Looking for new opportunities in education (technology)

Europe’s biggest edtech company

After 10 years at Sanoma, mostly leading Sanoma Learning, I’ve informed the company of my intention to move on as of spring next year, giving plenty of time to arrange a smooth handover to a successor.  Check out the press release of 13 November about it here.

Great place to work

It’s been an honour to lead Learning during this period, and I’m really proud about what the teams have achieved.  I love the dedication to learning that can be felt across the company and very much respect the commitment of our people to do a great job for pupils and teachers.

Growth and successful transformation

Our teams have achieved a lot of success in local markets and made great leaps forward on the digital transformation.  We have worked together intensively across the company on the High Five program in building one Sanoma Learning.  And we’ve completed a number of acquisitions including Sanoma Utbildning in Sweden, Tammi Learning in Finland, De Boeck in Belgium and and Iddink in The Netherlands, Belgium and Spain.  We are now about twice the size we were five years ago.

Amongst the best performers in the industry

Today we stand as a very successful company.  We are positively impacting about 11m learners and 1m teachers in some of the World’s best education systems through a professional organization of some 1700 talented people. We are a frontrunner on the digital transformation, arguably Europe’s biggest edtech company today in terms of revenues and employment.

We’re growing and amongst the best performing companies in the industry financially: 2018 brought us the strongest result in our history so far, and we are well on track to extend that success further in 2019.  It has really been a privilege to be part of this great company!

My priority right now is to continue leading Learning effectively and then to handover to a successor before leaving Sanoma.

Investing in education/technology

After that, I’m intending to make some investments in the education (technology) sector and to see where that  brings me.  For early stage investments I will be investing in and working together with eduimpact.fi.  For later stage investments I will work together with other investors.  Feel free to reach out to me at johnrichmartin@gmail.com if you think I could in some way help your company to prosper.

Thank you!

Thank you to my colleagues at Sanoma Learning for their excellent work and cooperation through the years. Wishing them and Sanoma Learning all the best for a bright future ahead!

Looking forward >>

John Martin

Teachers Want to Go Digital Where it Brings Most Benefits

In the fifth annual Sanoma Learning Impact Framework (SLIF), we decided to focus on the main tasks the teacher performs in her profession. In total 7075 teachers responded to the survey, which was again carried out in all of the markets in which we operate: Belgium, Finland, The Netherlands, Poland and Sweden.

Core activities

The main tasks for teacher are: lesson planning, teaching the whole class, exercising, testing, assessment and giving guidance personally or in small groups. Of course there are other tasks too, such as administrative work and professional development, but these are the most frequently repeated activities.

Figure 1 depicts the amount of time teachers estimate they spend on each activity. Teaching the whole study group takes most of the teachers’ time, but still only less than a third.

activities

Figure 1. Percentage of time spent on different tasks

As part of the digital transformation, we are as an educational publisher very interested in whether teachers prefer print or digital materials to support them in their work. Our experience so far is that they value both, and in last year’s SLIF we came to the conclusion that blended learning is the way to go.

As-is/to-be: medium vs activity

This time we decided to be more specific and map the print vs. digital axis with the activities a teacher carries out. This provided us with revealing results, as depicted in Figure 2.

present_vs_ideal

Figure 2. Materials and tools offered by publishers: Current use vs. Willingness to use

First of all, teachers would like to use more digital materials in all tasks than at present. Secondly, and perhaps more interestingly, the gap between current and desired state is the greatest in tasks where pupils/students have a relatively more active role, namely exercising, testing, and assessment.

Currently 65% of teachers are using printed tests/exams. 28% say they use half & half or primarily digital tests/exams. Contrasting this with the desired state is staggering and the percentages get flipped: only 28% would like to use primarily print and 68% half or primarily digital. A similar phenomenon can be seen in exercising and assessment.

Digital where it makes most impact

What to make of this? We think the answer is simple. Both exercising and testing generate a lot of new content and insights for the teacher to go through. This makes assessment time-consuming for the teacher. With both questions and answers in a digital form, time is saved, insights are increased and pupil/student engagement is enhanced. Teachers are selectively looking to use digital for maximum impact.

Santtu Toivonen, Lead Insight Manager, Sanoma Pro

John Martin, CEO, Sanoma Learning

How many edtech companies are exporting more than $20M each year?

Source: HolonIQ

Source: HolonIQ

The promise of education markets is well marketed.  Estimates have been made that global education and training spend will reach approximately $10T (that’s $10,000,000,000,000) by 2030, about 6% of global GDP, with approximately 55% spent on the K-12 sector (somewhat above $3T this year).

