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K 12 education market survey report for publishers

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Overview of the education market dynamics with publishers and content owners as the intended audience. Also of interest to private equity and other investors.

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K 12 education market survey report for publishers

  1. 1. Michael Cairns Managing Partner Information Media Partners K-12 Education Market Survey Report for Publishers Market Overview: June 2018
  2. 2. Introduction Michael Cairns is a publishing and media executive with over 25 years experience in business strategy, operations and technology implementation. As a business executive, Mr. Cairns has successfully managed several troubled and under- performing businesses, creating new business opportunities, developing new funding sources and enhancing shareholder value for investors. His years spent as an operating executive have largely been with brand-name publishing companies such as Macmillan, Inc., Berlitz International, Wolters Kluwer Health, Reed Elsevier and R.R. Bowker. As a consultant, Mr. Cairns has worked with clients as diverse as AARP, Hewlett Packard, InterPublic Companies and Reed Elsevier with an emphasis on business strategy, market development and corporate development. His skills and experience include: ▪ Business and corporate strategy development and implementation ▪ Operations management and business transformation ▪ Traditional and digital publishing and operations ▪ Print-to-digital transformation and adoption of new business models ▪ Software development and software services Mr. Cairns holds an MBA (Finance) from Georgetown University and a BA from Boston University. He has served on several boards and advisory groups including the Association of American Publishers, Book Industry Study Group and the International ISBN organization. Additionally, he has public and private company board experience. 2 Michael Cairns Information Media Partners Strategy Consulting New York, London, Melbourne Tel: 908 938 4889 Michael.cairns@infomediapartners.com Find me: LinkedIn
  3. 3. Information Media Partners Michael Cairns established Information Media Partners in 2006 as a boutique strategy consulting firm focused on the information and education publishing segment. The work conducted by the firm includes product development, corporate development, sales management and corporate reorganizations. We work with established businesses, private equity owners and potential acquirers. Examples of our work include: ▪ Reorganized and re-focused a $25 million software publishing company by aligning business operations with client priorities; implementing internal collaboration tools and project management standards; re-building executive team to focus on effective and efficient management ▪ Defined a new business strategy for a large non-profit association and advocacy group, expanding their business model into global markets to exploit their core knowledge and expertise across a broader market ▪ Led an information technology capabilities review at a large international advertising holding company. Completed over 200 interviews in 15 international offices and multiple group focus sessions to define the operational ‘gaps’ between existing agency capabilities and those necessary and important for client delivery by region ▪ Completed a sales management effectiveness review for a global software company and defined six key project initiatives to improve sales effectiveness, market development and account management We approach our client engagements in a standardized, logical manner which creates the best environment to identify key business drivers, administrative and logistical road blocks and/or product or market definition issues. Our investigative approach leads to better insights into your businesses and supports the development of workable solutions and recommendations for success. Visit the Information Media Partners website for more information. Sample Client List
  4. 4. K-12 Market Overview
  5. 5. K-12 market overview ▪ Historically a large industry exhibiting attractive and stable growth ▪ English language instructional market is highly concentrated ▪ US market influenced by periodic significant changes in government policies ▪ Growth shown minimal impact of periodic economic recessions over time except during 2008-2013 5 An Immense Market Over $600million spending power 14,000 Public School Districts 5.7M Personnel $13B Spent on instructional Materials $60B Spent on computer Equipment in 10 years $607B Spending 2008-2009 $618B Spending 2012-2013 $679B Spending 2015-16 $691B Spending 2016-17 Based on National Center for Education Statistics (“NCES”) projections growth will 1-2% each of the next three years
