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The Web goes to school
by J.K. Riggin
For more than 40 million kids, autumn means returning to school to the sounds of leaves crunching underfoot and marching bands pounding out pep rally anthems. But the sound of education circa 1999 also includes keyboard-tapping and mouse-clicking, because learning in all its varied forms is happening online. From college courses to Internet access in public schools to corporate training, education-related Internet companies are fast emerging to provide content and commerce to a burgeoning niche market.
Wealth creation has its side effects. Our fin-de-siÈcle hyper-boomtown mentality has left many fearing the onset of premature dumbness. Parents are antsy that the market for knowledge jobs is growing more competitive. For the past decade, they have been desperately reaching for tutoring and learning aids for their kids.
It's happening in the workplace, too. Sales of corporate administrative software (like word processors and spreadsheets) have slowed because Sharona Six-pack barely knows how to use what's on her desktop. Employers are finding that training is often a better investment than software upgrades.
Despite the explosion of Internet usage, public schools are generally at the bottom of the food chain in terms of Internet connections. Just over 50% of public elementary and secondary schools currently have Internet access.
And remember distance learning? Back when the Web first broke, every two-bit futurist was telling us how the Internet would mean the end of traditional college campuses because we would all log in to classes remotely. Well, the time last I checked, Harvard Square was still at the corner of Mass. Ave. and JFK Drive. But the Web-geek prophecy did hold a shred of truth, because you can now take college courses, earn your realtor's license, learn how to program an Excel macro and much more via the Internet.
Learning from afar
The market for offering courses remotely is attractive. According to International Data Corporation, more than 80% of higher education institutions will provide distance learning courses by 2002, and student enrollment in distance learning courses will increase by more than 30% per year through 2002.
Though not yet public, Washington, D.C.-based Blackboard is a company to watch in this space. Spun off from the higher education consulting practice of KPMG Peat Marwick, Blackboard offers software and services that help universities deliver academic courses and registration via the Web. The company plans to expand their market to include K-12 and corporate training. To date, Blackboard has put together an impressive team of partners, including KPMG, International Thomson Publishing, Sylvan Learning Systems, and Microsoft. The company's client list already includes Yale, Cornell, Georgetown, Tufts, and the University of Pittsburgh.
Among Blackboard's competitors is eCollege.com (formerly Real Education, Inc.), also in the business of helping colleges and universities deliver courses and student information via the Web. eCollege.com has led an aggressive sales assault over the past year-and-a-half, signing more than 50 schools to development contracts. In addition, eCollege.com has already pushed into the corporate and professional training sector, working with both the National Association of Realtors and the Palmer Chiropractic University Foundation.
eCollege.com filed for an IPO in May, 1999 (their ticker will be ECLG on NASDAQ). Though the deal has been held up through the summer market's doldrums, watch for a pricing within the next month as the IPO market heats up again.
Eyeballs and wallets, 90210
Even though high school and college students spend nine months of the year falling asleep in the same classrooms, they have been a difficult demographic segment for marketers to reach. With a combined K-12/postsecondary market opportunity encompassing some 4 million teachers, almost 60 million students, and approximately 50 million parents, it's not hard to understand that the education portal opportunity is a real one. College students alone represent US$4 billion a year in spending power, according to Jupiter Communications.
Enter Smarterkids.com, which submitted its IPO registration in September. Like Barney, Arthur and other merchandising schemes masquerading as quality educational fare, Smarterkids.com figures to capitalize on those parents seeking an edge for their children. In June, Smarterkids.com was among the 40 most popular e-commerce Web sites (going up against Amazon.com, eToys.com, etc.). And don't forget Christmas is just around the corner.
Which is what Smarterkids.com is hoping investors will focus on, because the numbers are weak: just US$387,000 in online retail revenue for 1999 (US$22,000 in sales for all of 1998, but the company also sold US$2.3 million of its proprietary educational CD-ROMs), against a net loss of US$7.2 million for the first half of 1999. Smarterkids.com may have a great niche, but the potential upside in volume and growth is questionableÖ even for an Internet valuation.