Global edtech spend is forecasted to grow from $152B in 2018 (a paltry 2.6% of total spending) to $342B in 2025 (a slightly less meagre 4.4%).

Growth in edtech spend

Source: HolonIQ.com

Applying technology to learning and teaching should be a massive opportunity to both improve learning impact and to build a successful business, right?

I’m convinced on both counts.  But if global spend on K-12 is $3T then why is the spend on edtech so relatively modest? It’s mainly important to remember that about 80% of spending in K-12 is on teachers and other staff, with additional spending on other fixed costs such as buildings. Conceptually, in a pure-play digital future, in which teachers might be replaced with AI and robots, this could be an addressable market. However, this seems unlikely to happen at scale any time soon, since it would be not only pedagogically unsound but also socially unacceptable.  (It’s my own belief that the human teacher is the “killer app” in education).

Spending on Staff

Source: OECD Education at a Glance 2018

It seems more likely that technology will be used to super-charge teachers and enable more flexible organization forms for teaching.

Is there a global market for K-12 edtech?

If we would assume for the sake of argument that 2.6% of spending on K-12 education is digital (see above), this would imply a current spend of about $85B.

I would like to understand how much success the edtech industry is having in scaling internationally. How much of the $85B is being spent on local vs global solutions and how big is the opportunity for global vendors? It’s important for us to understand this dynamic as an industry: it will inform our investment decisions and potential to make an impact on learning.

Although the edtech market is not yet very mature, it is of a sufficient scale that we should expect to see successful global operators in edtech in K-12, if the market has a (partially) global nature.  Imagine we set a very low threshold: 0.025% of $85B spend, roughly $20M.  How many edtech companies are there in K-12 today who are generating $20M sales or more each year on edtech offerings being sold outside their market of origin?  More than 100? Less than 10?  I simply don’t know, my guess is there are tens rather than hundreds or thousands.

Who is exporting more than $20M?

I am very keen to discover and understand examples of such companies (exporting more than $20M of edtech each year outside of their home markets in K-12).  I would appreciate it if you would reach out to me when you know of good examples, or if you know of any good reports on the subject.  (Of course there are a number of examples I am aware of and I am excluding the likes of Apple, Microsoft, Samsung and so on, which are more generic tech solutions than specifically edtech).

Assuming it’s likely the international opportunity is currently under-developed, are there things that we can do together as an industry to unlock this potential?  At Sanoma we have successfully scaled our bingel platform in primary education across geographies, and are now working on the same with Kampus in secondary education.  Therefore within a Group it seems to be possible.  Are there other examples across Groups or through partnerships that have scaled successfully across international markets?  What can we learn from these examples?

HolonIQ

Source: HolonIQ

The Chinese, Americans and Indians have the advantage of huge internal markets.  At the same time, many of their edtech ventures are focused on capturing that big local opportunity.  However, it seems only to be a matter of time before some of these companies go global.  Whilst lacking their scale, could we Europeans (better) develop the capability to scale across geographies as a competitive advantage in edtech?  What would we need to do to make that happen?

Of course it’s a possibility that K-12 education and edtech markets will remain mainly local.  In which case we as an industry can adjust some of our investment hypotheses accordingly.  Yet I expect growing teacher shortages, pedagogical innovations and technological progress will drive change in our markets. We should organize ourselves to be ready for these changes.

 

Scaling European Edtech

I recently came across this interesting report from Navitas Ventures – Global Edtech Ecosystems 1.0: Connecting the World of Education Technology.  Navitas analysed 20 cities with leading edtech ecosystems representing about 40% of global edtech.  Beijing, the Bay Area and New York are top of the class, with Boston, London and Shanghai challenging.  They also assessed a further 14 emerging ecosystems at different states of maturity.  It’s clear that edtech is thriving across the globe!

Scale is essential to success in digital and you can see that in edtech too, with the predominance of China and the USA.  In addition, given the demography and emerging status of the edtech ecosystems in India and Sub-Saharan Africa, it’s likely that together these four regions will give birth to a generation of edtech giants.  Edtech could significantly improve the life chances of hundreds of millions of people in these regions by increasing access, participation and engagement in education.  It’s a powerful promise!

HolonIQ

Source: HolonIQ

What about Europe?

Europe has some natural advantages in the edtech space.  We are home to many world-class education systems such as Finland. There’s a rich start-up scene in a number of European cities with London leading (but will Brexit make us BETT-sick?). Paris, Stockholm, Berlin, Helsinki and Amsterdam are vibrant and promising too, in fact there are more than 3000 edtech ventures across Europe today. Furthermore, there is significant and reliable spending on education through governments and ready access to venture and growth funding privately.

