School leaders are watching the recent consolidation uptick in the education technology industry with a close eye, evaluating the potential upsides and downsides of a string of mergers and acquisitions involving companies that do business in the K-12 sector.
The trend toward consolidation includes moves by several high-profile ed-tech companies:
鈥� Washington-based , a learning-management-system company that operates in higher education and K-12 and was one of the most aggressive players this year, has purchased several smaller ed-tech companies.
鈥� , a Blackburn, England-based education technology company that makes interactive whiteboards, bought , a learning-management-system and data-collection company based in Seattle.
鈥� , an Eagan, Minn.-based company that makes assessment and data-collection products, scooped up , a Towson, Md.-based company that provides software for response-to-intervention programs.
鈥� And , a Herndon, Va.-based online-learning and e-course company, recently bought , a Portland, Ore.-based online-learning company.
All these business moves are happening for a few important reasons, according to industry observers. They say cash-strapped school districts want more integrated systems that offer better deals, big players in the industry are aggressively trying to ride new technology waves such as online coursetaking and assessment, and many startups or small companies are rolling out new products but finding it hard to sell them without the backing of a bigger company.
The companies making the acquisitions suggest the moves will make them stronger and better able to offer high-quality products to schools.
But some ed-tech experts do not see this as a positive trend.
鈥淸Chief technology officers] are looking for a single supportive solution,鈥� said Mike Lawrence, the executive director of , a Walnut Creek, Calif.-based ed-tech advocacy group that runs leadership and training programs across California. 鈥淏ut they also value choice and competition.鈥�
The problem, he said, is that once the companies merge, the new entities usually cut staff. 鈥淚nstead of two systems, we鈥檒l have one,鈥� he said. 鈥淪o CTOs end up with less support. I鈥檝e seen that in district after district.鈥�
In July, Blackboard acquired , a Pleasanton, Calif.-based Web-conferencing company, and the New York City-based , which creates products to facilitate collaboration online, for $116 million for both to establish Blackboard Collaborate, which aims to create a social-learning, collaborative-communication platform. 鈥淲e are acquiring technology and expertise,鈥� said Brett Frazier, a senior vice president at Blackboard. 鈥淚nteroperability of technology is very important to school districts and to Blackboard. They want us to deliver it at the lowest cost.鈥�
But Mr. Lawrence said that merger shocked many ed-tech leaders. 鈥淢any educators reacted very negatively. It took competition out of the space,鈥� he said. 鈥淣ow we have to work with 1,000-pound elephants, and there are fewer options for decision makers.鈥�
Overseas Interest
Offering more value and better services as a result of consolidation is a typical company promise.
And some school leaders pointed out that with tight technology budgets, there鈥檚 less appetite for using innovative but relatively untested smaller companies. 鈥淏uying anything is one of my biggest challenges,鈥� said Steven Keller, the superintendent of the 8,300-student Redondo Beach Unified School District in California. 鈥淲e just don鈥檛 have the money.鈥�
Still, Mr. Keller laments the disappearing names and faces in the ed-tech industry. 鈥淚鈥檝e been in this business for 25 years,鈥� he said. 鈥淚 had excellent relationships with three or four vendors. Today, I don鈥檛 work with any of them. In some cases, we have to track down our reps.鈥�
Foreign companies are stepping up acquisitions, too. Promethean, an interactive-technology company based in Britain, bought Seattle-based SynapticMash this summer. SynapticMash鈥檚 product, LearningQube, helps teachers assess and track student performance.
鈥淚n the last three years, we鈥檝e become global,鈥� said Iwan Streichenberger, the president of learner response systems and assessment at Promethean. 鈥淚t鈥檚 difficult to be a success if you鈥檙e not in the U.S. market.鈥� And, he said, there are only three options in the current market: make, buy, or partner.
Mr. Streichenberger said that Promethean鈥檚 goal is offering an integrated product. 鈥淎 lot of districts have disparate systems,鈥� he said. 鈥淚f you offer a comprehensive system, you鈥檙e more competitive.鈥�
Nicole Engelbert, an analyst for the London-based business-research and -analysis company Ovum, also sees the trend of foreign involvement.
鈥淓d. tech. is more advanced in Scandinavia and Britain鈥� than it is in the United States, she said. 鈥淚t鈥檚 about expanding in the U.S. and bringing technology with them. One driver is the rise of centralized purchasing by states and regions. That opens the door for larger vendors that are more attractive.鈥�
London-based Pearson is also acquiring smaller players overseas and in the United States. They include strong niche players like Oslo-based , which creates online-learning and collaboration tools; Piscataway, N.J.-based , an ed-tech software company; and Bangalore, India-based , an online tutoring and homework help company.
