning can be as effective as in-class delivery.  Additional research conducted at Carnegie Mellon – also noted in Harden’s article – found that when machine-guided learning is combined with traditional classroom instruction, students can learn material in half the time.  It was the technology, not the in-class component, that drove that efficiency. 

Slide 24:
As the younger generation become students – having grown up with social networking – the effectiveness of technology-driven tools and machine-based social interaction will only improve, pushing education even harder.  Let me give you an example:  In 2011, I heard about what Indiana University was doing with educational content.  The school realized that they could both influence the cost of content assigned to students and exert some control over what content is assigned on campuses. 

Slide 25: To do so, Indiana decided they would work with publishers directly and licensed a ‘platform’ from a startup company named Courseload.  The Courseload platform is built so that content can be added to it and then accessed by students as needed for classes.  Indiana negotiates directly with the education publishers to make all their content available on the platform and they pay the publishers based on headcount.  In this model, every student gets access to all the materials assigned by their professor which also means no returns, no used books and 100% sell through.  The publisher ‘pays’ if you will, with a bigger discount.  This is considered an experiment at Indiana and as they continue to tweak the model other schools are taking notice.  You may wonder who the ‘customer’ is on campus for these initiatives and it varies widely from campus to campus.  At Indiana, this initiative came out of the Chief Technologist’s Office. 

Slide 27: As this model evolves, academic librarians, college bookstores and universities will be offered an extensive database of educational material from which faculty can choose the material – possibly pre-selected, topic-driven packages – that is best suited to their classes.  Faculty will need some help here, and who will deliver this help is an open question, but it could be the TA, librarian, bookstore or publisher.  I believe these existing ‘experts’ on campus will position themselves to add new services and capability in support of their faculty using the platform solutions provided by their vendors.  Platform providers such as Amazon, Blackboard, Pearson and EBSCO may soon be the only efficient way for publishers to reach students.  The winners will be in a unique position to provide the audience for publishers unable to compete in the platform stakes.  Providers will negotiate distribution agreements with other content providers and providers will compete against each other to offer the best combination of content.  But a more likely and important point of differentiation will be the unique services and level of integration they can provide faculty, administrators and students.  Perhaps, instead of Pearson and EBSCO, we should think Reuters and Bloomberg as directionally indicative of what will happen. 

Slide 27: In the context of Indiana it becomes easy to see how the Courseload platform can become a product catalog, library, archive and publishing platform.  It may support tools for collaboration, assessment and remediation and via API a front door for ‘value-added’ partners supplying other products and services of value to users.  It’s not there yet but it’s entirely possible.  As the Courseload experiment suggests, we will see changes in revenue models.  For example, instead of profit models based on revenue per book, think “per head” or “per desk”.  In addition, an all in revenue model may also put paid to the argument for DRM protection in education.  A very positive byproduct of this change in content provision will be a complete integration of library resources, institutional resources and the adoption of the consortia buying/negotiation model that together, will create more effective options for students and administrators.  It seems odd (to me) that content sources, as they are currently supplied to students and faculty on campuses, often stand independently of each other and can only be ‘integrated’ through a manual, rudimentary process (by which I mean a copier and a stapler).  And it’s even odder when you consider that libraries have long been licensing tools and services from EBSCO and Serials Solutions which provide deep integration of and access to the databases and content the academic library licenses.  It will only be a matter of time before pan-university content assets – library licensed content, faculty and university produced materials and archived and professionally published content, etc.  - are brought together.  I expect the platform model will facilitate this change.

Slide 28: Opportunities for innovators will continue to emerge, as one would expect in a rapidly changing market.  I’ve mentioned only a few of the new companies that come up every day.  I do believe however, that many of the niche or narrow solutions currently on offer--whether they be assessment, content-delivery or search tools-- will ‘run out of market-space’ as these solutions become embedded in, subsumed by and/or offered as an attribute of the platform solution.  I see opportunity in the delivery of solutions that help specific users – say, university faculty – take full advantage of the integration of content and services that will occur on campus, since many user groups will need to change the way they conduct their usual activities.  The outcome of these work changes will be to generate more productivity and better solutions, but getting there will require ‘intelligent agents’ to facilitate—to help assemble content, training programs, workflow and productivity tools and similar applications to rewire their work environments.  These intelligent agents may be human (as noted earlier) but they could also be virtual.  In education, platforms like Blackboard and Desire2Learn may have an advantage, given their current installed base on campus, even though they don’t have deep content integration but they have ‘automated’ many workflows on campus.  Let me conclude with the following: At the beginning, I mentioned how companies like Craigslist had unlocked value.  So, an obvious question may be where do I see this occurring in education? There are probably many opportunities for this in an environment where our education ‘business’ is so broken.
I mentioned earlier that MOOCs don’t currently have a business model, but in the fast moving world of innovation, this isn’t necessarily true.  Some MOOCs are working with businesses and offering a paid service to match students with job openings.  The student ‘opts in’ to the program to make their class performance available to recruiters which then pay the MOOC for this access.  The win here is to improve the efficiency of finding qualified staff members for the business and reduce the on-the-job training they currently face from under-educated recruits.  As employees recruited in this manner are successful, the legitimacy of the MOOC as a filter to find qualified workers increases.  There is a huge opportunity in bridging this ‘gap’ between education and business and we’ll see new companies enter this market.  It’s not a sustainable model if you assume education will eventually get its act together to provide better education, but it could be a market opportunity for many years to come.

Slide 29: In conclusion, when I titled my predictions for this year I suggested that it was the “end of the middleman”; this is perhaps a little simplistic but, with some latitude, we are seeing a compacting of the value chain and many more options do exist for content owners to reach end users without the ‘benefits’ or ‘encumbrances’ of intermediaries.  Additionally, producers are also able to add more around the content to add value or understanding to the base product.  Here examples would be photo collections, data sets and managed communities, all of which would have been impossible in the “old world” and even in the digital world are difficult to manage if there are middlemen to accommodate.  My self-flagellation over my simplification has to do with a tendency in all of us to underestimate the ability of things to adapt and change fast.  Examples in professional publishing indicates that what we begin to see in platforms is not so much a repository of ‘ready-made’ solutions like books, journal articles, collections and the like but more a biosphere akin to an operating system supporting the end-user in everything from content creation and hosting to user and community engagement and in the case of education – life-long learning.  There is an exciting future to come in educational publishing and we are only just on the cusp of it.

Slide 30: Thank you and I would be happy to answer any questions.