However, we lack scale

A lack of scale probably results in us under-serving our own customers.  It restricts our ability to expand to international markets. And it potentially exposes us to competitors grown in the big markets.  A lack of scale is restricting our potential.

European Champions

To address this, I think we need to create a European edtech network with strong go-to-market capabilities so we can effectively scale successful concepts across the continent.  I believe this network would be well served if it includes a handful of Champions to acts as magnets to talent, ideas and capital.

Learning organisation

I am interested in your ideas about how we could bring more scale to European edtech and what you think about the idea of building a European network with Champions.  How could we make that happen?  I’m also curious to learn from some of the challenger and emerging edtech ecosystems: how are they approaching this, what’s working and what’s not?  Learning is in our DNA, we need to put those skills to work if we are to bring this potential to life.

Sanoma’s Start-up Challenge Five Years On

Five years on from Sanoma’s Start-up Challenge on the Future of Learning at TNW2014, I checked out how the five finalists have fared.  I’m impressed!

Winner Labster raises growth funding

Winner of the Challenge Labster has been prospering and announced at the end of last month raising $21M in a series B round to develop more digital lab simulations and to grow in the US market.  Next stop the World.

DragonBox joins Kahoot!

Maths app developer DragonBox announced today that it has been acquired by Kahoot! for $18M.  Their claim is that together they are going to make learning maths awesome!

ClassCharts wins BETT

Edukey’s ClassCharts, a seating planner and behavioural management tool, has gone from strength to strength based on the close understanding of teaching and the classroom underpinned by a strong data and analytics capability. Edukey won Company of the Year at BETT2019.

Jumpido combines movement with software to boost maths learning and looks like quite a fun thing to do in primary schools.  Although the website is still active and the company was a finalist at the Forbes e-volution Award in 2016, they have been rather quiet since.

The website for the final contender Eduvee, an intuitive learning and tutoring platform, now re-directs to the education page of custom software and consulting company Elinext, likely indicating that some form of major pivot has taken place for this company.

Impressive

Overall it’s really impressive to see how much success these companies are achieving.  We were lucky to have selected such a strong cohort for our Start-up Challenge.

Inspiring

What I found inspiring in all of the contestants at the time was their deep understanding of their customers and their passion and drive to make a difference.  Five years on you can see the positive impact of the energy they have put into their ventures.

Looking forward >>

I’m curious on how far these companies will go in the next five years, and wish them every success in turning their ambitions into reality.

Higher Education Knews: Wiley Acquires Knewton

knewton

Following last week’s big yet long-awaited news of the intended merger between higher education giants Cengage and McGraw-Hill, this week has started with a more surprising announcement that Wiley is acquiring Knewton, for an undisclosed sum.

11 year old Knewton has been a prominent player in the edtech space, raising more than $180m of venture funding.  Recently the company has pivoted to combining its adaptive technology with OER in the Alta platform, with courses costing $39.95 or alternatively $9.95 per month.  This platform addresses the fundamental needs of outcomes and affordability in education, according to Brian Napack, CEO of Wiley and Chief Knerd Brian Kibby.

“Driving outcomes at an affordable price”

This is good news for students and further evidence that the higher education publishing industry is clearly transforming to providing affordable solutions, with lower priced subscription models.  In so doing this also offers a path to transformation and growth for the industry, through digital offerings and new business models.

Presumably Wiley could have licensed the technology from Knewton.  Likewise, Knewton could have operated more freely as an independent company in disrupting the market. Presumably the two parties concluded they can either move faster, or operate at a lower cost, or get a higher mutual commitment, or realise a more attractive financial profile by means of an acquisition rather than a partnership.  This does look like a win-win for the two companies.

In the meantime, all key industry players in higher education publishing have access to good adaptive technology, some in-house (such as McGraw-Hill) and some licensed (such as Wiley pre-transaction).  This move bolsters Wiley’s in-house capabilities. It’s interesting to note that Pearson, who was an investor in Knewton, decided to phase out their technology two years ago.

Both transactions, Cengage-McGraw-Hill and Wiley-Knewton, are good news for students looking for affordable outcomes, and positive steps in the transformation of the higher education publishing industry.  In my view, the broader scope of the unlimited subscription that can be offered by Cengage-McGraw-Hill, coupled with the funding potential that can be untapped through their cost synergy program, would suggest that that transaction has the higher transformative potential to the market of the two deals.  It will be fascinating to track adoptions and usage of the various subscription models and the learner outcomes enabled by those platforms in the coming years to see what’s really working for the learner.

Good luck to Wiley and Knewton in making a success of this deal!

