Prediction: In the next 2 years we will see an acceleration of investments and purchases in the edtech startup and edtech small company (revenues <=$20 million a year) space by the likes of Pearson, McGraw-Hill, Houghton Mifflin Harcourt, and Cengage.
Why the EDU Publishers Need the EdTech Companies:
- The large EDU publisher core revenue model, that of making money from large paper textbook adoptions, will disappear. Publishers have a limited window to migrate to a digital model that actually makes money, a trick that the music industry and the newspaper industry has largely failed to pull off.
- Partnerships and acquisitions in the edtech space are actually less about compatible and complementary businesses, and more about the need to change the culture within the EDU publishers. Smart publishing execs will find the smartest edtech companies, buy them, and bring the leadership from the edtech companies to re-wire their own strategic DNA. This will be hard to do - what big company exec wants to give power to a little company exec? - but it will be necessary if publishing hopes to evolve towards relevancy in the digital economy.
- Nobody knows right now what a sustainable EDU publishing model looks like in 2015. The only way to figure it out is to experiment, fail fast, learn and adapt. Publishing companies are going to have to become more like edtech startups and small companies, and to do that they need to bring them on board and then let them run the place (or at least run part of the place).
Why the EdTech Companies Need the Publishers:
- First, abandon the idea that lecture capture, media management, mobile computing, learning management systems, analytics, etc. etc. are really complementary to the EDU publishing business. Partnerships and acquisitions should not be driven by theories around "synergies."
- EdTech companies need the big EDU publishers because most edtech startups and small companies are too small, and have too few available resources, to make the investments necessary to thrive going forward. EdTech companies will need to throw developer resources around mobile apps and the mobile web, as well as ensuring a rapid stream of new products, features, and payment models. Research and development costs will need to be higher than existing revenues can justify, and timelines for profitability will be too long for most innovative small edtech companies to survive. Hooking up with a big publisher will give additional resources, and the necessary breathing space, that edtech companies will need to survive.
- Customer acquisition costs for small edtech companies are too high. A big publisher can, and should, bring together a number of edtech services and companies that can work in the same sales channel. Lecture capture and media management companies come quickly to mind, although I'd add mobile and analytics to the mix.