TCS Daily

Banking on High-Tech Education

By James K. Glassman - May 17, 2001 12:00 AM

I believe that education will be one of the great growth industries of the 21st century. In the short term, President Bush's education plan, as amended by Congress, will do nothing to disrupt this trend. Big money will pour into government education budgets, including big money earmarked for educational technology, while there probably won't be any meaningful progress toward accountability or competition in the K-12 market. This means continued dissatisfaction among parents, continued spending on educational products and supplements, and a continued search for high-tech solutions.

Cisco's CEO John Chambers has been saying for a long time that education is the "killer application" of the Internet. The Internet is perfectly suited for transmitting knowledge, providing research help, testing and measuring progress, customizing lessons and someday, perhaps even replacing classroom instruction. Given that we live in an information economy that demands increasing amounts of knowledge from our workers, and that we now have a massive generation of kids under age 18, it's not hard to forecast robust demand.

Actually, you don't even have to forecast robust demand. It's already here. In 2000, for the first time in the history of the toy industry, an educational product was the top selling toy during the holiday sales season. The LeapPad, an interactive reading device from LeapFrog, snagged top honors by providing a fun way for kids to learn.

Unfortunately, you can't invest in LeapFrog, which is owned by Michael Milken's Knowledge Universe, a privately held portfolio of education firms. But if you're looking to invest in education companies developing new technological applications, there are several worth considering.

The best of the for-profit education companies is one I have long owned, the Apollo Group (APOL), which offers college and graduate-level courses for working adults. Apollo runs a network of campuses and a growing online business offering courses over the Internet.

Pearson PLC (PSO) is a British media giant and the world's largest educational publisher. The company is aggressively moving the content from its best-selling textbooks online and investing in a range of American start-ups in the online education field. These include Blackboard, which will probably launch an IPO soon. Blackboard has developed software used by an increasing number of educators to offer their courses online.

Sylvan Learning Systems (SLVN) has established a strong brick-and-mortar business tutoring kids in various academic subjects, as well as contracting with schools to provide educational services. The company is now looking to offer more online products and already has a strong distance-learning business in providing corporate training over the Internet.

Two huge media firms in position to exploit the education market are AOL Time Warner (AOL), which owns the Family Education Network and is building a large presence with its AOL@School program offering educational resources (in collaboration with Pearson), and the Washington Post Co. (WPO). The Washington Post owns the Kaplan tutoring and test-preparation business. AOL and WPO are involved in so many larger markets that you shouldn't buy them as pure education plays, but you might see this as another reason to own two excellent diversified firms for the long haul.

The market for compelling, high-tech K-12 educational products is still wide open, so it may be a company that we've never heard of seizing the leadership role in this market. William Bennett's, another Milken-backed venture, will launch this fall offering online courses for a few grades at first, and ultimately a full curriculum. I also continue to be intrigued by a small public company I mentioned in an earlier column, Riverdeep Group (RVDP). This Irish company makes online and CD-ROM learning tools sold to American schools, which will be enjoying increasingly large budgets.


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