How The World's Biggest Education Company Will Spend The Next $2 Billion

Pearson was already the biggest education company in the world. Now its education business is getting even bigger. In the past several weeks, the company has sold off its two major media brands, the Financial Times (for $1.3 billion) and The Economist (for about $730 million).

This move is part of a general moment of back-to-school upheaval in the education industry. News Corp. just announced that its much-hyped ed-tech brand Amplify is a $371 million write off. Yet at the same time, ed-tech venture capital deals have doubled in the past 12 months to a reported total $2.3 billion. Chinese ed-tech companies, in particular, are raising lots of money.

There is a lot of room for everyone to grow. Pearson says it currently does $5 billion worth of business annually in the U.S. That's out of what the company estimates is a total of $1 trillion spent each year on education — most of it public money.

As digital technologies continue to play a larger role in both instructional delivery and assessment, many observers see a larger role for private industry as well.

"In the future world there are going to be more public-private partnerships in education," says Pearson's North American CEO, Don Kilburn. In other words, this isn't just about the expansion of a few companies — this is about the maturing of an entire sector.

Pearson CEO John Fallon announced that thanks to The Economist and FT sales, the company is now "100 percent focused on our global education strategy." In a blog post, he elaborated:

"In recent years, we've developed an increasing focus on our biggest, most exciting opportunity — to help people make progress in their lives through learning ... it's become clear to me and the Pearson board that the scale of the challenge requires our undivided attention."

But is all this money and attention good news for learners?

Prove You're Good

Amar Kumar says it will be. He is a senior VP at Pearson and part of a relatively new unit called "Efficacy & Research." And he says the company wants to bring more "rigor and transparency" by measuring the impact of everything it does.

"This company is serious about doubling down on education," he says. "We care about it. We feel like we're well-equipped to do it. The efficacy agenda ensures that when we do it, it's going to be with the right level of quality and rigor."

Since 2013, Kumar says, Pearson has been evaluating all its investments and partnerships not only on financial performance (Can we get customers and make money?) but also on educational performance (Can we help learners succeed?).

It may seem like a pretty basic proposition: Invest in products and services that can prove they do what they say on the label. But this outcomes focus is not exactly prevalent in the world of ed-tech.

Amplify is a case study. Just three years ago, it was among the highest-profile launches this industry had ever seen. The company spent hundreds of millions of dollars developing tablets and electronic curricula. Some of the company's products, especially the games, were award-winning. But they failed to find a market with teachers. And as for the devices? In some cases they literally melted down.

"There are 'big' startups with lots of users and venture funding that have yet to show impact on outcomes relative to the investment being made in them," says David Schiffman, former director of global education strategy at Samsung, who now consults to ed-tech startups. "Pearson's recent divestments ... are about them focusing on the elements that will make an impact in education."

Access, Success, Progress

The company uses a pithy slogan internally to describe its priorities: Access, Success and Progress.

Access means bringing education to underserved communities. Kilburn points to College Park Academy, a partnership with the city of College Park and the University of Maryland to create a charter middle school with both online and on-the-ground programs that he says is performing well with a "fairly challenged demographic."

Success means measuring students' learning in terms of useful skills for life and the workforce. Kilburn mentions the MyMathLab software product, in use at colleges around the country, which he says has demonstrated success with remedial math students.

And progress means helping students move from K-12 through college and eventually to careers. Kilburn cites Pearson's partnership with Arizona State University, where Starbucks employees can enroll for free online. "We are helping power their online program," he says. "We recruit students, enroll students, create mentoring and help for those students, and measure their performance."

Pearson's efficacy practice increasingly includes publishing the work of independent researchers, like John Hattie, whose findings don't always agree with the company's sales pitches.

But as the company expands, it will have to work hard to counter some severely negative public perceptions. "Pearson is not a beloved brand — far from it," as Audrey Watters, ed-tech blogger and author, puts it.

The British conglomerate began expanding rapidly into education in 1998. It purchased an American testing company for $2.5 billion in 2000. That purchase instantly made it the leading scorer of standardized tests in this country. It also put the company front and center in the expansion of standardized testing under the accountability provisions of No Child Left Behind. As both tests and the Common Core rocketed to national controversy, Pearson has increasingly incurred bad press.

This past spring, the Los Angeles Unified School District formally severed a $1.3 billion contract with Pearson and Apple, saying it was "extremely dissatisfied with the work of Pearson." And in New York State, 20 percent of students refused to take Pearson-produced state tests; in July the state dropped Pearson as a vendor.

Asked if the company has a credibility problem, Kilburn said, "I think there's quite a few educators and learners right now that trust us quite a bit, but I believe our journey should solidify and grow that trust. If we continue to focus on learner outcomes and get our story out, I hope we will be recognized for that."

In a way, the circumstances that hurt Pearson's brand are the same ones that help its business. It finds itself without a competitor of similar size focused as intensively on educational innovation. The competition it does have comes from the old-guard of textbook publishers on the one hand (McGraw-Hill, Houghton Mifflin Harcourt), and the educational division of the big tech companies on the other (Apple, Google), plus startups and an outlier group of nonprofits (The College Board, Educational Testing Service, PARCC).

That means when a state or group of districts is looking for a vendor for a new test, say, bidding processes are sometimes less competitive than they might be. And when an education policy becomes unpopular, Pearson, which is set up to make a profit on that policy, is a fat target.

So while Pearson is trying to become known as a standardbearer of quality in the industry, what might really improve perceptions of the company and conditions for learners is more good old-fashioned market competition. "It would be good for outcomes to have many people doing this," Kumar says.