  6. 6. K-12 market overview ▪ US market spending on education surpassed $1.3T in 2014 (7.4% of GDP) ▪ Renewed focus on outcomes and improvements. Legislative programs include: ❖ No Child Left Behind (NCLB) ❖ Race to the Top (RTTT) ❖ Focus on outcomes will transform education through the convergence of content, technology and delivery ▪ Movement towards integrated educational approaches combining content, assessment and services aligned to standards and student performance ❖ Schools will become more data driven supporting performance and assessment ▪ Education providers must demonstrate capabilities in instructional design, curriculum development, alignment to standards and delivery at scale to drive efficiency ❖ Only companies with financial strength will be able to invest sufficiently to provide integrated solutions ▪ As the US economy continues to improve this will enable growth in budget spending 6
  7. 7. K-12 education conferences 2018 7 Source: EdSurge: https://go.edsurge.com/rs/590-LFO-179/images/EdSurge-2018-Ed-tech-Events-Calendar-K-12_v3.pdf
  8. 8. Macro issues impacting k-12 education ▪ Education in flux due to fed government change ▪ Expect states to drive assessment and standards ▪ More students will fall behind ▪ Digital share of supplemental and core textbooks rising 4-5% per year ▪ Buying decisions for digital often originate with teachers 8
  9. 9. Core K-12 standards are in flux ▪ States struggled to meet NCLB requirements ❖ Department of Education granted formal state waivers to common core state standards ❖ Defined knowledge and skills students need to succeed in college ❖ More than 43 of 50 states have adopted these standards: spending on instructional materials, assessment technologies, and professional development initiatives to comply with the regulations ❖ Some states saw significant declines in student performance requiring intervention ▪ Current administration are revising/not enforcing education standards ❖ Unclear direction and/or long term impacts 9
  10. 10. Societal issues impacting K-12 education ▪ High level of research by schools/districts into instructional integrity ❖ Continuation of quality creation and delivery of educational materials ▪ Curriculum and lesson plans ❖ Wave of start-ups moving to help education professionals map and design new types of curriculum ❖ Peer to peer marketplaces; teachers pay teachers 10
  11. 11. English language education highly concentrated
  12. 12. Education “publishing” is expanding Source: Elm City Consulting (Pat Sabosik)
  13. 13. Course material development is complex Development increasingly driven by: ▪ Products that are proven effective by scientifically based research (SBR): no child left behind ▪ Demonstrate causal relationship between a specific educational treatment and a specific learning outcome
  14. 14. Annual Horizon Report 2017 - Themes Themes and Ideas ▪ Progressive learning requires culture change ▪ Learners are creators: marker places, collaborative rooms, coding/robotics ▪ Inter + multi discipline learning breaking silos ▪ Wide spread use/access of technology doesn’t create equal learning environment ▪ Continually measuring learning is essential to performance improvement ▪ Fluency in technology is not the same as understanding it ▪ Authentic learning is necessity – hands on learning and teaching required ▪ Schools incorporating data analytics and critical thinking ▪ Learning spaces must reflect new approaches 14 Key Trends Larger trends ▪ Coding as the ‘new’ literacy ▪ Rise of STEM learning ▪ Growing focus on measuring learning ▪ Redesigned learning spaces ▪ Creating cultures of innovation ▪ Deeper learning approaches Challenges ▪ Authentic learning environments ▪ Improved digital literacy ▪ Rethinking the roles of teachers ▪ Teaching computational thinking ▪ The (societal) achievement gap ▪ Sustaining innovation through leadership change Important developments ▪ Makerspaces ▪ Robotics ▪ Analytics technologies ▪ Virtual reality ▪ A/R ▪ The IOT Source: 2018 Horizon Education Report
  15. 15. Student outcomes are substandard ▪ Student preparation for education success differs markedly by family circumstances and race ▪ Student success at elementary/ secondary school is distributed unevenly by economics, income, geography and race
  16. 16. The economic influence of education ▪ 77 Million Students in US ❖ 19% of students can’t read ❖ 1.2M drop out of school every year ❖ 80% of low income students are behind one grade level ❖ 13% of students have disabilities ▪ US Test rankings versus rest of the world ❖ 20th in Reading ❖ 30th in Math ❖ 24th in Science behind Latvia and Slovakia 16 ▪ Estimated that each drop out costs the US economy $200K in lost lifetime tax revenue ▪ Over the next decade the U.S. will fall 3 million workers short of the 22 million students with a college degree needed to meet the demands of the workforce ▪ Many drop outs show signs of dropping out in 6th and 7th grade.