What to expect from the Cengage McGraw-Hill merger?

cengage

The big news in educational publishing last week was the announcement of the intended all-stock merger between Cengage and McGraw-Hill.  The companies expect to achieve regulatory clearance by the end of Q1/2020 and the combined entity will operate under the name McGraw Hill.  With pro forma revenues of $3.2bn, the new combined entity will be a strong challenger to market leader Pearson in the higher education space (total revenues of $5.4bn in 2018).

“Self-inflicted vicious cycle of decline in higher education”

Higher education publishing has been stuck in a self-inflicted vicious cycle of decline over the last decade, driven by lack of affordability.  Higher prices have encouraged rental and re-use models, have promoted the growth of Open Educational Resources and have also driven growth in non-consumption of learning resources.  Publishers have tried to compensate the market decline by further increasing prices.  Apart from the poor service to students, this has also taken its toll on higher education publishers with Cengage losing $2m on sales of $1.5bn in the year to March 2018 and McGraw-Hill losing $160m on sales of $1.7bn in the last book year.

Tertiary education about the deal

In their announcement, management cites three main reasons for the deal:

  1. Revenue growth, due to higher sales coverage, rolling out of the “unlimited subscription” model, complementary offerings in K-12 and international sales growth (especially Australia, China, India and the Middle East)
  2. Cost synergies, estimated at $300m annualized
  3. Enhanced financial profile, with a better balance sheet supporting the adoption of recurring models and growth in adjacent markets.

Gains for shareholders and students

The biggest winners in this deal are likely to be the shareholders.  Imagine the company might (eventually) be worth something like 13-17 times earnings (see Pearson), then with $300m of annualized savings, there’s arguably a potential cost synergy value of about $4-5bn, minus costs of maybe $300m to capture (my own unvalidated ballpark estimate).

Students should also be winners from this deal, as it enables the rolling out of the unlimited subscription model, alleviating the financial pressures of buying learning materials and at the same time increasing access and insights.

In the short term I think it’s likely that Pearson will be a winner from this deal too, as the people impact of the transaction rocks the boat at Cengage & McGraw-Hill, also opening up the talent pool to Pearson.  Sales at Pearson are likely to benefit from portfolio rationalization at the combination as well.

Pains for employees and suppliers

Part of the pain from the deal is likely to be felt in the organization.  Imagine a scenario whereby 1/3 of the $300m cost savings might be realized through reducing duplication in the organization through redundancies.  This might be of the order of 1500 jobs on the line particularly in US Higher Education and International segments where duplication is likely to be the highest.  There will of course also be anguish caused by the uncertainty the deal brings.

The second area where much of the pain is likely to be felt is with suppliers: authors, printers, tech providers, landlords and so on, maybe to  the tune of $200m per year, as duplication is removed and the higher purchasing power is executed.  (In some areas such as learning design skills or printing, this will likely have a knock-on benefit for Pearson, whose bargaining power in the market will also increase with this deal).

Watch this space closely

There are three areas I would track very carefully in the next few years if I were a shareholder in the new entity:

  1. Deliver on the cost savings. In my view the $300m of stated cost synergies should be eminently achievable.  This should be a high value, low risk lever and management should be very well capable of making it happen.  This should as management states be realizable within 3 years of closing the transaction and will underpin both earnings as well as the transformation in the business model.
  2. Roll out the unlimited subscription model. This is in my view the key reason to do this deal. The new entity can create a more attractive unlimited subscription package for students (superior content and platform) but will need the cost synergies to pay for the investment and model shift. Solving the problem of access and affordability to students in higher education is the critical path for this company.  Making this happen is in my view going to be the key driver of the future prospects of the business, hence also the multiple that can be achieved on exit.  I do think there will be revenue opportunities in the other areas stated in the announcement, but I believe this is by far the key initiative. Revenues in the next few years are going to be difficult to read, with portfolio realignment, new adoptions and the roll-out of new models.  Short-term this might reflect negatively in the financials, hence the cost synergies will be required to financially enable this transformation.  I estimate this to be a high value, medium risk lever.
  3. Critically evaluate investments in new areas. In the short term, in my view, the synergies and shift to the unlimited subscription model should be strongly prioritized, from a financial and management perspective.  I would be wary of too many activities in new countries or new segments for this company at this time, bringing more complexity and cost and distracting from the core transformation.  Where I would want to see full momentum on the savings and model shift,  I would at this time want to see a critical approach to things that increase the complexity of the business.

Overall I think this deal makes a lot of sense and is being done for the right reasons.  Good luck to the team in making it happen.

Footnote: I am not an investor in either entity nor the future entity, I am not a financial advisor, and I have not in any way been involved in this intended transaction.