The performance of the SmarterKids.com IPO will provide the bar that Edu.com will most likely leap over. Catering exclusively to students, Edu.com provides deep student discounts on brand name products and services (mostly hardware, software and electronics). Traditionally, these types of discounts have only been offered within special outlets on school campuses. But students from across the country can log in to Edu.com, establish their official student credentials, and begin buying MP3 players and laptops with Mom and Dad's money. The rapidly growing company also has Michael Dell on its board of directors (which is always a good thing).
Finally, there's ZapMe, whose IPO should price later this month (their ticker symbol will be IZAP on the NASDAQ). ZapMe takes a different angle on reaching the valued high school and college demographic by providing schools with free computers and high-speed Internet connectivity in exchange for pummeling students with advertising.
The bottom lines are iffy; both SmarterKids.com and ZapMe have tenuous balance sheets. Wait for Edu.com to come out, but watch both SmarterKids.com and ZapMe to see how institutional investors react to the niche demographic story.
Show me how
As the distance learning, commerce and advertising plays rush to market, another Web-training play offers a more immediate opportunity. Re-christened Learn2.com (NASDAQ:LTWO) in July, 1999, the company has toughed out a long year of deals and management shuffling.
Formerly 7thstreet.com -- the product of a merger between 7th Level and Street Technologies -- the company has finally migrated to a rational strategy of focusing exclusively on Web-based training for both consumer and corporate audiences. Consumer training is delivered through a portal names "Tutorials.com" and offers lessons in everything from removing tree sap from your car to making an elegant toast at a party. Corporate training is offered through "Learninguniversity.com" and provides for-pay lessons in how to use the major business software applications.
Online corporate training is hot right now, and not just because the Internet is the "cool" way to do things. It's cheaper. Companies routinely pay US$500 to US$1,500 to send Sharona Six-pack off to some industrial park for a day or two. Learn2.com provides the same knowledge online, so employers can manage their own training. And since most companies have installed relatively high-speed Internet connections, the computing environment is robust enough to support a worthwhile learning experience. Learn2.com recently improved its corporate training capabilities by purchasing Viagrafix, widely acknowledged as the leader in multimedia- based training.
The company launched a aggressive e-commerce initiative in August to squeeze more money out of Tutorials.com. Learn2.com is now selling a wide range of name-brand products on Tutorials.com, its consumer-oriented training portal. The idea is to provide users with an opportunity to purchase a product immediately after they've been taught how to use it. With Tutorials.com's increasing traffic, this initiative provides the company with another key revenue stream.
Beyond back-to-school and Christmas seasonal interests, Learn2.com should receive another healthy pop in traffic come April. The company recently contracted with Intuit to deliver Web-based training for Intuit's Quick and TurboTax software programs.
In March, 1999, the company struck a valuable deal with America Online to offer Internet multimedia training to AOL members through Tutorials.com. The agreement was extended in August. As a result of the AOL deal, Learn2.com's stock more than doubled. But through the summer's Internet sell-off, Learn2.com has drifted down to the US$3 range.
With a market capitalization of less than US$100 million, Learn2.com is available at a very low price. The company's coherent overall strategy targeting corporate, consumer and, down the road, student audiences should ignite the afterburners in a year. The e-commerce plug-in is a strong move in the right direction. And as more and more Internet education plays come to market, Learn2.com will attract even more attention from investors.
Conclusion
When you get right down to it, e-commerce alone is but a transactional capability. No one will deny that the usage of that capability can only grow. But how consumers arrive at that capability is still evolving. As even the most popular Web destinations move rapidly to convert hits into purchases, they still have a way to go. According to Jupiter Communications, only 18% of Web purchases currently comes from the major portal Web sites (AOL, Excite@Home, Lycos and Yahoo).
Content that educates you, that does more than distract you from something else, may persuade you to make a purchase as much as the latest promotion from Amazon.com. And the business of delivering online education -- from college courses to 2-hour software tutorials to miniature how-to guides for niggling household repairs -- is perhaps a new "killer app" of the Internet. The melding of education and commerce is inevitable.
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