  17. 17. K-12 school districts 17 14,000 Public School Districts 90,000 Public Schools 7,000 Charter Schools 30,000 Private & Parochial Schools Growth drivers: birthrate and migration West & South growing NE, Midwest Flat/no growth 215,000 District Personnel 3.5M School Personnel 120,000 School Personnel 500,000 School Personnel 14,000 Public School Districts: 70% educate less than 2,500 students 25 largest educate 10% of total students
  18. 18. K-12 Enrollment ▪ Increased 3% between 2001 and 2004 ▪ Projected to increase 2% 2014-2026 ▪ 3.4M student graduations in 2018 rising to 3.6M in 2025 but falls to 3.2M in 2032 18
  19. 19. Total public and private high school graduates by race/ethnicity 19 Source: Inside Higher Ed.
  20. 20. Funding sources for K-12 Federal sources of funding: ▪ Title 1 Grants ▪ IDEA special education state grants Expenditures per pupil ▪ $11,984 in 2016-17 ▪ Rise 1% per year through 2024-25 ▪ 2018 Federal funding bills increased grants School construction budgets expected to grow from $50B in 2016 to $65B in 2019 ▪ 56% of schools completed construction projects in 2016 ▪ 53% plan for construct in 2017 ▪ 53% of all schools require updating and investment for repairs and modernization
  21. 21. Funding sources for K-12 Public education funding comes from three main sources: ▪ State funds: 46% ▪ Local funds: 45% ▪ Federal funds: 9% Allocations to schools generally made student population Property tax and local tax revenues drive budgets Source: National Association of State Budget Directors
  22. 22. K-12 spending shifts away from textbooks
  23. 23. Adoption States ▪ 19 states have education budgets administered and implemented by the state board of education and the state department of education ▪ Indiana (2011) and Arkansas (2013) recently repealed their state adoption statutes ▪ Some states require publishers of state-adopted materials to use a central in-state depository or to ship state-adopted materials from within the state ▪ Depositories charge publishers a commission, typically about 8 percent of sales ▪ In other states publishers may ship directly to schools from their own in-state warehouse, without going through a central depository 23
  24. 24. Adoption state criteria ▪ 19 states use adoption for review and approval of K-12 textbooks, other core materials, related ancillary tools and resources ▪ Core curriculum materials align with state academic standards and meet various state regulators (binding materials and paper) ▪ Some states allow a percent of funds (30%) to be used to purchase materials not on the list ▪ Complex set of policies, procedures, rules and timelines that have been optimized for textbooks ▪ After civil war, southern states pressured northern publishers to product textbooks customized to meet their requirements in the south ▪ Distributor agreements – old days everything was slow ▪ $7B spent annually on textbooks - $2.2B in adoption states 24
  25. 25. The importance of adoption states ▪ Large state adoptions in BASAL courses will materially impact textbook profitability ▪ Most large scale BASAL adoptions cycle every 3-7 years
  26. 26. Print to Digital Transformation
  27. 27. Growth and development of e-Content ▪ Digital platforms and white boards enabling schools to modernize delivery ▪ Single platform preferred ▪ Federal & State digital initiatives are driving adoption ▪ Escalating growth in Fed/state legislation funding digital ▪ Parents, teachers and students are demanding more hybrid solutions: supplemental content with BASAL fundamentals ▪ Shift to digital platforms and performance based learning is creating data needs, requirements and capabilities from vendors ▪ Vendors are required to prove efficacy of their digital products 27
  28. 28. Changing dynamics for text materials ▪ Why print still dominant? ❖ School readiness, infrastructure requires modernization ❖ Require equality of access for all students – creates lowest common denominator ❖ Teachers uncomfortable with technology ❖ Changing business models will erode textbook market further ▪ SaaS model for content sales developing as a business model ▪ State reviewers may not be expert in reviewing technology based content – impediment to adoption ▪ Many unique forms of technology are not bound by current policy, form, procedures – process is optimized for print formats 28 Source: Experts Guide to K-12 published by SIIA Source: Simba Information E-textbooks in Education
