By Peter Stokes

Executive Vice President

Eduventures.com LLC

http://www.eduventures.com/pdf/doe_elearning.pdf

Today, the "education industry" — encompassing businesses as diverse as childcare companies, for-profit schools, publishers, school supply companies, corporate training firms, tutoring and test preparation businesses, and, more recently, Internet education businesses — generates nearly $100 billion in revenue annually. The notion that business and education can do important work together is now widely accepted, from Wall Street to Main Street.

Investors are pouring ever larger sums of startup capital into education businesses. Research conducted by Eduventures.com, an education industry market research firm, shows that during the 1990s education businesses received some $6 billion in private equity investments — with $2.6 billion coming during 1999 alone. Internet education businesses are receiving a greater and greater share of the investment pie. In 1997, e-learning companies took 18%, or $81 million, of a total $447 million of private investments. The following year, e-learning’s share rose to 25%, taking $198 million of 1998’s total $793 million. By 1999, these companies were taking 38%, amounting to $981 million of the $2.6 billion total. During the first five months of 2000, the share for e-learning private investment reached 57%, amounting to $841 million of the $1.5 billion invested.

All major investment firms cover the education industry, from Merrill Lynch to Salomon Smith Barney, from Credit Suisse First Boston to Banc of America. Today investment firms produce two-inch-thick research books on investment opportuni-ties in education, and a number of firms now publish weekly newsletters — all focused on e-learning — to keep investors up to date on opportunities in an accelerat-ing marketplace.

There are many niches in the e-learning marketplace — and a variety of products and services. • Portals — Web sites that aggregate educational content, lesson plans and other resources online. These sites generally feature powerful search engines for re-searching on the web, as well as content and other materials provided by partner companies such as publishers, associations and online news sources. Access to content is often made available at no charge to the user. Revenues are typically generated though a blend of advertising, e-commerce and subscription sales. Examples: Lightspan; EdGate.com. • Content Providers — Education sites and software companies which typically focus on branding a curriculum in a specific discipline, such as math or science. These firms, like portals, may derive revenue from advertising and e-commerce, as well as through the sale or licensing of curriculum in the form of printed materi-als or CD-ROMs. Examples: Classroom Connect; Cogito Learning Media. • Community Sites — Companies which provide schools, classrooms or student clubs with online publishing tools and communication features such as chatrooms, message boards or email. Tools and server space are frequently made available to users at no charge. For revenue generation, these companies rely on advertising and e-commerce. Recent market trends suggest that these businesses will increasingly look to broaden their offerings to include data management tools such as administrative and student information systems. Examples: HighWired.com; FamilyEducation Company. • Tutoring — Frequently these firms have already established brick and mortar tutoring or test preparation businesses. By bringing their services online, these companies make it possible for parents — who typically pay for these services — to participate in and actively support their children’s education. Students benefit by being able to access help whenever and wherever it is needed. Revenues are typically derived from fees for services or through subscription sales. Examples: Tutor.com; eScore.com. • Student Information Systems — These companies make it possible for teachers, parents and students to interact with greater frequency and efficiency by making student records — such as grades or attendance data — and class projects available online. Some SIS solutions provide parents with email access to teachers. Rev-enues are generated through the sale of these systems — whether web-based or software — to schools. Examples: PowerSchool; NCS. • Distance Learning — In the K-12 market, these companies generally take educa-tion out of the classroom and into the home — or any number of other locations. (In the higher education marketplace, these firms also market their services for use on campus.) Distance learning firms in the K-12 space target the home-schooling market and also license their services to brick and mortar schools which may not have the resources in-house to deliver certain kinds of content — such as advanced placement courses. Distance learning companies challenge schools to rethink the purpose of the classroom and have the potential to bring quality, interactive education to disabled children who could not otherwise attend school. Revenues are generated through the sale of services to parents or schools. Ex-amples: Class.com; Apex Learning.

This paper was prepared under contract to the American Institutes for Research on behalf of the U.S. Department of Education, Office of Educational Technology (Contract 282-98- 0029). The opinions presented herein should not be construed to represent the official positions or policies of the US Department of Education, and no endorsement by the Department should be inferred.