Business Models for the Digital Future

By Nelson Heller, Ph.D., President, EdNET

It’s getting harder to argue that educational publishing won’t be profoundly changed by digital technology. One doesn’t have to look farther than our iPods, low cost PCs, smart phones, GPSs, Internet telephony, and home appliance digital controls to see it coming. It is no longer a question of whether but when. After looking at all the major “fault lines” associated with this tectonic shift in K-12 education, it’s best to focus on the evolution from a largely content-based business model to one blending content and service; discussing this should cast light on what the impact will be on educational publishing and how to navigate the changes.

Let’s take a brief detour into the world of PC operating systems to get a glimpse of where K-12 educational publishing is almost certainly headed. It’s no surprise that Microsoft Windows and Apple Mac OS own most of the PC OS market. But over the past few years Linux, an open source OS available as a free Internet download, has achieved significant penetration in educational as well as business settings. The biggest Linux penetrations are in server farms where, driven by cost savings, they are steadily displacing proprietary OSs. But like any technology, adoption of Linux has its own total cost of ownership (TCO) in which the acquisition cost accounts for only a fraction of overall cost. TCO also includes the costs of user support, maintenance, Web hosting, training, and implementation, to mention a few reasons why Linux isn’t a free ride. Recognizing this years ago, Red Hat was founded to provide all these to Linux users as paid services, while Red Hat itself continues participating in the ongoing evolution of free Linux. Red Hat also offers enterprise-level Linux and other software products as proprietary products.

This business strategy has been called “open source bottom and proprietary top.” It may well remind you of “loss leader” business models, like discounting razors to sell blades or giving away cell phones to sell service contracts. Except in this case the basic product is offered free by organized communities of software engineers and others who are in it for glory, contributing to the public good and the technical challenge, not ownership of the resulting intellectual property. In 2007 Red Hat’s revenue reached $400 million, up from $278 million in 2006.

In education, open source tools now include:

• Moodle, a learning management system (LMS) that competes with Blackboard;
• Sakai, an enterprise-level “collaboration and learning environment” variously described as an LMS, course management system (CMS) or virtual learning environment (VLE);
• Kuali, an enterprise-level administrative system for managing a school’s financial, research, endowment, and student information); and
• Drupal, a system for publishing, managing and organizing content on a Web site.

All were developed for higher education (including Blackboard), but are gradually finding K-12 adoption. Companies like Moodlerooms and Impari Systems have sprung up in the Red Hat model to support educational users including K-12. The One Laptop Per Child project’s low-cost laptop runs Linux and ships with dozens of educationally relevant open source tools and software packages.

What’s happening in Indiana schools bears watching. The IN DOE has made a commitment to Linux for its K-12 PC infrastructure. It recommends open source Linux applications packages such as Sun Microsystems’ Open Office as an alternative to Microsoft Office, and has assembled a host of other educationally relevant open source tools and instructional packages for school use.

Higher education also gives us a glimpse of a piece of K-12’s future. Connexions, an open source instructional content exchange founded in 1999, “welcomes authors, teachers, and learners to create, rip, mix, and burn textbooks, courses, and learning materials from a globally accessible, open-access repository. In Connexions, anyone can create “modules” of information – smallish, Lego™ block documents that communicate a concept, a procedure, a set of questions. Connect some modules together, and you have a web course or textbook, or build a curriculum entirely of your choosing. All content is open-licensed under the Creative Commons attribution license; all tools are free and open-source.”

Last year Connexions servers handled over 21 million hits per month representing over 600,000 visitors from over 200 countries (www.dsp.ece.rice.edu/~richb/Connexions-2-pager-nov07.pdf). Almost all Connexions content is for higher education, but a high school music theory course developed a few years ago by a frustrated teacher unable to find appropriate proprietary material has been downloaded 600,000 times since it was posted.

Does all this mean that Web-based open source basals and supplementals will soon be eating proprietary publishers’ lunch? Not for a long time to come, if ever, especially if business models evolve. Much free and low-cost teacher-created content already exists on the Web. Today, it’s inconsequential competition for supplementary and basal publishing, but over time, and with the right content management platforms, that will change.

