5 Questions on Pearson's Strategy

Pearson is the world's largest education company -- and yet it is hard for those of us in higher ed to understand what Pearson is really all about.  

In order to start to get a handle on Pearson, I asked if Tim Bozik, president of global product, could answer some of my questions.  

Tim generously agreed, and below are my questions and Tim's answers.

Question 1: News coverage of Pearson's finances can't be described as upbeat - see the CNBC article "Pearson Plunges As Digital Switch Forces New Profit Warning." Yet I read the 1/18 Pearson press release as a positive development for digital learning innovation, in that Pearson is taking "actions to accelerate our digital transition in higher education." How should we make sense of what is going on at Pearson?

A: We understand that many students are stretched financially and that college is a significant investment for them. The outcome that often matters most to students is being prepared for employment. As a long-term partner to institutions, faculty and students, we have a responsibility to be part of the solution, and digital is a big part of that.

So, we’re meeting these challenges head on, first by increasing our investment in digital, second, by lowering prices and widening access to our courseware in the rental market, and third by keeping a laser-like focus on improving outcomes for learners.

Clearly there are other benefits of digital courseware. It enables us to support learning in and out of the classroom 24/7, and fit the mobile and social lifestyles of today’s students and educators. We’re able to provide professors with better data and insights about their students, which enables them to continually refine their instruction. Let me give you an example from a recent conversation I had with Professor Scott Hildreth who uses our MasteringPhysics at Chabot College in Oakland, California. Scott told me that our predictive analytics are like a flag to him that tell him which students need help without them even raising their hands.

Digital is not a silver bullet. But it does provide much more data and new ways to understand how students are learning and what helps them in real time. So we’re partnering with faculty to support the transition from print to digital and to understand how to implement technologies that consistently enhance learning. We are also working with innovative partners like IBM’s Watson Education to bring cognitive tutoring to colleges -- to enable even better teaching and reach every learner where they are. And in everything we do we’re working to measure the impact.

Today, 50 percent of the courseware we provide to U.S. colleges and universities is already digital -- and we’re accelerating our progress. There is no doubt that this has been a challenging environment for Pearson. But we remain a successful business with a singular mission to help all educators and students succeed.

Question 2:  I want to step back, and get a sense of the impact that Pearson has on higher education. Why should higher ed people care about Pearson? Can you help us understand the scale and scope of Pearson's involvement in the higher ed ecosystem?

A: Pearson is a company with a deep history of helping students, faculty, administrators, and institutions succeed -- and we do this around the world. Here in the U.S., we work with every type of institution from community colleges to public research universities to ivy leagues schools. We serve communities from coast to coast, and are committed to helping every student make progress in their life through learning.

We have been involved in working with academics as authors, creating and publishing world-class content and assessment for many decades. We are also working alongside faculty and university-based researchers to better understand the impact of our products on learning. In fact, we’ve just published a paper with SRI, an independent research organization, that shares how we do that. It is the first of three papers about what it takes to achieve efficacy in learning technologies.

As faculty and institutions increasingly seek ways to bring greater affordability and access to their programs, we work with them to take their courses partly or fully online. In fact, our partnership often deepens as those online courses are delivered, where we work with faculty and program directors to determine how factors such as the scaffolding of knowledge or time on task, for example, can best be aligned to improve outcomes and course completion. Or, in other cases, we study how factors like course progression in a degree program can be organized to lead to greater persistence and completion.

Question 3:  How does Pearson make money in higher ed? How much does Pearson make in print materials vs. digital materials? How big is the Online Program Management (Embanet) business? What are the other sources of revenue for Pearson in higher ed?  

A: We provide academic courseware to U.S. higher education students through market-leading authors and digital products such as MyLabs and Mastering, and our next-generation, fully digital product, Revel. 

We have roughly 35 percent share of courseware adoptions and over 12 million student registrations of our digital courseware per year; this business accounts for approximately 30 percent of Pearson’s total sales. It is split 50-50 between print and digital; however, we are focused on accelerating the shift to digital to so that by the end of the decade this will be closer to 75:25.

Our online program management business is relatively smaller, and represents about 5 percent of Pearson, but it is growing at double digit growth rates -- as more and more colleges look to reach students through online courses. This works particularly well for graduate studies. We now have more than 40 partnerships across the U.S., with two more in Australia and one in the UK, and an exciting pipeline in place for further partnerships.

Question 4: It seems like a big deal that Pearson is cutting the cost of renting digital textbooks by 50 percent. What will be the impact on print sales? How much do you expect that this change will save for students, and how much will this decision drive the switch from print to digital? More important, how much will this pricing change save me, as next year I'll have two kids in college?

A: Pearson is always developing new ways to make college more affordable and more accessible. We understand that many students are stretched financially and that college is a significant investment for them. Lowering the prices on our e-book rentals and our new rental pilot program for print textbooks is yet another step to take on the issue of college affordability.

Today, we provide e-book rental options for more than 2000 titles; in a few weeks students will see up to 50 percent savings. Students can still rent e-books through the same, trusted online retailers they’ve always used. For print textbooks, Pearson is piloting a rental program with 50 popular titles. Those will be available for fall classes through many of the same retailers that currently rent our books.

In terms of the economic impact of rental on our business, the way to think about this is that you're moving away from a single sale of a textbook at a greater price, to a rental at a lower price point with multiple turns – or times a student rents. Toward the end of a three-year cycle, the rental model becomes revenue neutral. So while there is a short-term hit on revenue, over the cycle, it's margin neutral as well. And, we get better visibility and better control over a part of the channel that's proved very difficult for us over the last few years.

Question 5: Many of my colleagues in higher ed think of Pearson as mostly a seller of overpriced paper textbooks What is the real story of Pearson? What are Pearson's plans to change the perceptions of those of us in higher ed?

A: First and foremost, when we say we want to help people make progress in their lives through learning, we really mean it. To accomplish this, we know that education must be affordable and accessible. We design our products with this in mind, because it is good for students and ultimately good for Pearson too. That’s why we’re launching the rental programs as well as direct digital access for colleges.

Digital Direct Access delivers digital course materials directly to students on the first day of class, eliminating trips to the campus bookstore. Course materials delivered through digital direct access can save students up to 60% compared to the price of traditional printed course materials. This program, in particular, has reduced the cost of materials so much that one school — Kentucky State University — can now afford to provide each of its students a scholarship to cover the cost of course materials. Their digital partnership with Pearson has enabled the school to make the ultimate move toward affordability-giving students the course materials for free.

Secondly, the real story of Pearson is that we are deeply connected to the world of higher ed. We have more people out on campuses every week than probably any other education business; we stay close to the pulse and listen carefully.

Thirdly, we want everyone to be clear that our long-term focus is on better outcomes. If we get that right, it helps our customers, their learners, as well as Pearson and our shareholders. We only want faculty to use our products if they believe we provide better service, a better learning experience for their students, and better outcomes.  If we keep that long-term focus, we will help far more people make progress in their lives and build a sustainably better business.