A Textbook Case - Company Business and Marketing

Industry Standard, The, Oct 16, 2000 by Lisa Shuchman

Online education is getting new competition from the ultimate in old-school industry: Textbook publishers.

HILE ACCOMPANYING HIS

WHILE ACCOMPNYING HIS college-bound daughter on a tour of Duke University recently, Bob Christie felt a sense of awe as he stood in a library reading room lined with books. He remembers thinking the Gothic-style hail was magnificent, noting some of the books were probably more than 100 years old.

But what really got his attention was the ambient noise. "All you could hear' he says, "was the clicking of keyboards."

The irony of students surrounded by pulp and paper but glued to the screens of laptop computers did not escape Christie, who took it in stride. As president and CEO of Thomson Learning, it's Christie's job to make sure his company, one of the nation's largest textbook publishers, doesn't get left behind. "The Web is transforming the way people learn," he notes.

Indeed, the $7 billion textbook publishing industry is undergoing a transformation. Once staid and conservative, the nation's major educational publishers - Harcourt, Houghton Muffin, McGraw-Hill, Pearson and Thomson - are all moving to take advantage of the Net, digitizing textbooks, creating e-learning Web sites, offering distance-learning classes and helping teachers put courses online. In effect, they are infiltrating the space that until now has been dominated by Internet companies, attempting to be dominant forces in the new economy as well as in the old.

The contrast between the two worlds is particularly acute for textbook publishers. Until this year, they had been sitting on the sidelines, watching startups like Classroom Connect, Family Education Network and Lightspan all test the emerging e-learning market.

But then Pearson, the behemoth of educational publishing, started making moves. In recent months, the company acquired National Computer Systems, the nation's largest commercial processor of student assessment tests and a major provider of back-end systems for education. It announced the creation of the Learning Network - a huge Web-based educational portal serving four markets: kindergarten through 12th grade, higher education, professional development and lifelong learning. And it bought Family Education Network, which develops learning tools for parents, teachers and students.

Suddenly, competitors started waking up. "Pearson pulled the trigger," says Peter Stokes, executive VP of Eduventures.com, an education research and consulting firm. "Now the race is on.

Last month, Boston-based Houghton Muffin announced it has joined with Sylvan Ventures, an investor in education technology companies, to create Classwell, a company that will provide online content, tools and services for teachers of kindergarten through 12th grade. New York-based McGraw-Hill recently started offering teachers the ability to create customized e-text books from its Primis Online digitized textbook database. The company also plans to launch its own online learning network before the end of the year. And Harcourt General has gone so far as to create an independent university called Harcourt Higher Education -- an accredited, online college that will grant degrees and will begin offering courses this fall.

Behind these moves is a strong belief that the economics of publishing are demanding change. More than 20 percent of publishing costs are associated with printing, according to Michael Moe, a Merrill Lynch managing director who analyzes the education industry. Eliminating much of this expense by making content available on the Web could help the publicly traded companies' bottom lines.

In addition, the new textbook market has to compete with used-book sales. In colleges, for example, about 30 percent of students buy used books. Publishers believe that by offering textbooks online -- or even portions of textbooks -- they could recapture some of the lost business. A student could go online and buy only the relevant portions of a textbook instead of the entire book, saving money in the process.

"We all have to do this," says Christie at Thomson Learning, which now holds a majority stake in WebCT, which provides tools that let teachers put courses and materials online. "We don't see textbooks going away, but we have to deliver content in any form the customer wants."

That's already happening to some degree. Textbook publishers now offer customers supplementary materials through the Web. Students assigned a chapter on the Civil War in a history text might be able to access additional reading online, for example. For now, this is offered at no extra cost. But eventually publishers would like to license their material and offer courses and curricula through the Internet.

That's an expensive proposition, requiring a huge commitment to technology. It's also a gamble: No one knows if or when the companies will begin to see returns on their investment. Nevertheless, they're all moving ahead. Thomson, for example, no longer produces any content that isn't available in digital form and linked electronically to other materials. Christie reports his company is investing about 8 percent of more than $1 billion in revenue on technology.