  29. 29. Digital change is forecast ▪ Alignment to education standards sometimes difficult with technology based products ▪ Content/additions/substitutions – some states don’t allow replacement or upgrades and linking to additional materials or make requirements to do so is very difficult ▪ Some states reconsidering the requirement for state depositories: May become hard to justify given growing costs ▪ Some states offer exemptions for e-products Source: Curriculum for School Networking Source: Experts Guide to K-12 published by SIIA
  30. 30. K-12 open education resources ▪ Peer to Peer ‘marketplaces’ for teachers and administrators ▪ Bridge gap between ‘official’ content and more up-to-date, innovative solutions ▪ Business opportunity for teachers 30
  31. 31. Personal learning and performance ▪ Innovation ❖ Adaptive software ❖ Collaborative learning spaces and ability to use/incorporate MM into work ❖ Diversity of content ❖ Credible reliable databases to advance learning ❖ Simulations/animations/virtual worlds ❖ Flexible teachers and methods ▪ K-12 ❖ Closing the achievement gap requires differentiated learning ❖ Tools allow for individual learning plans ❖ Teachers provide progress monitoring and intervention as needed ❖ Personal online work spaces ❖ Learning management systems delivery course materials in real time and asynchronously to students ▪ Assessment ❖ Real time data – track projects, achievement ❖ Personal portfolios ❖ Adaptive and diagnostic assessment tools 31
  32. 32. Example of learning activities ▪ Supplemental publishing market includes: ❖ Instructional workbooks, study aids, digital video products, e-learning, online, and other computer-based systems that enhance traditional in-school learning. ▪ Drivers: ❖ Product ease of use ❖ High levels of technical infrastructure ❖ Common core standards ❖ Federal sponsored internet connectivity programs 32
  33. 33. 33
  34. 34. K-12 Supplemental content ▪ Materials in addition to core textbook maintains stability ▪ Importance to teachers and administrators 34
  35. 35. K-12 For profit spending ▪ Technology spending anticipated to grow significantly ▪ Technology seen to enable outcomes ▪ Instructional materials flat 35
  36. 36. Testing & Assessment
  37. 37. Testing market trends 37
  38. 38. Class assessments are bigger than state tests 38
  39. 39. Digital assessment tools in class ▪ Digital tools face credibility test ▪ Trends point to more use and more acceptance of assessment tools ▪ Education ‘community’ seeking more effective outcomes
  40. 40. Assessment market growth ▪ Assessment market will outpace other segments of the k-12 content market ▪ Ed-tech investment is chasing new companies in this space
  41. 41. Growing need for more teachers ▪ Demographic movements ▪ Teachers less than 3yrs experience are dropping out ▪ Poor pay, poor materials, other opportunities ▪ Rural vs metro divide
  42. 42. Ed-tech Market Overview
  43. 43. What is “Ed-tech”? ▪ The intersection of technology tools and education content ❖ Data analytics platforms ❖ Content and other marketplaces ❖ User generated tools and applications ▪ To provide access to information and learning to obtain skills and knowledge ▪ In other words – the application of technology to support learning 43
  44. 44. E-Tech products and markets ▪ Emerging K-12 Ed-tech markets are frequently ill defined and highly fragmented ▪ Product offerings are relatively undifferentiated (and sometimes difficult to understand) ▪ Few companies have sales forces of any size ▪ District purchasing processes evolve slowly and sporadically ▪ Technology at point of delivery remains uneven 44
  45. 45. Big picture trends – 2017 Horizon Report One Year or Less ▪ Bring your own device ▪ Learning analytics ▪ Adaptive learning Two – Three Years ▪ Augmented and virtual reality ▪ Makerspaces Four to Five Years • Affective computing • Robotics Investment money has accelerated in the past five years chasing start-up opportunities but may have reached saturation. 45
  46. 46. 46
  47. 47. Historic increasing investment – recent slowdown 47
  48. 48. Update: Q1 2017 48
  49. 49. Ed-tech investment expected to continue growth trend
