2011-12-02

Co.Exist

Marc Andreessen On The Potential Promises Of EdTech Investments

The VC says education is so resistant to change that it’s scary to invest in. But it’s a sector that startups could—and are—seriously disrupting.

The year 2011 will go down as the year that many education technology companies began to plant their stakes in the ground. Sal Khan and his nonprofit, Khan Academy, got cinematically big. For those who want to go the for-profit route, the Software and Information Industry Association (SIIA) and consultant John Richards of cs4ed consulting estimated that the edtech software market size is at approximately $7.5 billion. (The full 70-or-so-page "2010 U.S. Educational Technology Industry Market: PreK-12 Report," priced at $1,500, was released at the SIIA’s EdTech Business Forum this week.)

Of course, $7.5 billion isn’t all that huge: Defense contractor Lockheed Martin just scored one contract worth $7.4 billion to upgrade the Air Force’s F-22 stealth fighter.

But here are two other signs of how edtech is heating up: Big-league investors are starting to show up and companies are experimenting with audacious business market approaches.

Among investors, few pack as much entrepreneurial mojo as venture capitalist and former Netscape founder Marc Andreessen. And he’s said he wants in on the next industries he sees disrupted by software: namely health care and education.

So far, a16z, Andreessen’s venture firm with a zippy moniker, has only tiptoed into edtech with one deal (Kno). Andreessen concedes he’s skittish about tripping over politics and bureaucracy. "I wouldn’t want to back a business that’s selling to public schools or characterized by public financing, unions, or government-run institutions. Those institutions are incredibly hostile to change," he told EdSurge.

Andreessen’s smart enough to know the world changes, though: "Never say never; I could be surprised. But we’re concerned. Startups have to be able to do business with their customers. Steve Jobs always said that Apple sells to consumers, not primarily to businesses. In the enterprise, there’s another person between the vendor and the customers. That guy doesn’t have the same goals and interests as the customer.

"For a startup to sell to a school district or in a union or bureaucratic environment, your odds of failure go way up," Andreessen says. "It just takes too long. The important starting point is to have direct relationship with the customer—and a financial relationship around that."

Thanks to the Internet that Andreessen has helped stoke, that logjam in front of the education customer is exactly what’s breaking up, observes Alan Louie of Imagine K12 (and a colleague of Andreessen during their Netscape days). And it’s leading to some business models with chutzpah.

"The model of only going to schools and selling there is the hardest way for a startup to go," Louie agrees. But increasingly, teachers are telling schools what they want. "Consummating a sale generated by a teacher and then executed by the district is just fine by me," he says. "That wasn’t possible five years ago.

In the K-12 space, startup Edmodo, which offers a sort of Facebook or LinkedIn-like model for teachers and students, saw its users skyrocket to 4 million in late October, up from 500,000 last September. Another company called Coursekit—which just publicly debuted this week—is hoping to ramp up much the same way.

Coursekit is a learning management system with the brashness to put itself up against industry leader, Blackboard. Their models couldn’t be more different: Blackboard (purchased by an investor group led by affiliates of private equity powerhouse, Providence Equity Partners, in July for $1.64 billion) was started in 1997 and sells a complex (and expensive) learning management system to universities. Blackboard doesn’t publish its license fees: Others have groused.

Coursekit is run by a team of five, backed by $1 million in seed capital. The three cofounders quit college to start the company. Between August and now, Coursekit ran a beta program of its software, winning over about 70 professors and their 3,400 or so students. The software has a slick interface. Best of all—from the professors’ vantage—it’s free. (There is another free approach, of course, namely the open-source Moodle. Moodle, too, harkens back to an earlier time: It’s a stick-shift to Coursekit’s smooth automatic.)

Coursekit cofounder, Joseph Cohen, is reluctant to discuss what business model might support his firm. He’s got his eye on scale—and is willing to see where the dollars could trickle out. "What do people spend money on at school?" he asks rhetorically. "Content, like textbooks. Tools. Peripheral campus stuff," like food, housing and the like. Couldn’t Coursekit become an advertising platform? A lead-generation platform?

A decade ago, no one believed that Jeff Bezos could create a bookstore online or that Zappos could keep delivering all those shoes for free.

Viva la competition.

Want to help EdSurge put a few numbers around the emerging edtech business? Weigh in on our survey of edtech products launched and used this year; tell us what you love and what you hate. You’ll whiz through this baby in about 4 minutes—really! In turn, we’ll share the results in about two weeks’ time.

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2 Comments

  • Michael Penney

    Regarding the free educational tools, If You’re Not Paying for It; You’re the Product

    Hey that is no problem when the users are voluntary. If a Higher Ed. institution though, says to its students, 'you have to surrender your data so we can have a free LMS' that is a bit more of an issue.

    If it's a K-12 institution, the issue of data privacy is even bigger. Look at the terms of service carefully, many reserve the right to sell user data at some point in the future, in "business transfers", etc.

    The cost of an LMS usually is pretty minor, in any event, usually between $2 and $15 per student when students are spending 100s per semester for books, etc. K12 parents spend more on pencils, paper and pens. Doesn't seem like the most effective place to look for cost cutting...

  • Betsy

    An LMS is a platform, which is always a pretty smart thing to build if you want to make it hard for people to imagine life without you. Currently some of the commercial LMS programs are pricey. So a smooth, well-designed LMS for "free" could be compelling. Your points about  data privacy are important ones. But I bet most of us *still* don't read those windy Terms of Service.