Making disparate digital learning objects into curricular building blocks requires two important attributes – interoperability and meta-tagging. Interoperability is about components “playing nicely” together by accepting standardized inputs and providing standardized outputs. K-12 software publishers first encountered interoperability issues with administrative packages whose non-standardized “siloed” data items, like student and school identifiers, created considerable extra work for institutions using them. The Schools Interoperability Framework Association (SIFA), a consortium of vendors, school districts, state DOEs and others, came into existence in 1997 to deal with this issue. In the past year SIFA, with a staff of only five, has hired its first professional to focus on teaching and learning interoperability including instruction, curriculum, assessment, professional development, grade books, instructional metadata, and special programs (e.g., for special, gifted/talented, vocational and migrant education) and learning management systems.

Meta-tags are identifiers associated with digital objects that describe attributes important to a user, such as the title, subject, or run time of a digital video. In the world of instructional content, meta-tags relate to attributes such as subject, grade level, reading difficulty, language, and skills covered.

The eventual availability of adequately meta-tagged, interoperable, open source K-12 digital learning objects is not inconceivable, nor is that of an open source content management system to let teachers string them together into lessons or chapters.

On another front, domestic and off-shore development houses competing for outsourced instructional product development represent both opportunity and a competitive threat for US educational publishing. To the extent that development can be made routine and defined by rules, it will flow to the most economical providers. Looking a few years into the future, Daniel Pink, in his book A Whole New Mind: Why Right-Brainers Will Rule the Future (The Berkeley Publishing Group, 2005) envisions more offshore legal, accounting, and even health services competing with domestic professionals. Pink sees higher level intellectual skills as the next defensible business frontier, including those of design, “story,” “symphony,” empathy, “play,” and meaning. Here too, competitive business models blending product and service are evolving. Examples of firms targeting K-12 include TutorVista, Cramster.com, and Hotmath.

What’s a K-12 publisher to do? Look to the skill sets behind your products’ value propositions. Creating effective basals, for example, requires expertise in psychometrics, pedagogy, language, design, layout, classroom dynamics, media, state alignment, content, and scope and sequence, to mention just a few. Need for this intelligence won’t disappear in the digital future. Think about the Red Hat business model: add service income to content income. What services? Meta-tagging open source and proprietary modules, providing distance learning and assessment services, offering teacher support, individualizing instruction composed out of the digital soup of Net content based on formative assessment, intelligent hosting of instructional constructs and student work, or enabling constructivist project-based learning that aligns to state standards and maps by year-end into adequate coverage of required content.

Nor does proprietary content go away. Which of your proprietary content might be made open source as part of an up sell strategy? Build relationships between proprietary and free content and create opportunities for selling more advanced or empowered content. Look too at harnessing “socially created” content where–a la Wikipedia–users contribute to the value of your offerings.

The digital future, including the prospect of free open content, will not sound the death knell for educational publishing. Along with its challenges it brings new opportunities and business models. Success is about helping students learn what they need to know, and helping teachers and administrators make that possible. These needs will never go away but how we respond to the inevitable changes will determine which of us are still around and thriving in the decades to come.

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Nelson Heller is president of EdNET at MDR, a D&B company. EdNET publishes a weekly e-mailed industry news service, sponsors the annual EdNET: Educational Networking Conference, and offers periodic EdNET Virtual Roundtables with panels of experts regarding key issues impacting educational sales and marketing. Nelson Heller started The Heller Reports in 1988. In 2002, the business was acquired by Scholastic Inc. and QED. Nelson joined MDR when QED was acquired by MDR in February, 2009. Prior to starting The Heller Reports, he served as research vice president for SFN, the holding company for educational publishers Scott, Foresman; South-Western Publishing, University Park Press and Silver Burdett, as well as owner of radio and television stations, information service, legal and medical publishing businesses. Nelson holds a PhD degree from U Pennsylvania, Masters and graduate Engineers degrees from MIT and a bachelor of electrical engineering degree from Rensselaer Polytechnic Institute. He is recipient of the “Making It Happen” education industry award.