  50. 50. Product segments in Ed-tech ▪ Learning management systems ▪ Early childhood education ▪ Broad online learning programs ▪ Enterprise learning ▪ Next gen schools ▪ Tech schools ▪ Online to offline ▪ Testing & remediation ▪ Digital course materials and courseware ▪ Test prep ▪ Curriculum production ▪ Search ▪ School administration ▪ Next gen study tools ▪ Language learning 50
  51. 51. Select Ed-tech market map 51
  52. 52. Ed-tech/education business drivers ▪ The internet “network effect:” enables accessibility to vast collections of education materials ▪ Technology has facilitated ‘new learning models’ which had redefined how students integrate learning into work and personal development ▪ Expanding life-time earning ‘gap’ of those educated at higher levels supports the value of education ▪ Broader workflow automation is eliminating old-line employment paths causing acceleration in worker ‘re- education’ needs and requirements ▪ Rapid growth of non-English markets for education content ‘technology leap’ embedding technology 52
  53. 53. Implications for educational content producers The results of the Edweek Market Brief suggest that more than 70 percent of administrators expect their investments in educational technology to grow over the next year. Google will almost certainly continue to soak up the largest share of those additional dollars. Edweek Market brief special report – May 8, 2017 53
  54. 54. Thoughts on trends impacting Ed-tech ▪ Traditional content ▪ Access models ▪ Platforms ▪ Accreditation ▪ New technology 54
  55. 55. End of traditional content? ▪ Open educational course materials ▪ Textbook form factor eroding ▪ Battle for attention ▪ “entrepreneur culture” forcing a rethinking of the entire educational experience ▪ Online vs offline – generational shift 55
  56. 56. Access models ▪ Flattening of supply chain – enabling direct relationships ▪ But, complicated with more platforms, distributors, outlets, etc. ▪ Business model transition from “one off” sale to varieties of subscription models is difficult ▪ Publishers need to rely on direct relationships wherever they can ▪ Subscriptions/memberships assume higher engagement with customer ▪ “On the verge of learning about your consumers intimately. Need to wake up to this and learn from this” ▪ Institutional sales (B2B and B2B2C) more predictable 56
  57. 57. Platform wars ▪ xml first workflows ▪ Mobile: Apple vs Android ▪ Bring your own device ▪ Functionality ▪ International markets ▪ Acquisitions and roll- ups: beach heads are valuable ▪ Dependence on hardware and/or good connectivity is likely to fail – lowest common denominator may be very low 57 Edweek Market brief special report – May 8, 2017
  58. 58. Changing accreditation and degrees ▪ Work experience ▪ Badges and certifications ▪ Changing test and assessment requirements ▪ On demand, in situ learning needs for career advance ▪ Life long learning 58
  59. 59. New technology ▪ Virtual reality ❖ Interesting for distance and/or remote users ❖ In class headset is potentially a distraction ▪ Augmented reality ❖ Significant opportunity in education and career development ❖ Turning 2D drawings into 3D models which can be played with ❖ Non-headset on the way? ▪ Makerspaces 59
  60. 60. Google retains significant advantage ▪ “Image you have been asked to hire one of the following companies to improve student achievement” Edweek Market brief special report – May 8, 2017
  61. 61. How do you expect your spending to change? Edweek Market brief special report – May 8, 2017
  62. 62. And spending over the next five years? Edweek Market brief special report – May 8, 2017
  63. 63. ERP & Management Dashboards
  64. 64. Education (K-12 schools, colleges and universities, technical and vocational, distance learning) – Student Information System, Learning Management, Fund Accounting System, Higher Education Administration, Financials, HR, Procurement. Cloud Top 500 Research Software application market share
  65. 65. K-12 management systems software
  66. 66. Management systems industry players
  67. 67. Critical success factors
  68. 68. Learning management solutions
  69. 69. Learning management for education and corporations
  70. 70. The transformation of learning management
  71. 71. The evolution of the learning management system market
  72. 72. The bulk of this material was created as part of an ‘envisioning’ session with a client to foster a further discussion about business strategy. Michael Cairns Managing Partner Michael.Cairns@InfoMediaPartners.com 908 938 4889 LinkedIn 72