鈥淧earson is very aggressive,鈥� said Ms. Engelbert.
Companies are also forging more international partnerships.
Bergen, Norway-based which has created an online learning platform, joined forces with Chicago-based , which provides funding and support for online learning, this past summer.
鈥淭here鈥檚 lots of interest in core curriculum standards and measuring outcome,鈥� said Michael Bronder, the director of business development for 鈥渋t鈥檚 learning.鈥�
Mr. Bronder added that the company will be aggressively expanding. 鈥淭he goal is to be a top learning platform in the U.S.,鈥� he said. 鈥淚n the U.S., there鈥檚 radical consolidation. This is a good time to be here.鈥�
Eyeing Startups
鈥淎 thousand flowers have been blooming in the ed-tech industry,鈥� said Ovum鈥檚 Ms. Engelbert, referring to the many startups she has seen in recent years.
鈥淚 haven鈥檛 seen this since the dot-com bubble,鈥� said Douglas Levin, the executive director of the State Educational Technology Directors Association, or , based in Glen Burnie, Md. 鈥淭here鈥檚 more excitement in the startup space.鈥�
But district technology leaders who are looking for more integrated products are sometimes wary of taking a risk on a new company.
鈥淪tartups love our district,鈥� said Themistocles Sparangis, the chief technology officer for the 678,000-student Los Angeles Unified School District. 鈥淏ut we must be careful. One problem is scaling up. Startups may try and can鈥檛 deliver.鈥�
Schools do not 鈥渉ave the luxury of failure,鈥� added Mr. Lawrence from Computer-Using Educators. 鈥淭he challenge for innovators is that there鈥檚 no data.鈥�
New York City-based , which makes adaptive test-preparation tools for the SAT and other admissions exams, has bypassed that problem by being bundled into a bigger company鈥檚 offerings.
鈥淎 whole new startup is popping up bringing online to education,鈥� said Knewton鈥檚 chief executive officer, Jose Ferreira, a former venture capitalist.
He said the stakes are big: Education in K-12, higher education, and the corporate world is a $7 trillion business worldwide. 鈥淭he last big industry was online search, which was $30 billion,鈥� he said.
Publishers, he added, are nervously navigating a new digital world. 鈥淚n ten years, there won鈥檛 be printed textbooks,鈥� he predicted. 鈥淗ow are publishers going to adapt and manage transitions? Traditionally, they aren鈥檛 strong in technology. They鈥檙e all scurrying around.鈥�
The key to ed-tech success, Mr. Ferreira believes, is personalization. 鈥淚f you look at the big winners in business,鈥� he said, 鈥渨hat they did right is personalization.鈥�
Mr. Ferreira鈥檚 goal for Knewton: to be the best at data mining, which allows test prep companies to better tailor their offerings to individual students. And he said that Knewton will likely be sold by 2015.
Matchmaking Game
Good matchmaking is the key to merger successes, experts point out.
Acquisition targets are typically close to profitability, have a proven business model, and generate at least $10 million in annual revenues, said Karen Billings, the education division vice president at the , based in Washington. And 鈥渢hese days,鈥� she said, 鈥渢here鈥檚 a fit between the company cultures and products. Companies do a long and deep due diligence.鈥�
Take e-learning company K12鈥檚 acquisition of niche player KC Distance Learning for $60 million in July. 鈥淚 knew the owners,鈥� said K12鈥檚 CEO, Ron Packard. 鈥淲e had talked about an acquisition.鈥�
Mr. Packard, who said he believes in best practices for mergers and acquisitions, learned the ropes at McKinsey Consulting, a top management consulting firm based in New York City. His lesson on what doesn鈥檛 work: large companies buying large companies and companies moving outside their expertise.
鈥淚 wouldn鈥檛 want to acquire anyone who doesn鈥檛 want to be part of K12,鈥� said Mr. Packard. 鈥淓d. tech. is an elevator asset, where if you lose people, you end up with nothing.鈥�
Mr. Packard said that K12 is hitting the acquisition trail. 鈥淲e鈥檙e looking at several right now,鈥� he said.
Scantron Corp., which provides assessment tools, also took its time acquiring Spectrum. 鈥淲e want to acquire the best out there,鈥� said Scantron鈥檚 president, Bill Hansen.
Expansion is part of the plan. Scantron is in 80 of the largest districts in the United States; Spectrum is in 20. 鈥淲e can expand into more schools,鈥� said Mr. Hansen.
鈥淲e have to be on our game more,鈥� he added. 鈥淲e have to be out in front of policy and technology changes.鈥�
