United States
Education & Training Services
Knowledge Enterprises
23 May 2000 (Reprint)
Michael T. Moe, CFA
Henry Blodget
Michael B. Armstrong
Kathleen Bailey
Neil Godsey
Chandy Smith
Thatcher Thompson
Scott Wilson
7KH.QRZOHGJH:HE
Highlights:
$2 Trillion Market Catalyzed by the Internet
e-Learning and e-Recruiting Poised to
Revolutionize Human Capital Management
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
The Knowledge Web – 23 May 2000 (Reprint)
Knowledge Enterprises Group
Michael T. Moe, CFA
Director of Global Growth Research
(1) 415 676-3570
michael_moe@ml.com
Education Services & Knowledge Enterprises
Business & Employee Services
Kathleen Bailey
Vice President
(1) 415 676-3572
kathleen_bailey@ml.com
Thatcher Thompson
Director
(1) 212 449-8787
thatcher_thompson@ml.com
Scott Wilson
Vice President
(1) 415 676-3541
swilson@ml.com
Chandy Smith
Assistant Vice President
(1) 212 449-0841
chandy_smith@ml.com
Neil Godsey
Assistant Vice President
(1) 415 676-3574
neil_godsey@ml.com
Michael B. Armstrong
Industry Analyst
(1) 415 676-3585
michael_armstrong@ml.com
Global Internet Research
Henry Blodget
Senior Internet Analyst, Global Coordinator
(1) 212 449-0773
henry_blodget@ml.com
Kirsten Campbell
Assistant Vice President
(1) 212 449-3113
kirsten_campbell@ml.com
"Albert Einstein"™ Licensed by the Hebrew University of Jerusalem,
Represented by the Roger Richman Agency, Inc., Beverly Hills, CA 90212 www.albert-einstein.net"
2
The Knowledge Web – 23 May 2000 (Reprint)
Introduction to the e-Knowledge Industry
The new economy moves at a pace never seen before. The new
economy is a knowledge economy based on brainpower, ideas
and entrepreneurism. Technology is the driver of the new
economy, and human capital is its fuel. The knowledge
economy is people-centric. Our economy has evolved from
manufacturing-intensive to labor-extensive. Fundamental to
success in the new economy is how companies obtain, train and
retain knowledge workers. The knowledge enterprise industry
is over $2.2 trillion. We expect the online component to grow
from $9.4 billion to $53.3 billion by 2003, a 54% CAGR.
Ubiquitous PCs and high-speed bandwidth will facilitate access
to knowledge anytime, anywhere. The Internet democratizes
knowledge, increasing access to it, lowering its cost and
ultimately improving its quality. We believe combining the
“richness” of an offline experience and the “reach” that only the
Internet provides creates a network effect that allows scale
knowledge enterprises to be born. Moreover, we see significant
potential advantages that offline operators can achieve by
leveraging their experience and brand online.
e-Commerce has forced all traditional businesses to
compete at Internet speed. In a 4% unemployment
economy with 65% of all the new jobs created requiring
skills, 70% of Fortune 1000 CEOs are saying that finding
qualified workers is a major issue for growth. “Time-tocompetency” is a bottleneck or a strategic advantage
depending on how effective an organization is at finding
and training knowledge workers. Domestic online
corporate learning is expected to grow from $1.1 billion in
1999 to $11.4 billion in 2003, a 79% CAGR, and online
staffing and recruiting, critical functions of human capital
management, is projected to grow from $5.8 billion in
1999 to $28 billion in 2003, a 48% CAGR.
The information revolution that began with the birth of the
PC is really the knowledge revolution. e-Commerce is to
the knowledge revolution what the railroads were to the
industrial revolution. We think enterprises building
“knowledge tracks,” or infrastructure, into the corporate
market, K-12 community, and higher education spaces are
poised to enjoy explosive growth.
Integrating quality educational content with
testing/assessment and certification programs is the new
education paradigm for the 21st century. In the knowledge
economy, assessment is the currency with which all skills
are valued. The four engines of the new economy –
computers, telecommunications, healthcare and
instrumentation – employ approximately 50 knowledge
workers per 100 employees and are growing. These
technology-intensive industries are growing 3-6 times as
fast as economy-wide job growth. Career vortals,
providing continuing education, employment opportunities
and relevant information, will be knowledge nerve centers
for vertical knowledge communities.
Colleges and universities are the most wired community
on the Web, with over 90% of college students accessing
the Internet, 52% of them daily. Students spend nearly 19
hours per week on the Internet, 84% of the time pursuing
academic activities. College students currently spend $105
billion annually, with $1.5 billion of that online. Higher ed
hubs provide educators and e-commerce companies access
to this very compelling demographic.
The Internet creates one economy and one market. As
large as the online higher education market is in the U.S.,
the global opportunity is significantly greater. Unlike the
U.S. where post-secondary education is relatively
available, access to world-class post-secondary institutions
in many parts of the world is limited. Currently, there are
84 million students enrolled in higher education
worldwide. Global demand for higher education is
forecasted to reach 160 million by 2025 − if online
learning captures even half of this growth, there would be
40 million students for online education. We predict that
in the next five years, there will be global virtual
universities with potentially millions of students enrolled.
We project that the online higher education market will
grow to $7 billion by 2003 in the U.S. alone.
The number of K-12 schools connected to the Internet has
climbed from 35% in 1994 to 96% today. Today’s kids are
the Internet Generation − Generation i − and are as
comfortable on a computer as on a bicycle. With 53 million
schoolchildren, three million teachers and 23 million
families, the K-12 marketplace encompasses a huge number
of potential users. The Internet is the world’s greatest
library and gives a student in Minot the same access to
knowledge as a student in Manhattan. Key for improvement
in learner outcome is getting parents involved − the homeschool connection − and email has already proven to be an
effective communication tool between parents and teachers.
The Internet is all about disproportionate gains to the
leaders of a category. The gigantic opportunity has not
been lost on investors, with over $3 billion in venture
capital funds flowing into knowledge enterprises in the
past fifteen months alone. By focusing on knowledge
enterprises that contain the 4 P’s (People, Product,
Potential and Predictability) and other key differentiating
factors, notably the network effect outlined in this report,
we hope to identify the Yahoo!s from the yahoos and
provide outsized investment returns for what we see as an
outsized opportunity.
3
The Knowledge Web – 23 May 2000 (Reprint)
Fast Facts: The New Economy
•
•
•
•
•
•
•
The amount spent on online advertising is expected to
increase tenfold from $3.3 billion in 1999 to $33
billion in 2004, a 58% CAGR.
•
At the end of 1998 there were approximately 88
Internet stocks. Currently, there are approximately
400 with nearly a half trillion dollars of market cap.
•
Approximately 50% of the total Internet market cap is
accounted for by the five largest Internet companies,
providing evidence for the belief that, on the Internet,
the winners “take all.”
•
Studies show that effective management of human
capital can improve shareholder value by up to 30%.
•
By our estimates, the e-knowledge market will reach
$53.3 billion by 2003 from $9.4 billion in 1999,
growing at a CAGR of 54%.
•
Venture capital funding in knowledge enterprises
amounted to over $3 billion since January 1999, or
about triple the total invested in the previous 9 years.
Reflecting the transformation of technology in our
economy, in 2000, skilled jobs will represent 65% of
all jobs. This is expected to expand to 85% by 2005,
up from just 20% in 1950.
•
At the end of 1999, more than 196 million people
were using the Internet worldwide. The number of
global Internet users is expected to more than triple to
638 million by 2004, a 27% CAGR.
Knowledge Services – education and corporate
learning for the new economy – is a $885 billion
industry in the U.S. and a $2-trillion industry globally.
•
Web-based corporate learning should enjoy explosive
growth, measuring $11.4 billion by 2003, up from
$550 million in 1998, an 83% CAGR.
•
By 2002, technology-based training will capture the
majority of dollars for IT training, at 55% versus the
45% share captured by instructor-led methods.
•
In 1996, 44% of higher ed students were adults over
24 years of age, up from 28% in 1970.
•
The ratio of students to computers in our nation’s K12 schools is rapidly improving, falling from 16-to-1
in 1992 to approximately 6-to-1 in 1999.
•
Nearly every K-12 school in the country (96%) has at
least one Internet-linked computer. To date, 51% of
classrooms have Internet-connected computers.
•
The number of K-12 students with Internet access has
grown from virtually zero in 1994 to 10 million in
1996 and is projected to grow to 40 million by 2002.
•
47% of 16-22 year-olds are on the web and control
$37 billion in spending. 40% have bought and paid
for something online. By 2003, 62% of 16-22 yearolds will be on the web.
•
The domestic broadband market will expand to 2.3
million homes this year, up 200% from approximately
750,000 in 1998. By 2004, we expect broadband to
reach 48% of Internet users, or 30 million households.
The pay gap separating a high school graduate from a
college graduate was 50% in 1980. Today, it has
reached 111%. Looked at another way, a 30-year-old
male with a high school diploma earns just two-thirds
of what he earned 25 years ago. Even so, only 21% of
American adults over the age of 25 have a bachelor’s
degree or better.
In 1980, the price-to-book ratio of the ten largest
publicly traded companies in the U.S. was 1.2x.
Today, the price-to-book is 12.1x, or ten times greater.
This multiple expansion correlates directly with the
increased productivity of a company’s intangible
assets – its human capital.
On average, each employee at the leading “New
Economy” companies is “worth” $38 million based on
market cap-per-employee. In contrast, each employee
at the leading “Old Economy” companies is worth
about $689,000, or less than 2% of employee value at
the New Economy companies.
The “free agent” mindset of today’s knowledge worker
is evidenced by the fact that the average person entering
the workforce today will work for between 8 and 10
different employers versus 4 to 6 a decade ago. Only
15,000 businesses currently recruit online, but this
figure is expected to increase to 124,000 by 2003.
•
Worldwide, the Internet economy is expected to
mushroom from $361 billion in 1998 to more than
$2.8 trillion in 2003.
•
In 1999, nearly 720,000 IT positions went unfilled.
Today, one of every five IT jobs remains unfilled, and
nearly 75% of new openings fail to receive interested
and qualified candidates.
•
Worldwide business-to-business (B2B) commerce
dwarfs B2C commerce in both size and growth. Total
B2B Internet revenue is expected to top $2 trillion in
2004, up from $80 billion in 1999, a 91% CAGR.
•
4
Firms are stepping up their e-commerce outsourcing
initiatives as they move from building stand-alone
sites to Internet-enabled supply chains and customer
service systems. The result is a rising median
outsourcing budget, from $750,000 in 1999 to a
projected $1.5 million in 2001.
The Knowledge Web – 23 May 2000 (Reprint)
CONTENTS
n Section
Page
Part 1: Introduction to the
Knowledge Economy
3
1. Executive Summary and Thesis
11
2. Price-to-Opportunity: The New Valuation Metric
17
3. The Four P’s
24
4. Mind Over Matter: Human Capital in the Knowledge Economy
33
5. The Emerging New Economy
38
6. The Technology Revolution
47
7. e-Commerce: The Current e-Business Wave
55
8. Advertising Exploding Online
58
9. The Coming Bandwidth Tidal Wave
62
10. “Kingmakers” will Determine the Winners
Part 2: Generation i
The K-12 Market
67
77
11. Generation i – @ Home, @ School, @ Play
79
12. Generation i – the K-12 Education Market
80
13. Kids with Clout: K-12 Marketplace is Huge
86
14. Investment Opportunity
88
15. Today’s Children Are Web Savvy “Clickerati”
89
16. K-12 Education Is Ripe for a R*e*volution
98
17. The K-12 E-Education Landscape
108
18. Linking Homes and Schools – The Next Online Land Grab For
e-Portals & Hubs
109
19. Learning Redefined – Content Goes Digital
116
20. e-Commerce
126
5
The Knowledge Web – 23 May 2000 (Reprint)
n Section
21. Infrastructure
132
22. Supplemental Services
144
23. Issues in K-12 e-Learning
150
24. The Empire Strikes Back? Publishing & Media Companies vs.
Web Upstarts
154
25. Appendix 1
167
Part 3: Higher Web –
Universities Online
169
26. Higher Web – Universities Online
171
27. The World Wide Web of Higher Education
172
28. The Market Opportunity
180
29. The Global Opportunity
183
30. Infrastructure – “Webifying” the University
186
31. Community and Commerce
195
32. E-Hubs – All Roads Lead to the E-Hub
203
33. Universities Online
209
34. The Corporate Market Opportunity
218
35. Appendix 2
225
Part 4: Corporate e-Learning –
Feeding Hungry Minds
6
Page
227
36. Corporate e-Learning: Feeding Hungry Minds
229
37. Corporate e-Learning
230
38. Size of the Market
238
39. The Corporate e-Learning “Net-scape”
244
40. Content
263
41. Assessment
275
The Knowledge Web – 23 May 2000 (Reprint)
n Section
Part 5: Human Capital
Management – People Power
Index
Page
293
42. Human Capital Management: People Power
295
43. Trends & Predictions
296
44. Human Capital Management
298
45. Countering the “Brain Drain”
300
46. The Industry “Net-Scape”
303
47. The Net Shakes Up Human Capital Management
310
48. The Human Capital Management Landscape
316
49. Investable Themes
324
50. Select Company Profiles
325
51. Appendix 3
354
355
7
The Knowledge Web – 23 May 2000 (Reprint)
This Page Left Intentionally Blank
8
The Knowledge Web – 23 May 2000 (Reprint)
Introduction to the
Knowledge Economy
9
The Knowledge Web – 23 May 2000 (Reprint)
This Page Left Intentionally Blank
10
The Knowledge Web – 23 May 2000 (Reprint)
1. Executive Summary and Thesis
Technology is the driver of the
New Economy, and human
capital is its fuel.
“Take our twenty best people away, and I can tell you that Microsoft would
become an unimportant company.”
– Bill Gates
When the puck goes in the net, all the sticks go in the air. Likewise, attributing
what or who deserves the credit for the incredible economic boom we are
experiencing is a crowded stage. Silicon Valley, Alan Greenspan, the fall of the
Berlin Wall and, of course, the Internet are all lead actors amongst the cast of
thousands in the New Economy script.
Technology is the driver of the New Economy, and human capital is its fuel. In
today’s world, knowledge is making the difference not only in how an individual
does, but also in how well a company does and, for that matter, in how well a
country does. While the future possibilities of the knowledge economy look both
exciting and, at the same time, daunting, the transformation to a knowledge
economy is now evident.
In today’s knowledge-based
global marketplace, human
capital has replaced physical
capital as the source of
competitive advantage.
• Most striking—the dramatic pay gap between those with education and
those without has more than doubled in less than 20 years. Looked at
another way, the purchasing power of a 30-year-old man with a high-school
diploma has dropped by over one-third over the past two decades.
• Also significant—our analysis illustrating a seismic shift in how the
market values companies, discounting traditional analysis of earnings
derived from physical capital and replacing it with analysis of earnings
power derived from human capital.
• Finally, the structural changes that have occurred in our economy mean
that the new jobs being created today are service and skill-based jobs rather
than manufacturing jobs. In 1950, unskilled jobs constituted 60% of all
jobs, with professional and skilled jobs representing the remainder. Fast
forward the clock to today, and it is expected that 65% of all new jobs
created will be skilled jobs and that by 2005 skilled jobs will represent 85%
of all new jobs created. Fundamental to the investment opportunity is the
significant demand imbalance for knowledge workers versus the supply of
skill-based jobs.
The truly revolutionary impact
of the Internet is just beginning
to be felt. In the old economy,
geographic distance needed to
be mastered to shop, be serviced
or to learn. In the new
economy, distance has been
eliminated. We are rapidly
evolving into one economy and
one market.
In today’s knowledge-based global marketplace, human capital has replaced
physical capital as the source of competitive advantage. A key result of the
confluence of technology and the Internet Economy is the need for better, faster
and smarter workers. The reality of a 4% unemployment rate in the U.S., the “free
agent” mindset of the most talented workers, and the fact that only 21% of the
U.S. adult population has a college degree is making this task more difficult than
ever before. e-Commerce forces even traditional businesses to operate at Internet
speed, with “time-to-competency,” now a major factor determining the
competitiveness of all companies.
The truly revolutionary impact of the Internet is just beginning to be felt. In the
old economy, geographic distance needed to be mastered to shop, be serviced or to
learn. In the new economy, distance has been eliminated. We are rapidly
evolving into one economy and one market.
We see the e-knowledge market being the next major growth phase of the Internet,
following huge business and investment opportunities in business-to-consumer
(B2C) e-commerce and business-to-business (B2B) commerce and services.
11
The Knowledge Web – 23 May 2000
Evolutionary Phases of e-Business
Growth
e-Knowledge
B2B Commerce:
VerticalNet,
CommerceOne
B2C Commerce:
Amazon.com
At no previous time has human
capital been so important,
meaning finding, attracting and
retaining knowledge workers
will be mission-critical
functions – and high growth
sectors – in the New Economy.
Growth of Internet
Market
Content:
Yahoo!,
Lycos
Access:
Prodigy,
AOL
1992
1994-5
1995-6
1998-9
2000
Time
Source: Merrill Lynch Global Growth Group
At no previous time has human capital been so important, meaning finding,
developing and retaining knowledge workers will be mission-critical
functions – and high growth sectors – in the new economy. Accordingly, we
look at the continuum of human capital solutions holistically – a Knowledge Web
– and believe the most important companies will have an appreciation for and/or
involvement in a comprehensive solution. We believe those companies that can
link different elements of the human capital value chain – stretching from
recruiting to assessment to training and through retention – while leveraging the
Internet’s capabilities to deliver a total solution, will be the big winners.
The Knowledge Services Continuum: The Human Capital Value Chain
Find &
Recruit
Assess
Train
Test
Certify
Retain
Source: Merrill Lynch Global Growth Group
Unleashing the Killer App
The death of distance and the compression of time have powerful implications in
the knowledge-based economy. The biggest investment ideas are often where
there is a problem – and the bigger the problem, the bigger the opportunity. There
is no bigger problem in the global marketplace today than how to obtain, train and
retain knowledge workers. Seventy percent of Fortune 1000 CEOs cite the ability
to attract and keep adequately skilled employees as a major issue for growth and
competitiveness. Given that essentially all of the 20 million net new jobs that were
created in the past 20 years were from small and mid-sized companies, obtaining,
training and retaining talent is even more critical to what has become the growth
engine of the new economy.
12
The Knowledge Web – 23 May 2000 (Reprint)
“The killer app for the next decade is talent acquisition and retention.”
— John Doerr
Kleiner, Perkins,Caufield & Byers
“The next big killer application for the Internet is going to be education.”
— John Chambers, CEO, Cisco Systems
Techies are the heroes of the
New Economy: they influence
the spending of $1 trillion of
annual purchases.
Nowhere is the importance of people more evident than with technology
professionals, or “techies.” Techies are the heroes of the New Economy: they
influence the spending of $1 trillion of annual purchases; they are mission-critical
for any organization; and they are in extremely short supply. In fact, there are
currently 700,000 open IT jobs, or one-third of the total of all IT jobs, with the
shortage expected to more than double in the next five years. Compounding the
complexity of dearth of IT professionals is that Moore’s Law is alive and well
making IT skills obsolete at the blink of an eye.
Fast-forward the clock five years and, unfortunately, the supply of students
coming out of America’s schools doesn’t promise much relief. Twelfth-graders in
U.S. schools in the most recent international comparisons finished dead last and
next to last in the key new economy subjects of math and science, respectively.
Twelfth-graders in U.S. schools
in the most recent international
comparisons finished dead last
and next to last in the key new
economy subjects of math and
science, respectively.
Hence, the fundamental and massive problem of global competitiveness and
obtaining knowledge workers reaches all the way down to the K-12 level. As the
human capital demand funnel is triggered, global corporations need to more
effectively recruit knowledge workers and provide lifelong learning for their
employees and create supply for the future by improving the K-12 education
system. The Internet acts as a major enabler linking corporations to people,
providing management systems, anytime/anywhere learning and a catalyst to help
revolutionize a failing primary education system.
13
The Knowledge Web – 23 May 2000
The Human Capital Demand Funnel
Global Corporations
Demand for Knowledge Workers
Internet-Based Employee Solutions
E-Cruitment
E-Human Capital Solutions
E-Corporate Learning
Better K-12 & Higher Ed Solutions
Source: Merrill Lynch Global Growth Group
What’s a Mother to Do?
Favorite Bookmarks of
Michael Milken, Chairman & CEO
of Knowledge Universe
www.knowledgeu.com
www.oncology.com
www.nci.nih.com
www.interactive.wsj.com
www.tasteforliving.com
The Information Revolution is really the Knowledge Revolution, and the Internet
is to the Knowledge Revolution what the railroad was to the Industrial Revolution.
The Internet has the potential to “democratize” knowledge and learning,
increasing the access, lowering the cost and improving the quality.
Communication of rich information has historically required proximity or
dedicated channels. Key to realizing the potential of the Internet is to
reconceptualize how knowledge is obtained and leverage the advantage of the
medium. By combining “richness” and “reach,” e-knowledge enterprises can drive
utilization, leading to a network effect and monetization.
“A high growth strategy for the New Economy needs to create more inclusive
politics, a new learning society and opportunities available to all.”
– The Long Boom
Peter Schwartz, Peter Leyden and Joel Hyatt
14
The Knowledge Web – 23 May 2000 (Reprint)
Online Human Capital Solutions – Combining Richness and Reach
Network
Effect
=
Optimal
Monetization
Companies providing online
human capital solutions have
the potential to bring together
both richness and reach,
creating a powerful and
revolutionary user experience.
Richness
Local
Physical
One-to-One
Interactivity
Global
Virtual
Mass Market
Isolated
Reach
Source: Merrill Lynch Global Growth Group
Enormous Market Opportunity
The ubiquitous nature of PCs
combined with the power of the
Internet are both catalysts and
enablers revolutionizing what is
already a $2 plus-trillion
market.
Add it all up, and we see a gigantic opportunity for companies that provide scale
solutions to the most vexing problem facing our global economy. The ubiquitous
nature of PCs combined with the power of the Internet are both catalysts and
enablers revolutionizing what is already a $2 plus-trillion market. Currently there
is approximately $14 billion of market capitalization for the “born on the web”
knowledge enterprises and $20 billion of market capitalization when we include
“clicks and bricks.” Our estimates are for the U.S. online market opportunity for
knowledge enterprises to grow from $9.4 billion in 1999 to $53.3 billion in 2003
representing a CAGR of 54%. Providing additional fuel, venture capitalists have
invested over $3 billion in the knowledge enterprise industry since January 1999.
Huge and Growing Market Opportunity
U.S. Online Market Size
Human Capital Solutions
Learning Sectors (excludes Pre-K)
K-12
+ Higher Ed
+ Corporate + Gov’t Learning
Total Learning Sectors
+ Recruiting & Staffing
Total Human Capital Solutions
U.S. Addressable
Market (2000E)
1999E
2003E
CAGR:
1999E-2003E
$525 billion
$250 billion
$110 billion
$885 billion
$75 billion
$960 billion
$1.3 billion
$1.2 billion
$1.1 billion*
$3.6 billion
$5.8 billion
$9.4 billion
$6.9 billion
$7.0 billion
$11.4 billion*
$25.3 billion
$28.0 billion
$53.3 billion
52%
55%
79%
63%
48%
54%
Source: Merrill Lynch Global Growth Group, IDC, Forrester, Jupiter, Training Magazine
*Online figures include corporate learning only. They exclude the government learning market.
Our estimates are for the U.S.
online market opportunity for
knowledge enterprises to grow
from $9.4 billion in 1999 to
$53.3 billion in 2003
representing a CAGR of 54%.
Given the size of the problem, the necessity to solve it, and the momentum of the
worldwide web, we see the e-knowledge industry having explosive growth. The
aggregate market growth of the learning sectors is estimated to grow from $3.6
billion in 1999 to $25.3 billion in 2003, or a CAGR of 63%. Representing even
more potential for growth, the corporate learning market is expected to grow from
$1.1 billion in 1999 to $11.4 billion in 2003 or a CAGR of 79%.
15
The Knowledge Web – 23 May 2000
Publicly Traded e-Knowledge Enterprise Companies
% Price
Appreciation
Mkt. Cap.
Since IPO
IPO
Date
Subsector
Price
5/15/00
Sales
2000E
2001E
Price / Sales
2000E
2001E
B2B eLEARNING
CTRA Centra Software
CLKS CLICK2LEARN.COM
DTHK DigitalThink
ECLG eCollege.com
ELOQ Eloquent
RVDP RiverDeep
SABA Saba Software (D-1-1-9)
SKIL SkillSoft Corporation
SMTF SmartForce plc (D-1-1-9)
03-Feb-00
12-Jun-98
25-Feb-00
15-Dec-99
17-Feb-00
09-Mar-00
07-April-00
05-Feb-00
13-Apr-95
Corp. Learning
Corp. Learning
Corp. Learning
Higher Ed
Corp. Learning
K-12
Corp. Learning
Corp. Learning
Corp. Learning
$7.69
12.00
24.75
4.88
8.13
26.00
18.75
13.50
43.13
$178.7
176.6
813.0
67.6
137.5
709.3
804.5
169.9
2,328.8
(45.1%)
9.1%
76.8%
(55.7%)
(49.2%)
30.0%
25.0%
(3.6%)
978.1%
$16.1
42.8
19.1
15.3
NA
22.0
28.9
16.2
152.5
$28.3
59.7
37.0
NA
NA
45.0
63.6
42.5
255.8
11.1x
4.1
42.6
4.4
NA
32.2
27.8
10.5
15.3
6.3x
3.0
22.0
NA
NA
15.8
12.6
4.0
9.1
B2C eLEARNING
LTWO Learn2.com, Inc.
SKDS SmarterKids.com
NETS YouthStream Media Networks
20-Oct-94
23-Nov-99
03-Apr-96
Corp. Learning
K-12
Higher Ed
$2.28
2.63
7.06
$116.3
50.8
189.4
(77.2%)
(81.3%)
(41.3%)
$50.0
40.0
NA
NA
91.0
NA
2.3x
1.3
NA
NA
0.6x
NA
EDUCATION TECHNOLOGY / INFRASTRUCTURE
LSPN Lightspan
10-Feb-00
NTWO N2H2, Inc.
30-Jul-99
NLCS National Computer Syst. (C-2-1-7) 15-Apr-86
SCIL Scientific Learning Corp (D-1-1-9) 22-Jul-99
IZAP ZapMe! Corporation (D-1-1-9)
20-Oct-99
K-12
K-12
K-12
K-12
K-12
8.06
$4.44
51.19
16.13
2.91
349.0
$98.3
1,638.3
169.2
127.1
(32.8%)
(65.9%)
485.0%
0.8%
(73.6%)
62.9
$24.3
748.8
26.2
36.0
88.9
NA
861.1
65.5
123.7
5.5
4.0x
2.2
6.4
3.5
3.9
NA
1.9x
2.6
1.0
ECRUITING / HUMAN CAPITAL SERVICES
CBDR Careerbuilder
12-May-99
EWBX EarthWeb, Inc. (D-2-1-9)
11-Nov-98
HHNT HeadHunter.NET
19-Aug-99
HOTJ HotJobs.com Ltd.
10-Aug-99
KFRC kforce
15-Aug-95
NIKU Niku Corporation
29-Feb-00
OPUS Opus360 Corporation
07-Apr-00
TMPW TMP Worldwide (D-2-1-9)
13-Dec-96
TJOB topjobs.net plc
28-Apr-99
HIRE Webhire
23-Jul-96
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
Human Cap Serv.
$2.34
14.88
11.50
7.50
12.38
22.75
4.50
58.81
5.88
6.00
$55.5
145.2
123.9
237.9
577.9
1,570.8
224.0
5,287.1
47.0
87.1
(82.0%)
6.3%
15.0%
(6.3%)
295.4%
(5.2%)
(55.0%)
740.2%
(51.0%)
(45.5%)
$31.0
64.0
25.1
46.3
901.2
NA
11.1
881.0
7.8
26.6
$60.9
102.0
NA
70.2
1,141.3
NA
33.0
1,023.1
21.9
NA
1.8x
2.3
4.9
5.1
0.6
NA
20.2x
6.0
6.0
3.3
0.9x
1.4
NA
3.4
0.5
NA
6.8x
5.2
2.1
NA
CLICKS & BRICKS LEARNING AND HUMAN CAPITAL SERVICES
APOL Apollo Group (C-1-1-9)
06-Dec-94
Higher Ed.
DV
DeVry (C-1-1-9)
24-Jun-91
Higher Ed.
HSII
Heidrick & Struggles International 27-Apr-99 Human Cap Serv.
KFY
Korn/Ferry International
11-Feb-99 Human Cap Serv.
LTRE Learning Tree Int’l (D-2-2-9)
06-Dec-95 Corp. Learning
POSO ProsoftTraining.com
06-Dec-96 Corp. Learning
POVT Provant (D-3-2-9)
29-Apr-98 Corp. Learning
SLVN Sylvan Learning Syst. (D-2-1-9) 15-Dec-93
K-12
$27.56
27.44
41.00
22.00
49.06
15.06
5.06
12.50
$2,076.1
1,909.2
788.4
810.6
1,062.0
277.4
106.2
636.9
1,591.0%
2,095.0%
192.9%
57.1%
513.3%
653.1%
(61.1%)
155.6%
$652.9
562.5
523.0
568.7
216.8
22.4
217.0
356.1
$783.5
646.9
659.0
625.6
242.8
24.6
NA
391.7
3.2x
3.4
1.5x
1.4x
4.9
12.4
0.5
1.8
2.6x
3.0
1.2x
1.3x
4.4
11.3
NA
1.6
PUBLISHERS
H
Harcourt, Inc.
HTN Houghton-Mifflin
LSE:PES Pearson plc
SCHL Scholastic
TOC Thomson Corporation
$37.00
39.81
33.00
46.69
33.29
$1,913.6
1,209.6
20,136.6
754.7
20,725.8
702.6%
451.4%
NA
107.5%
NA
0.8x
1.3
5.4
0.6
3.3
0.7x
1.1
4.9
0.5
3.0
12.0%
4.0x
2.8x
(5.7%)
(3.6%)
4.9x
5.5x
3.2x
4.0x
Ticker Company
May-69
Sep-84
NA
Feb-94
NA
Education Publish.
Education Publish.
Education Publish.
Education Publish.
Education Publish.
Median:
Total:
Total w/o Clicks & Bricks or Publishers:
Total eLearning & Education Infrastructure:
$313.2
68,887.8
11,193.6
8,124.3
(US$ in millions, except per share; fully-diluted shares used for all relevant calculations; all historical prices are split-adjusted)
16
$2,329.5 $2,562.5
947.3
1,089.4
3,725.0 4,083.0
1,248.9 1,373.8
6,327.2 6,959.9
The Knowledge Web – 23 May 2000 (Reprint)
2. Price-to-Opportunity:
The New Valuation Metric
Five years ago, the Internet
didn’t even register a blip in
terms of market value in U.S.
capital markets. Today, Internet
companies represent a combined
half trillion dollars out of
$15 trillion.
We have watched in awe and delight the unprecedented velocity of market value
created by the Internet economy. Five years ago, the Internet didn’t even register
as a blip in terms of market value in U.S. capital markets. Today, Internet
companies represent a combined half trillion dollars out of $15 trillion with
corresponding valuations at stratospheric heights.
In this report, we introduce a new valuation metric – price-to-opportunity – that
we believe makes Net valuations more comprehensible, at least in the framework
of three of the primary forces driving the new economy. The first of these is the
unprecedented improvement in and adoption of technology and the Internet, best
captured by Moore’s Law. The second force is dictated by Metcalfe’s Law.
Companies leveraging the power of the Internet, with its anytime, anywhere,
anyone access, have the opportunity to expand at exponential growth rates as users
build. Third is the winner-take-all environment that provides disproportionate
gains to category killers in their respective segments.
We believe that e-knowledge enterprises that successfully leverage this
opportunity and receive these outsized valuations will possess certain key
characteristics:
The Internet will “democratize”
knowledge, increasing access,
lowering the cost and
improving the quality.
•
An ability to capitalize on Metcalfe’s Law, the Network Effect;
•
A service based on the unique advantages of the Internet − or made possible
due to the Internet − to deliver knowledge. For example, given that we learn
most through highly interactive experiences, successful companies will not
simply repurpose educational content, but re-think the entire delivery of
education;
•
A service that expands both the reach and richness of learning and human
capital solutions through the Internet’s capabilities;
•
A business model based on recurring revenues, low customer acquisition
costs or high lifetime customer value (or both), revenues from multiple
sources and high gross margins;
•
A strong management team and backers, able to function at the rapid fire pace
of the evolving Internet economy.
The network effect is all about rapidly building utilization by the delivery of
highly relevant content and services to accessible markets.
An Instant History of the Internet Business:
1996:
1999:
2003:
Great profits propheted
Great prophets profit
The great profit, greatly
– Po Bronson, author
17
The Knowledge Web – 23 May 2000
e-Knowledge Network Effect
E -K now ledge N etw ork E ffect
U sers
C ontent & Services
*ORE DO
& RUSRUDWLRQV
/HDUQ LQ J
& RX UVHV
. QRZ OHGJ H
: RUNHUV
6FKRROV
7HDFK HUV
-RE V5 HFUXLWLQJ
E-K now ledge
E nterprises
6WX GHQWV
3D UHQWV
$ VVHVVP HQ W
& ULWLFDO
,QIRUP DWLRQ
Source: Merrill Lynch Global Growth Group
The correlation between the productivity of a company’s intangible assets – its
intellectual and human capital – and the need to pay those assets a competitive
wage is clearly illustrated by the close relationship between rising price-to-book
ratios and the rising income gap. The market perceives the value of human capital,
assigning significantly greater value to knowledge workers than others.
The Internet is all about
disproportionate gains to the
winners in each category. The
five largest Internet companies
ranked by market cap account
for nearly 50% of the half
trillion dollars of total Internetcompany market capitalization.
The Internet is all about disproportionate gains to the winners in each category.
For example, the five largest Internet companies ranked by market cap account for
nearly 50% of the half trillion dollars of total Internet-company market
capitalization. The ten largest Internet companies account for 62%. Clearly, the
market believes the Net is a “winner-take-all” playing field.
Pre-Net, it took a company decades to reach a $1-billion market value, if it ever
reached that milestone. In startling contrast, Yahoo! went public in 1996 with a
market cap of $347 million, and today it is $66 billion; Amazon.com had its IPO
in 1997 with a market cap of $366 million, and currently its market cap is $18
billion; AOL went public in 1992 with a market cap of $62 million, and today it is
at $137 billion. Internet Capital Group, with a market value today of almost
$11.5 billion, did not exist five years ago.
New Economy Companies
Year Value at Number of
Founded IPO ($M) Employees
Yahoo!
1994
$347
1,992
Amazon.com
1995
$366
7,600
Priceline
1998 $2,277
373
Ariba
1996
$983
386
CMGI
1996
$23
1,594
Internet Capital Group
1996
$984
70
Commerce One
1994
$471
594
America Online
1985
$62
12,100
Average:
Median:
Source: FactSet, Securities Data Corp
Market Cap data as of April 24, 2000
18
Market Cap / Market
Employees Cap ($B)
$32,932,099
$65.6
$2,378,616
$18.1
$29,818,961
$11.1
$41,829,016
$16.1
$10,125,025
$16.1
$164,736,813
$11.5
$13,367,778
$7.9
$11,314,552 $136.9
$38,312,857
$21,593,370
2000E
Price /
Sales
63.7x
7.0x
10.4x
92.9x
21.3x
N/A
52.7x
20.3x
38.3x
21.3x
2000E
Price /
Book
73.3x
42.6x
44.4x
56.6x
4.0x
26.5x
32.0x
21.9x
37.6x
37.3x
The Knowledge Web – 23 May 2000 (Reprint)
Another stunning contrast between old and new economy companies is the
comparison of market cap-per-employees and price-to-book ratios. New economy
companies enjoy phenomenal valuations based on these metrics. Each employee at
Yahoo!, for example, is “worth” nearly $33 million. Each employee at Priceline is
“valued” at $30 million. On average, each employee at the leading new economy
companies in the table above is worth $38 million. The best companies are in a
war for talent, realizing that brainpower drives market value in the new economy.
In contrast, each employee at Disney is valued at $743,530, and each employee at
GM is valued at just $141,682. On average, each employee at the leading old
economy companies is worth “only” $689,020, or less than 2% of employee value
at the new economy companies.
Old Economy Companies
General Electric
Wal-Mart
General Motors
McDonalds
3M
Exxon Mobil
Disney
Phillip Morris
Boeing
In the old economy, price-tobook was a useful valuation
metric, as it was physical
capital that companies
leveraged into earnings power.
What matters in the new
economy, however, is human
capital.
Year
Founded
1876
1962
1908
1955
1902
1882
1918
1854
1916
Number of
Employees
340,000
910,000
388,000
314,000
70,549
120,000
120,000
137,000
197,000
Average:
Median:
Market Cap / Market Cap
2000E
2000E
Employees
($B) Price/Sales Price/Book
$1,531,351
$520.7
5.9x
13.0x
$282,542
$257.1
1.4x
10.6x
$141,682
$55.0
0.3x
2.7x
$154,062
$48.4
3.3x
5.1x
$521,355
$36.8
2.2x
5.8x
$2,289,025
$274.7
1.3x
4.4x
$743,530
$89.2
3.6x
3.8x
$360,945
$49.4
0.6x
3.2x
$176,687
$34.8
0.7x
3.1x
$689,020
2.1x
5.7x
$360,945
1.4x
4.4x
Source: FactSet, Securities Data Corp
Market Cap data as of April 24, 2000
In the old economy, price-to-book was a useful valuation metric, as it was physical
capital that companies leveraged into earnings power. What matters in the new
economy, however, is human capital.
“WE ARE IN A GREAT WAR FOR TALENT. Century 21: Age of the Great
War for Talent. Talent = Wealth. Period. It’s the word – according to Tony
Blair. And Cisco CEO John Chambers. He is in the talent acquisition mode.
ALL THE TIME. Says he buys companies – typically start-ups – to get the
best talent at a price of $2 million or so per employee. Just like the NBA! The
Blair-Chambers dogma will rule! Talent is a fabulous word – a million miles
from employee.”
—Tom Peters, Forbes ASAP, February 21, 2000
In 1980, the price-to-book of the ten largest companies in the U.S. was 1.2x.
Today, the price-to-book is 12.1x, or 10x greater. One could argue that this is a
clear sign of a wildly inflated equity market; we believe, however, that it’s more
reflective of the fact that, in the knowledge economy, the key asset driving
corporate value is intangible: Intellectual and human capital. These stark
contrasts are summarized in the following table.
Two Different Worlds
Market Cap/Employee
Price/Sales
Price/Book
Old Economy Co.’s
$689,020
2.1x
5.7x
New Economy Co.’s
$38,312,857
38.3x
37.6x
Source: FactSet, Securities Data Corp
Market Cap data as of April 24, 2000
19
The Knowledge Web – 23 May 2000
The correlation between the productivity of a company’s intangible assets – its
intellectual and human capital – and the need to pay those assets a competitive
wage is clearly illustrated by the close relationship between rising price-to-book
ratios and the rising income gap. The market also perceives the value of human
capital, assigning significantly greater value to knowledge workers than others.
Human Capital is Replacing Physical Capital as the Primary Productive Asset
Salary Gap Between High School and College Graduates
Median Price-to-Book for 10 Largest Companies
111%
12.1x
120%
14.0x
100%
12.0x
10.0x
80%
50%
8.0x
60%
6.0x
40%
1.2x
4.0x
20%
2.0x
0%
0.0x
1980
2000
1980
2000
Source: U.S. Census Bureau, Compustat, Merrill Lynch Global Growth Group
n Evaluating the Valuations
The speed at which market value has been created and the valuations associated
with many Internet companies (i.e., 20x price to sales for a leading Internet
company is fairly normal, versus 20x earnings in the Old Economy as represented
by the Dow Jones Industrials) are unparalleled in history. Many market pundits
call this “a bubble ready to burst,” speculating that perhaps 75% of today’s public
Internet companies will be out of business in five years.
While we are in the camp that agrees that there is speculative excess reflected in
the market valuations of many Internet companies (with a corresponding
obliteration of capital being a reality if business performance does not pan out),
we also believe that changes in the global marketplace are unprecedented in speed,
scope and significance. The resultant opportunities are extraordinary, in our
opinion. To put some figures behind this powerful tailwind to the Internet
economy, business-to-consumer (B2C) Internet opportunities are expected to grow
at a 55% CAGR from $31 billion in 1999 to $274 billion in 2004. Business-tobusiness (B2B) activity is projected to dwarf this total, rising from $80 billion to
$2 trillion during the same period, a 91% CAGR.
“To swim a fast hundred meters, it’s better to swim with the tide than to work
on your stroke.”
— Warren Buffett
20
The Knowledge Web – 23 May 2000 (Reprint)
e-Commerce Projected to Explode
Worldwide B2C e-Commerce
Worldwide B2B e-Commerce
$274
$300
$2,500
$2,027
( $ B illio n s )
$200
G
CA
$150
%
$2,000
$178
$116
$78
$100
$50
5
R5
( $ B illio n s )
$250
G
CA
$1,500
$1,000
1
R9
%
$1,140
$617
$51
$15
$320
$500
$31
$35
$0
$80
$167
$0
1998
1999E
2000E
2001E
2002E
2003E
2004E
1998
1999E
2000E
2001E
2002E
2003E
2004E
Source: Merrill Lynch, IDC, Forrester Research, Jupiter Communications
The most appropriate metric for
evaluating a dominant Internet
company is price-to-opportunity.
Due to the unique disproportionate advantages a leading Internet company has in
its category as a result of the network effect, operating leverage, global reach and
viral growth, the valuation metrics used to determine current share price are
necessarily different. However, these valuations ultimately reflect how all
companies are valued by discounting future cash flow to the present. Hence, in the
same way that growth companies are based on “futures,” the most appropriate
metric for evaluating a dominant Internet company, in our opinion, is price-toopportunity rather than the conventional metrics of price-to-earnings or the newer
– but too simplistic – price-to-sales.
“In investing money, the amount of interest you want should depend on whether
you want to eat well or sleep well.”
– J. Kenfield Morley, Some Things I Believe
In a simplified top-down analysis of an old economy company, investors look at
both the size and growth rate of the industry in question, as well as the company’s
market share and operating margin. They then calculate a future earnings stream
based on their assumptions and discount it back to the present using an appropriate
risk-adjusted rate, thus deriving the company’s theoretical market value.
New View of Human Capital and Learning in Our Knowledge-Based Economy
In the new economy, education
has become critical for both
individuals and employers.
Old Economy
Wages
Four-Year Degree
Learning As Cost Center
Help Wanted
Learner Mobility
Distance Education
Resume
Employee
Physical Capital
One-Size Fits All
Geographic Institutions
Just-in-Case
New Economy
Ownership/Options
Forty-Year Degree
Learning as #1 Source of Competitive Advantage
Talent Needed
Content Mobility
Distributed Learning
Competence
Talent
Human Capital
Tailored Programs
Brand Name Universities & Celebrity Professors
Just-in-Time
Source: Merrill Lynch Global Growth Group
21
The Knowledge Web – 23 May 2000
The Internet alters this analysis, ultimately leading to a theoretical market value
based on the size of the opportunity. Here, investors calculate the size of the
industry and estimate its growth based on industry factors, as well as account for
the growth of the Internet – the “Net Effect” – which is a powerful megatrend
cutting across all industries.
A primary “Net effect” is disintermediation – the virtual elimination of time and
distance between buyer and seller. Coupled with disintermediation is a tremendous
opportunity for scalability, where one company can seize control of a market in
less time than ever before. Both of these forces are rocket-fueled by the network
effect, as dictated by Metcalfe’s Law, inherent in some Internet companies’
business models. Combined, these three “Net effects” – disintermediation,
scalability and the network effect – create a winner-take-all competitive
environment in which speed kills.
“Speed is God, and time is the devil.”
– Silicon Valley saying
Net/e-Commerce Market Caps
Market Value ($mm)*
B2C
Access
Content
Commerce
Total B2C
Infrastructure
B2B
Total:
$156,619
$122,879
$62,976
$342,474
$114,261
$40,713
$497,448
Source: Factset and Merrill Lynch Internet Research
* Data as of April 25, 2000
“The new new thing” in many
respects is “the old old thing,”
the value of an enterprise is its
future cash flow discounted
back to the present.
In this environment, gross margin becomes an even more important metric, as the
Net affords tremendous operating leverage to the winner. All this leads to the size
of the opportunity, discounted back to today, from which current valuations can be
applied. Hence, “the new new thing” in many respects is “the old old thing,” the
value of an enterprise is its future cash flow discounted back to the present.
The outsized nature of a category killer’s market share opportunity creates a
winner-take-all environment on the Internet. The global reach afforded by the
Net, coupled with the viral potency of Metcalfe’s Law, fuels the race to market
dominance at speeds never seen before.
“Price to Opportunity” is the Appropriate Valuation Metric on the Internet
Old Economy
New Economy
Valuation Metric:
Price/EPS or Price/Book
Valuation Metric:
Price to Opportunity
Size of Industry
Size of Industry
Growth Rate of
Industry
Growth Rate of
Industry & Internet
Market Share
Disintermediated:
Winner Take All
Operating Margin
Future Earnings
Stream Discounted
Market Value
Source: Merrill Lynch Global Growth Group
22
Gross Margin
Based on
Discount Rate
Size of Opportunity
Discounted to Today
Market Value
O pportunity
D iscounted at 35%
Back to Today
The Knowledge Web – 23 May 2000 (Reprint)
We have already seen this valuation metric applied to category killers on the
Internet, which enjoy premium multiples vis-à-vis their trailing competitors.
Yahoo!, for example, is priced at 59x its 2000 sales estimate, or at a 474%
premium to other aggregators/portals. Likewise, EBay is priced at 48x 2000
estimated sales, or at a 1,425% premium to its peers.
The Internet is All About Disproportionate Gains to the Leaders
Category
Online Aggregators/Portals
Online Service Providers
Technology Vortals
Healthcare Vortals
Internet Software
Commerce – Principal Model
Leader(s)
Yahoo!
AOL
CNET
Healtheon
Ariba
Amazon, Priceline
Commerce – Agent Model
EBay
Comparables
Goto.com, Lycos, ivillage.com, theglobe.com, women.com
Juno, Earthlink/Mindspring, Prodigy, Concentric Network, Excite@Home
Intraware, pcOrder
Dr. Koop
Net Object, Net Perceptions, Sterling Commerce, Backweb, Marimba
Barnesandnoble.com, beyond.com, Cdnow, Cyberian Outpost, Egghead,
Onsale, Value America, uBid
Autobytel.com, Autoweb.com, Cheap Tickets, Preview Travel, Rowecom,
Ticketmaster Online-City Search, Tickets.com
Leader’s
Leader’s
Price/2000E Premium to
Sales
Comps
58.9x
474%
13.6x
294%
11.0x
191%
8.7x
505%
83.5x
598%
7.3x
1405%
48.0x
1425%
Source: Merrill Lynch Global Growth Group
n Tracking Success
Once the size of the opportunity has been calculated, tracking the success of a
particular business model becomes critical to determining long-term value. For
eLearning companies, there are three basic investment questions to ask:
1) Will the content/communication/commerce value-proposition draw users?
2) Can the users be monetized, particularly with a recurring revenue stream?
3) Will the revenue generated per user offset the cost of providing the service?
The Internet uniquely enables companies to monetize customers in more ways
than any other medium. On the Internet, eLearning companies can sell content,
advertising, merchandise, sponsorships and communications services, as well as
facilitate transactions by matching buyers and sellers.
Quantitatively, the value of a customer relationship is simply the present value of
lifetime customer contribution less customer acquisition cost. Acquisition cost is
the direct marketing expense associated with acquiring a customer. The customer
contribution margin, or profit margin, is revenue per customer less cost of goods
sold and the sales and marketing expenses required to keep the customer.
Obviously, it is very difficult to differentiate the marketing expense associated
with acquiring versus retaining a customer, but it is a useful exercise to think of it
in this way because it forces an analysis of longer-term customer churn and
stickiness in addition to simple near-term customer acquisition.
The metrics will show that market leaders quickly ramp up to generate a positive
contribution margin, that is, they profitably attract and monetize users, and the
faster the better. Both dollar profit and profit margin per user or per thousand page
views are important to track. They are key determinants of the current traction
(i.e., demand for and profitability of a given service) and future success (i.e.,
ability to fund growth, R&D and G&A internally) of a particular business model.
The most successful eLearning companies will extend their franchise across
platforms, taking advantage of convergence by providing seamless usage on
desktop, wireless, hand-held and other interactive devices. In addition, they will
leverage the brand equity and networks of their strategic partners to reduce
customer acquisition costs and increase long-term customer contribution. Further,
they will work hard to deepen customer relationships through personalization and
other features that not only extend the length of the relationship, but also increase
monetization through greater customer usage and more valuable customer data.
23
The Knowledge Web – 23 May 2000
3. The Four P’s
To try to determine which Internet knowledge enterprises will be the category
killers in their respective areas, we have created an analytical and conceptual
framework, starting with the Four P’s, to evaluate attractiveness. This framework
reflects our belief that there are certain key fundamentals critical to identifying the
premier e-knowledge enterprise companies. To this end, we focus on four
principles of growth stock investing, which we call the Four P’s: People, Product,
Potential and Predictability.
People
More than half of our
investment focus is on the
people running the business.
More than half of our investment focus is on the people running the business.
There is no shortage of interesting business ideas, particularly on the Internet
where barriers to entry have been considerably reduced. Therefore, the ability to
execute is the key. Obviously, no Internet company has a long history, but their
management teams or advisors usually do. Netscape changed its business model
four times in four years and still wound up a phenomenal success. The reason, in
our view, was extraordinary leadership able to adjust on the fly at Internet speed
and make the right decisions.
Whether in a country, a company or even a sports team, one “world-class”
individual with vision and leadership skills often makes the difference.
Amazon.com, Yahoo!, Starbucks, AOL, EDS and Wal-Mart are but a few
examples of the truly great business success stories that were largely the result of
the dreams, skills and leadership of one entrepreneur: Jeff Bezos, Tim
Koogle/Jerry Yang, Howard Schultz, Steve Case, Ross Perot and Sam Walton,
respectively.
“The thing that has constrained us for the last fours years has always been
people bandwidth. Just having enough smart, hard-working, talented,
passionate people to execute against our vision.”
– Jeff Bezos, CEO, Amazon.com
We search for companies
holding leadership positions
within the segments of the eknowledge enterprise industry,
proprietary products, services,
technology or niches that set
them apart from the
competition or, better yet, “oneof-a-kind” businesses that have
no real competition.
24
The premium placed on strong management is greater in the New Economy than
ever before, while the evaluation of management has increased in complexity. We
believe the new economy “Kingmakers” can provide a beacon to investors seeking
strong management teams. As discussed later in this report, Kingmakers are
powerful partners who can lend credibility, experience and relationships to
netrepreneurs. Potential Kingmakers include venture capital firms, Wall Street
investment banks, management consulting firms and other enterprise-wide
relationship managers, technology companies, partners and customers. The
support of these constituencies can make or break the future of an Internet
knowledge enterprise.
Product
There are Internet companies, and there is an Internet economy, but the Internet is
not an industry. It’s a megatrend that cuts across all industries. We search for
companies holding leadership positions within the segments of the e-knowledge
enterprise industry, proprietary products, services, technology or niches that set
them apart from the competition or, better yet, “one-of-a-kind” businesses that
have no real competition.
The Knowledge Web – 23 May 2000 (Reprint)
Favorite Bookmarks of James W.
Breyer, Managing Partner, Accel
Partners
www.take5.real.com – RealNetworks
www.cybertimes.com – New York Times
www.economist.com
www.amazon.com
www.myyahoo.com
Having a “claim to fame” is critical to us because we believe that the Internet does
not allow for “me, too” companies to be relevant for very long. We also look for
companies that leverage the full power of the Internet, which are often “born on
the web” companies built with the Internet in mind as a growth platform. We
further believe that significant opportunities exist for “clicks and bricks”
companies if they can operate with the mindset and speed of an Internet company
and also leverage the assets of their historical business. Leading New Economy
venture investors such as Accel Partners, Benchmark Capital and Kleiner, Perkins
have seen this opportunity and made significant investments to leverage offline
assets online.
In today’s world of innovation supernovas, big-bang-business ideas and speed-oflight information flow, we need a telescope to measure the future potential and
new growth perspectives to project the rate at which these universes will expand.
Our philosophy of trying to identify the ultimate winners may cost us some shortterm opportunities because we ignore companies that temporarily are in a vogue
space. Net Darwinism, however, shows that only the fittest ultimately survive, and
we want to invest in companies that not only survive, but will also thrive during
their corporate evolution.
To determine if a company has a leadership position in its space and really has a
“claim to fame,” we analyze various metrics. These metrics serve as both
measurements to market position as well as “signs on the highway” to help
correlate critical milestones for success. The key metric, which is driven by many
of these other metrics, is the Network Effect. Once the Network Effect kicks in,
market leadership is magnified, as are barriers to competition.
In today’s world of innovation
supernovas, big-bang-business
ideas and speed-of-light
information flow, we need a
telescope to measure the future
potential and new growth
perspectives to project the rate
at which these universes will
expand.
In the old economy, turning a
business around is like turning
a battleship. In the new
economy, one needs to be able
to turn it like a jet ski.
Internet Human Capital Solutions Company Scorecard
Rule
Metcalfe’s Law:
The Network Effect
Viral Growth
Explanation
Each new member, supplier, and user of the network adds
exponential value.
Creating grassroots, must-use, infectious applications is
essential to being the leader.
New Rules
Throw out the old ones: think differently, your competitor is
your partner; make more by giving it away; business is 24/7.
Customer Acquisition Cost Obtaining users of the network balanced against lifetime value
& Lifetime Value
of that user.
On the Internet, being first is key. Old economy: turning
Speed
business around like a battleship. New economy: need to be
able to turn like a jet ski.
Brainpower
The enterprise with the smartest people wins.
One Market (Reach)
Time, space and distance are eliminated; think one economy,
one market.
Brand is Key
In a just-in-time world, brands are a shortcut and provide an
assurance. Brands are everything in the e-Knowledge space
and the Internet.
In the land grab to establish leadership, “free” is a potent
Power of Free
motivator.
Click, Click, Click versus The Internet is quick, interactive and collaborative. Creating
Read, Read, Read
an offering tailored to the Internet is key. Just reading a
bunch of text or a book online doesn’t work.
Total:
Importance
20
10
10
10
10
10
10
10
5
5
100
Source: Merrill Lynch Global Growth Group
25
The Knowledge Web – 23 May 2000
Potential
We want to find companies with a meaningful market potential – smaller
companies that can become big ones. “Open-ended” growth stories with long
legs, where there is no real limit to how big a company could become, are
especially attractive to us. On the Net, it’s winner-take-all, exponentially
increasing the potential of growth companies. Potential has been scaled
upward, leading to astronomical valuations based on traditional pricing
metrics, but which are more understandable when viewed in the context of
the aforementioned price-to-opportunity metric.
“I skate to where the puck is going to be, not where it has been.”
– Wayne Gretzky
The core of e-Knowledge, the
Internet, will “democratize”
learning, providing greater
access at lower cost, ultimately
improving quality.
In The Book of Knowledge, we identified six key megatrends that propelled the
knowledge services market forward. Demographics, the Internet and technology,
globalization, consolidation, branding and outsourcing are having a significant
impact on how and why we gain knowledge. These same megatrends are at work
in the e-knowledge market, creating a powerful tailwind for growth.
di
ng
n
an
lid atio
C o ns o
Br
In t e
rn et
Six Megatrends Impacting the Knowledge Enterprises Market
De
Globalization
e-Knowledge
Enterprise
m
ra
og
i cs
ph
Outsourcing
Source: Merrill Lynch Global Growth Group
Today’s kids are the Internet
Generation – Generation i –
and are as comfortable on a
computer as a bicycle.
26
•
Internet – The core of e-Knowledge, the Internet, will “democratize”
learning, providing greater access at lower cost, ultimately improving quality.
Ubiquitous PCs combined with high-speed bandwidth will facilitate engaging
anytime, anywhere learning and human capital management. Online learning
should become the new "killer application" for the Internet, providing
attractive growth potential for e-knowledge enterprises that can effectively
marry learning, technology and electronic commerce.
•
Demographics –In today’s knowledge-based economy, the pay gap between
those with a college education and those without has more than doubled in the
last 20 years. Put another way, the purchasing power of a 30-year-old man
with a high-school diploma has dropped by over one-third over the past two
decades. Lifelong learning is now required for economic longevity, and the
successful e-knowledge enterprise will provide individuals with the ability to
gain the skills necessary to survive and thrive in the New Economy. Today’s
kids are the Internet Generation – Generation i – and are as comfortable on a
computer as a bicycle. Each demographic group, from Generation i to the
early retirees of the Baby Boom, will experience a growing economic need to
continue to access education throughout a lifetime.
The Knowledge Web – 23 May 2000 (Reprint)
The Internet creates one market
and one economy.
•
Globalization – Approximately 30% of S&P 500 revenue comes from
outside of the United States. The Internet creates one market and one
economy. In today’s global knowledge-based economy, corporations need
consistent, multi-lingual learning resources that are accessible anywhere,
anytime. The successful e-knowledge enterprise will provide employees and
individuals with quality education and skills that are universally relevant and
accessible regardless of their time zone, uniquely combining richness and
reach. Less directly, but perhaps more important for the U.S worker, is the
fact that globalization has enabled economic specialization like never before.
For the workers of developed nations, this has further heightened the need for
continuous lifetime learning.
•
Branding – Brands are key to both the Internet and Knowledge Enterprises.
The winners in the space will build strong brand names known for unique
state-of-the art learning experiences where individuals can access first rate
content in an engaging, interactive virtual environment conveniently from the
home or the desktop. Established brands – those of prestigious universities,
for example – will find both potential in and a challenge from the Internet.
“The most valuable Web brands – including Yahoo!, Amazon.com, and
E*Trade – are not product brands. They are brands for a complex set of
services – solutions – that help people cut through the clutter and perform a
series of tasks.”
—Evan I. Schwartz
Digital Darwinism
A company’s ability to
“communitize” and then
“monetize” users to maximize
lifetime value is particularly
critical in determining the
potential for that enterprise.
•
Outsourcing – In today’s fast-changing market environment, the corporate
incentive is to focus on core competencies and outsource everything else.
Application service providers (ASPs) represent classic outsourcing and are
expected to enjoy explosive growth. Customers trade the headache and cost of
purchasing software and hardware, dealing with implementation and
obsolescence risk and managing internal IT for a single contract and a flat
monthly fee. ASPs providing corporations with highly scalable human capital
management services are likely to benefit from the critical solutions they
provide and an efficient business model.
•
Consolidation – While consolidation used to be the hallmark of a mature
industry, this is no longer the case, particularly in technology, where small
start-up companies are acquired for their technology and, as important, for
their talented people. Acquiring a competitor is often faster and easier than
hiring and training scarce computer programmers, sales people and leaders.
Being a net consolidator, an acquiror can add value-enhancing features to its
network, aggregate complementary communities and accelerate the network
effect. As niche players find it difficult to access or re-access the capital
markets, more consolidation should occur.
A company’s ability to “communitize” and then “monetize” users to maximize
lifetime value is particularly critical in determining the potential for that
enterprise. We look for high gross and long-term operating margins. These are
indicators of the strength of the business model and correlate to the price-to-sales
multiples investors are willing to pay. In general, the higher the gross and
operating margins, the higher the price-to-sales multiples.
27
The Knowledge Web – 23 May 2000
Correlation Between Revenue Multiple and Gross Margin
ARBA
110x
100x
INKT
2001 Revenue Multiple
90x
YHOO
80x
70x
60x
EBAY
SWCM
50x
BVSN
WEBM
VIGN
40x
30x
SCNT
AOL
20x
10x
BWAY
CMDX
PCLN
VIAN
AMZN
WBVN
RAZF
0x
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Gross Margin
Source: Merrill Lynch Global Growth Group
Predictability
Historically, great growth
stocks, in general, and Internet
stocks, in particular, look
expensive to start and become
even more expensive over time.
Conversely, mediocre growth
and Internet stocks generally
start relatively inexpensive and
usually get less expensive.
We look for companies with a robust revenue stream driven by subscriptions,
software or technology licenses, advertising, e-commerce, services or, preferably,
a combination of all five. Specifically, we like to see predictable and growing
streams of recurring revenue and visible business models that ensure attractive
operating margins.
Sustainable competitive advantages, including barriers to entry, economies of
scale and scope, an industry leadership position and proprietary technology and
content, are the keys to predictable success. The ability to exploit the network
effect is usually a sure way to capture the leadership position in a space. Support
from strategic partners, customers and financial backers is usually critical to
success, as well. The right combination of visibility, scalability and
profitability leads to a superior business model which corresponds to outsized
valuation of leaders in the e-knowledge enterprise space.
Given the nascent stage of the e-knowledge market, determining the fifth P, Price,
or what the correct valuation should be, is challenging. Valuations have been and
will likely in the near term to continue to be driven by the size of the market
opportunity, demand imbalance for stock, sequential growth and sentiment.
Historically, great growth stocks, in general, and Internet stocks, in particular,
look expensive to start and become even more expensive over time. Conversely,
mediocre growth and Internet stocks generally start relatively inexpensive and
usually get less expensive.
Hence, it is our belief that if we find a premier e-knowledge enterprise that truly
has P’s one through four, the best advice is to take a deep breath, close your eyes
and hold on for the ride.
28
The Knowledge Web – 23 May 2000 (Reprint)
The Knowledge Web: Unleashing the Killer App
Talent = Wealth
+
Metcalfe’s
Law
Moore’s
Law
Transistors per
Microprocessor
The Network Effect
+
Utility
Human Capital Drives
Valuation
P ro ce s s in g P o w e r
$2 Trillion+ Global
Knowledge Market
4% Unemployment
Rapid Skills Obsolescence
The
= e-Knowledge
Enterprise
Opportunity
Time
Users
Source: Merrill Lynch Global Growth Group
29
The Knowledge Web – 23 May 2000
Conversation with Gary Becker:
Development of Human Capital and the Internet
February 21, 2000
Gary Becker was awarded the 1992 Nobel Prize in Economics for his work in human capital theory and the application of
economics to crime and punishment and other innovations in labor economics. He is currently a Professor at The University
of Chicago (in both Economics and Sociology) and is a regular columnist for Business Week magazine. He also serves as a
member of UNext.com’s Board of Directors. Recently, we had the privilege of speaking with Mr. Becker about the
knowledge-based economy and the profound impact the Internet has on the development of human capital.
Michael Moe:
You published your first work on human capital in the early 1960’s. Since that time the
importance of human capital and the value of education have only become more pronounced.
What are some of the observations you could make today about human capital, the knowledge
economy and some of the trends that we’re seeing, as well as the importance of education and the
statistics behind that?
Gary Becker:
Right. Well throughout the 20th century, human capital has been important. By human capital, I
mean the knowledge and skills that men and women acquire through education, on the job
training or other types of schools and other types of learning. It can take many different forms. In
previous centuries, economies were based on manpower, strength, some machinery but not really
so systematically on knowledge.
That changed in this century and has especially become more and more prominent, I would say, in
the last 25 years. One objective measure of that is the earnings advantage of higher education, a
college education in the United States compared to say, a high school education. That gap on the
average for the typical college and high school graduates was about 40% as early 1970’s. It
actually was stationary for a while in 1970 and has really exploded in the last 25 years.
So the gap between a typical high school graduate and college graduate now is more like 70-75%
rather than 40%. There has been an enormous increase and the obvious explanation for that has
been that while you’ve noticed the supply of higher educated people was growing in the United
States, the demand for people with skills has been growing even faster. So the earnings advantage
of this scarce resource namely, educated knowledge, has become greater and greater.
That’s the most dramatic feature but it shows up in other ways as well: more skilled people on the
job; their earnings advantage increasing relative to less skilled people; and a recognition by
people that education is more valuable. A larger fraction of both men and women, of different
races and ethnic groups, has been continuing onto higher education since the early 1980’s,
reflecting the fact that they perceive that this is more of a knowledge economy and they have to
really improve their knowledge base.
MM:
What do you predict looking out over the next 10 to 20 years in terms of the pay gap and the
importance of knowledge and education?
GB:
Well, I think there is no evidence that the importance of education is going to decline over this
period. If anything, it’s going to continue to increase. What happens to the pay gap really
depends on how rapidly the supply of educated people increases compared to demand. If we get a
rapid increase in supply, that will prevent the pay gap from increasing much if at all.
On the other hand, if it increases only slowly, I anticipate we’ll still see a somewhat slower
increase than we had in the 80’s and 90’s but some further increase.
MM:
What do you see the Internet’s impact being in terms of increasing the access to education?
GB:
Well, the basic process of teaching has not changed for over 2000 years. We’ve had, up until the
growth of the Internet, teachers standing up in front of a bunch of students and lecturing to them
with some give and take.
30
The Knowledge Web – 23 May 2000 (Reprint)
The Internet has the potential to be the first major change in this process since Socrates, I believe.
What it means is that somebody can be in their office or at their home tuning into an instruction,
having a give-and-take with the instructor.
The instructor would give feedback and answers tailored to the individual. Even though they
were at a distance and they are not physically interacting with their fellow students, they can
interact with them through the Internet, through chat rooms and the like. This provides the
possibility, which is becoming an actuality of enormous increase, in the flexibility of the access
to, not only higher education, but to retraining and additional investment in one’s human capital.
People can do that without having to go on-site to some learning center, which may be far
removed or difficult for them to get to from either their home or workplace.
Therefore, it economizes on their time. It adds greatly to their flexibility – when they can acquire
this knowledge. I think it’s going to have great potential, particularly with education of workers
and other adults and also for people who want to obtain a higher education degree. Also, I
believe it already is filtering down to a much greater use to K-12 education, as well.
MM:
What kind of global impact will this have?
GB:
Well, it means, for example, that I could be giving a course in economics and my students could
be in Singapore, Zimbabwe, Buenos Aires, Barcelona, as well as in the United States. So once
you go to the Internet, you’re no longer constrained by physical presence. Your market is the
globe.
These students also have flexibility. They can be taking a degree offered at the University of
Chicago with some courses taught at Stanford and other courses taught at Columbia put together
for their own degree as subject to, of course, the approval of these institutions. So it’s going to
give both the teacher access to an enormous market and the students much access to a variety to
teachers who are not constrained to be at one particular institution.
MM:
We talk about some of the advantages that the Internet brings. What are some of the major
disadvantages of the Internet that need to be solved to really create a value added-learning
experience?
GB:
Well, there are several, and some of them we’ll find out more about as we proceed further. One
obvious one that people always bring up is the fact that there is clearly some advantage to direct
physical interaction with instructor and students. That is the challenge to the Internet. I don’t
think there will ever be a perfect substitute for that, but the challenge is to try to reduce the
disparity by having more direct interaction, not only through video, direct access with instructors
and possibly with other students, but also with ease of communication. This way, students don’t
feel that they are sitting isolated in front of a computer. They feel they are really part of a class,
maybe a class that extends around the world, but a class where they can directly communicate
with other students and with their instructor.
MM:
You look at the opportunity for UNext and obviously the potential is very exciting. What is your
exact involvement with UNext and what do you see the opportunity for it to be?
GB:
I’ve been involved from the beginning in the formation of the company. The major person has
been of course, Andy Rosenfield, but I’ve been one of the people involved. I’m on the board now
of the company. I’ve made some presentations on behalf of the company. So they have me on a
video and here and there on some things but I haven’t prepared a course or anything for the
company. That may come in the future.
I think there is an enormous potential for UNext and for profit-making. UNext’s market will be
two-fold. I think the first and major part in the beginning certainly will be through companies;
employees of companies who sign up with UNext for instruction in a particular type of, say,
finance, maybe in options markets or cost accounting or whatever it may be.
31
The Knowledge Web – 23 May 2000
Ultimately, the hope is that UNext will also be dealing with individuals. For this we have a
university. So we hope to be and expect to be a degree granting institution that people, maybe
starting out with companies taking these courses, can use toward a bachelors or a masters degree.
MM:
What are some things that need to happen for UNext to realize its enormous opportunity?
GB:
Well, two things mainly. One is to get a bigger portfolio of courses that we have to offer. As we
learn more, and as we are in this business longer, we are trying out these courses, but the feedback
that we will get from the early courses will be enormous in helping us to restructure and to better
meet the individual needs of different students in the same course. Certainly, getting a larger
portfolio of courses would be very important.
The second thing is essentially that most on-the-job-training or company-sponsored training is
clearly taking place on-site at the company. A little bit has taken place through companies
financing high level employees to go get MBA degrees and executive training programs and the
like. What they have to be convinced of is that there are great advantages for them not to be
directly involved in providing their own courses [for the remaining majority of employees] but to
contract out a much larger fraction of them to a company like UNext who can, by specializing in
it, provide much greater talent. Affiliation with major universities can do a much better job in
providing access to their employees, in particular, by having their employees do most of this study
over the Internet so that they can economize on how much lost work-time they incur.
I think this is a selling job that we have already started to do, and I think this will be an obstacle to
get companies thinking along these lines. If we can overcome that obstacle, I think we are well
on our way.
MM:
My last question, I think you’ve talked about, but how important do you think the Internet is going
to be for the advancement of and the importance of human capital?
GB:
I think it’s going to be extremely important as you take a long-run perspective. I think its main
challenge, let’s say at the university levels, is not going to be to the Chicagos, the Stanfords, the
Harvards, the Yales, the Columbias and other top schools. We have 3,000 colleges and
universities [in this country], and I think the Internet will be a very effective and very tough
combination for the middle and lower tier schools. So, I think that’s one direction it’s going to
spread.
The second role of the Internet, which may turn out to be even more important, would be in a
knowledge economy. You don’t finish your learning when you graduate from high school or
even from an university, or get an advanced degree, an MBA or Ph.D. It’s a lifelong process.
Nothing is going to rival the effectiveness, the cost-effectiveness in terms of saving people’s time,
for this means of continuing the learning process of individuals, through the Internet. I think it’s
going to capture a good share of that market and a significant share of the education market at
lower levels.
MM:
Any other comments you’d like to leave?
GB:
I’m an enthusiast obviously. I’ve not only worked in the area of human capital, I’ve taught for 40
years. So, for me personally to see these two interests come together – teaching and the
importance of human capital – by a new technological medium, namely the Internet, is really a
fantastic opportunity aside from my involvement with UNext. I’m really optimistic not only
about UNext but with many other companies that will eventually be quite successful at taking
advantage of the fact that we are in a knowledge-based economy. People have to continue to
learn. Some of it will continue to go on on-site, but with the new technology available there is no
reason why we have to any longer think that most of it be on-site rather than through this medium.
32
The Knowledge Web – 23 May 2000 (Reprint)
4. Mind Over Matter:
Human Capital in the Knowledge Economy
The advent of the personal
computer, the Internet and the
electronic delivery of
information have transformed
the world from a
manufacturing, physicallybased economy to an electronic,
knowledge-based economy.
Throughout history, whether in pre-industrial or industrial times, great nations
developed based on their access to physical resources or their ability to surmount
physical barriers: England and Spain crossed the oceans, Germany turned coal and
iron into steel, and the United States exploited a wealth of agricultural and
industrial resources to become the world’s breadbasket and industrial superpower.
The advent of the personal computer, the Internet and the electronic delivery of
information have transformed the world from a manufacturing, physically-based
economy to an electronic, knowledge-based economy. Whereas the resources of
the physically-based economy are coal, oil and steel, the resources of the new,
knowledge-based economy are brainpower and the ability to acquire, deliver and
process information effectively.
“We spend all our time on people. The day we screw up the people thing, this
company is over.”
— Jack Welch
With some of the greatest developments in new technologies arriving late in the
20th century, widespread optimism surrounding the 21st century has yielded
futurists predicting a period of rapid growth at the magnitude of the industrial
revolution, if not greater, with the advent of the knowledge-based economy. In
this new economy, knowledge workers form the cornerstones of successful
businesses, emerging industries and economic growth. In this new environment,
however, the labor force is presented with an unprecedented challenge as it must
now gain and continuously upgrade its skills. Companies are increasing R&D
expenditures, and employees must continue to “upgrade” their skills in order to
keep pace with the innovation. Case in point, the number of patents being issued
in the United States is almost twice the amount granted only ten years ago, and the
pace of patent applications is accelerating.
Patent Applications & Grants in the U.S. (000s)
300
250
200
150
100
50
Applications
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0
19
78
In this “new economy,”
knowledge workers form the
cornerstones of successful
businesses, emerging industries
and economic growth. In this
new environment, the labor
force is presented with an
unprecedented challenge as it
must now gain and
continuously upgrade its skills.
Granted
Source: The Economist
33
The Knowledge Web – 23 May 2000
While the future possibilities of the knowledge economy look both exciting and, at the
same time, daunting, we believe the transformation to a knowledge economy is
already evident.
• Most striking—the dramatic pay gap between those with education and
those without has more than doubled in less than 20 years.
In today’s economy, companies’
earnings power rises due to
returns on human capital.
Companies, in turn, are
rewarding employees with their
“productivity wages”, or risk
losing them to competitors.
• Also significant—our analysis illustrating a seismic shift in how the
market values companies, discounting traditional analysis of earnings
derived from physical capital and replacing it with analysis of earnings
power derived from human capital.
• Finally, the structural economic changes that have occurred mean that
new jobs being created are service and skill-based jobs rather than
manufacturing jobs.
Growing Pay Gap Rewards Knowledge Workers
In today’s economy, companies’ earnings power rises due to returns on human
capital. Companies, in turn, must reward employees with their “productivity
wages” or risk losing them to competitors. The result is that the earnings power of
knowledge employees rises in the job market. Those without the necessary
education, however, do not reap similar rewards. Accordingly, we have seen the
income gap between those with a bachelor’s or higher degree and those with just a
high school education widen significantly, and we expect this trend to continue as
long as the marketplace continues to reward knowledge-intensive companies.
Widening Pay Gap Between High School and College Graduates
111%
120%
100%
50%
80%
In 1980, the pay difference
between someone who had a
high school education and a
college education was 50%.
Today it is over 100% and
growing.
60%
40%
20%
0%
1980
Source: 1980: U.S. Census Bureau
1998
1998: ML Global Growth Group Research
Moreover, the computer is replacing many “left brain” task-oriented jobs, as it
performs these functions faster, cheaper and better. A significant challenge and
opportunity is the necessity to create knowledge workers from today’s existing
labor pool.
“Capital is accessible, and smart strategies can simply be copied. The halflife of technology is growing shorter all the time. For many companies today,
talented people are the prime source of competitive advantage.”
— Ed Michaels, Director, McKinsey & Co.
34
The Knowledge Web – 23 May 2000 (Reprint)
Recognition of Human Capital Driving Market
Valuations of Knowledge Enterprises
Growth companies today are dependent on human capital. Those companies that
have created growth by leveraging their “off balance sheet” human capital assets
have, in turn, seen their share prices rewarded with higher valuations. It is
illustrative to look at valuations of the largest ten companies in the old economy
and compare them with the largest ten companies in the new economy.
Those companies that have
created growth by leveraging
their “off balance sheet”
human capital assets have, in
turn, seen their share prices
rewarded with higher
valuations.
Human Capital is Replacing Physical Capital as the Primary Productive Asset
10 Largest Companies by Market Capitalization
Median Price-to-Book
13x
12.1x
Top 10 - 1980
1. IBM (2.4x)
2. AT&T (0.7x)
3. Exxon (1.4x)
4. Schlumberger (6.9x)
5. Mobil (1.3x)
6. Chevron (1.5x)
7. Atlantic Richfield (2.1x)
8. General Electric (1.7x)
9. General Motors (0.8x)
10. Royal Dutch Petroleum (0.8x)
11x
9x
7x
Top 10 - 2000
1. General Electric (12.5x)
2. Cisco Systems (29.2x)
3. Intel (13.4x)
4. Microsoft (12.6x)
5. WalMart (11.6x)
6. Exxon Mobil (4.3x)
7. AT&T Corp (3.1x)
8. Oracle (64.2x)
9. Citigroup (4.5x)
10. IBM (10.5x)
5x
3x
1.2x
1x
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: Compustat, Merrill Lynch Global Growth Group
In the old economy, price-to-book was a useful valuation measure, as it was
physical capital that companies leveraged into earnings power. What matters in
the new economy, however, is human capital. In 1980, the price-to-book of the
largest companies in the U.S. was 1.2x. Today the price-to-book is 12.1x, or ten
times greater.
“There is a clear relationship between the effectiveness of a company’s human
capital and the creation of superior shareholder returns."
— Watson Wyatt
Human Capital Index Study
By 1950, 40% of the American
workforce was employed in the
manufacturing sector and as a
result, productivity increased
fifty-fold.
Growth Jobs Are Knowledge and Service Jobs
During the industrial revolution, the labor force was already equipped with the
skills to enter into manufacturing sector employment, where the assembly line
merely required the theory of work organization to be put into practice. Workers
were required to do no more than perform specific tasks, and later operate
specialized machinery that performed the actual work. Nonetheless, the changes
that this innovation brought were enormous. By 1950, 40% of the American
workforce was employed in the manufacturing sector and, as a result, productivity
increased fifty-fold. Workers accrued the majority of the benefits — half in the
form of sharply reduced working hours and the other half in a twenty-five-fold
increase in real wages.
35
The Knowledge Web – 23 May 2000
Flip-Flop From Manufacturing Economy to Service Economy
(% of Total Employment)
Since 1950, employment in the
manufacturing sector has fallen
from nearly 40% of total
employment to less than 18%
currently, while service sector
employment has risen from less
than 14% to more than 35%,
essentially flip-flopping from
where it had been in 1950.
45%
40%
38.9%
Services
Manufacturing
35.4%
35%
30%
25%
20%
17.7%
15%
13.7%
10%
5%
0%
Source: Bureau of Labor Statistics
The extensive adoption of
information technology is now
creating the need for a highly
skilled knowledge-based
economy.
The rise of the knowledge worker, those succeeding the industrial worker, began
50 years ago with roots in the GI Bill, the “Management Revolution” and the rise
of the services sector. Since 1950, employment in the manufacturing sector has
fallen from nearly 40% of total employment to less than 18% currently, while
service sector employment has risen from less than 14% to more than 35%,
essentially flip-flopping from where it had been in 1950.
During this period, demands for an educated workforce grew. Increased
competition from abroad, and particularly from emerging economic regions, has
resulted in continued substitution in the manufacturing sector away from workers
and toward technology, increasing the productivity of remaining workers.
Domestically, the service sector has attracted the more highly skilled workers
away from the manufacturing sector. Lower-skilled factory jobs have been
absorbed by less developed countries.
“Today with the emergence of the information age, the strength of a country
is based on knowledge. National greatness will arise not from our natural
resources or our factories, but from our people – people with new ideas and
skills.”
— Michael Milken, Fueling America’s Growth,
Education, Entrepreneurship and Access to Capital
Knowledge jobs such as IT,
health and business services, on
the other hand, are growing 3-6
times as fast as economy-wide
job growth.
36
Just as gains in manufacturing productivity, greater access to higher education and
an affluent middle-class fueled the transition from a manufacturing to a servicesbased economy, the extensive adoption of information technology is now creating
the need for a highly skilled knowledge-based economy. While service sector job
growth has been growing overall, the more technology-intensive industries have
experienced the most rapid growth. In fact, traditional services sector
employment, retail and wholesale trade, financial services, and leisure services,
has experienced slower job growth than the total job market. Knowledge jobs
such as IT, health and business services, on the other hand, are growing 3-6 times
as fast as economy-wide job growth.
The Knowledge Web – 23 May 2000 (Reprint)
Industry Job Growth 1988-1998, CAGR
Computer & Data Processing Services
8.2%
Personnel Supply Services
8.1%
6.8%
Management & Public Relations Services
Residential Care Services
6.2%
Business Services
5.7%
4.9%
Social Services
4.7%
Motion Pictures
Child Day Care Services
4.5%
Offices & Clinics of Medical Doctors
3.8%
Engineering and Management Services
3.4%
Educational Services
3.2%
Engineering & Architectural Services
The resulting demand for an
educated workforce, brought
about by the pervasiveness of
technology in today’s
businesses, presents a sizeable
challenge for today’s workers.
2.1%
Private Nonfarm Payrolls
1.7%
Retail & Wholesale Trade
1.4%
Hotels and Lodging Services
1.3%
Finance, Insurance and Real Estate
0.9%
Manufacturing
-10%
-5%
-0.3%
0%
5%
10%
15%
Source: Bureau of Labor Statistics
The growth of the knowledge workforce heralds the potential for far greater
opportunities for today’s workers, companies and the economy. The resulting demand
for an educated workforce, however, also presents a sizeable challenge for today’s
workers. With rapid technological advances and the continued proliferation of
computers and the numerous applications that are required to be mastered, employers
are demanding more from their current and prospective employees.
Projected Employment by Educational Level Required, 1996-2006
Postsecondary vocational training
Moderate-term on-the-job training
Long-term on-the-job training
Work experience in related occupation
Short-term on-the-job training
Master’s degree
Coming generations of workers
must accomplish far more in
terms of educational attainment
and companies will have to
invest heavily in training if “the
greatest boom in history” is to
become a reality.
Work experience plus bachelors or higher
First professional degree
Doctoral degree
Associates degree
Bachelor’s degree
All occupations
0%
5%
10%
15%
20%
25%
30%
Source: Bureau of Labor Statistics
The challenge to workers, companies and economies in realizing this practically
open-ended economic growth opportunity (where we are limited only by “grey
matter”, that is, brainpower) is in preparing today’s workforce for tomorrow’s
jobs. Coming generations of workers must accomplish far more in terms of
educational attainment, and companies will have to invest heavily in training if
“the greatest boom in history” is to become a reality. As a consequence, we believe
this dynamic will be accompanied by a significant growth in the knowledge services
industry, creating tremendous growth opportunities for investors.
37
The Knowledge Web – 23 May 2000
5. The Emerging New Economy
We believe the Internet will have a greater effect on the way we do business than
anything we’ve seen in the past 500 years. Standing on the shoulders of the
inventions of electricity, the telephone and the PC, the Internet will advance the
power of the individual to a degree not seen since the invention of the printing
press.
The Internet – like the printing
press – is a Great Democratizer.
It vastly improves the access,
quality and speed of
information, enabling the
individual to develop knowledge
like never before.
This emerging new economy represents a tectonic upheaval in our
commonwealth . . . It has its own distinct opportunities and its own new rules.
Those who play by the new rules will prosper; those who ignore them will not.
—Kevin Kelly
New Rules for the New Economy
The Internet – like the printing press – is a Great Democratizer. It vastly improves
the access, quality and speed of information, enabling the individual to develop
knowledge like never before. As with any democratizing force, the Internet will
propel power toward the individual, devolving it away from the institution.
Technology platforms and the Internet have created tremendous opportunities for
new business and education paradigms, ushering in a new economy driven by
knowledge and access to information.
The Emergence of a New Economy
Technology platforms and the
Internet have created
tremendous opportunities for
new business and education
paradigms, ushering in a “New
Economy” driven by knowledge
and access to information.
Old Economy
A Skill
Labor vs. Management
Business vs. Environment
Security
Monopolies
Job Preservation
Wages
Plant, Equipment
National
Status Quo
Standardization
Top-Down
Hierarchical
Regulation
Zero Sum
Sues
Standing Still
New Economy
Lifelong Learning
Teams
Encourage Growth
Risk-Taking
Competition
Job Creation
Ownership, Options
Intellectual Property
Global
Speed, Change
Custom, Choice
Distributed
Networked
Public/Private Partnerships
Win-Win
Invests
Moving Ahead
Source: John Doerr; Kleiner, Perkins, Caufield & Byers
Where the resources of the
physically based economy were
coal, oil and steel, the resources
of the new, knowledge-based
economy are brainpower and
the ability to effectively acquire,
deliver and process
information.
38
Where the resources of the physically based economy were coal, oil and steel, the
resources of the new, knowledge-based economy are brainpower and the ability to
effectively acquire, deliver and process information. Those who are effectively
educated and trained will be the ones who will be able to survive economically
and thrive in our global, knowledge-based economy. Those who don’t will be
rendered economically obsolete.
The Knowledge Web – 23 May 2000 (Reprint)
What is an “Internet Company”
The Internet is a powerful force – a global “mega-trend” – affecting all commerce.
It is more like the emergence of the printing press, the telephone or the computer
than an industry in and of itself. In addition to commerce, the Internet should
continue to change the way people communicate, research, shop, spend their
leisure time and learn.
To compete successfully on the
Net, companies must be, above
all things, entrepreneurial to
the core.
A rapidly growing number of companies covering every potential nook and cranny
of the business world operate primarily or exclusively on the Net, but most have
an analog in the offline world. For example, Amazon.com is in many ways a
Barnes & Noble or Wal-Mart in cyberspace (or at least is becoming so). AOL has
a lot of similarities to cable television, although notably a super-deluxe and highly
interactive cable offering. eBay is essentially an online auction house or flea
market without geographic boundaries.
Since it’s very difficult to be all things to all people, the Internet may be a
polarizing force pushing companies to either end of a spectrum and gradually
eliminating companies in the middle. On one end of the spectrum will be highly
focused, premium content and services, while on the other will be allencompassing, value-priced content and service.
The Internet Metamorphosis
Offline Caterpillar
The Net’s Metamorphosing Characteristics
Functions
Mail/Fax /Telephone/FedEx
Digitization of Information/Convenience
Junk Mail
Customization/Access
Video Rental
Zero Marginal Cost, "Byte-Sized" Information
Library
Info as a Digitized, Accessible Commodity
Catalog
Interactivity
Companies
Bookstores, five & dimes
Auction houses/flea markets
National print newspapers
Network news
Wall Street brokerage firms
The local newspaper
Anytime, Anywhere/Unlimited Selection
Frictionless, Ubiquitous Commerce
Instantaneous/Information Democratizer
Interactivity/Anytime Access to Information
Power Devolves to the Consumer
Interactivity/Zero Marginal Cost Content
Dot.com Butterfly
Functions
Email
"One-to-one" marketing
Video On Demand
Search Engines
Website (online catalog)
Companies
Amazon.com
eBay
Drudge Report
ESPN.com, CNN.com
Merrill Lynch Direct, E*Trade
CitySearch/Sidewalk.com
Source: Merrill Lynch Global Growth Group
Corporate America Has Changed Dramatically
Net companies must view
change as an opportunity
instead of a threat, competition
as a potential partner rather
than the enemy, and the
business plan as a work in
progress rather than a ball and
chain limiting choices.
While catalyzing a sea change in the way we interact with one another and
transact business, the Internet has at the same time caused an explosion in the
growth of a new type of company. The old rigid corporate structure is anathema in
the Internet Age. To compete successfully on the Net, companies must be, above
all things, entrepreneurial to the core. They must view change as an
opportunity instead of a threat, competition as a potential partner rather than
the enemy, and the business plan as a work in progress rather than a ball and
chain limiting choices.
It is interesting, but perhaps not surprising, that the changes caused by the Internet
in business, communications, learning, etc., have their parallel in the corporate
structure and culture of Internet companies. The Net is The Great Democratizer,
devolving power from institutions to individuals. The same shift in power has
occurred in many companies.
39
The Knowledge Web – 23 May 2000
Front-line employees are now much more empowered to make and execute
decisions. They also have a much greater vested interest in the outcome of their
actions since many are now compensated with stock and options, whose value is
dependent on the success or failure of the business.
Thus, a whole new corporate culture has evolved, and it’s not limited to Silicon
Valley. Companies nationwide are more agile, employees are more involved and
the pace of business has increased from a trot to a gallop.
A key result of the confluence
of technology and the Internet
Economy is the need for better,
faster and smarter workers.
How the World Has Changed
Corporate Characteristic
Decision-Making
Org Structure
Communication
Compensation
Employee Status
Traditional Brick & Mortar
Executive Suite
Hierarchical
Voicemail/Memo
Salary
Worker
Dot.coms
Front Lines
Flat
Email/Cell Phone
Options
Owner
Risk-Averse
Back Office/Admin
To Be Obeyed
Adequate
…the enemy.”
Bungee-jumping thru corporate America
Heroes
To Be Consulted
Right On Target
…a potential partner.”
Attitude
Status of IT Staff
Status of Management
Brainpower to Assigned Task
“Our competition is…
Culture
Dress Code
Diversions
Pets in the Office
Business MPH
Relationship to Others
Beverage of Choice
Regular Working Hours
Suit & Tie
No nudity (except on the late shift)
Company Softball Team/Gym In-house Gameroom/Kegs on Fridays
Against Protocol
Just don't let them sleep on the pool table
Please Drive Carefully
Pedal to the Metal
Afraid to step on toes
Super-Confident/Brash
Black coffee/white foam cup
Triple Skinny Latte
9-to-5
9-to-5 (am-to-am)
Source: Merrill Lynch Global Growth Group
A key result of the confluence of technology and the Internet Economy is the need
for better, faster and smarter workers. Precisely because power has devolved to the
front lines and businesses are in a state of constant change, the workforce must be
more capable than in the past. At no previous time has human capital been so
important, meaning finding, attracting, hiring, training and retaining
knowledge workers will be mission-critical functions in the New Economy.
At no previous time has human
capital been so important,
meaning finding, attracting,
hiring, training and retaining
knowledge workers will be
mission-critical functions in the
New Economy.
If you could connect your computer to a vast network of information, how
would you use this service?
A. Gather valuable scientific information.
B. Improve my education.
C. Demonstrate my complete lack of personality by spending countless hours
typing inane and often obscene sentence fragments that can be viewed by
people just like me in “real time”.
If you answered “C” above, what should that service be called?
A. Computer chat.
B. I’m a moron and I’ll prove it.
C. Good-bye savings account.
– Scott Adams
The Dilbert Principle
40
The Knowledge Web – 23 May 2000 (Reprint)
Five Business Models on the Internet
We segment online companies into five species of business model. These
divisions are useful in understanding how companies can make money on the
Internet, but we emphasize that they are not mutually exclusive. A growing
number of companies derive revenue from more than one of these models.
Five Business Models on the Internet
1.
2.
3.
4.
5.
Model
Access
Description
Companies that sell or provide dial-up and/or dedicated network connections or other
network management services. Business models can be based on monthly fees, or
can be provided for free under a contractual agreement. Free access may include
free PCs for classrooms as well as connectivity and is typically covered through
advertising (examples: ZapMe! Corporation in the K-12 arena and Campus Pipeline in
the higher education area).
Content
Companies that provide what you see when you go online. This includes both
“portals,” which organize and provide access to content created by other companies,
and “destinations,” which create specialized content (K-12 field trips, university
courses, etc.). The typical business model is based on advertising, sponsorship,
subscription fees and e-commerce. (examples: ClassroomConnect in the K-12 space,
Pensare and UNext in the higher education area and SmartForce and Ninth House in
corporate learning.)
Commerce Companies that sell merchandise, or facilitate the matching of buyers and sellers. The
typical business model resembles that of a catalog retailer or auctioneer, although as
the industry develops it will likely begin to encompass advertising as well. Commerce
companies operate in business-to-consumer (B2C) and business-to-business (B2B)
arenas. In e*learning, commerce is seen as an important means of covering the
costs of free content and monetizing traffic, particularly in K-12 where advertising can
be a sensitive issue. (examples: SmarterKids.com in the K-12 area and
Textbooks.com in the higher ed. space and Saba in the corp. learning space.)
Companies that sell software that facilitates inter- or intra-enterprise communication
Software
and commerce. The typical business model is composed of software license fees,
software maintenance fees, consulting services and, increasingly, software hosting
and operation services. Learning information systems and training management
systems are two evolving software forms. (examples: Scientific Learning in the K-12
space and Saba in the corporate learning area.)
Services
Companies that provide a wide variety of services necessary in the online ecosystem,
including hosting, application rental, transaction processing, information databasing,
consulting, design and implementation. The typical business model is based on “perclick” transaction fees, time-and-materials fees or subscription fees.
(examples: National Computer Systems in the K-12 area and Thomson in the
corporate learning industry.)
Source: Merrill Lynch Internet and Global Growth Research
Favorite Bookmarks of John Chambers, CEO of Cisco Systems,
www.cisco.com – Customer satisfaction is my personal passion as well as a top company priority. The
website serves as our primary interface to customers.
www.nasdaq.com – This website provides latest stock price and market cap for Cisco as well as many of
our competitors.
www.cnnfn.com – I look here for latest and breaking financial and industry news which could potentially
impact the business.
www.amazon.com – I use this site for personal reasons – to order reading materials for myself and my
family as well as to order gifts.
41
The Knowledge Web – 23 May 2000
The Human Capital Keiretsus
The business “keiretsu” has proven particularly powerful in the Internet economy, with its focus on partnerships and the
network effect. This model has been successfully followed by leading venture capital firms such as Kleiner, Perkins, as well
as by what have become two of the ten largest Internet stocks, Internet Capital Group and CMGI. These two companies,
with multi-billion dollar market capitalizations, are structured to emphasize the cross-pollination of ideas, management
expertise, technological innovations and access to capital. These Internet conglomerates act as incubators and holding
companies for various Internet businesses and concentrate their investments in that sector. In that both have partial or
complete ownership in more than 50 companies, these publicly traded Internet keiretsus spread their exposure risk among
multiple companies. The potential for the success of the business keiretsu is no less in the knowledge services industry,
where content, community and commerce all converge around the critical ingredient to the New Economy – acquiring and
leveraging human capital.
The Kaplan Keiretsu
Kaplan, Inc., a wholly owned subsidiary of The Washington Post Company, is a provider of educational and career services
for individuals, schools and businesses. Kaplan has helped transform the for-profit education industry, setting professional
standards in an era of educational innovation and has broadened the global reach of educational service companies through
technological advancement. The following list provides a brief description of Kaplan’s many interests in the education area:
The Kaplan Human Capital Keiretsu (a division of The Washington Post)
Company Name
Kaplan Test Prep and
Admissions
Kaptest.com
Kaplan International
Kaplan Publishing
Company Description
Offers online and center-based test preparation services for secondary, college, graduate, and professional school admissions
KaplanCollege.com
Offers hundreds of online professional and higher education courses, certificate and degree programs for career acceleration
in nine areas, including Nursing, Education, Criminal Justice, Real Estate, Legal Professions, Law, Management, General
Business and Computing/Information Technology
The first major institution offering a Juris Doctor (JD) degree earned wholly online via state-of-the-art technology, preparing
students to be on the cutting edge of 21st century law theory and practice
Offers courses in police work, private security, and corrections
Offers courses that address the career goals of professional teachers with an emphasis on real-world knowledge and skill
development
Offers courses designed to help students advance their career in the legal industry such as paralegals and legal nurse
consultants
Offers courses to help students meet licensure requirements
Offers a selection of courses that address the career goals of residential real estate professionals
Enables students to learn how to use today’s most popular software applications and advanced technologies, as well as
acquire general computer skills
Offers courses in everyday business skills such as finance, business writing, customer service, etc.
Offers courses in management, i.e. leadership skills, dealing with conflict, negotiation strategies, managing a virtual team,
communication, work/life balance, interviewing and hiring and diversity training
Concord School of Law
Criminal Justice
Education
Legal Professions
Nursing
Real Estate
Computing/IT
General Business
Management
Kaplan Professional
Dearborn
Self-Test Software
Perfect Access/CRN
Schweser's Study
Program/AIAF
Kaplan Professional
Call Center Solutions
42
Offers online test preparation and admissions services for college, graduate and professional school bound students
Provides test preparation services to international students, including TOEFL
Publishes titles in test preparation, admissions, education, career development and life skills and software for college and
graduate school entrance exams
Provides educational and training solutions to companies and individuals in the financial services, insurance, real estate, health,
law, and information technology industries
Supplies educational and training solutions in financial services, insurance, real estate, health, law and information technology
industries
Offers exam simulation software and preparation for technical certifications
Delivers customized software education and consultation for law firms and businesses
Provides preparation services for the Chartered Financial Analyst (CFA) exam
Provides assessment, recruitment, and training for the call center industry
The Knowledge Web – 23 May 2000 (Reprint)
The Kaplan Human Capital Keiretsu (a division of The Washington Post) (Continued)
Company Name
SCORE! Learning, Inc.
SCORE! Educational
Centers
ESCORE.com
SCORE! Prep
Harvard Project Zero
Weekly Reader Corp.
Instructional Fair Group
kaplan.com
Company Description
Kaplan Ventures
The investment arm of Kaplan, Inc., takes minority positions in education and career service companies including Apollo
International, Jobscience, Apex Learning Inc. and Blackboard. Pearson is also a minority stakeholder in Blackboard, Inc.
BrassRing, Inc.
BrassRing Systems
Express
Joboo
BrassRing.com
BrassRing Career Events
BrassRing Campus
High Technology Careers
Magazine
Jobs America
SCORE!’s after school educational centers for students in grades K to 12
Provides educational services and customized resources for children newborn to age 18 and their families
Provides in-home, one-on-one tutoring for high school academic subjects and standardized tests
Portal to all of Kaplan’s Internet businesses
Provides recruiting and hiring management services for businesses and individuals under several business units (listed below)
Provides integrated hiring solutions that enable organizations to dramatically accelerate their hiring processes. BrassRing
Systems currently offers two product lines, Express and Joboo.
A unique blend of software and services that improves the hiring process by outsourcing resume procurement and processing
Transforms a company’s recruitment web site by automatically and accurately reflecting open positions available
A technology and career portal, designed specifically for the high technology professional
Provides technology-oriented physical career events in North America, Canada and Europe with vertical markets in
healthcare, sales/marketing and general/professional sectors
Focuses on young adults with up to five years of work experience, providing a national database of entry level positions
The nation’s largest and most comprehensive technical recruitment publication, with a subscription base of 150,000+ and
distribution of over 300,000 people nationwide, serving an audience of career-conscious technical professionals
Produces general hiring events and career fairs across the nation
43
The Knowledge Web – 23 May 2000
The Kaplan Keiretsu
% Equity stake
m Minority stake
P Partnership
Apollo
Int’l
Jobscience
Apex
Learning
Blackboard
Kaplan
Ventures
100%
m
Kaplan, Inc.
Kaplan
Professional
m
BrassRing, Inc.
Kaplan
College.com
BrassRing
Campus
BrassRing
Systems
Dearborn
Kaplan Test,
Prep, &
Admission
Kaplan
Int’l
Nursing
High Tech
Career
Kaplan
Publishing
SelfTest
Sofware
Kaptest.com
Real Estate
Criminal
Justice
P
Professional
Call Center
Solutions
Jobs
America
Newsweek
P
Peterson’s
Embark.com
Encore Software
BrassRing
Career
Events
General
Business
Legal
Professions
Westech
Expo
Corp.
Source: Merrill Lynch Global Growth Group.
44
collegeclub.com
Alloy Online
Simon & Schuster
Education
BrassRing.com
SCORE!
Prep
Computing/IT
Joboo
SCORE!
Educational
Centers
P
Schweser
Study
Program/
AIAF
m
Perfect
Access/
CRN
Concord
Law School
Express
SCORE!
Learning
Click2Asia.com
HighWired.com
eFrenzy
AOL
MBANET.net
Sallie Mae
Management
eSCORE.com
P
Harvard
Project Zero
Weekly
Reader Corp
Instructional
Fair Group
The Knowledge Web – 23 May 2000 (Reprint)
Knowledge Universe Keiretsu
Knowledge Universe (KU) invests in, incubates and operates companies that build human capital by helping individuals and
organizations realize their full potential. KU owns a portion of more than 30 diverse companies, organized into three
operating groups:
The Knowledge Universe Business Group: assists companies in improving their effectiveness and productivity in the areas
of business to business commerce and content, consulting, staffing and employment. Key investments include UNext.com,
eMind.com and knowledgeplanet.com.
The Knowledge Universe Consumer Group: gives people the tools and services to make their lifestyles more productive.
The group contains companies in the areas of healthy living, nutrition, cancer news and information, career and personal
growth, interactive learning opportunities and multimedia services.
The Knowledge Universe Learning Group: provides learning enhancement products from birth through graduate school.
These products include interactive education products, technology-based educational products, technology resources and
training for teachers, and interactive Web sites for children, parents and grandparents. Key investments are Leapfrog Toys,
KidsEdge and TeacherUniverse.
The Knowledge Universe Keiretsu
AnswerSmart.com
Spring
eMind.com
KidsEdge.com
UNext.com
Selected
Knowledge
Universe
Portfolio
Companies
Knowledge
Beginnings
KnowledgePlanet.com
Nextera
Enterprises
LeapFrog
Teacher
Universe
Productivity
Point Int’l
Knowledge Universe’s strategy for growing these companies is similar to that of other leading Internet players, namely,
leveraging technology investments, customer relationships and marketing expertise across portfolio companies; providing
strategic guidance; and promoting direct collaboration among sister companies. In addition, we expect it to continue to
acquire or develop additional companies that will fill strategic positions in this knowledge web.
45
The Knowledge Web – 23 May 2000
The Knowledge Universe Human Capital Keiretsu
Company Name
Lexecon
Nextera Enterprises
Productivity Point Int’l
Sibson & Co.
Spring
TEC Worldwide
Knowledge Health
Knowledge Learning
LeapFrog
Nobel Learning Communities
Advance Online
AnswerSmart.com
Community of Science
eMind.com
Ent. Media Ventures
Hoover’s
KnowledgeBroadcasting
KnowledgePlanet.com
MeansBusiness
Mshow.com
NetNext
ProPoint.com
KnowledgeKids Network
Nibblebox
Oncology.com
Tasteforliving.com
Teacher Universe
UNext.com
TeckChek
Company Description
A law and economics consulting firm that provides corporations and law firms with academic quality economic analysis
An international consulting firm focused on strategic development and execution, operational effectiveness and IT
Provides learning technology solutions, certification programs and customized training to corporations and governments
A strategy and human capital consulting firm helping clients more effectively implement their business strategies
Europe’s largest consulting, recruitment and education/training company – also provides services for career management
An international membership organization dedicated to increasing the effectiveness and enhancing the lives of CEOs
Invests in growing health-related companies
Operates community-based and corporate-sponsored early childhood education centers throughout the U.S.
Developer of children’s interactive educational products and books that establish a learning style that is fun and engaging
Operates a nationwide network of private preschools, elementary and middle schools; schools for challenged children;
corporate sponsored schools; specialty high schools and charter schools
Provides Web-based global training solutions for the chemical, utility, construction and environmental engineering fields
Developer of a complete resource for basic business reference, how-to information and tools for business knowledge
A collaborative network of more than 400,000 scientists & 700 universities to promote science and accelerate its research
A B2B e-learning provider for vertical markets
An incubator and venture capital firm that invests in a wide variety range of fast-growing Web-based companies
An Internet based service where people conduct research, learn and buy business products and services
Developer of Internet-based broadcast channels in a variety of business areas
Developing an B2B e-learning marketplace
Provides business ideas, theories and methodologies – selected from the best books in business management
Provides interactive broadcasting technologies, enabling businesses and individuals to communicate with customers
Internet incubator
An online corporate learning management system, delivering workforce performance management solutions
Provides educational products and services to families and kids
Builder of an online entertainment destination that brings together creative students with industry leading film talent
The No. 1 online cancer resource for healthcare professionals, patients, their families and entire cancer community
Provides the most current thinking about healthy eating, nutrition and lifestyle, including a wide variety of recipes
Creates technology rich solutions for improving the quality of life and work for teachers worldwide
Provides transforming, life enhancing educational opportunities to people around the world
Provides vendor-independent information technology skills assessment featuring an exam library of advanced technologies
Other Keiretsus highlighted later in this report include Chase Capital, Pearson PLC and Arcadia Partners.
46
The Knowledge Web – 23 May 2000 (Reprint)
6. The Technology Revolution
Technology has transformed our society and economy, having a profound impact
on America’s corporations. This impact is explicit in the increased investment in
technology over the past three decades. In 1970, approximately 5% of corporate
capital expenditures were for computer and data processing equipment aimed at
improving the productivity of human capital. By 1997, nearly 50% of capital
expenditures by corporations were high-tech related.
Technology has become so
essential to corporations that
tech expenditures have grown
from 5% of total capital
spending by corporations in
1970 to nearly 50% today.
Technology Expenditures Dominate Capital Spending
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
0%
Source: Bureau of Economic Analysis
A glance at the stock market shows the heights reached by the technology sector
in our economy. Both the proliferation of technology companies and the
valuations applied to them have skyrocketed this decade, as the market has
perceived technology’s importance to the future of the world economy. Publicly
traded technology companies are now valued at $3.8 trillion and represent one
quarter of the S&P500.
The PC has achieved
remarkable penetration
compared to other
technological innovations in the
U.S., reaching a 25% market
share in 15 years.
Technology is the Fastest Growing Segment of our Economy
$3,775
Market Value of Technology Sector - 1992 vs Today
($ in Billions)
$4,000
$3,790
$3,500
$3,000
$1,500
5%
4
R
G
CA
$1,000
$779
$2,500
$2,000
$1,864
$1,018
$488
$500
$195
$243
$327
$0
1992
1993
1994
1995
1996
1997
1998
1999
Apr-00
Source: FactSet
But even more dramatic has
been the wildfire rate of
adoption of the Internet, which
has reached 25% of the
population in only seven years.
The PC and the Internet have been primary drivers of this growth. The PC has
achieved remarkable penetration compared to other technological innovations in
the U.S., reaching a 25% market share in 15 years, versus 35 years for the
telephone and 30 years for the microwave. But even more dramatic has been the
wildfire rate of adoption of the Internet, which has reached 25% of the population
in only seven years.
47
The Knowledge Web – 23 May 2000
Years To Attain 25% Market Share
54 Years
46 Years
44 Years
35 Years
34 Years
30 Years
26 Years
22 Years
15 Years
13 Years
Internet
Cellular
Phone
PC
Radio
Television
Microwave
Oven
VCR
Telephone
Automobile
Household
Electricity
The number of worldwide
Internet users is expected to
skyrocket to 638 million users
in 2004, up from 14 million
in 1995.
Airplane
7 Years
Source: Milken Institute
The Internet Speeds the Technology Revolution
The explosion in Internet usage, achieving the most rapid rate of technological
adoption ever experienced in this technology-hungry century, will continue. As
evidence, the Strategis Group reported that the number of adults using the Internet
in the U.S. surpassed 100 million in late 1999.
Worldwide, the number of online users is expected to skyrocket from nearly 14
million at the end of 1995 to nearly 638 million by 2004. The growth rate of nonU.S. users is expected to be greater than that in the United States. The number of
non-U.S. Internet users is expected to more than triple between 1999 and 2004, a
30% CAGR. The number of users in the U.S. is expected to grow from 81 million
in 1999 to 212 million in 2004, a 21% CAGR.
The number of adults using the
Internet in the U.S. surpassed
100 million in late 1999.
“Wealth in the new regime flows directly from innovation, not optimization; that
is, wealth is not gained by perfecting the known, but by imperfectly seizing the
unknown.”
– Kevin Kelly
New Rules for the New Economy
Millions of Users Will Continue to Flock to the Internet
Projected Growth in Worldwide Online Users: 1995-2004
700
600
Millions of Users
500
400
300
International Users
200
100
0
1995
48
U.S. Users
1996
1997
1998
1999E
2000E
2001E
2002E
2003E
2004E
The Knowledge Web – 23 May 2000 (Reprint)
Projected Growth in Worldwide Online Users: 1995-2004
(Millions)
United States
YoY Change
% of Total
1995
9.7
1996
23.2
139%
70% 61%
1997
38.9
68%
45%
International
YoY Change
% of Total
4.2
15.0 47.9
257% 219%
30% 39% 55%
Worldwide
YoY Change
13.9
38.2 86.8
175% 127%
CAGR:
1998 1999E 2000E 2001E 2002E 2003E 2004E ‘99-‘04
62.8 80.8 103.1
126 148.6 176.8 212.2 21%
61% 29% 28% 22% 18% 19% 20%
44% 41% 40% 38% 37% 35% 33%
79.4 115.3
66% 45%
56% 59%
153.3
33%
60%
201.3
31%
62%
250.0
24%
63%
325.4
30%
65%
425.6
31%
67%
30%
142.2 196.1
64% 38%
256.4
31%
327.3
28%
398.6
22%
502.2
26%
637.8
27%
27%
Source: International Data Corporation; The Online Nation: 1998 US Internet User Survey and Merrill Lynch Internet
Research estimates. IDC’s Internet User Survey sampled 2,102 US Households and examined ownership of electronic
devices, PC and online penetration, e-commerce in the home and workplace, online activities, home pages and nononline households.
Table projects the number of users accessing the Web (users may share or use multiple devices). Users accessing the
Web at home and at work are counted only once.
The number of U.S. households online is expected to more than double from
nearly 30 million at the end of 1998 to nearly 70 million by the end of 2002. As a
percentage of total households, this trend represents an increase from 30% to 64%.
By 2002, 90% of homes are expected to have PCs and 64% are expected to be
online.
“It has been said that if you place an infinite amount of monkeys in front of one
typewriter each, one of them will eventually write a literary masterpiece. The
Internet has proven that this is not the case.”
– Anonymous
A Majority of U.S. Households Will Soon Be on the Net
Projected Growth in U.S. Online Households: 1995-2002
120
100
Millions of Users
The number of U.S. households
online is expected to more than
double from nearly 30 million
at the end of 1998 to nearly 70
million by the end of 2002.
80
Total U.S.
Households
60
40
U.S. Online
Households
20
0
1995
1996
1997
1998
1999E
2000E
2001E
2002E
49
The Knowledge Web – 23 May 2000
Projected Growth in U.S. Online Households, 1995-2002
1995
33.2
1996
38.7
1997
44
1998
48.2
1999E
53.5
2000E
59.6
2001E
67.1
CAGR
2002E ‘95–‘02
74.8 12%
34%
16.6%
39%
13.7%
44%
9.5%
48%
11.0%
52%
11.4%
58%
12.6%
64%
11.5%
71%
Online Households
9.4
YoY Change
% of Total Households 10%
% of PC Households 28%
15.2
61.7%
15%
39%
20.6
35.5%
21%
47%
29.8
44.7%
30%
62%
39.5
32.6%
39%
74%
49.4
25.1%
48%
83%
58.5
18.4%
56%
87%
67.6
15.6%
64%
90%
(Millions)
Households with
PCs/NCs*
YoY Change
% PC Penetration
Internet usage is spreading
from the highest income
earners to the general
population. As PC and Internet
access prices continue to drop,
this trend should continue.
33%
Source: International Data Corporation; The Online Nation: 1998 US Internet User Survey. Veronis, Suhler & Associates
Communications Industry Forecast; October 1998, Electronic Industries Association, U.S. Bureau of the Census,
Odyssey Ventures, Find/SVP and Merrill Lynch Internet Research estimates. IDC’s Internet User Survey sampled 2,102
US Households and examined ownership of electronic devices, PC and online penetration, e-commerce in the home and
workplace, online activities, home pages and non-online households.
*NCs are network computers that are non-PC devices.
As would be expected, early home Internet adopters tended to be toward the upper
end of the income spectrum. A profile of online consumers in 1998 revealed that
the median annual income of Internet consumers was $60,400, well above the
national median of $38,900. In 1999, however, this profile shifted lower,
indicating that Internet usage is spreading from the highest income earners to the
general population. As PC and Internet access prices continue to drop, this trend
should continue.
Internet Usage Spreading to Lower Income Groups
Profile of Internet Consumers Based on Median Household Income
$60,400
$70,000
$51,270
$60,000
$50,000
$38,900
$40,000
$30,000
Internet access in schools is
also bounding forward, driven
by its compelling value
proposition and policies to
promote Internet connectivity.
Internet access is now in 96%
of schools, up from just 3% in
1994.
$20,000
$10,000
$0
General Adult Population* 1999 Online Consumers
1998 Online Consumers
Source: Roper Starch Worldwide
* Based on Roper Reports data
Internet access in schools is also bounding forward, driven by its compelling value
proposition and policies to promote Internet connectivity. Internet access is now
in 96% of schools, up from just 3% in 1994. Research and database company
Quality Education Data expects nearly every school to have Net access by the end
of the 1999-2000 school year. To date, 51% of classrooms have Internetconnected computers, and the student-to-computer ratio has declined to 6-to-1.
50
The Knowledge Web – 23 May 2000 (Reprint)
Students per Computer Declining And Internet Connectivity Increasing
18
16
120%
16
14
12
10
96%
100%
14
11
10
Classrooms
80%
7
60%
6
35%
40%
4
20%
2
65%
51%
50%
6
6
82%
89%
65%
9
8
Schools
27%
14%
8%
3%
0%
0
1994-95
1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00
1995-96
1996-97
1997-98
1998-99
1999-00
Source: Quality Education Data for Students-Per-Computer. 1999-2000 figure is estimate from Market Data Retrieval. Internet Connectivity from U.S. Department of Education,
National Center for Education Statistics through 1996-97. 1997-98 actual and 1998-99 estimate from Quality Education Data. QED and N2H2 estimate that every school will have Net
access by the end of the 1999-2000 school year.
Demographics Of Internet Users Evolving
Higher income individuals, who typically have greater access to the Internet from
home, continue to be the heaviest users. As PC prices continue to plunge and free
or value-priced ISPs proliferate, we expect greater percentages of lower income
groups to migrate online rapidly. Broadband technology should speed this
migration, as Internet content and usage begins to look and feel more like that on
television with which the broader population is familiar.
Persons Using the Internet, by Income and Location (1998)
60
50
40
Percent
Broadband technology should
speed migration to the Internet,
as content and usage begins to
look and feel more like that on
television with which the
broader population is familiar.
30
20
10
0
Under
$5,000
$5,0009,999
$10,00014,999
$15,00019,999
At Home
$20,00024,999
Outside Home
$25,00034,999
$35,00049,999
$50,00074,999
$75,000+
Any Location
Source: National Telecommunications and Information Administration (Department of Commerce)
Older users are becoming more prevalent on the Internet, although they still are
under-represented relative to their percentage of the total population. People
between the ages of 35-49 – roughly the Baby Boomer cohort – account for the
largest group of Internet users according to a recent study by AOL/Roper Starch.
Internet User Profile by Age
Age Group
18-24
25-34
35-49
50+
General Adult Population
13%
19%
32%
36%
1999 Online Consumer
Population
12%
20%
40%
26%
1998 Online Consumer
Population
13%
21%
43%
22%
Source: The America Online / Roper Starch Study; December 1999. Roper Starch Worldwide conducted this research via
telephone among 1,000 home Internet / online subscribers over 18 years of age.
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The Knowledge Web – 23 May 2000
Urban whites and Asians are the heaviest users of the Internet, with nearly twice
the percentage of each ethnic group online as blacks or Hispanics. These adoption
rates are similar to adoption trends in other new technologies.
Percentage of Persons Using the Internet by Ethnic Group and Location
45
40
35
Percent
30
25
20
15
10
5
0
White non Hispanic
Black non Hispanic
US
A IEA non Hispanic
Rural
Urban
A PI non Hispanic
Hispanic
Central City
Source: National Telecommunications and Information Administration (Department of Commerce)
The majority of Internet users
in a recent survey said they
already use the Internet to
research, gather product
information and access news.
In other words, they use the
Internet to learn.
Right now, most users access the Internet for relatively simple tasks, such as
sending email, reading news and doing basic research. The majority of Internet
users in a recent survey said they already use the Internet to research, gather
product information and access news. In other words, they use the Internet to
learn. Most of what these users have done so far is simply gather information by
reading.
Most Net Users Already Learn Online
Percentage of People Saying They Regularly…
92%
Research
88%
Communicate with Friends
73%
Product Information
Hobby Information
70%
News
70%
56%
Instant Messages
50%
Entertainment
48%
Communicate with Co-W orkers
46%
Sports
44%
Games
42%
Purchase
Chat
36%
Stocks
36%
Track Portfolio
35%
35%
Travel Reservations
31%
Music
22%
Meet People
Banking
17%
14%
Trade Stocks
0%
10%
20%
30%
40%
50%
60%
70%
80%
90% 100%
Source: The America Online / Roper Starch Study; December 1999. Roper Starch Worldwide conducted this research via
telephone among 1,000 home Internet / online subscribers over 18 years of age.
52
The Knowledge Web – 23 May 2000 (Reprint)
Percentage of U.S. Persons Using the Internet Outside the Home by Type of Use (1998)
60
50
Percent
40
30
20
10
0
E-mail
Info Search
Do Job Related
Tasks
Take Courses
Job Search
Source: National Telecommunications and Information Administration (Department of Commerce)
Nearly 40% of users, both at home and otherwise, say they use the Internet to take
courses, but this usage is usually limited to basic research at present. Going
forward, broadband technology will propel more interactive and content-rich Web
experiences. Companies in the learning space will be primary beneficiaries of this,
as they will be able to deliver richer content and more engaging experiences to
their user base.
Percentage of U.S. Persons Using the Internet at Home by Type of Use (1998)
80
70
60
50
Percent
Broadband technology will
propel more interactive and
content-rich Web experiences.
40
30
20
10
0
E-Mail
Info Search
Check New s Take Courses
Do Job
Related Tasks
Shop, Pay
Bills
Job Search
Games/
Entertainment
U.S. Persons
Source: National Telecommunications and Information Administration (Department of Commerce)
“Nothing you can’t spell will ever work.”
– Will Rogers
53
The Knowledge Web – 23 May 2000
The Digital Divide
“Opportunity for all requires something else today – having access to a computer and knowing how to use it. That
means we must close the digital divide between those who've got the tools and those who don't.”
– President Bill Clinton, State of the Union Address, February 2, 2000
Access to computers and the Internet and the ability to use this technology effectively are becoming increasingly important
for full participation in America’s economic, political and social life. People are using the Internet to find lower prices for
goods and services, work from home or start their own business, acquire new skills using distance-learning, and make
better informed decisions about their healthcare needs or how to vote on issues affecting them and their communities.
Access to computers and the Internet has exploded in the past decade. Unfortunately, there is strong evidence of a "digital
divide" – a gap between those individuals and communities that have access to these Information Age tools and those who
don’t. In some instances, this divide is actually widening. A July 1999 report from the Department of Commerce, based on
December 1998 Census Department data, revealed that:
•
•
•
•
Better educated Americans are more likely to be connected.
Whites are more likely to be connected than African-Americans or Hispanics.
Rural areas are less likely to be connected than urban users.
In addition, data from the National Center for Education Statistics reveals a “digital divide” in our nation’s schools. As
of the fall of 1998, 39% of classrooms in poor schools were connected to the Internet versus 62% for wealthier
schools.
The digital divide has reached such proportions as to grab the attention of the President. In addition to providing access to
information tools and resources, the Clinton Administration plans to help people acquire the skills they need to use
technology, promote content and applications of technology that will help empower under-served communities and ensure
that teachers can use technology effectively in the classroom.
The fallout resulting from the White House’s plans for a narrowed digital divide could be felt in many ways, but to elearning companies, in particular, this objective represents a potential boon. Companies positioned to address the newly
online are especially poised to benefit.
The Private Sector Is Narrowing the Divide
The private sector is doing their part to bridge the digital divide, as well. Microsoft recently announced plans to support
Intel’s Teach to the Future program by donating $344 million of software to the program. The Teach the Future program
is an initiative to train more than 400,000 classroom teachers to use technology to improve teaching and learning. Intel has
pledged to invest $100 million over the next three years in cash, equipment, curriculum development and program
management to provide teacher-led, hands-on training in 20 countries. Other leading manufacturers have offered donations
and discounts to make this the largest private industry effort help ensure that teachers are prepared to use technology in the
classroom.
Ford Motor Co. also recently committed $300 million to ensure that their employees move into the 21st century with the
technology they need. Over the next twelve months, the company plans to provide each current and future employee with
a personal computer, printer and Internet access for only $5 a month. Hewlett-Packard will provide the computers and
printers, and Uunet, a subsidiary of MCI Worldcom, will provide the Internet access.
54
The Knowledge Web – 23 May 2000 (Reprint)
7. e-Commerce: The Current e-Business Wave
Although the Internet has been in existence in one form or another for thirty years,
it didn’t gain much appeal outside of academia or the IT world until this decade.
As one might expect, the first online businesses were those that enabled access to
the Net, such as Prodigy and AOL. Next came content companies. With
businesses and consumers now able to access the Internet, the opportunity was
there to create something for them to do with their Internet access.
n B2C e-Commerce
Beginning approximately in 1995, e-commerce began to gain traction, spurred in
large part by Netscape’s browser, which served as something like a secret decoder
ring for Web surfers. B2C commerce took off first with companies like
Amazon.com and Virtual Vineyards selling old economy products in the new
economy way.
B2C e-commerce, of course, has exploded since then – a trend projected to
continue. B2C e-commerce is expected to grow from $31 billion in 1999 to $274
billion by 2004, a 55% CAGR. The U.S. will still generate more e-commerce than
any other country, but its share of global e-commerce is expected to decline from
78% in 1999 to just 33% in 2004. International e-commerce will outpace that in
the U.S. over the same period, growing at a stunning 93% CAGR versus “just”
31% in the U.S.
B2C e-Commerce is Exploding…
Globa l B2C e-Commerce Projections
B2C e-commerce is expected to
grow from $31 billion in 1999
to $274 billion by 2004, a 55%
CAGR.
$300
$250
International B2C Revenue
($ Billions)
$200
$150
$100
$50
U.S. B2C Revenu e
$1998
1999E
2000E
2001E
2002E
2003E
2004E
Estimated B2C e-Commerce: 1998-2004
($ Billions)
United States
Yr/Yr Growth
% Total
1998
$12.4
International
Yr/Yr Growth
% Total
$2.5
Worldwide
Yr/Yr Growth
83%
17%
$14.9
1999E
$24.2
95%
78%
2000E
$35.8
48%
71%
2001E
$48.1
34%
62%
2002E
$60.6
26%
52%
2003E
$75.0
24%
42%
CAGR:
2004E 1999-2004
$91.7
31%
22%
33%
$6.8
168%
22%
$14.9
119%
29%
$29.9
101%
38%
$55.9
87%
48%
$102.7
84%
58%
$182.5
78%
67%
93%
$31.0
107%
$50.7
64%
$78.0
54%
$116.5
49%
$177.7
53%
$274.2
54%
55%
Source: Merrill Lynch, IDC, Forrester Research, Jupiter Communications
55
The Knowledge Web – 23 May 2000
n B2B e-Commerce
B2B e-commerce is an awakening giant with a growth trajectory expected to
exceed that of B2C commerce. Businesses from mom & pop shops to Fortune 500
companies have realized that the Internet is for real and will revolutionize many
ways in which businesses interact with one another.
Global B2B Internet commerce was just over $80 billion in 1999 and is expected
to grow at a phenomenal 91% CAGR to top $2 trillion in 2004. This figure would
make B2B e-commerce more than 7x the projection for B2C commerce. The U.S.
will still represent the lion’s share of the market in 2004, but its percentage of the
total should decline from approximately two-thirds in 1999 to one-half in 2004.
…But B2B e-Commerce is Growing Even Faster
Global B2B e-Commerce Proje ctions
$2,500
($ Billions)
$2,000
$1,500
International B2B Revenue
$1,000
$500
Global B2B Internet commerce
was just over $80 billion in
1999 and is expected to grow at
a phenomenal 91% CAGR to
top $2 trillion in 2004.
U.S. B2B Revenue
$0
1998
1999E
2000E
2001E
2002E
2003E
2004E
Estimated B2B e-Commerce: 1998-2004
($ Billions)
United States
Yr/Yr Growth
% Total
1998
$24.9
International
Yr/Yr Growth
% Total
$10.6
Worldwide
Yr/Yr Growth
$35.5
70%
30%
CAGR:
1999-2004
84%
1999E
$50.3
102%
63%
2000E
$97.3
94%
58%
2001E
$174.7
79%
55%
2002E
$346.6
98%
56%
2003E 2004E
$632.9 $1,053.0
83%
66%
56%
52%
$30.1
183%
37%
$69.8
132%
42%
$145.5
108%
45%
$270.5
86%
44%
$506.7
87%
44%
$973.7
92%
48%
100%
$80.4
126%
$167.1
108%
$320.2
92%
$617.1 $1,139.6 $2,026.7
93%
85%
78%
91%
Source: Merrill Lynch, IDC, Forrester Research, Jupiter Communications
Not surprisingly, e-commerce has been and should continue to be heavily
weighted toward transactions involving hi-tech products, such as computing and
electronic devices. These products were some of the first to be sold online, and
online users have a natural predilection toward buying products related to their use
of the computer and Internet. By 2003, nearly 40% of computing and electronics
products sold in the U.S. are expected to sell on the Internet. B2B market makers,
such as Ventro (f.k.a., Chemdex) and Commerce One, are driving sales of raw
materials and other unfinished goods.
56
The Knowledge Web – 23 May 2000 (Reprint)
U.S. B2B e-Commerce Revenue ($Billions)
Industry
Computing and electronics
Motor vehicles
Petrochemicals
Utilities
Paper and office products
1998
$19.7
$3.7
$4.7
$7.1
$1.3
2003E
$395.3
$212.9
$178.3
$169.5
$65.2
Shipping and warehousing
Food and agriculture
Consumer goods
Pharmaceutical and medical
Aerospace and defense
$1.2
$0.3
$1.4
$0.6
$2.5
$61.6
$53.6
$51.9
$44.1
$38.2
$0.4
$0.1
$0.1
$43.1
$28.6
$15.8
$15.8
$1,330.8
Construction
Heavy industries
Industrial equipment
Total
Source: Forrester Research
Worldwide, the Internet economy is expected to mushroom from $261 billion in
1998 to more than $2.8 trillion in 2003. e-Commerce will account for nearly half
of this amount, with business and IT infrastructure accounting for the remainder.
Worldwide Internet Economy by Segment: 1998-2003 ($ billions)
$2,826
$3,000
$2,500
$2,000
$1,728
%
%
: 6611
GRR:
CCAAG
$1,500
$1,000
$1,115
$730
$477
$500
$261
$0
1998
1999
2000
2001
2002
2003
Commerce
$50
$111
$218
$398
$774
$1,317
IT Infrastructure
110
176
239
320
401
592
Business Infrastructure
101
190
273
397
553
917
Internet Economy total
$261
$477
$730
$1,115
$1,728
$2,826
U.S. percent of total
62%
57%
56%
55%
54%
50%
Source: IDC
n Human Capital Solutions Providers Will Benefit
Those providers of human capital solutions via the Internet should enjoy
tremendous opportunities over the coming years. Companies directly targeting
consumers will face a large, fragmented market, while B2B solutions providers
will be competing for a slice of a $2-trillion B2B e-commerce market. Human
capital solutions providers have barely scratched the surface of this enormous
market.
57
The Knowledge Web – 23 May 2000
8. Advertising Exploding Online
The amount spent worldwide on online advertising is expected to mushroom from
$3.3 billion in 1999 to $33.1 billion in 2004, a 58% CAGR. The United States
will continue to drive the lion’s share of this market, growing from $2.8 billion in
1999 to $22.2 billion in 2004, a 51% CAGR. International online advertising will
grow as a percentage of the total, increasing from just 16% in 1999 to 33% in
2004, reflecting the more rapid growth in Internet usage and e-commerce
internationally. Companies that can capture and aggregate large and/or highly
attractive demographic groups will benefit most from the expanding web
advertising pie.
The amount spent worldwide on
online advertising is expected to
mushroom from $3.3 billion in
1999 to $33.1 billion in 2004, a
58% CAGR.
Internet Advertising Providing a Rapidly Growing Revenue Stream
W orldw ide Internet Advertising: 1998-2004
$35
$30
($ billions)
$25
International Internet Advertising
$20
$15
$10
U.S. Internet Advertising
$5
$0
1998
1999E
2000E
2001E
2002E
2003E
2002E 12003E
$12.6
$17.2
45%
37%
75%
72%
2004E
Worldwide Internet Advertising: 1998-2004
($ Billions)
United States
Yr/Yr Growth
% Total
1998
$1.3
International
Yr/Yr Growth
% Total
$0.2
Worldwide
Yr/Yr Growth
84%
16%
$1.5
2004E
$22.2
29%
67%
CAGR:
1999-2004
51%
1999E
$2.8
119%
84%
2000E
$5.4
91%
82%
2001E
$8.7
62%
79%
$0.5
115%
16%
$1.1
115%
18%
$2.3
98%
21%
$4.1
80%
25%
$6.9
68%
28%
$10.8
58%
33%
83%
$3.3
118%
$6.5
95%
$10.9
68%
$16.7
52%
$24.1
45%
$33.1
37%
58%
Source: Forrester Research, The Web Advertising Pie Expands
The amount of time that users
spend online is expected to
jump nearly 50% from seven
hours per week in 1998 to ten
hours per week in 2003.
58
Pure number of eyeballs captured is important. Those sites with large numbers of
users will be able to drive an advertising revenue stream based on their reach. This
“breadth” model is similar to that on television or the radio. It will be marked by
high volume but low conversion rates.
The amount of time that users spend online is expected to jump nearly 50% from
seven hours per week in 1998 to ten hours per week in 2003. Increased usage,
coupled with more interactive and targeted advertising functionality, should drive
conversion rates significantly higher and provide valuable streams of revenue to
companies that can deliver highly focused eyeballs to advertisers.
The Knowledge Web – 23 May 2000 (Reprint)
Media Consumption
15.6
16
12.6
14
Hours per Week
12
10.0
10
7.1
8
6
4.0
3.4
4
2
0
TV
Radio
Newspapers
Magazines
Online 1998
Online 2003
Source: Jupiter Communications, The Reinvention of Traditional Advertising; Merrill Lynch Internet Research
The Internet enables detailed customization and specialization, however, and those
sites that capture a highly focused demographic group by delivering relevant,
engaging content will also be able to drive a healthy advertising revenue stream.
This “depth” model will be marked by lower volume but higher conversion rates.
By 2004, however, online
advertising is expected to grow
to nearly $200 per capita, or
three times magazine
advertising and nearly twice
radio advertising.
Effective CPM Rate (Cost per Thousand Impressions)
$5.00
CAG
$4.50
$4.80
$4.50
$4.20
$3.70
$4.00
$3.20
$3.50
$3.00
%
R 13
$2.60
$2.50
$2.00
$1.50
$1.00
$0.50
$1998
1999
2000
2001
2002
2003
Source: Jupiter Communications, The Reinvention of Traditional Advertising; Merrill Lynch Internet Research
As Internet adoption and usage grow, the amount of advertising dollars spent per
capita in the U.S. will continue to grow along with it. At an estimated $40 per
capita in 1999, online ad spending trails traditional media outlets, such as
magazines, radio, newspapers and television. By 2004, however, online
advertising is expected to grow to nearly $200 per capita, or three times magazine
advertising and nearly twice radio advertising. We expect the ability to market to
consumers on a highly focused, one-to-one basis will be a tremendous catalyst for
online advertising, which will offer advertisers a vastly superior way to reach their
audience than traditional media.
59
The Knowledge Web – 23 May 2000
U.S. Per Capita Advertising Spending ($ in billions)
1999E
$40
$56
$89
$335
$258
Online
Magazine
Radio
Newspaper
Television
2000E
$67
$58
$92
$348
$268
2001E
$94
$60
$96
$362
$279
2002E
$124
$62
$100
$376
$290
2003E
$160
$65
$103
$391
$301
2004E
$195
$67
$108
$406
$313
Source: Forrester, "The Web Advertising Pie Expands", August 1999, Merrill Lynch Internet Research
U.S. Internet ad spending is expected to grow to more than $22 billion by 2004
from just under $3 billion in 1999. As a percentage of total advertising spending,
this jump represents an increase to 8.1% from 1.3%. Websites that can deliver
attractive demographic groups and rich user data will benefit most from this
growth in online ad spending.
Internet Ad Spending Growing Rapidly
U.S. Internet Advertising Spending
$25,000
9.0%
8.0%
U.S. Internet
Ad Spending
Percent of
Traditional Ad
Spend
($ millions)
$20,000
7.0%
6.0%
$15,000
5.0%
4.0%
$10,000
3.0%
2.0%
$5,000
1.0%
$0
U.S. Internet Ad
Spending
Percent of Traditional Ad
Spend
1999E
2000E
2001E
2002E
2003E
2004E
0.0%
% of Traditional Ad Spending
In the future, we expect online
advertising dollars to flow to
those sites that can deliver
performance, meaning
transactions and customer data
exchange.
$2,805 $5,358 $8,680 $12,587 $17,244 $22,244
1.3%
2.4%
3.7%
5.1%
6.6%
8.1%
Source: Forrester Research, "The Web Advertising Pie Expands," August 1999; Merrill Lynch Internet Research
The days of banner ads and cpm rates dominating online advertising are numbered,
however. In the future, we expect online advertising dollars to flow to those sites
that can deliver performance, meaning transactions and customer data exchange. As
user data proliferates and becomes easier to manipulate, advertisers and websites
will work together to integrate ads within the site content, creating a seamless
experience for users. In this environment, advertisers will want to pay only for
performance and will not be satisfied with simple click-throughs. This puts the onus
on websites to “know their user” so that they can work with advertisers to develop
the strongest content and interface to drive the greatest performance.
“Intuition becomes increasingly important in the new information society
precisely because there’s so much data.”
— John Naisbitt
60
The Knowledge Web – 23 May 2000 (Reprint)
Online Advertising Dollars Expected to Shift Toward Performance-Based Metrics
1999E
2003E
PerformanceBased
15%
PerformanceBased
50%
CPM-Based
50%
CPM-Based
85%
Source: Forrester Research, "Internet Advertising Skyrockets," August 1999; Based on surveys of 33 traditional and 17
Internet pure-play marketers
Advertising data from the fourth quarter of 1999 provides an interesting case study
of how advertisers apportion their ad dollars online. The sites in the chart below
have several things in common: 1) Most were early movers in their respective
spaces, 2) most either aggregate a very large number of eyeballs (e.g., AOL,
Yahoo!) or they capture a focused group of eyeballs (e.g., iVillage,
SportsLine.com) and 3) they captured a significant share of ad dollars in 4Q99.
One-to-one marketing technology enables these sites and their sponsors to target
ads at particular users, wringing even greater value from the demographics.
e-knowledge sites that deliver
highly relevant content that
drives repeat and extended
usage – that is, stickiness – can
grab a slice of the expanding
web advertising pie.
We think the same story will play out on a smaller stage within the various sectors
of the e-knowledge world. EarthWeb can deliver a large audience of IT
professionals, a very attractive demographic group for IT vendors. e-knowledge
sites that deliver highly relevant content that drives repeat and extended usage –
that is, stickiness – can grab a slice of the expanding web advertising pie.
Volume and Quality of Eyeballs Captures the Ad Dollar
4Q99 Online Advertising Market Share
ATHM
6%
LCOS
5%
DCLK
5%
YHOO
14%
TFSM
2%
IVIL
1%
CNET
2%
GOTO
1%
BOUT
1%
AOL
30%
Other
31%
SPLN
1%
W OMN
1%
Sources: Internet Advertising Bureau, Company Information and Merrill Lynch Internet Research estimates. The Internet
Advertising Bureau’s (IAB) Ad Revenue Report is released quarterly and is based on data from more than 200 companies
and 1,200 web sites. All surveys used in the report are conducted by the New Media Group of PriceWaterhouseCoopers.
61
The Knowledge Web – 23 May 2000
9. The Coming Bandwidth Tidal Wave
A major catalyst for online learning that is looming just over the horizon is
broadband technology, which offers download speeds exponentially faster than
traditional dial-up access and is “always on.” These two features should vastly
increase Internet usage and enable companies to offer much more appealing
content and services, particularly in the online learning space.
“If you are amazed by the fast drop in the cost of computing power over the
last decade, just wait till you see what is happening to the cost of bandwidth.”
—Andy Grove
The current drippy faucet of
data that we receive over our
telephone lines will soon
become a tsunami. This coming
data explosion will make
Moore’s Law seem puny by
comparison.
Broadband – The Next Evolutionary Step
The emergence of broadband technology is certain to be a powerful catalyst
driving Internet neophytes to the Web and vastly enhancing the online experience
of existing users. The current drippy faucet of data that we receive over our
telephone lines will soon become a tsunami. This coming data explosion will
make Moore’s Law seem puny by comparison.
Broadband combines the best elements of the “lean-back” rapture of television
with the “lean forward” interactivity of the Web. Broadband will also create
evolutionary new opportunities for e-business. The big questions, however, are
when and how.
n Broadband Providers Will Seek Differentiation…
Since the “pipes” are essentially commodities, broadband providers will want to
include value-added services with their Internet access service to entice consumers
to sign up with them and remain a customer. User churn is an expensive problem
for commodity-like telephony services, such as long distance and ISPs.
Rather than waging a cutthroat battle like the one currently in progress between
long distance providers, for example, broadband providers will invest in or form
alliances with content providers in an attempt to differentiate themselves from
other providers. One can think of these content providers as premium channels
offered exclusively, or at least on a restricted basis, through a broadband provider.
Since the “pipes” are
essentially commodities,
broadband providers will want
to include value-added services
with their Internet access
service to entice consumers to
sign up with them and remain a
customer.
62
n …And Knowledge Services Companies Will Provide It
Education and other knowledge services companies should be highly sought-after
partners in this environment. Broadband offers them the opportunity to provide
content-rich, television-quality educational offerings coupled with the interactivity
afforded by the Internet. Kids are heavy users of the Internet in the home, making
premium education channels a natural way of locking in consumers to a particular
service that provide a quality educational product.
Likewise, schools are being wired at a rapid pace, meaning that kids will also have
access to these channels at school and could continue to use the service in the
home through a premium broadband offering. The ratio of students to computers
in our nation’s schools is rapidly declining, falling from 16-to-1 in 1992 to
approximately 6-to-1 in 1999. Similarly, Internet connectivity is increasing
rapidly at schools, in general, and the classroom, in particular. Today, more than
95% of schools are wired to the Internet, with over 50% of classrooms having
access. Moreover, the number of K-12 students with access to the Internet has
grown from virtually zero in 1994 to 10 million in 1996 and is projected to grow
to 40 million by 2002.
The Knowledge Web – 23 May 2000 (Reprint)
Therefore, online learning companies should partner with broadband providers
and schools to provide educational products on the Internet that can be accessed
from home and the classroom. Already, numerous broadband providers have
invested in knowledge services with this very idea in mind.
Examples of Broadband Investments in Education
Date
April 1998
August 1999
1999
February 1998
April 1999
April 1999
1999
March 1998
1998 & 1999
December 1999
January 1998
Company
Arista Systems
Campus Pipeline
Classroom Connect
Cogito Learning Media, Inc
HyCurve
Interactive Learning International
JuniorNet
Lightspan
Lightspan (FKA Curriculum Television)
Net Library
NetSchools
Ninth House Network
One Touch Systems, Inc.
Amount
($mm)
$4.0
$28.0
$28.0
$7.0
$12.0
$70.0
$32.0
$20.6
$100.0
$40.0
Investors
Safeguard Scientifics
Dell Computer Corporation
Media One
Vulcan Ventures, Allen & Co.
US Web/CKS
Intel Corporation
RCN Corporation
Sony Corporation, Microsoft,
Liberty Media Group, Comcast
Microsoft
Liberty Digital
Vulcan Ventures
Chase Capital Partners
Intel Corporation
Source: Venture One, Securities Data Corporation
n The Race to Widen the Pipes
Online learning companies
should partner with broadband
providers and schools to
provide educational products on
the Internet that can be
accessed from home and the
classroom.
Broadband technology has been wrapped up in the classic chicken-and-egg
dilemma. Namely, what will come first: The enabling broadband technology or
broadband content that demands improved technology? Until recently, it appeared
that both the content and technology were developing simultaneously, yet
tentatively. Now, however, it appears that the infrastructure battle is on and the
technology will pave the way for the content.
“The historical records show that humans have never, ever opted for slower.”
– Stephen Kern, historian
Cable companies, telco’s, satellite/wireless companies and ISPs are locked in an
epic battle over standards, protocols, open access and kilobits per second. Digging
through all the techno-jargon, though, the key statistic that stands out is that cable
modem and telco ADSL services offer download speeds that are exponentially
faster than traditional dial-up access.
Comparison of Home Internet Access Technologies
Analog Modems
Bandwidth
56 Kb
Cable Modems
5 Mb to 10 Mb (shared)
DSL
128 Kb to 1.5 Mb
ISDN
64 Kb or 128 Kb
Availability
Excellent
Worldwide
Limited/Improving
over time
Limited/Improving
over time
Good/Unavailable
in some areas
Cost of
Hardware
$150 or less
$300 or less
Monthly Fee
Free with
Internet access
$30-$60
$300 or less
$30-$500
$250 or less
$30-$100
Source: IDC’s Home Access Communications Options, February 1999; Merrill Lynch Internet Research
63
The Knowledge Web – 23 May 2000
Perhaps even more important, however, is the “always on” nature of broadband
Internet service. With broadband, consumers can access the Net in the same way
they use a television – or a refrigerator, for that matter. It’s right there just
waiting to be used – always on, always ready, no connection time needed. In
addition to anytime access, broadband offers anywhere access, as consumers
will be able to access the Net in every room of their house using numerous
different devices and appliances.
Perhaps even more important,
however, is the “always on”
nature of broadband Internet
service.
This improved convenience is great for consumers, but a double-edged sword for
business. With broadband, they will have 24/7 access to customers, but the bar for
customer service expectations will increase substantially.
As bandwidth capacity increases, online content will be enriched to include
enhanced graphics and video. These improved features will drive more users
online as the content becomes that much more engaging.
Exploding Bandwidth Capacity Will Meet the Demands of More Engaging Content
Kps per Action
7,880
10,000
1,800
1,000
1,000
300
300
Graphics
Attachment
Voice
Attachment
Kps
120
100
25
10
10
2
1
E mail Mes s age News group/Chat F ile Attachment
Acces s
Web Acces s
Video
Attachment
Voice/F ax over
IP
Video over IP
Source: Merrill Lynch
n Expected Adoption Rates
Broadband adoption is at the lower left-hand position of its expected S-shaped
growth curve right now, and adoption rates appear ready to explode. By 2003,
broadband is expected to account for 37% of U.S. online subscriptions, or 27.4
million total subscriptions. That’s up from just 800,000 broadband subscriptions at
the end of 1998, when broadband accounted for less than one percent of total
Internet subscriptions. Some date in between, probably in late 2001 or early 2002,
will be the tipping point, and e-businesses must be ready for it if they want to grab
the all-important early adopters.
By 2004, we expect broadband
to reach 48% of Internet users,
or 30 million households.
“We’ll have infinite bandwidth in a decade’s time.”
—Bill Gates
The same dynamic network effects dictated by Metcalfe’s Law that have driven
exponential growth in Internet usage will be in force during broadband adoption.
That is, we believe as more consumers move to broadband, businesses will have
greater incentive to produce broadband content and devices, which, in turn, will
spur even more consumers to adopt broadband, starting the cycle over again.
This virtuous cycle will be akin to throwing gasoline on the already blazing
Internet-usage inferno. As convergence causes the Internet to look more like the
television, we expect millions of consumers will begin using it for the first time, as
it becomes less intimidating and more familiar to them.
64
The Knowledge Web – 23 May 2000 (Reprint)
At the same time, existing users will delight in the revolutionary experience of
broadband, using the Internet for everything from daily tasks, like checking the
weather, to more engrossing activities, such as taking a real-time college course at
a far-off university.
High-speed interactivity will
seamlessly integrate Internet
content, e-commerce and online
advertising creating a unique,
all-encompassing experience
that fully engages the user.
High-speed interactivity will seamlessly integrate Internet content, e-commerce
and online advertising creating a unique, all-encompassing experience that fully
engages the user.
Broadband Usage Expected to Explode
80.0
70.0
60.0
50.0
Millions of
40.0
Subscribers
Dial-up subscribers
30.0
Broadband subs.
20.0
10.0
0.0
1998
1999
2000
2001
2002
2003
Dial-up subscribers
24.0
41.3
46.0
48.3
47.0
45.3
Broadband subs.
0.8
2.6
5.8
11.0
18.8
27.4
Source: Forrester Research, “From Dial-Up To Broadband,” April 1999
Broadband Drives Increased Internet Usage
Average Hours Spent Online (Boston Area)
22.5
25
20
Hours Per Week
Broadband has the potential to
increase the level of direct
interaction between teacher and
instructor, solving one of the
major challenges in
implementing e-learning
programs at the adult level.
Moreover, the rich, engaging,
interactive media possible
through broadband has
compelling use in classrooms at
all levels.
Not only will broadband subscriptions increase, but we also believe total Internet
usage will also increase once broadband is readily available. A recent Wall Street
Journal survey found that 65% of respondents said that increased transfer speed
would lead them to increase their Internet usage. MediaOne recently completed a
study of Boston-area Internet users and found that broadband subscribers logged
onto the Internet ten times as frequently as users with traditional dial-up access.
Broadband subscribers also spent on average 22.5 hours per week online, or nearly
five times as much time online as did dial-up users.
15
10
4.7
5
0
Broadband Users
Dial-Up Users
Source: Media One, Boston Area Households Only
65
The Knowledge Web – 23 May 2000
Clearly, we believe that
knowledge services companies
will be primary beneficiaries of
the coming bandwidth tidal
wave.
Clearly, we believe that knowledge services companies will be primary
beneficiaries of the coming bandwidth tidal wave. Broadband has the potential to
increase the level of direct interaction between teacher and instructor, solving one
of the major challenges in implementing e-learning programs at the adult level.
Moreover, the rich, engaging, interactive media possible through broadband has
compelling use in classrooms at all levels.
"@Home’s service is all about a broadband, rich-media environment, and our
churn rate is below the U.S. death rate."
– Mark Stevens, Excite@Home exec,
66
The Knowledge Web – 23 May 2000 (Reprint)
10. “Kingmakers” Will Determine the Winners
Wall Street and venture capital
firms, perceiving the growing
demand for knowledge services,
will provide capital to those
knowledge services firms
offering the best solutions to the
biggest problems.
We believe two powerful groups will determine which knowledge services companies
win. These “kingmakers” are investors, particularly Wall Street and venture capital
firms, and enterprise-wide strategic relationship managers, including management
consulting and enterprise-wide technology solutions providers. Investors will provide
the best knowledge services companies with the capital they need to invest in the
opportunities open to them, and the strategic relationship managers will open doors for
them by recommending their knowledge services to clients.
We note that the lines between these two groups have become blurred. Many of
the companies listed in the table below as strategic partners and consulting firms
now have venture capital arms, as well. Likewise, venture capital firms dispense
much more than money, usually offering advice, networking opportunities and
management expertise.
Examples of Important Kingmakers
Favorite Bookmarks of William
Savoy, President of Vulcan
Ventures
www.ceoexpress.com
www.egreetings.com
www.ebay.com
www.healthanswers.com
Venture Capital
Accel Partners
Arcadia Partners
Bessemer Venture Partners
Charles River Ventures
Chase Capital
Draper Fisher
E.M. Warburg Pincus & Co.
GE Capital, Equity Capital Group
Kleiner Perkins Caufield & Byers
Sequoia Capital
Sprout Group
Vulcan Ventures
Strategic Partners
Cisco
Compaq
Dell
Gateway
Intel
Kaplan Ventures
Knowledge Universe
Microsoft
Oracle
PeopleSoft
SAP
Sun
Consulting Firms
Andersen Consulting
Bain
Cambridge
Deloitte & Touche
Ernst & Young
IBM
IXL Enterprises
KPMG Peat Marwick
McKinsey & Co.
PriceWaterhouseCoopers
Scient
Viant
Source: Merrill Lynch Global Growth Group
Wall Street and Venture Capital
In Silicon Valley and elsewhere,
investment capital comes with
something else just as
important as the actual dollars,
if not more so: A resume.
Wall Street and venture capital firms, perceiving the growing demand for
knowledge services, will provide capital to those knowledge services firms
offering the best solutions to the biggest problems. As has been proven time and
again on the Internet, it takes several rounds of significant capital infusions to
succeed online. Brand-building, perfecting the product offering and attracting the
best talent are three critical success factors demanding significant financial
strength. As such, we believe investment groups will be kingmakers of
knowledge services companies in the new economy.
"Student loans are a wonderfully cheap way to finance a startup.”
– Harvard MBA student Iggy Ioppe
In Silicon Valley and elsewhere, investment capital comes with something else
just as important as the actual dollars, if not more so: A resume. Having the
“right” financial backers can give a company a tremendous advantage in the
competition for funding in future rounds, including the IPO, and on the
competitive playing field.
Potential clients, for example, will use a company’s roster of financial backers
as a metric to help determine the likely success of the firm. They will at least
partially base their selection of a particular product on their belief that the
company will survive long-term. The “right” financial backing is one key to
ensuring survivability.
67
The Knowledge Web – 23 May 2000
Venture capital investment in the knowledge services sector has skyrocketed in
recent years. According to SDC, venture capital firms have invested more than
$2.2 billion in 1999, more than triple the total invested in the previous eight years.
So far this year, venture capital firms have invested almost $800 million in the
sector. We are now starting to see the fruits of these investments hit the public
markets.
Venture Capital Investment in Knowledge Enterprise Companies Is Growing Rapidly
($millions)
$2,500
$2,245
$2,000
Venture capital investment in
the knowledge services sector
has skyrocketed in recent years.
$1,500
$1,000
$773
$500
$232
$19
$10
$9
$29
$101
$28
$154
$179
$0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999 2000ytd
Source: Securities Data Corp., Venture Source. Through April.
n K-12 Venture Capital Investment
In 1999, venture capitalists invested $469 million was invested in the K-12 space.
Companies garnering the largest investments were Edison Schools ($60 million),
FamilyEducationNetwork ($51 million), ZapMe! ($50 million) and Lightspan
($32 million). Edison, ZapMe! and Lightspan are now publicly traded companies.
So far in 2000, investment has continued to pour into the sector. Venture capital
firms have put $352 million into the space in 2000, including sizable investments
in bigchalk.com ($55 million), Schoolpop ($48 million) and Highwired.com
($30 million).
We are now starting to see the
fruits of these investments hit
the public markets.
n Higher Education Venture Capital Investment
In 1999, venture capitalists invested $295 million in the higher education sector.
netLibrary ($95 million), WebCT ($40 million), VarsityBooks.com ($40 million),
Embark.com ($39 million) and Campus Pipeline ($25 million) won the largest
support. As is the case in the K-12 space, venture capital has continued to flood in
so far this year. In 2000, venture capital firms have invested $222 million in the
higher ed space, or nearly as much as they did in all of 1999. Campus Pipeline has
received another $55 million in private funding this year, and University Access
($42 million) has also won major financial backing.
n Corporate Learning Venture Capital Investment
Last year, venture capitalists invested $1 billion in the corporate learning space,
although we note that this figure includes $500 million in Knowledge Universe,
alone. Two other notable corporate learning companies receiving large venture
investments in 1999 were Saba ($50 million) and DigitalThink ($38 million), both
of which conducted public offerings already in 2000. The spigot remains open so
far in 2000, with venture capital firms putting $139 million into corporate learning
companies this year. Ninth House ($40 million) and TrainingNet ($34 million)
have received the most investment year-to-date.
68
The Knowledge Web – 23 May 2000 (Reprint)
n Human Capital Management Venture Capital Investment
Venture capital firms invested $478 million in the human capital management
space in 1999. The largest financing went to Hire Systems ($79 million), Jobs.com
($72 million) and CareerBuilder.com ($48 million). So far in 2000, Jobs.com has
raised another $8 million in private funding, and CareerBuilder has raised an
additional $11 million. Personic ($18 million) and techies.com ($22 million) have
also raised substantial sums from venture capital firms this year.
69
The Knowledge Web – 23 May 2000
Venture Capital in Knowledge Enterprises (1999 and YTD 2000)
Company Name
K-12 (1999)
Adaptive Learning Technology, Inc.
Advantage Schools, Inc.
American Education Centers, Inc.
Aspen Youth Services, Inc.
Athletes & Coaches Choice, Inc.
BrainPlay.com (FKA Thunderbeam.com)
Cambridge Academies Inc.
Centrinity (FKA: MC2 Learning Systems)
ChildrenFirst Inc.
ChildU, Inc.,
Classroom Connect
Amount
($mil) Firm Name
$0.2
$26.4
$0.3
$0.8
$0.3
$4.0
$15.0
$6.0
$2.5
$6.5
$31.0
EDEX International Property Limited
Edison Schools
eduTest.com
Epylon.com
e-school.edu Inc.
FamilyEducationNetwork
Games2Learn.com (FKA: A Better Way
of Learning, LLC)
KidsEdge
HighWired.com (FKA: HighWired.net)
JP Kids
JuniorNet
Learning Technologies, Inc.
Lightspan Partnership (FKA: Curriculum
Television)
MaMaMedia
Nest Entertainment, Inc.
Netschools
New Century Education Corporation
Shopforschool, Inc.
SmarterKids.com, Inc.
$35.0
$0.3
$20.0
$0.3
$2.0
NA
TopTutors.com
VoiceWeb Corporation
ZapMe!
NA
$3.4
$50.0
Tutor.com
Apex Learning
Bigchalk.com
ChildrenFirst Inc.
class.com
eduTest.com
Edventions, Inc.
Epylon.com
HighWired.com (FKA: HighWired.net)
70
$25.0
$7.0
$7.0
$70.0
$0.8
$32.0
$4.0
Total $469.4
K-12 (2000)
Advantage Schools, Inc.
IQMind
PowerSchool, Inc.
$0.9
$60.0
$0.5
$5.8
$1.0
$51.0
$0.6
Murphree Venture Partners
Bessemer Venture Partners, Kleiner Perkins Caufield & Byers, Fidelity Ventures Ltd., Excelsior Private Equity
TL Ventures
Sprout Group, Frazier Healthcare, DLJ IV
WSI Holding Corp. Other VC Firm
Sequel Venture Partners, Sevin Rosen Management Co.
E.M. Warburg, Pincus & Co., LLC.
Canaccord Capital and Taurus Capital Markets
Carousel Capital, Burr Eagan, Deleage and Co., Lazard Frere and Co., and Individual Investors
Group One Capital
Brentwood Associates, Waller-Sutton Media Partners, L.P., Cambria Group, Media Technology Equity
Partners, LP, MediaOne Group, Intel 64 Fund LLC, Hillman Company
St. George Development Capital
Vulcan Ventures, UBS Capital, Rothchild
Other VC Firm
Undisclosed Investor and Individual Investor
Austin Ventures, L.P.
Harcourt, Josten’s, Intel, Sprout Group, the Morningside Group, AOL, DLJ
First Analysis Venture Capital, Apex Strategic Partners, Infrastructure & Environmental Fund III
NA
Charles River Ventures and North Bridge Venture Partners
Sutter Hill Ventures and H&Q Venture Associates
RCN Corp., Boston Capital Ventures, Euclid Partners, Dominion Ventures, Dominion Fund
Hambrecht & Quist Private Equity
Accel Partners, Comcast Interactive Cap. Group, Corporate Investor, Kleiner Perkins Caulfield & Byers,
Liberty Media Group, Microsoft, Naussau Capital, L.L.C., Other VC Firm, Sony Corp., The Ignite Group
NA
Cornerstone Equity Investors, LLC, Prudential Private Equity
GE Capital, Vulcan Ventures and Cherry Creek Netschools Investors LLC
Lepercq Capital Management, Inc. (AKA:Lepercq de Neuflize In)
Delphi Ventures and Affinity Ventures
Advent International Corporation, RRE Investors L.P, Commonwealth Capital Ventures II, L.P., North Bridge
Venture Partners III, L.P.
Idealab
Sevin Rosen Fund, Canaan Partners
QuestMark Partners, Ares Management LLP, Gilat Satellite Networks Ltd., Sylvan Learning Systems, Inc.
(NASDAQ: SLVN), and Headwater Capital, Lease financing by Hewlett Packard (NYSE: HWP), Hambrecht
& Quist, Xerox (NYSE: XRX), Leasing Technologies International, Imperial Bank, Terminal Marketing and
Transamerica
internet.com, garage.com, Norstar Capital, Individual Investors
$28.0 Credit Suisse First Boston, Bessemer Venture Partners, Kleiner Perkins Caufield & Byers, Fidelity Ventures
Ltd., Chase Capital Partners, and Nassau Capital
$20.0 Warburg, Pincus, Maveron Equity Partners, Vulcan Ventures, and Kaplan
$55.0 Goldman Sachs Capital Partners II, Blumenstein/Thorne Information Partners II and Patricof & Co. Ventures
$16.0 Carousel Capital, Burr Eagan, Deleage and Co., Lazard Frere and Co., and Individual Investors
$7.5 NA
$0.3 NextGen Capital
$8.8 River Cities Capital Fund and M Group Inc
$30.0 Highland Capital Partners, Intel and ITV/Infinity
$30.0 Charles River Ventures, North Bridge Venture Partners, Broadband Ventures Group LLC, DHM Arcadia
Partners, Comdisco Ventures, Longworth Venture Partners and Haebler Ventures
$3.3 AsiaTech Ventures
$31.2 E.M. Warburg Pincus & Co., Group One, and Snider Capital
The Knowledge Web – 23 May 2000 (Reprint)
Venture Capital in Knowledge Enterprises (1999 and YTD 2000) (Continued)
Company Name
Project Achieve
Schoolpop, Inc.
Schoolpop, Inc.
Simplexis.com
Viviance
Wasatch Interactive Learning
wwwrrr.com
Amount
($mil)
$15.0
$41.0
$6.8
$30.0
Firm Name
The Sprout Group, Arcadia Partners and Jostens Inc
Meritech Capital Partners, Reader’s Digest, Accel Partners, Chase H&Q, Wit Capital, Thomas Weisel Prtnrs
Accel Partners, Individual Investor
Internet Capital Group, The Washington Post Company’s Kaplan, Inc., W.R. Hambrecht, Commerce One, Inc.,
Schoolhouse Partners
$14.0 3i Group, Private Equity Holding AG
$5.0 NA
$11.0 North American Funds
Total $352.8
Higher Education (1999)
Academic Systems Corporation
Alta Colleges, Inc.
BlackBoard
Campus Pipeline
Cenquest, Inc. (FKA:Amicus Interactive, Inc.)
Cognitive Arts
Collegestudent.com
Convene.com
EduPoint.com
e-education, Ltd. (FKA:
JonesKnowledge.com)
Embark.com (FKA: SNAP Technologies,
Inc. and CollegeEdge)
$0.2 Kleiner Perkins Caufield & Byers, Hambrecht & Quist
$4.9 BCI Growth V, L.P.
$12.2 Carlyle Venture Partners, Merrill Lynch KECALP, Aurora Equity Partners I, Novak Biddle Partners, L.P.,
Internet Capital Group
$25.0 Inktomi, Dell Computer, Jim Mattei, C.E. Unterberg Towbin, McKinsey and others
$4.5 Hummer Winblad Venture Partners, Sevin Rosen Fund VI, L.P.
$15-20 NA
$1.0 Abacus Ventures
$7.2 New Enterprise Associates, Kensington Value Fund and Podesta Education Investors
$3.7 Enterprise Partners IV, L.P.
$0.2 Fidelity Venture Associates, Other VC Firm
$39.0 Norwest Venture Partners, Morgan Stanley Dean Witter Ventures Fund, Morgan Stanley Ventures Fund,
Sienna Limited Partnership, Doll Capital Mgmt., Itochu Canada, Ltd., Pon North America, Excite@Home,
Vertex Technology Fund II, Recruit Co., Ltd. Of Japan
netLibrary, Inc.
$95.0 Sprout Group, Houghton Mifflin, McGraw-Hill, Liberty Digital Inc., Follett Corp., Blackwell Ltd., EBSCO,
ABC-CLIO, Bain Capital, Berger New Generation Fund, Tango, and Weiss Peck & Greer LLC.
NextEd Ltd.
$0.6 Fidelity Venture Associates
OnlineLearning.net (FKA: THEN)
NA St. Paul Venture Capital, APV Technology Partners
Pensare
$7.0 General Electric Venture Capital Corp. (Gevenco), Associated Venture Investors III, L.P, Associated Venture
Investors-Silicon Valley Partners, L.P., Media Technology Ventures, Battery Ventures IV, L.P., AIG
SMARTHINKING.com
$0.8 Paul Stephens of RS Investment Management and Steve Walker of Steve Walker & Associates
Thinkwell Corporation
$3.3 RHO Management, CenterPoint Venture Partners
UNext.com
NA Knowledge Universe, Thomas Pritzker, Gleacher & Co.
University Access
NA Arcadia Partners, Others
VarsityBooks.com
$40.0 Tribune Company and Carlyle Venture Partners, L.P.
Versity.com (acquired by
$11.2 Venrock Associates, Piper Jaffray Technology Fund, Sigma Partners, Global Retail Fund, Other VC Firm
Collegeclub.com)
and Individuals
WebCT (FKA: Universal Learning Tech.)
$14.6 BancBoston Ventures, Boston Millennia Partners, CMG@Ventures, Kestrel Venture Partners
WebCT (FKA: Universal Learning Tech.)
$25.0 Chase Capital Partners, Duke University, BancBoston Ventures, Boston Millennia Partners,
CMG@Ventures, Kestrel Venture Partners
Learning Express
NA Allen & Co. and Individual Investors
Total $295.4
Higher Education (2000)
Achieva
Campus Pipeline
Cogito Learning Media
Collegeclub.com
Egenda.com
Eduprise.com
Medschool.com
OnlineLearning.net (FKA: THEN)
Pensare
Planet Alumni
University Access
$15.0
$55.0
$20.0
$40.0
$5.0
$18.0
$12.0
$0.2
$12.3
Draper, Fisher, Jurvetson, Individual Investors
Meritech Capital Partners, American Express Fin’l Corp., Hewlett-Packard Company, DRW Venture Partners
Open to new investors
Seligman New Technologies Fund
Harron Capital, Gamma Investors, and Rose Glenn Capital
Arena Capital Partners, Chase Capital Partners, Frontenac Company and Learning Tree International
Cornerstone Equity Investors IV, LP, Audax Private Equity Fund, L.P.
St. Paul Venture Capital, APV Technology Partners
GE Capital, Associated Venture Investors III, L.P, Associated Venture Investors-Silicon Valley Partners,
L.P., Media Technology Ventures, Battery Ventures IV, L.P., AIG- Unspecified Fund
$2.5 Jostens, Inc.
$42.0 Investor AB, GE Equity and Pearson/FT Knowledge
Total $222.0
71
The Knowledge Web – 23 May 2000
Venture Capital in Knowledge Enterprises (1999 and YTD 2000) (Continued)
Company Name
Corporate Learning (1999)
AbleSoft
Acadio.com
Avulet, Inc.
Brainbench
Click2learn.com
Cyberstate University
DigitalThink
Amount
($mil) Firm Name
$2.0
$3.0
$1.5
$3.0
$10.0
$9.7
$37.7
Docent
$17.0
EHQ, Inc.
emind (Yipinet)
Formanet
Global English
HealthStream
$2.0
$12.5
$1.0
$6.0
$17.8
Horizon Live Distance Learning, Inc.
$6.4
Hungry Minds
HyCurve, Inc.
Innovative Community Technology
Services
iSong.com
Janus Technologies
Jet Software (AKA Qarbon.com)
Knowledge Planet
Knowledge Universe
KnowledgeNet
LearnNow, Inc.
MindLeaders (FKA: DPEC, Inc.)
MindLever.com
NetCertification Inc.
Ninth House Network
notHarvard.com
Online Learning Network
Paragon Solutions, Inc.
ProSofttraining.com
Pryor Resources, Inc.
Saba Software
$11.0
$0.8
$3.0
$30.0
$3.4
$2.0
$20.0
$500.0
$16.5
$4.0
$3.0
$4.1
$0.5
$9.0
$6.6
$1.3
$7.4
$3.0
$156.0
$50.0
SightPath (FKA:ClearView Technologies)
$8.0
SkillSoft Corporation
$3.8
Teach.com, Inc.
$1.2
TechOnLine, Inc.
$3.5
TrainingNet, Inc.
$14.4
Vault.com, Inc. (FKA: VaultReport.com,
$8.0
Inc.)
Virtual Education
$2.1
Total $1,001.9
Corporate Learning (2000)
eMind (Yipinet)
IBT Technologies, Inc.
KnowledgeNet
Ninth House Network
notHarvard.com
72
$14.0
$6.4
$15.0
$40.0
CIP Capital, LP, Penn Janney Advisory Inc., Liberty Partners
Trans Cosmos and Individual Investors
Onset III, Other VC Firm
Lycos Ventures, L.P.
Marshall Capital Management and Vulcan Ventures
Novus Ventures, Sigma Partners, Compass Technology Ventures
ServiceMaster, Torstar, Walden Capital Management Corporation, Hambrecht & Quist Private Equity,
Hambrecht & Quist Venture, Cambridge Technology Capital, Bankers Trust Technology Partners
INVESCO Private Capital, Advanced Technology Ventures, Norwest Venture Partners, Comdisco Ventures,
BancBoston Ventures, Arcadia Partners, Gilde Investment Management
Flanders Language Valley Fund
Knowledge Universe, Radar Reinfrank, and Co.
Flanders Language Valley Fund
Mayfield Fund
Scripps Clinic, Vanderbilt University, Morgan Stanley Dean Witter Venture Partners and Charles N. Martin,
Jr., CEO of Vanguard Health System
First Analysis Management Co., Argentum Capital Partners II, L.P., Early Stage Enterprises, L.P., Jefferson
Capital Partners I, L.P.
Stuart Skorman and dozen angel investors
Hambrecht & Quist
First Analysis Venture Capital, Sequoia Capital
Flynn Venture Partners, Undisclosed Venture Investor
VentureBank@PNC, Edison Venture Fund and Individual Investors
Flanders Language Valley Fund, Other VC Firm
Knowledge Universe, HarbourVest Partners LLC, KnowledgeSoft, Individual Investors
NA
Morgenthaler Partners, Sierra Ventures and Trinity Ventures
Pennsylvania Early Stage Partners, Other VC Firm
River Cities Capital Fund II, L.P., Other VC Firm and Individuals
Alliance Technology Ventures II, Mid-Atlantic Venture Fund, North Carolina Enterprise Fund
Mercury Ventures Ltd.
HMI and Individual Investors
TL Ventures, Austin Ventures
Madrona Investment Group, Other VC Firm
Mesirow Capital Partners VI, Bluestem Capital Partners II, L.P., Other VC Firm
Hunt Capital Growth Fund II, Other VC Firm
Thayer Capital Partners, Patricof & Co. Ventures, Inc.
Norwest Venture Partners, Advanced Technology Ventures, Invesco Private Capital, Comdisco Ventures,
Credit Suisse First Boston, BancBoston Ventures, Arcadia Partners, Gilde Investment Management Netherlands, Berkeley International Capital, Sequoia and CrossLink
Greylock Management, Intel Corporation
Warburg, Pincus Ventures L.P., Individuals, Other VC Firm
Ohio Partners, ARCH Venture Partners
SCP Private Equity Partners, Other VC Firm
Charles River Ventures, Bessemer Venture Partners, Blue Rock Capital, Individuals
Deutsche Bank AG, American Lawyer Media Holdings, Inc., Ingram Industries Inc., Hollinger Ventures,
Other VC Firm
First Analysis Venture Capital (FKA:First Analysis Corp), Other VC Firm
Knowledge Universe, Radar Reinfrank, and Co.
Counsel Corp., Thomas Weisel Partners, Q Investments, Individual Investors
Berkeley International Capital, Morgenthaler Partners, Sierra Ventures and Trinity Ventures
Chase Capital Partners, Merrill Lynch, Hambrecht and Quist, and Arena Capital, HMI and Individual
Investors
$8.5 Austin Ventures, TL Ventures, Silicon Valley Bank, and individual investors
The Knowledge Web – 23 May 2000 (Reprint)
Venture Capital in Knowledge Enterprises (1999 and YTD 2000) (Continued)
Company Name
Parlo, Inc.
TechOnLine, Inc.
TrainingNet Inc.
Amount
($mil)
$14.0
$7.0
$33.7
Total $138.6
Firm Name
Goldman, Sachs & Co., Sevin Rosen Fund , RHO Management
SCP Private Equity Partners, Other VC Firm
BCI Partners; Hikari Tsushin (Japanese Telecom Company, HLM Management, Sirios Capital and others
E-cruiting/Human Capital Management (1999)
AdminiQuest
Administaff
Career Horizons
Career Choices, Inc.
CareerBuilder.com
$18.1
$8.0
$1.1
$2.4
$47.7
Careerstaff Unlimited
CRUEL WORLD (FKA: Career Central)
$0.9
$35.0
Guru.com
HotJobs.com
Jobs.com
Hire Systems
Hire.com
$19.0
$16.0
$72.0
$79.0
$8.4
Icarian
JobDirect.com
Niku Corp.
$18.0
$5.5
$40.0
Opus360
SkillsVillage
Techies.com
$40.0
$8.8
$13.6
Techies.com
$25.0
Vivant
WebHire.com
NA
$20.0
$478.5
Total
Sequel Venture Partners, Piper Jaffray Ventures
Pyramid Ventures, Texas Growth Fund
Corporate Venture Partners, Harvest Partners, European Development Capital, Noro-Moseley Partners
Lombard Investments, Inc.
New Enterprise Associates, 21st Century Internet Venture Partners, TTC Ventures, ADP, FBR
Technology Venture Partners L.P., GE Capital, GE Pension Fund, and Microsoft
RS&Co., Bayview Fund c/o Robertson Stephens
Softbank Technology Ventures, Individual Investors, IDG Ventures, Allen & Company Incorporated,
Arthur Rock & Co., Technology Crossover Ventures, QuestMark Partners, Sycamore Ventures
Greylock Capital, August Capital
Generation Partners, Bessemer Venture Partners and Boston Millennia Partners
idealab Capital Partners, CBS Corporation, Individual Investors
Accel Partners, Washington Post Company, Tribune Company
Murphree Venture Partners, Eos Ventures, G51, Crosspoint Venture Partners, Kleiner Perkins Caufield
& Byers, TL Ventures
Wheatley Partners, H&Q Technology Fund, Fidelity Ventures, Kleiner Perkins, Presidio Venture Partners
Canaan Partners, Scripps Ventures, Soros Fund Management
Amerindo Investment Advisors, Charter Growth Capital, Essex Investment Management Company, LLC,
Soros Private Equity Partners LLC, CNET, Inc. and TATA Consulting
Safeguard Scientifics, CrossPoint Ventures, Odeon Capital, Cambridge Technology Ventures
Atlas Venture, Individual Investors
Omega Venture Partners , Norwest Venture Partners, Dain Rauscher Wessels Investors, and Winton
Partners
CNET, Red Hat, East Peak Partners LP, SI Investors, ZDNet, Norwest Venture Partners and Crosslink
Capital, and Individual Investors
Internet Capital Group, Associated Venture Investors
Softbank Capital Partners, Yahoo!
E-cruiting/Human Capital Management (2000)
CareerBuilder.com
$11.0 GE Capital Equity Capital Group, GE Pension Trust, New Enterprise Associates, 21st Century Venture
Partners, Automatic Data Processing (ADP), TTC Ventures, and FBR Ventures
Jobs.com
$8.2 Adecco SA
Personic
$18.0 AIG Developed Markets Private Equity Fund, L.P, BancBoston, Battery Ventures, Technology Crossover
Ventures
Techies.com
$22.0 J. & W. Seligman & Co., Winton Partners, Crosslink Capital, Norwest Venture Partners, Individual
Investors, Ziff-Davis Publishing, CNET, Red Hat, SI Capital, Dain Rauscher Wessels Investors
Total
$59.2
1999 Total
YTD2000 Total
$2,245.2
$772.6
TOTAL (1999 and 2000YTD)
$3,017.8
Source: Securities Data Corp., Venture Source, EduVentures.com, Company Press Releases
73
The Knowledge Web – 23 May 2000
Enterprise-Wide Strategic Relationship Managers
Partnerships with management consulting firms and other enterprise-wide
strategic relationship managers will be tremendous assets for many knowledge
services companies. Having implemented ERP, sales force automation, JIT and
other enterprise-wide solutions that leverage technology in recent years,
companies and academic institutions will now turn their attention to enterprisewide learning solutions, some of which will be able to work as solutions to
existing enterprise management technology.
Partnerships with management
consulting firms and other
enterprise-wide strategic
relationship managers will be
tremendous assets for many
knowledge services companies.
We believe these enterprise-wide strategic relationship managers will be
kingmakers of knowledge services companies in the New Economy. With the
percentage of wired schools and institutions of higher learning approaching 100%,
the need will arise to leverage the technological infrastructure they have put in
place. Management consulting firms, such as PriceWaterhouseCoopers and
KPMG, are already building strong education-related consulting practices.
Institutions will be relying on these consulting firms to help them choose and
implement enterprise-wide learning solutions.
To drive future growth, knowledge services companies should align themselves
with these kingmakers. They should develop comprehensive solutions to the needs
of their target market, make these solutions compatible with existing infrastructure
and design them to be as easy to implement and use as possible.
Knowledge services companies that are able to provide such solutions will be
crowned by the kingmakers, who already have built a strong rapport with clients
in search of enterprise-wide solutions. A recommendation from such a firm
provides instant credibility for a knowledge services company.
Top-Performing IPOs
1999 was a phenomenal year in the IPO market by anyone’s standards. Looking at
the top performing IPOs for 1999, it is apparent that the “usual suspects” play a
major role in the success of target companies. Well-known venture backers
Benchmark Capital, Kleiner Perkins and Crosspoint each invested in several of
last year’s top IPOs, including four of the top five performers.
As phenomenal as the numbers were for 1999, the stage is set for new records to
be set in 2000. For instance, the total global dollar volume for the first quarter
alone in 2000 was $32.1, breaking the old record of $10.8 billion in the first
quarter of 1999. Furthermore, the average deal size for first the quarter of 2000
was $220 million, surpassing the combined average for all four quarters of 1999 at
$191 million.
1999 was a phenomenal year in
the IPO market by anyone’s
standards. As phenomenal as
the numbers were for 1999, the
stage is set for new records to
be set in 2000.
IPOs in 1999 by Industry ($ billion)
$6.7
$1.6
Banks , Brokers , Fin
Services
Telecom m unications
$6.6
Com puters
$3.4
Sem iconductor
$17.3
Electronics
Internet Services
Internet Software
$19.2
$3.9
$0.8
$4.9
Source: IPO.com
74
Media
Retail
The Knowledge Web – 23 May 2000 (Reprint)
Top 25 Performing IPOs of 1999
Rank
Issuer
1 Brocade Comm Sys
Issue
Date
5/24/99
Ticker
Symbol
BRCD
Split Adj
Price
Offer Price 3/31/00
4.75
160.63
Performance
Since IPO
3,282%
Investors
Crosspoint Venture Partners, Mohr Davidow Ventures, Bill
Joy, LSI Logic, J.F. Shea & Co., JAFCO America
Ventures, Bay Partners, US Information Technologies,
Weiss, Peck & Greer Venture Partners, Norwest Venture
Partners, Imperial Ventures, Andreas Bechtolsheim
2
Commerce One
7/1/99
CMRC
7.00
173.31
2,376%
Canaan Partners, Bluewater Capital Management,
Foundation Capital, WI Harper Group, European
Technology Holdings, SAP America, RB Webber & Co.,
GE Capital, Equity Capital Group, RHO Management,
Charter Growth Capital, Nexus Group, LLC, MSDW
Venture Part., MCI, British Telecomm.
3
Redback Networks
5/17/99
RBAK
11.50
283.44
2,365%
Sequoia Capital, Accel Partners, Mayfield Fund, Kleiner
Perkins Caufield & Byers, Lighthouse Capital Partners,
Comdisco Ventures
4
Juniper Networks
6/24/99
JNPR
11.33
267.00
2,256%
Kleiner Perkins Caufield & Byers, Benchmark Capital, New
Enterprise Associates, Institutional Venture Partners,
Crosspoint Venture Partners, Ericsson, Siemens AG,
Newbridge Networks, UUNET Technologies, Inc., Lucent,
AT&T Ventures, Qwest Com., Anschutz Family
Investment, Northern Telecom, 3Com Corp. Enterprise
Partners
5
Ariba
6/22/99
ARBA
11.50
220.00
1,813%
Benchmark Capital, Crosspoint Venture Partners,
Technology Crossover Ventures, Van Wagoner Capital
Management, Amerindo Investment Advisors, DMG
Technology, VISA International, PeopleSoft, Intel
Corporation
6
VerticalNet
2/10/99
VERT
8.00
151.00
1,788%
Koch Ventures, Internet Capital Group, Wheatley Partners,
EnerTech Capital Partners, Lehman Brothers, Lambros LP
7
Vignette Corp
2/18/99
VIGN
9.50
177.94
1,773%
Sigma Partners, Austin Ventures, Attractor Investment
Management, Charles River Ventures, CNET, H&Q
Venture Associates, LLC, Amerindo Investment Advisors,
GS Capital Partners, Partech International, JGE Capital
Management, MSDW Venture Part., Olympus Partners,
Goldman Sachs Group
8
Phone.com
6/10/99
PHCM
8.00
146.94
1,737%
ABN-AMRO Bank NV, BCE Mobile Communications, Bell
Atlantic, CitiCorp, Greylock Capital, Itochu Technology,
JK&B Capital, KLM Pension Foundation, Kyocera
International, Inc., Matrix Partners, Nexus Group, LLC,
Paribas Principal, Inc., Reuters Ltd, Siemens Mustang
Ventures, Sienna Holdings, Sofinnova Ventures, Van
Wagoner Capital Management, Weiss, Peck & Greer
Venture Partners
9
TIBCO Software
7/13/99
TIBX
5.00
87.50
1,650%
Reuters Ltd., Cisco Systems, Mayfield Fund
10
Internet Capital Group
8/4/99
ICGE
6.00
93.39
1,457%
Comcast ICG, CPQ holdings, Internet Assets, Inc.,
Safeguard Scientifics, R.A.F. Ventures Inc.
75
The Knowledge Web – 23 May 2000
Top 25 Performing IPOs of 1999 (Continued)
Rank
11
Issuer
Vitria Technology
Issue
Date
9/16/99
Ticker
Symbol
VITR
Split Adj
Price
Offer Price 3/31/00
8.00
113.13
Performance
Since IPO
1,314%
Investors
ABN-AMRO Bank NV, BCE Mobile Communications, Bell
Atlantic, CitiCorp, Greylock Capital, Itochu Technology, JK&B
Capital, KLM Pension Foundation, Kyocera International, Inc.,
Matrix Partners, Nexus Group, LLC, Paribas Principal, Inc.,
Reuters Ltd, Siemens Mustang Ventures, Sienna Holdings,
Sofinnova Ventures, Van Wagoner Capital Management,
Weiss, Peck & Greer Venture Partners
12
Kana Communications 9/21/99
KANA
7.50
86.00
1,047%
Amerindo Investment Advisors, Aspect Telecommunications,
Benchmark Capital, Draper Fisher Jurvetson, Draper
Richards, J.H. Whitney & Co., Stanford University
13
Purchasepro.com
9/13/99
PPRO
8.00
89.50
1,019%
Jefferies & Company, Lexington Investor Group
14
Art Technology Group
7/20/99
ARTG
6.00
63.00
950%
SOFTBANK Technology Ventures, Tudor Investment
Corporation, Bain Capital, Individual Investors, Gemini
Investors LLC, Wyndcrest Partners, GMN Investors
15
Foundry Networks
9/27/99
FDRY
12.50
126.00
908%
Benchmark Capital, Compaq Computer Corporation,
Greylock Capital, IBM, Intel Corporation, Netscape
Communications, Novell, Oracle, SAP America
16
Silknet Software
5/5/99
SILK
15.00
141.50
843%
Zero Stage Capital, CMGI @Ventures, BancBoston
Ventures, Vertex Management Inc., Intel Corporation,
JAFCO America Ventures, Goldman Sachs Group
17
E.piphany
9/21/99
EPNY
16.00
148.50
828%
Information Technology Ventures, Kleiner Perkins
Caufield & Byers, Discovery Ventures LLC, APV
Technology Partners, KPMG Peat Marwick, Cambridge
Technology Capital, L.P, VISA International
18
Liberate Technologies
7/27/99
LBRT
8.00
72.00
800%
Edison Venture Fund, Poly Ventures, Kinetic Ventures
19
Agile Software Corp.
8/19/99
AGIL
10.50
75.13
615%
Mohr Davidow Ventures, Sequoia Capital, Accel Partners,
Integral Capital Partners, Charter Growth Capital, Glynn
Ventures, H&Q Venture Associates, LLC, Needham Asset
Management
20
F5 Networks
6/4/99
FFIV
10.00
71.06
611%
Encompass Ventures, Britannia Holdings, Individual
Investors, Cypress Partners, Menlo Ventures, IDG
Ventures
21
Proxicom
4/19/99
PXCM
6.50
44.19
580%
GE Capital, Equity Capital Group, General Atlantic
Partners, FBR Technology Venture Partners L.P.,
Washington Post
22
Akamai Technologies
10/28/99
AKAM
26.00
160.06
516%
Polaris Venture Partners, Battery Ventures, Baker
Communications, Trust Company of the West, Cisco
Systems, Apple Computer, Microsoft
23
Digital Island
6/29/99
ISLD
10.00
60.06
501%
Vanguard Venture Partners, Crosspoint Venture Partners,
Bay Partners, HMS Investments, Crescendo Ventures,
Stanford University, Cisco Systems, National
Semiconductor, JAFCO America Ventures, Partech
International,Japan Associated Finance Company, US
Information Technologies, U.S. Growth Fund, Nippon
Enterprise Development, Bass Associates, E*trade, Chase
Capital Partners, Arbor Investors, L.L.C., Tudor Investment
Corporation, Candle Corp., Merrill Lynch KECALP
24
Red Hat
8/11/99
RHAT
7.00
40.25
475%
Benchmark Capital, Compaq Computer Corporation,
Greylock Capital, IBM, Intel Corporation, Netscape
Communications, Novell, Oracle, SAP America
25
Braun Consulting
8/10/99
BRNC
7.00
30.00
329%
NA
Source: SDC, FactSet. 1999 IPOs are ranked by price performance through 3/31/2000; current prices may differ materially due to recent market volatility.
76
The Knowledge Web – 23 May 2000 (Reprint)
Generation i – The K-12 Market
77
The Knowledge Web – 23 May 2000
This Page Left Intentionally Blank
78
The Knowledge Web – 23 May 2000 (Reprint)
11. Generation i – @Home, @School, @Play
Fast Facts
K-12 e-Learning Market
Statistics
Size of U.S. Addressable Market: $525 Billion
U.S. Online Market Size 1999E: $1.3 Billion
U.S. Online Market Size 2003E: $6.9 Billion
Online CAGR 1999-2003: 52%
Public Companies Profiled
eSCORE (a division of Kaplan)
Harcourt (H)
Lightspan (LSPN)
NCS (NLCS)
Pearson plc (LSE: PES)
Scholastic.com (SCHL)
Scientific Learning Corp. (SCIL)
ZapMe! Corporation (IZAP)
Private Companies Profiled
Achieva Online
JuniorNet
APEX Learning
LeapFrog
bigchalk
MaMaMedia
Chancery Software
Project Achieve
class.com
schoolbell.com
Classroom Connect
Schoolpop, Inc.
The College Board
Simplexis.com
College Coach
Teacher Universe
Edventions
TestU
Epylon.com
wrcmedia.com
Family Education Ntwk.
wwwrrr.com
Highwired.com
•
The number of K-12 schools connected to the Internet has climbed from 35%
in 1994 to 96% today. Fifty-one percent of school classrooms have Internet
access, up from just 3% in 1994.
•
The ratio of school PCs to students has improved from 1 PC for 16 kids in
1992 to 1 PC for 6 kids in 1999.
•
35% of kids spend an hour or more online at school per week up from 24%
last year.
•
Our K-12 schools spent nearly $7 billion on instructional technology this
year, much of it on Internet services.
•
Teacher training accounted for only 5% of school technology spending.
•
Only 20% of teachers feel very well prepared to integrate educational
technology into classroom instruction.
•
The number of kids ages 2 to 12 using online services at home is expected to
grow from 4.3 million in 1998 to 10.1 million in 2002.
•
The number of teens and college students who regularly access the Internet at
least twice a week for an hour or more is estimated to rise from 12.0 million
in 1998 to 22.3 million by the year 2000.
•
Kids ages 8 to18 spend over 19 hours per week watching TV, 10 hours
listening to the radio, 5 hours reading, 2.5 hours on the computer for fun and
about one hour on the Internet. Those with Internet access at home, however,
spend about 5 hours at home online per week.
•
When asked to choose which media to bring to a desert island, 33% of
children ages 8-18 picked a computer with Internet access.
•
Child and teen online spending is expected to increase at a 70% CAGR, to
$1.2 billion in 2002, when 16.6 million teenagers are expected to be online.
Source: Merrill Lynch Global Growth Group
Megatrends Shaping the K-12 E*Learning Industry
Trend
Demographics
Impact
Kids today are technologically sophisticated, with many as comfortable on a computer as they are on a bicycle. Although this
places additional challenges on schools, it also creates significant opportunities.
Technology
Kids love computers. Technology can democratize education for all kids, enabling them to access the world’s greatest library.
In addition, technology can help teachers individualize instruction through assessment and tracking as well as increase
parental involvement. It may also be the only way for schools to show they are meeting growing obligations to teach at state
and local standards.
Globalization
The workers of tomorrow will increasingly find themselves competing for jobs and resources with people in other countries.
Developing technology literacy is one component of this. Technology also enables students to access educational resources
from around the world, making the globe seem even smaller.
Branding
The K-12 education segment has few brands, although once a brand becomes established, teachers are very loyal to it (Apple
Computer is a prime example). On the Internet, brands are crucial.
Consolidation
Providing technology solutions to schools will require some scale, with finding a qualified sales force one of the major
problems of companies in this sector. There are hundreds of small providers today, and we expect consolidation in the
industry. As with other technology sectors, companies may acquire R&D to speed their time to market, rather than building
their own.
Privatization/
Outsourcing
The Internet’s rapid-fire rate of change, coupled with the difficulty in keeping good IT staff makes it a prime outsourcing
candidate. Teacher training on the Internet can also be done effectively by outside organizations, as can teaching foreign
languages and advanced placement and other courses.
79
The Knowledge Web – 23 May 2000
12. Generation i – the K-12 Education Market
Today’s kids are the Internet
Generation – Generation i –
and are as comfortable on a
computer as on a bicycle.
Generation i loves their
computers as much as the Baby
Boomers love their cars.
Knowledge is the fuel for the
New Economy and technology
is its second language. eCommerce is to the Knowledge
Revolution what the railroad
was to the Industrial
Revolution. The web, the
world’s greatest library, can
democratize education,
increasing the access, reducing
the cost and increasing the
quality of education for billions
of the world’s citizens.
We believe that pulling all these
big pieces together into an
education hub is the
opportunity in K-12 education.
The network effect of 53 million
children, 23 million families
and 3.1 million teachers can be
extraordinarily powerful.
80
“Computers are the ‘new basic’ of American education, and the Internet is the
blackboard of the future.”
– Richard Riley, Secretary of Education
Today’s kids are the Internet Generation – Generation i – and are as comfortable
on a computer as on a bicycle. Generation i loves their computers as much as the
Baby Boomers love their cars. The rich, interactive content and the fact that kids
can control the machine mean they can be fun and empowering for children. And
like a driver’s license for a sixteen-year-old, the Internet can mean the freedom to
go virtually anywhere for children of any age. A seven-year-old can go to
Amazon.com, select the next Babysitter’s Club book, and with dad’s help (and
credit card), buy the book and have it shipped to her at home. All without car
keys. For children and teens, the Internet opens a whole new world.
The combination of the Internet and education is not only a natural progression for
Generation i, it is a necessity in today’s economy. The Information Revolution is
really the Knowledge Revolution. Knowledge is the fuel for the New Economy and
technology is its second language. e-Commerce is to the Knowledge Revolution
what the railroad was to the Industrial Revolution. The web, the world’s greatest
library, can democratize education, increasing the access, reducing the cost and
increasing the quality of education for billions of the world’s citizens.
In K-12 education, this means not only providing children with an understanding
of technology but also using technology in ways that help children learn new
things in new ways.
We believe a huge business opportunity clearly exists in this market. We estimate
that the K-12 e-learning market today is $1.3 billion and that the opportunity
extends well beyond what we can capture and quantify today. We categorize this
market into five areas: Content, Commerce, Community, Infrastructure and
Supplemental Services. Each of these areas has tremendous potential, in our
opinion. As a consequence, we believe that pulling all these big pieces together
into an education hub is the opportunity in K-12 education. The network effect of
53 million children, 23 million families and 3.1 million teachers can be
extraordinarily powerful.
The Knowledge Web – 23 May 2000 (Reprint)
The K-12 e-Learning Landscape – Content, Commerce, Community, Infrastructure & Supplemental Services For Huge Market
CONTENT
Kid Sites
Parent Sites
Teacher Training
Online Courses
Online Degrees
COMMUNITY
Teens, Parents,
Teachers
14,000 districts 120,000 schools
3.1 million teachers 53.0 million children
SUPPLEMENTAL
SERVICES
Fundraising, e-cash,
College Planning &
Admission
23.0 million families
INFRASTRUCTURE
Hardware, Admin.
Tools, Teacher
Training, Online
Testing
COMMERCE
Products (Books, etc.)
Services (Tutoring, etc.)
Procurement
Source: Merrill Lynch Global Growth Group
The K-12 e-learning business opportunity is magnified by the Internet’s own
unique characteristics of network, community and leverage. First is the network
effect – the more teachers use online services, for example, the more parents and
students will look to those resources for themselves, and the amount and quality of
these resources will grow.
The K-12 e-learning business
opportunity is magnified by the
Internet’s own unique
characteristics of network,
community and leverage.
“Our national commitment to connect every classroom in school in the country
to the Internet will be the greatest advance in quality and equality of education
in this century.”
Reed Hunt
– Former Chairman of the FCC
81
The Knowledge Web – 23 May 2000
Richness
za
ili
t
U
Community
Teacher
Development Tools
Search
Curriculum Tools
Standards Correlator
“Network Effect” At Work in K-12 E-Education
n
tio
Parents
Students
Teachers
Media Specialists
100,000 Schools
Reach
Source: Merrill Lynch Global Growth Group
Second, the ability of the Internet to create community expands the school-tohome connection, increasing the level of communication between parents, teachers
and students and positively impacts student achievement. Finally, the ability to
leverage digital content can dramatically expand the accessibility of this content.
This, coupled with the fact that the cost of Internet access devices is plummeting,
and will soon be zero or close to zero, should soon erase the “digital divide”
between those who have technology and those who don’t.
The Power of The Network Creates A Huge Opportunity in the K-12 Space
3.1M Teachers
+
2.7M Administrators
Metcalfe’s
Law
Moore’s
Law
Transistors per
Microprocessor
The Network Effect
+
Utility
53M Students
P ro c e s s in g P o w e r
$675 Billion
Addressable Market
21M Families
The
K-12
= Learning
Opportunity
Time
Users
Source: Merrill Lynch Global Growth Group
The K-12 market e-learning market is poised for dramatic growth. The Internet
reached a 25% market share in only seven years. This wildfire adoption is seen in
the home market too, with 37% of homes, 41% of teens and 30% of children
currently online. By 2003, we believe these percentages will double, to 67% of
homes, 67% of teens and 55% of children.
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The Knowledge Web – 23 May 2000 (Reprint)
Internet access in schools has also bounded forward, driven by its compelling
value proposition and policies to promote Internet connectivity. Nearly every
school in the U.S. today has some form of Internet access, and student
accessibility through classroom access is growing rapidly.
Nearly every school in the U.S.
today has some form of Internet
access, and student accessibility
through classroom access is
growing rapidly.
A Tidal Wave in the Making – Internet Penetration From 1997 to 2003
2003
Schools
Classrooms
Homes
Teens
Kids
1997
Schools
65%
Classrooms 14%
Homes
25%
Teens
18%
Kids
6%
1999
Schools
Classrooms
Homes
Teens
Kids
100%
90%
67%
69%
55%
89%
51%
37%
41%
30%
Source: Merrill Lynch Global Growth Group
K-12 e-Learning companies are targeting these three major markets: schools and
teachers, parents and kids. While a year ago these companies may have been
considered ahead of the market, schools and homes are increasingly seeking
Internet solutions to education’s woes, rapidly driving this market forward.
K-12 e-Learning companies are
targeting these three major
markets: schools and teachers,
parents and kids.
Schools: Our public school system is failing to successfully educate millions of
the children who continue to progress through it. Nearly half the students that
enter the California public university system are not ready for college-level
reading and math, and this sad scenario is repeated in state after state. Schools
have made significant investments in technology infrastructure; now they need to
make those investments pay off in increased learning. Companies like Classroom
Connect, ZapMe! and Teacher Universe are bringing Internet tools to schools to
help teachers successfully integrate technology into teaching and learning.
The web can be a powerful learning tool, in that it is ideally suited for project – or
team-based, exploratory learning experiences. The more involved and engaged
children are in the education process, the more they actually learn and retain.
“Why bother with education when ignorance is instantaneous?”
– Calvin & Hobbes
83
The Knowledge Web – 23 May 2000
How People Learn
Learning Method
Teach Others
Learn By Doing
Discussion Groups
Demonstration
Audio Visual
Lecture
% Learned
90%
75%
50%
30%
20%
5%
Source: Andersen Consulting
Parents: Concern over educating our youth has escalated to crisis levels, and
parents are increasingly taking matters into their own hands. Parents are often
willing buyers of technology-based educational content. Companies like
FamilyEducation Company, SmarterKids.com and TutorNet are appealing to
parents with online content and e-commerce, using the Internet to offer products
and services individually tailored to help families help their children succeed in
school and beyond.
The ability of the Internet to
amplify the already viral nature
of youth popular culture has
powerful implications for
e-learning companies.
Generation i: Kids and teens just want to have fun. They want to discover, get
smart, talk, play games, shop, create, be important. Most kids also want to do
what’s cool. Trends among teens and kids spread like wildfire—blown along by
word of mouth, with Pokemon and Beany Babies being the most recent
beneficiaries. The ability of the Internet to amplify the already viral nature of youth
popular culture has powerful implications for e-learning companies. The ability to
combine education and entertainment and the ability to leverage the highly social
aspects of today’s youth has tremendous potential for e-learning companies. Sites
such as Leapfrog, ZapMe! and MaMaMedia reflect these aspects.
Where on the Web? – A Matching Game
Kid-Cool Characteristic
Escher-like graphics on a Zowie Blue background
Company Site
Classroom Connect
Surfin’ music at the start-up page
Headbone Interactive
e-Postcards to send
GirlTech.com
e-Gadgets like a voice-recognition locking diary
MaMaMedia
Live help with trigonometry at 11:00 pm
TutorNet
An e-Pager alerting you to friends on line
Bonus.com
Source: Merrill Lynch Global Growth Group
The size of the K-12 market, the push to reform U.S. education, the Internet’s
powerful network effect and the intense appeal of technology to children are
combining to create significant opportunities for companies in the e-learning arena:
“When I was a kid my parents moved a lot, but I always found them.”
– Rodney Dangerfield
84
The Knowledge Web – 23 May 2000 (Reprint)
Internet Opportunities in K-12 Schools
•
•
•
•
•
•
•
•
•
Charter and other public schools with a family-as-customer mindset creating online communities of
parents
Technology-based assessment enabling targeted instruction and creating greater teacher and school
accountability
Training and other services offered to teachers increasing teacher preparation and effectiveness in
the classroom
Teacher usage and endorsements leading to viral-like spread of programs to homes and families,
dramatically expanding market size and opportunity
Rich educational content engaging children in activities where they learn by doing
Global reach of Internet facilitating communications between students, teachers and experts around
the world
Online buying communities leveraging school financial resources
Colleges and universities reaching K-12 students with rich content and targeted recruiting
Schools increasing fundraising effectiveness by taking programs to the virtual world
Source: Merrill Lynch Global Growth Group
We believe large and exciting companies will be created, as they capitalize on the
unique combination of education and the Internet.
“Someday, in the distant future, our grandchildren’s grandchildren will develop
a new equivalent of our classrooms. They will spend many hours in front of
boxes with fires glowing within. May they have the wisdom to know the
difference between light and knowledge.”
– Plato
85
The Knowledge Web – 23 May 2000
13. Kids with Clout: K-12 Marketplace is Huge
With 53 million school children, three million teachers and 23 million families,
the K-12 marketplace encompasses a huge number of potential users. Adding to
this the fact that nearly 20 million kids and teens use the Internet at home results
in a major market with tremendous opportunity.
With 53 million school
children, three million teachers
and 23 million families, the K12 marketplace encompasses a
huge number of potential users.
We aren’t just talking eyeballs alone. America’s youth has money to back up their
muscle – spending by and for America’s kids and teens far exceeds $500 billion.
Moreover, this generation influences another half trillion in parental spending.
Add to this the fact that children and teens are a powerful force in shaping trends
in music, entertainment, fashion and culture, and that brand preferences can be
established early and sustained, means there is intense interest in capturing these
young consumers.
•
Teens: The average American teen spends $128 per week on clothes,
entertainment and personal items. In total, teenagers account for more than
$150 billion of annual spending, with over 70% spent on discretionary items.
These 27 million 13-19 year olds also influence another $450+ billion of
parental spending.
Teens are ready and able to shop online. Increasingly armed with their own
credit cards or enabled by e-wallet technologies such as iCanBuy, or
DoughNet, teens are buying everything online, from clothes, shoes,
accessories and cosmetics to music, event tickets, sporting goods and
magazines. Jupiter Communications estimates that teen online spending will
increase from $53 million in 1999 to $1.2 billion in 2002, still reflecting just
1% of total spending by this group.
America’s youth has money to
back up their muscle –
spending by and for America’s
kids and teens far exceeds $500
billion.
The ability of teens to set trends and spend on them, coupled with their
tendency to carry brand loyalties established at a young age into adulthood,
has made this demographic an attractive one for marketers. The Internet can
be a very effective, if not the most effective, way to target direct marketing
messages to this group.
Jupiter Communications
estimates that teen online
spending will increase from $53
million in 1999 to $1.2 billion
in 2002, still reflecting just 1%
of total spending by this group.
•
Kids: There are more than 43 million 2-12 year-olds in the U.S. Kids under
13 spend an estimated $14 billion of their own money each year and influence
household expenditures of nearly 10 times as much, or $132 billion per year.
The number of children using online services will nearly triple over the next
five years. Jupiter Communications projects that the number of kids aged 2 to
12 using online services will grow from 4.3 million in 1998 to 10.1 million in
2002, and is predicting that consumer spending for online access, content,
advertising, and transactions will grow to over $22 billion by 2002. Direct
spending by children online is expected to top $100 million in 2002.
Kids & Teens Have Economic Power, and Can Take it Online
Kids under 13 spend an
estimated $14 billion of their
own money each year and
influence household
expenditures of nearly 10 times
as much, or $132 billion
per year.
86
Teens
Kids
Own
Spending
$141 billion
$17 billion
Influenced
Spending
$450 billion
$130 billion
Online Spending Online Spending
(1999)
(2003)
$53 million
$1.2 billion
NM
$100 million
Source: Online spending: Jupiter Communications, 1999, Kids Disposable Income: Kalorama Information & Children’s
Market Research Inc. Teen Spending: Teenage Research Unlimited.
•
Schools: As a nation, we spend $360 billion on K-12 education annually, an
arena in which there is clear opportunity for improvement and enrichment
through technology. Of this $360 billion, $7.0 billion was spent directly on
technology during the 1998 school year, a figure that is growing at 18%
annually. Another $3.6 billion is spent on supplemental materials and $3.0
billion is spent on textbooks. These three areas offer particular opportunity
for e-learning companies. In addition,
The Knowledge Web – 23 May 2000 (Reprint)
we estimate that the nation’s 3.1 million K-12 teachers spend about $200 of
their own money on supplemental products each year, contributing another
$620 million to this pie.
We estimate that the nation’s
3.1 million K-12 teachers spend
about $200 of their own money
on supplemental products each
year, contributing another $620
million to this pie.
•
Families: Parents have tremendous influence over their children’s education,
and many spend their time and money accordingly. We estimate that
spending on products for children, like educational software, supplemental
materials, toys and books and services (such as tutoring and test prep), totals
another $8 billion.
Schools and Parents Spend Big Money on Education
Schools
Parents
Education
Spending
$360 billion
---
Ed. Products &
Services
$70 billion
$8 billion
Online Spending Online Spending
(1999)
(2003)
$75 million
$2 billion
$50 million
$750 million
Source: Merrill Lynch estimates
We estimate that spending on
products for children, like
educational software,
supplemental materials, toys
and books and services (such as
tutoring and test prep), totals
another $8 billion.
We calculate that the
addressable market for Internet
companies competing in this
market is nearly $700 billion.
Market Size of $7 Billion in U.S. by 2003
Calculating the current market size for e-education solutions, let alone its future
market size, is a challenge. For starters, we can no longer rely on school or
consumer spending data alone to calculate these values, because they do not
capture advertising or, in most cases, e-commerce spending. A bottoms-up
analysis is problematic as well because there are very few public e-education
companies (particularly those with 100% of their revenues coming from e-learning
activities) and private companies are hesitant to share current revenue estimates.
Besides, many private companies that look as though they will be significant players
have little in the way of revenue today. Either they are very early stage companies,
or, in their quest to capture users, are giving away their products for free.
Monetizing that audience will come later. Finally, the Internet opens opportunities
(and revenue streams) that were inconceivable before, and hence we expect it will
grow the market at much faster rates than have historically been the case.
This being said, we think the opportunity in the K-12 arena is undeniable. We
calculate that the addressable market for Internet companies competing in this
market is over $500 billion.
K-12 Learning Opportunity
Segment
Portals & Hubs
Content
E-Commerce
Infrastructure
Supplemental Services
Total
Addressable
Market
$50 million
$4 billion
$509 billion
$7 billion
$5 billion
$525 billion
Current Online
Market
$50 million
$20 million
$175 million
$1 billion
$10 million
$1.3 billion
Growth
Rate
100%
40%
120%
20%
50%
80%
Market in
2003
$800 million
$80 million
$4 billion
$2 billion
$50 million
$6.9 billion
Source: Merrill Lynch estimates
We will discuss each of these five areas in detail in following sections. First,
however, we describe the state of technology readiness and use in both homes and
schools.
“Parents never appreciate a teacher unless it rains all weekend.”
– Anonymous
87
The Knowledge Web – 23 May 2000
14. Investment Opportunity – Valuation
The attractiveness of the e-learning market is compounded by the “winner take
all” environment of the Internet. Clearly, any meaningful share of this $360
billion industry would yield a significant company, and hence many are racing to
stake their claim. We believe that once the leaders are identified and become
public companies, we will see the same valuation characteristics that have accrued
to other leading Internet companies.
The attractiveness of the elearning market is compounded
by the “winner take all”
environment of the Internet.
These valuations, while dramatic compared to many offline companies, may
indeed prove to be reasonable when compared to the size of the opportunity in this
market, the potential for early leaders to accrue a significant share and the high
gross margins they enjoy.
Market Value = Market Size * Market Share * Gross Margins
Companies that are able to capture and keep users early should enjoy a powerful
“First User Advantage.” The importance and value of visitors is clear as
demonstrated in the following comparisons of market-cap and users.
Market Cap Per User
Company
eBay
Healtheon
Amazon
AOL
Yahoo!
Excite@Home
No. of Users (mil)
10.0
2.7
16.9
23.8
120.0
51.0
Mkt Cap ($bil)
as of 5/15/00
$16.7
3.2
20.9
131.2
74.1
8.7
Mkt Cap per User
$1,673
$1,199
$1,236
$5,513
$617
$170
Source: Company earnings reports. Users as of 12/31/99, except for Healtheon. Healtheon data pre-merger with WebMD. AOL figure excludes ICQ users which total 53.1 million.
Given this, we expect to see a powerful drive for users over the next 12 months, with
users coming at a higher priority than either revenues or, without question, earnings.
“Education both sows and reaps the benefits of The Long Boom.”
— Peter Schwartz
Wired Magazine, The Long Boom
88
The Knowledge Web – 23 May 2000 (Reprint)
15. Today’s Children Are Web Savvy
“Clickerati”
America’s youth have embraced the computer and the Internet as their own. Half
of all kids age 8 or older use the computer every day. Nearly 75% of all children 8
or older have a computer at home. In fact, 8% of these children have three or
more computers at home. These remarkable statistics for a relatively new
technology point to the Internet’s status as the new media for the 21st century kid.
Nearly 75% of all children 8 or
older have a computer at home.
In fact, 8% of these children
have three or more computers
at home.
To Generation i, the computer’s technology is practically invisible. Like the
telephone, it has become a household appliance. An appliance that, a shown in the
scenario below, has begun to infuse every aspect of life for children ages 2-19.
Generation i – @ Home, @ School, @ Play
To Generation i, the computer’s
technology is practically
invisible. Like the telephone, it
has become a household
appliance.
Source: Forrester Research. Reprinted with permission.
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The Knowledge Web – 23 May 2000
Population of Kids and Teens Online to Expand by
33% Annually
Internet usage among teens and children has been rocketing upwards, more than
doubling last year, and growing by more than 50% this year.
Internet usage among teens and
children has been rocketing
upwards, more than doubling
last year, and growing by more
than 50% this year.
Teens ages 13 to 19 have been particularly quick to adopt the Internet. In 1998,
8.4 million teens were online, nearly doubling the number from the previous year.
While just under 20% of the teen population was online in 1997, we expect 18.5
million teens, or 72%, to be online by 2003, a CAGR of 25%.
Internet usage among younger children should grow even faster, as content
expands to reach this group. Just 6% of all children ages 2-12 had online access in
1997, and only a fraction of these had ventured onto the Internet. By 1998, 8.4
million kids were online, more than tripling the prior year’s number. By 2003, we
expect that 56% of all kids 2-12 will be online, a 43% CAGR over this period.
Kids & Teens Online Growing to 42 Million by 2003
While just under 20% of the
teen population was online in
1997, we expect 18.5 million
teens, or 72%, to be online by
2003, a CAGR of 25%.
45
40
35
Teens
30
Kids
72%
of all
Teen
s
25
20
56%
of all
Kids
15
10
By 1998, 8.4 million kids were
online, more than tripling the
prior year’s number. By 2003,
we expect that 56% of all kids
2-12 will be online, a 43%
CAGR over this period.
Yet, as rapidly as the Internet
continues to penetrate homes,
usage among kids and teens is
growing even faster. The result
is that teens and kids as a
percentage of the total Internet
audience is expected to grow
from 15% in 1998 to 27% in
2003.
5
0
1997
1998
1999
2000
2001
2002
2003
Source: Jupiter Communications, 1999
Overall, the annual growth rate for children and teens joining the Net is
anticipated to be 33%. During this period, of course, the online audience is
increasing dramatically, growing from 60 million users in January 1998 to a
projected 157 million users in January 2003. Yet, as rapidly as the Internet
continues to penetrate homes, usage among kids and teens is growing even faster.
The result is that teens and kids as a percentage of the total Internet audience is
expected to grow from 15% in 1998 to 27% in 2003. Hence this sector provides
tremendous opportunity for companies with entertaining and educational online
content directed at these groups.
“By the time my kids are in college, using a PC to write term papers and
access the Net will be equivalent to flying a hot-air balloon to the corner
market. Instead, simple and cheap devices will rent the latest software off the
Net.”
– Scott McNealy
CEO, Sun MicroSystems
90
The Knowledge Web – 23 May 2000 (Reprint)
Kids and Teens Capturing An Increasing Share of Online Market
15%
20%
6%
27%
10%
16%
9%
Kids
10%
Teens
College
11%
15%
Adults
13%
71%
1998: 60 million users
9%
65%
67%
1999: 83 million users
2003: 157 million users
Source: Jupiter Communications, 1999.
Internet Still Bows to TV, But Stay Tuned . . .
Kids in the U.S. spend about 40
hours per week using media in
its various forms, according to
a recent survey by the Kaiser
Family Foundation. Put
another way, watching TV,
playing video games, listening
to music and surfing the
Internet essentially comprise a
full-time job for the typical
American child.
Kids in the U.S. spend about 40 hours per week using media in its various forms,
according to a recent survey by the Kaiser Family Foundation. Put another way,
watching TV, playing video games, listening to music and surfing the Internet
essentially comprise a full-time job for the typical American child. The Internet
will clearly capture a greater share of these 40 hours over the next several years.
We also predict that the Internet will make student media use a richer, more
entertaining and more educational experience.
So far, of course, kids spend the most time with TV. Kids spend over 19 hours per
week watching TV, 10 hours listening to the radio, 5 hours reading, 2.5 hours on
the computer for fun and about one hour on the Internet.
Average Number of Hours Kids Spend Each Week Using Various Media
Media
Watching TV
Listening to Music
Reading
Using a Computer for Fun (Includes 56 minutes of Internet time)
Playing Video Games
Hours/Week
19:19
10:04
5:15
2:29
2:17
Source: Kaiser Family Foundation. November 1999. Study based on nation-wide sample of 3,155 children. Weeklong
averages are based on mean times with each medium separating out weekday and weekend reports.
But ask children what their favorite media is, and the Internet-enabled computer
scores big responses. When asked to choose which media to bring to a desert
island, 33% of children ages 8-18 picked a computer with Internet access.
91
The Knowledge Web – 15 May 2000
bigchalk.com – The Education Network
opportunity for research and enable students to pursue class
assignments and personal study after hours. Relationships
with all these user groups can be leveraged through the
addition of products and services and e-commerce, creating
a comprehensive Internet hub.
Bigchalk.com achieved instantaneous scale in the K-12
Internet education market when it was created through the
combination of Bell & Howell’s K-12 Internet business and
Infonautic’s Electric Library school and library business. The
combined company already reaches 40,000 schools serving
25 million students across the country. In late February,
bigchalk.com acquired additional content and reach with the
addition of HomeworkCentral.com, which had 320,000
unique visitors and 4.5 million page views that month.
Unlike many companies in the e-learning industry that
have traded revenues for reach, bigchalk.com has been
able to successfully monetize this huge audience through
subscriptions to its research and reference services,
Electric Library and ProQuest. With these services, the
company provides broad access to content from more than
3,500 publications and data sources including newspapers,
magazines, books, periodicals, dissertations, out-of-print
books and other scholarly collections, wire service
television and radio transcripts, photo archives and maps.
In addition to its significant reach and “sticky” content sites,
we believe bigchalk is poised to benefit from the Internet’s
network effect. The company accesses all participants in the
K-12 market, providing them with a broad spectrum of
educational Internet services, online research and reference
services to teachers, students, parents, librarians and school
administrators in the K-12 educational and public library
markets. Bigchalk.com also offers students and teachers
remote home access to its services to provide maximum
The subscription-based business model can be
complemented with professional development fees,
e-commerce and other revenue streams.
The Power of the Network
More Parents
More Students
More Teachers
More Parents
Students
Teachers
Pa
Founded: 2000
Revenue Components:
Headquartered: New York, NY
Content:
Public/Private: Private
Commerce: X
URL: bigchalk.com
Advertising:
Claim to Fame: Reaches more schools today than any other company.
Key Investors: Goldman Sachs Group, Blumenstein/Thorne
Information Partners, Patricof & Co. Ventures, Inc., Core Learning
Group
92
ts
ren
Service:
Network Effect:
X
X
X
Hub/Portal Strategy: X
Metrics to look for:
Number of Users/Students/Clients
The Knowledge Web – 15 May 2000
We Don’t Want Our MTV – Internet Ranks Higher
No Answer
6%
Books or Magazines
8%
Videos
3%
Computer with Internet
Access
33%
Video Games
13%
TV
13%
CDs, Tapes or Radio
24%
Source: Kaiser Family Foundation, November 1999. Media selected by children aged 8-18 when asked to choose which
media to bring to a desert island.
The above statistic is all the more impressive when combined with another attitude
children have towards these media. Twenty six percent of 8-18 year-olds say they
learn interesting things “most of the time” when they use the computer, versus 20%
for TV. This is despite the fact that they spend nearly 10x as much time watching
TV than using the PC or Internet. The Internet’s ability to both entertain and
educate at the same time is critical to driving its penetration in homes and schools.
The Internet’s ability to both
entertain and educate at the
same time is critical to driving
its penetration in homes and
schools.
For traditional media companies, particularly those serving up the 19 hours per
week of television to the typical American child, the Internet can be either a threat
or a promise. The computer will either overthrow them or serve as a tremendous
complement to their current brands. Several Internet upstarts are offering highquality, rich content online, seeking to capture a greater percentage of a child’s
media time, in effect seeking to “dethrone Disney” and other media companies
with tremendous mindshare among youth. Indeed with increased Internet use, TV
loses out. Jupiter surveys find that just over 20% of “light” Internet users watch
less TV now than before. But among “heavy” users, more than 55% watch less TV.
We see smart traditional media companies responding with a variety of Internetbased offerings and partnerships that are educational and entertaining. In addition,
many are seeking to neutralize the growing effect of Internet use among children
and teens by creating Internet content that is to be used as a complement to or
even in tandem with their other offerings. For example, vote on MTV’s website
for the top stories of the year, preview new music and rank it, or request your
favorite music videos. All these activities promote an interest in tuning back into
the station to hear the results that one helped create.
93
The Knowledge Web – 15 May 2000
Why Kids Web
Generation i is particularly attracted to Internet sites that are tailored to their
unique interests and tastes. More than any age, this list is headed by the desire to
stay connected. This drives demand for communications tools such as chat, email, and instant messaging, tools which, not surprisingly, are spread through the
viral influence of teens’ social nature.
Teens want content that is created for them, but, as importantly, by them.
Community sites where Generation Y can share their ideas, express their opinions
and develop their interests in music, relationships, fashion, entertainment,
astrology, celebrities and sports are increasingly popular.
Over 80% of intended family
household PC buyers cited their
children’s education as the
primary reason for purchase.
Characteristics of “Cool” Websites
What’s Cool?
Big, Bright Graphics
Lots to Do
Fun, with a Club-like Attitude
Ease of Navigation
Information, especially the “Inside” Scoop
Frequent Updates
Games
Chat
Downloads
Freebies
Source: Paul Kurnit, President & COO, Griffin Bacal.
The Bottom Line For Parents Is Education
Connected kids may like cool, fun content, but parents see greater value in the
Internet than simple entertainment or communication. For parents, computers are
about education. Households with children have greater PC and Internet
penetration levels than do households without children, and the biggest reason for
that is to help kids learn. Over 80% of intended family household PC buyers cited
their children’s education as the primary reason for purchase.
Indeed, the Net is an important research, homework and study resource for these
students. Of those using the Internet, 88% said they did so for special reports and
50% said they used it for nightly homework.
Of those using the Internet,
88% said they did so for special
reports and 50% said they used
it for nightly homework.
The Internet Is A Homework Resource
Type of Homework
Special Reports
Reference Source
Nightly Homework
Standardized Test Prep
% Students
88%
85%
50%
13%
Source: NPD Online Research. % Students who are online and used the Internet for these specific uses.
In addition to being heavier Web users than their childless counterparts, families
with children have recently achieved a significant online purchasing presence.
Prior to mid-1998, families were less inclined to buy online than other Internetusing groups. This has rapidly changed. In the last six months of 1998, nearly
60% of online buyers were families with children, according to research by The
Industry Standard and market research firm Odyssey.
94
The Knowledge Web – 15 May 2000
Families With Children Have Significant Online Presence
•
•
•
•
•
36% of households in the U.S. are households with children
PC and online service penetration among households with kids is 30% higher than in households
without kids, at 60% and 42%, respectively
Households with kids use online services by 2 more hours per week than households without them.
58% of purchasers on the Web in the last six months of 1998 were online families
Only 13% of online families with kids would consider purchasing a brand online they had never heard
of before
Source: The Industry Standard and Odyssey. “What’s Driving the Kids’ Market?” based on a summer 1999 study.
Reprinted with permission.
Online families are extremely
brand sensitive, and have been
historically unwilling to
purchase unfamiliar brands
online.
Importantly, online families are extremely brand sensitive, and have been
historically unwilling to purchase unfamiliar brands online. This is a critical
consideration for e-commerce providers targeting the home market, such as
SmarterKids.com and School Specialty. In particular, many education brands are
not well known to the general parent community. For those that are, such as
Scholastic or Leapfrog Toys, the Internet holds sizeable potential.
Favorite Bookmarks of Stacy Boyd,
Founder and CEO of Project ACHIEVE
www.google.com
www.thehungersite.com
www.nytimes.com
www.greatschools.com
www.epicurious.com
K-12 Community: Home – School Connections
Community
Content
Classroom Connect
Family Education
Big Chalk
Lightspan
KidsEdge
Copernicus.net
Classroom Connect
Lightspan
RiverDeep
Boxer Learning
CCC.Net
CompassLearning
K-12 Community
Enterprise
Infrastructure
NCS
PROJECT Achieve
Chancery
Edventions
PowerSchool
iMind
ZapMe!
HighWired
N2H2
Blackboard
epylon
Simplexis
Services
SchoolPop
eScore
Embark
PROJECT Achieve
DoughNet
APEX
Source: Merrill Lynch Global Growth Group
95
The Knowledge Web – 15 May 2000
MaMaMedia and JuniorNet
The Internet has tremendous potential for improving
children’s learning through interactive and engaging
activities. Two sites that are providing fun, kid-oriented
educational content are MaMaMedia and JuniorNet. Both
have excelled at developing sites that children will enjoy,
while their business models and appeals to parents are
significantly different.
MaMaMedia is the benchmark in the children’s
educational entertainment field. It’s an old-timer, at five,
with a distinct philosophy and style. Founder Idit Harel,
mom of three and former researcher at the MIT Media
Lab, believes that in today’s modern society, the three
“Rs” need to be complemented with the three “Xs.”
Reading, wRiting and ‘Rithmetic are invaluable, although
Harel believes, “the most important skills we can foster in
our children are what I call the three X’s – eXploring,
eXpressing and eXchanging ideas using the new digital
media.” The company develops most, if not all, of its
content in-house. MaMaMedia is a free service, sponsored
by advertising, with partnerships (particularly with AOL)
driving traffic and awareness.
Founded in 1996, JuniorNet partners with leading brands
to take their content online, or provide a greater online
audience. Partners include Weekly Reader, Highlights for
Children, Zillions by Consumer Reports, Ranger Rick,
Sports Illustrated for Kids, and Jim Henson Interactive’s
Bear In The Big Blue House. The company also
distinguishes itself through its commercial-free philosophy
– it’s supported by subscriptions—and broadband-like
delivery made possible through its hybrid CD
ROM/Internet technology.
We believe there is room for multiple approaches to the
consumer market. As for the financial success of these
two models, that will depend in large part on the impact of
their consumer marketing strategies. MaMaMedia benefits
in this arena from its partnerships with AOL, the Go
Network and Earthlink. It also spends for online
advertising and has a relationship with General Mills for
unique offline advertising, such as on fruit snacks
envelopes. JuniorNet’s advertising free service will appear
to some parents, particularly of young children. The
company will need to blanket the market with its CDROM, AOL-style, to capture the subscriber-base necessary
to cover the cost of its rich content development. Primary
competitors are those vying for children’s attention on the
net, including media company sites like
cartoonnetwork.com, Nickelodeon (Nick.com, Nickjr.com)
and disney.com.
MaMaMedia
JuniorNet
URL: mamamedia.com
URL: juniornet.com
Claim to Fame: Incorporating constructionist learning philosophy.
Coined term “clickerati” to refer to today’s tech-savvy kids.
Claim to Fame: Brand name content in an advertising-free setting
Background: Founded in 1995 by Idit Harel, Ph.D., who had
previously spent 15 years at Harvard and MIT researching children,
learning and technology. “Good learning tools are just like a paintbrush
or building blocks. Web experiences for kids should be about learning
by doing within a multidimensional creative process, rather than being
confined by linear stories or questions and answers."
Background: Created in 1996 for kids 3-12. The subscription-based
online service has no advertising and does not enable children to
access the Internet. E-mail can also be controlled by parents, meaning
JuniorNet is a safe online “sandbox” where children can explore and
learn without the need for parental oversight. A separate parent’s area
includes an online store.
Activities: Play around, build and write things in Surprise! See what
other kids are up to in Buzz. Customize your mamamedia.com screen
with the buttons and wallpaper you want in Zap. Build your very own
town in Presto! Send e-cards to friend.
Activities: Test your memory in Dig Dog Dig. Improve visual
discrimination in Spot the Difference. Work on vocabulary and spelling
with the Z-Coder. Learn to manage money with Escape from Planet Z
Grow a virtual garden in Feed Me.
Financial Backing: RCN Corporation, Euclid Partners, New World
Ventures, Boston Capital Ventures, Silicon Valley Bank, Dominion
Ventures
Key Partnerships: AOL, AT&T, Barnesandnoble.com, General Mills,
Infoseek, Earthlink, Toys-R-Us, WebTV, Yahoo!
Key Partnerships: Highlights for Children, Weekly Reader, Zillions,
(Consumer Reports for kids), Ranger Rick, Jim Henson Studios, Sports
Illustrated, SmarterKids.com
Metrics: Unique Users:. (Sept. 99): 650,000 / month
Metrics: Unique Users
Coolest Feature: What’s the Story? Kids create a crazy scene, then
write about it. May get posted as the “Story of the Week”.
Coolest Feature: Make It! Kids can design their own animal masks to
print out, color and wear.
Source: Merrill Lynch Global Growth Group and company documents
96
The Knowledge Web – 15 May 2000
LeapFrog – The Invisible Computer – Enabling Educational Products and Learning
Tools Through the Internet
LeapFrog is using technology to transform toys and
learning aids into smart and engaging, Internet-connected
educational products. The company currently
manufactures a line of award winning educational products
that are distributed in retail outlets, specialty toy stores,
educational supply stores, major catalogues and to schools
through the company’s own sales force. The company’s
education division also distributes its educational products
to schools throughout the U.S. The company’s K-3
phoneme awareness program was recently adopted by the
state of California
One of the company’s more popular products is the
interactive LeapPad which uses touch-sensory technology.
When the LeapPad stylus is touched to a page, the
LeapPad responds, providing information, reading stories,
sounding out words, playing games, even bringing
illustrations to life with sound effects.
The LeapPad and its underlying patented technology,
NearTouch, have broad applicability. With the LeapPad,
children no longer need to rely on adults to sound out
words or letters as they learn to read. Not only could this
be used at home, it has the ability to leverage a teacher’s
classroom time. The same technology could be used to
teach adults. For example, adults who can’t read are often
Founded: 1995
too embarrassed to get help from others. The $49 LeapPad
is an affordable alternative for learning in private. The
technology could also be used to teach foreign languages
to people of any age. Consider China, for example, where
the government hopes to develop 100 million English
speakers over the next several years. LeapPad’s simple,
easy to use technology could provide a low cost option.
Leapfrog also has the opportunity to Internet-enable the
LeapPad, to allow for tracking and monitoring of student
progress. This assessment component can aid parents and
instructors as they seek to improve student learning.
Many of the company’s educational toys could also be
internet-enabled. This would allow children to download
new or customized programs for their toys and enable
them to play the toys with children who may be miles or
countries away.
With one of the next waves of technology development in
“wired objects” we think educational products and
children’s toys have tremendous potential. Leapfrog is
focusing its resources to become one of the leaders in
developing “the invisible computer.”
Revenue Components:
Headquartered: Emeryville, CA
Content:
Public/Private: Private
Commerce: X
URL: leapfrog.com
Advertising:
Claim to Fame: Smart technology with broad application
Service:
X
X
Other:
Coolest Feature on the Website: The flash demo of LeapPad
Network Effect:
Key Investors: In October 1997, LeapFrog merged with Knowledge
Kids Enterprises for an undisclosed amount. Knowledge Kids
Enterprises is a subsidiary of Knowledge Universe LLC.
Key Partners: Knowledge Universe, KidsEdge
No
Hub/Portal Strategy: No
Metrics:
Units sold: 4 million (1999)
Key Clients: Toys’R’Us, Wal*Mart, KMart, FAO Schwartz, Target,
Service Merchandise, Zany Brainy and NoodleKidoodle
97
The Knowledge Web – 15 May 2000
16. K-12 Education Is Ripe for a R*e*volution
America’s public education system is in crisis. It is failing to educate millions of
the children who attend each year. With big problems, however, comes the
potential for big solutions. We see e-learning as part of a tremendous sea change
in the way our schools are managed and our children are educated.
With big problems, however,
comes the potential for big
solutions. We see e-learning as
part of a tremendous sea
change in the way our schools
are managed and our children
are educated.
Clearly, students are ready for more technology in schools. But schools are
behind, in infrastructure, learning methods and teacher training. Fortunately, this
is rapidly changing. After five years of investing in hardware and connectivity,
we believe software, Internet services and teacher resources will soon experience
the next wave of growth in schools. The Internet allows for unique instructional
techniques, and, as its presence grows, we think the benefits will not be limited
just to individual students who are learning more and better, but should also
extend to society at large.
“In the first place, God made idiots. That was for practice. Then he made
school boards.”
– Mark Twain
After five years of investing in
hardware and connectivity, we
believe software, Internet
services and teacher resources
will soon experience the next
wave of growth in schools.
Charter and other public
schools with family-ascustomer mindsets are creating
online communities of parents.
Trends in U.S. education, the Internet’s powerful network effect and the intense
appeal of technology to children are combining to create significant opportunities
for companies in the e-learning arena: Charter and other public schools with
family-as-customer mindsets are creating online communities of parents.
Technology-based assessment enabling targeted instruction and creating greater
teacher and school accountability. Training and other services offered to teachers
increasing teacher preparation and effectiveness in classroom. All of these
opportunities are shaping the new American classroom. Changes this dramatic
may not have been seen in classrooms since the introduction of the Socratic
Method or the Gutenberg printing press.
Transforming Ideas in Education
The Internet
The Socratic Method
The Printing Press
Source: Merrill Lynch Global Growth Group
While there are some
exceptional public schools,
millions of children are being
underserved by the educational
system. International
comparisons show U.S. students
graduating at the bottom of
their class in math and science.
98
Current State of Education In U.S. Demands
New Solutions
The educational picture in the U.S. today is not pretty. While there are some
exceptional public schools, millions of children are being underserved by the
educational system. International comparisons show U.S. students graduating at
the bottom of their class in math and science. Not only do we fare poorly on a
relative basis, and on an absolute basis, our children are not achieving our basic
requirements. Forty percent of 11th graders can’t compute with decimals, simple
fractions and commonly encountered percents. The vast majority can’t write
coherent paragraphs in response to essay questions. Just ask teachers and
The Knowledge Web – 15 May 2000
admissions staff at the college level. They know this – nearly half of all students
entering the California State University system last year were not ready for
college-level English and Math, and this dismal pattern is repeated from state to
state. Parents, business leaders and politicians see this too, and are demanding
change. Indeed, the poor standing of American K-12 education is among the
leading social and political issues in America today.
Nearly half of all students
entering the California State
University system last year were
not ready for college-level
English and Math.
Millions of Children Are Ill Served by the Current Education System
•
43% of our fourth-graders can’t pass a basic reading test.
•
Nineteen percent of Americans over age 25 do not have a high school diploma or equivalent, and
even today, one in five young Americans drops out of high school.
•
Nearly half of all high school graduates have not mastered seventh-grade arithmetic. Forty-one
percent of 17 year olds (high school juniors) cannot “compute with decimals, simple fractions and
commonly encountered percents,” nor are they proficient in basic geometry.
•
Only 7% of 17 year olds are proficient in multi-step problem solving, can solve routine problems
involving fractions and percents, recognize properties of basic geometric figures, work with exponents
and square roots and solve basic algebra problems.
•
One-third of 17-year-olds cannot place France on a map of the world. Only about one in 10 high
school graduates can write a reasonably coherent paragraph.
•
Approximately 50% of all students entering the California State University system are not ready for
college-level English and math.
•
Up to 42 million adults in this nation are functionally illiterate. Nine in 10 Fortune 1000 CEOs believe
illiteracy is a problem in the American workplace, and the U.S. Department of Labor estimates that
illiteracy costs U.S. businesses about $225 billion per year in lost productivity.
•
The U.S. Department of Education reports that one-third of high school math teachers, nearly onequarter of high school English teachers and nearly one-fifth of high school science teachers are
teaching without a college major or minor in their subjects.
Source: U.S. Departments of Education and Labor
Bringing market forces such as competition, choice and capitalism to schools is at
the center of the inevitable change in how education is delivered in America. The
number of charter schools that give parents the ability to choose which publiclyfunded school their kids attend has zoomed from two in 1992 to nearly 1,700
today, and 36 states now have charter legislation.
Technology Rapidly Reaching Schools
Technology has the potential to
lead American education into
the 21st century, but first we
need to bring schools into the
20th century.
Technology has the potential to lead American education into the 21st century, but
first we need to bring schools into the 20th century. Until recently, the
technological revolution had largely sidestepped our education system.
Fortunately, this is now rapidly changing. When we add the power of technology
to improve education to the growing infusion of market forces in our public
education system, we see the result being a shift of money toward technology and
other solutions that work to educate kids.
While schools have been slow to add computers, there is now a landslide of public
support for technology in the classroom. Access to information technology is
growing as schools add more equipment and link libraries and classrooms to the
Internet. The ratio of students per computer has improved dramatically, from 16 to
one in the 1992-93 school year to 6 to one in the 1999-2000 school year.
The number of schools using the Internet has grown from 35 percent in 1994 to 89
percent in 1999. Research and database company, Quality Education Data,
expects nearly every school to have Net access by the end of the 1999-2000 school
year. Finally, the number of classrooms connected to the Internet has zoomed,
from 3% in 1994-95 to 51% in 1998-99.
99
The Knowledge Web – 15 May 2000
Students per Computer Declining And Internet Connectivity Increasing
18
16
120%
16
14
12
10
96%
100%
14
11
10
Classrooms
Schools
80%
60%
7
6
6
40%
6
4
51%
50%
35%
20%
2
65%
65%
9
8
82%
89%
27%
8%
3%
14%
0%
0
1994-95
1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00
1995-96
1996-97
1997-98
1998-99
1999-00
Source: Quality Education Data for Students-Per-Computer. 1999-2000 figure is estimate from Market Data Retrieval. Internet Connectivity from U.S. Department of Education,
National Center for Education Statistics through 1996-97. 1997-98 actual and 1998-99 estimate from Quality Education Data. QED and N2H2 estimate that every school will have Net
access by the end of the 1999-2000 school year. Merrill Lunch Global Growth Group.
K-12 students are actually using the Internet at school, too. Thirty-five percent of
school children spend one or more hours online at school per week, up from 22%
last year.
Thirty-five percent of school
children spend one or more
hours online at school per
week, up from 22% last year.
Students Getting Online at School
45%
40%
39%
35%
35%
37%
30%
30%
30%
22%
25%
1997
20%
1998
15%
10%
2%
5%
5%
0%
< 15 Minutes
15-60 Minutes
1-5 Hours
> 6 Hours
Source: QED. Internet Usage in the Public Schools, 1998
Underlying this in a significant increase in technology spending, up an
encouraging 18% annually, from $2.1 billion in 1991-92 to $6.7 billion over the
past seven years, including a substantial funding jump last year as a result of new
funding sources, such as the federal e-rate. With public school expenditures
exceeding the $330 billion mark, however, this still only represents 2% of the total
spending on K-12 education.
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Educational Technology Funding is Up in K-12 Schools ($billions)
$8.0
$6.7
$7.0
$6.0
Technology has the potential to
democratize education,
uncoupling the relationship
between rich educational
content and wealth.
$5.0
$3.6
$4.0
$3.0
$4.8
$4.3
$2.8
$2.5
$2.1
$3.9
$2.0
$1.0
$1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
Source: Quality Education Data. Spending in the 1998-99 school year was particularly strong due to new funding
sources, such as the e-rate. QED expects spending to decline in the 1999-00 school year as school technology develops
beyond the level funded by federal dollars.
We think that potential and power of technology will continue to drive spending in
these areas, particularly as market disciplines demand increased accountability and
results from our schools. As described in the table below, those solutions we
believe work best have a combination of the following key characteristics:
Characteristics of Effective Technology Solutions
Characteristic
Representative Companies
High Expectations
APEX Learning, NCS
Effective Teachers
Teacher Universe, Classroom Connect
Involved Families
ProjectAchieve, Family Education
Technology in Every Students’s Hands
ZapMe!, Leapfrog
Engaging, High-Quality Content
Classroom Connect, JuniorNet
Sufficient Learning Time
Lightspan, eSCORE
Source: Merrill Lynch Global Growth Group
Schools with fewer resources
can now participate as well,
with virtual visits to the Giant
Pandas at the San Diego Zoo or
tours of the stained glass at
Chartres cathedral in France.
Technology has the potential to democratize education, uncoupling the
relationship between rich educational content and wealth. With the Internet, wellfunded schools can still sponsor live field trips to the world’s historical and
cultural sites, but schools with fewer resources can now participate as well, with
virtual visits to the Giant Pandas at the San Diego Zoo or tours of the stained glass
at Chartres cathedral in France.
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Democratizing Education – Expanding Access to the World’s Greatest Content
Network
Effect
Parent / Teacher
Conferences
Private Schools
K-12
=
Optimal
Monetization &
Price-to-Value
Relationship
Richness
Field Trips
Mass Portals
Enterprise Applications
email
Reach
Source: Merrill Lynch Global Growth Group
In addition to expanding the access to and lowering the cost of educational
content, there are many additional benefits of using technology in the classroom,
as shown in the following table.
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Test Scores and More: The Benefits of The Internet in Instruction
Even if there is a PC for every
child, in the classroom these
will simply collect dust if
teachers are not trained to use
them in instruction.
Increases student motivation. Kids love computers. A 1997 survey of 1,000 teachers who used
computers in class found that 61% of teachers believed computers resulted in a “great improvement” in
student motivation. An additional 33% said technology provided some improvement in student
motivation. Many teachers indicated that technology increased student attendance, while others said
that discipline problems decreased.
Improves student achievement. A growing number of studies are quantifying the benefits of
technology in the classroom. Using technology to support instruction improved student outcomes in
language arts, math, social studies and science, according to a 1995 review of more than 130 academic
studies conducted by the Software Publishers Association. Students performing at below-average levels
often see the greatest gains.
Encourages higher-level thinking. Effective use of technology in the classroom can transform the
learning process. The computer can facilitate more “real-world” inquiries that require students to use
higher-order skills such as problem solving, collaboration, statistical analysis and simulation. These
types of projects require greater student initiative, meaning kids take a more active role in learning.
Involves parents. Parental involvement has long been recognized as an important contributor to
student success. The broadcast nature of e-mail makes it easier and less time-consuming for teachers
to communicate with parents on a regular basis, not only when problems arise. School-provided
technology in the home can also increase the amount of time parents spend with children on homework.
Gives teachers tools to improve instruction. In business, management information systems have
become critical to the efficient operations of every large company. In education, similar systems can
give teachers powerful tools to monitor, guide and assess the progress of their students. Learning
information systems can be used to track student performancereal time and over time. Teachers can
also use technology to access resources to supplement instruction and exchange ideas with other
teachers and professionals. Just as management information systems have become essential to the
efficient functioning of successful businesses, learning information systems have the potential to
become a permanent “teachers aide” in the classroom.
Utilizes the resources of the whole wired world. It has been said that it takes a village to raise a
child. The Internet allows us to access the resources not just of our local community, but of the entire
“global village” to educate our children. Whether kids live in Minot, North Dakota, Murfreesburo,
Tennessee or Manhattan, they will be able to access the same resources on the Internet. These include
museums, universities and even other school-aged children who may share unique interests.
Expands learning time. School-provided technology in the classroom encourages kids to continue
learning after they leave school, mostly because it is fun. We have evidence that if you create engaging
educational content, kids will spend time with it, rather than watching more TV. More time to practice
subjects or explore interesting ideas enables children to improve their skills and develop creativity.
Prepares kids for the future. We live in a knowledge-based economy. The winners in this society will
be those who can rapidly receive, filter, process and utilize information whenever and wherever it is
desired or needed. The Department of Labor estimates that new and expanding technologies will
account for 80% of new jobs in the next 10 years. We cannot let our children graduate from high school
without full language literacy or technology literacy. We know that more than 350,000, or 10%, of IT jobs
are presently unfilled. This percentage is expected to increase to 20-30% over the next five years.
Technology proficiency will be a significant determinant of future economic success both for an
individual and our nation as a whole.
Source: Merrill Lynch Global Growth Group
Limited State of Teacher Training a Challenge to
Effective Technology Use
To implement technology solutions that will scale in schools, teacher preparation
takes on particular urgency. Even if there is a PC for every child, in the classroom
these will simply collect dust if teachers are not trained to use them in instruction.
Teacher training, then, becomes a
major idea in K-12 e-learning.
Teacher training, then, becomes a major idea in K-12 e-learning. The logic
surrounding teacher preparation is compelling enough that we predict a significant
redirection of money toward teacher technology readiness. The Internet will
supplement teachers in the classroom, with enhanced content from the world’s
greatest library, learning information systems and teacher community tools to
learn from each other. We expect major grants, both federal and private, will
contribute to the explosive growth of teacher tools and training resources.
Of the $4.2 billion our schools spent on technology in 1996, 61% was for
purchases of hardware and 15% for software and online services. Another 18%
was spent on supplies, service and “other.” Teacher training accounted for only
6% of the total.
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Just 6% of K-12 Technology Spending Was on Training
6%
18%
Hardware
Software
Service/Supplies
Training
61%
15%
Source: The CEO Forum on Education and Technology. 1995-96 school year
As many as 65% of teachers
had never used a computer
before being introduced to one
in the classroom
An evaluation of school technology budget for 1998-99 suggest that lack of focus
on teacher training continues to be an issue, with just 5% of technology budgets
dedicated to training. This amounts to less than $100 per teacher spent on
technology training. Given the scope of the problems in education and the
potential of technology as one solution, this amount is clearly insufficient.
The lack of teacher training is an impediment to making technology ubiquitous in
schools. As many as 65% of teachers had never used a computer before being
introduced to one in the classroom. Sixty-seven percent of our teachers are over
age 40, and another 22% are between 30 and 39, meaning that most, if not all,
were educated without the benefits of technology or at least acknowledgement of
its potential in the classroom.
Distribution of Teacher Ages, 1993-94
42%
45%
40%
25% of teachers are over age
50, and another 42% are
between 40-49.
35%
30%
25%
22%
25%
20%
15%
11%
10%
5%
0%
Under 30
30-39 Years
40-49 Years
Over 50
Even today, only 24 states require computer education as a condition of licensure.
Not surprisingly, a recent survey found that only 20% of teachers feel very well
prepared to integrate educational technology into classroom instruction. In light
of these demographics, such an attitude among teachers is hardly surprising.
Only 20% of Teachers Feel Prepared to Integrate Technology into the Classroom
Prepared
20%
Not Prepared
80%
Source: U.S. Department of Education, National Center for Education Statistics, Fast Response Survey System,
Teacher Survey of Professional Development and Training, 1998.
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Helping teachers effectively use technology in instruction goes way beyond
simply teaching them how to use Microsoft Office. Fundamental changes in
classroom strategy and management are required, as shown in the following
comparison between a traditional classroom and one capturing the potential of
networked technology.
Technology Creating New Learning Environments
Technology can be a
tremendous timesaver, but its
real potential lies in providing
teachers with rich information
about their students’ abilities
and performance.
Traditional Learning Environment
Teacher-centered instruction
Single sense stimulation
Single path progression
Single media
Isolated work
Information delivery
Passive learning
Factual, knowledge-based
Reactive response
Isolated, artificial context
New Learning Environment
Student-centered learning
Multisensory stimulation
Multipath progression
Multimedia
Collaborative Work
Information Exchange
Active/exploratory/inquiry-based learning
Critical thinking and informed decision making
Proactive/planned action
Authentic, real-world context
Source: International Society for Technology in Education (ISTE) NETS Project, National Educational Technology
Standards for Students, June 1998.
We believe companies that can help teachers make this cultural transition are
facing a significant market opportunity.
Another area where we believe teachers are underserved is in the absence of
technology tools, such as telephones and computers; tools their peers in other
professions receive as a matter of course.
At its most basic level, technology can be a tremendous timesaver, but its real
potential lies in providing teachers with rich information about their students’
abilities and performance. At the most fundamental level, a junior high school in
Richardson, Texas, installed telephones in classrooms so teachers could reduce time
walking through hallways to communicate. This basic change saved teachers 15.5
days of time each year (CEO Forum, 1999). Think of the increase in time and
improvement in effectiveness possible when teachers can complete administrative
paperwork online, share lesson plans, assess student abilities and diagnose specific
areas for improvement and communicate quickly and easily with parents.
Just as Management
Information Systems (MIS)
have become essential to the
efficient functioning of
successful businesses, Learning
Information Systems (LIS) have
the potential to become
permanent fixtures in schools
and classrooms.
Schools are only starting to use technology in this way, the way businesses have
been doing for years—to automate operations, manage information, and improve (or
even customize) service to customers. Just as Management Information Systems
(MIS) have become essential to the efficient functioning of successful businesses,
Learning Information Systems (LIS) have the potential to become permanent
fixtures in schools and classrooms, providing teachers and administrators with tools
to improve their performance and, in the process, student learning.
“A synonym is a word you use when you can't spell the word you first thought of.”
– Burt Bacharach
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The Knowledge Web – 15 May 2000
Classroom Connect
Classroom Connect is a leading and pioneering provider of
Internet-based curriculum products and teacher
training/development programs for K-12 education. Since
1994, the company has offered products that bring the
world into the classroom through the power of the Internet.
Combining intimate familiarity with grassroots educator
and student needs with its management’s technological,
marketing, distribution and service savvy, Classroom
Connect harnesses the Internet in two major ways,
providing:
Founded: 1994
Real-time and interactive online classroom instruction
content and experiences that express the curiosity of
teachers and students (one is its Quest adventure series that
takes students on live expeditions around the world, during
which they interact with expedition leaders and other
participating classrooms worldwide; another featuring
curriculum reinforcing themes is Classroom Today) . . . all
in a manner that is absorbed quickly and easily into a
teacher’s daily routine.
The company provides self-paced, anywhere anytime
online Connected University as well as at coast-to-coast
Connected Classroom Conferences) . . . all as Continuing
Education Unit (CEU) credits are earned.
Revenue Components:
Headquartered: Foster City, CA
Content Sales: X (both curriculum and teacher education)
Public/Private: Private
Commerce:
URL: classroom.com
Advertising:
Claim to Fame: Helping teachers get online.
Service :
Other:
Investors: Brentwood Associates, Media Technology Ventures,
MediaOne Ventures, Intel, U.S. Trust, Waller Sutton Media Partners
Hillman, Cambria Group
X
X (Sponsorship of Quests)
Hub/Portal Strategy: Yes
Network Effect: Yes
Partners: Pepperdine University, American Museum of Natural
History, Discovery Channel School, CNN, J.L. Hammett, ZapMe!
Princeton Review, Yahooligans!
Metrics to look for:
Unique Users
Competitors: Minerva, APEX Learning, Teacher Universe
Coolest Feature: The Quest learning adventures. Vote with your
class on where the Quest members should pedal next.
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Teacher Universe, Inc. – The hub for teachers
Teacher Universe, Inc. is a teacher-centric hub with a
strong technology and career development focus. The hub
offers resources to improve the deployment of technology
in schools, including instructional tools and resources that
help teachers integrate technology into the classroom,
teacher technology training and assistance in developing
long-range technology plans. The site will also have a
grant database and application guide to help schools
implement their plans. The website currently features
grants and funding links.
Teacher Universe will also provide tools for teachers
seeking to advance their careers, from online professional
development to mentors to teacher job placement services.
Professional development, licensing and certification are
all means by which teachers can increase their salaries and
Founded: 1999
eligibility for promotion. By adding recruiting-style
services, Teacher Universe is able to provide the full
spectrum of teacher professional development services –
assessment, training and job placement.
The company is the exclusive distributor of Galaxy
Classroom, a dynamic learning curricula via interactive
video for students K-5. Galaxy Classroom combines many
best practices in teaching and learning together with an
extensive array of resources including hands-on and
minds-on investigations, take home extensions,
interdisciplinary connections and teacher learning
opportunities with on-going professional support. Many of
the Galaxy Classroom curricula are in both English and
Spanish and many videos are also available as opencaptioned. Galaxy Classroom currently serves over 700
elementary schools nationwide.
Revenue Components:
Headquartered: Emeryville, CA
Content Sales: X
Public/Private: Private
Commerce:
URL: teacheruniverse.com
Advertising:
Claim to Fame: Focus on teachers for technology and career
Service:
development
Other:
Investors: Wholly-owned by Knowledge Universe
X
X
Hub/Portal Strategy: Yes
Network Effect:
Partners: Microsoft, Compaq, IBM, The Learning Company
Coolest Feature: Compilation of research on effect of education
technology on student achievement as well as list of certification
requirements and links to state agencies.
Metrics to look for:
Unique Users
Competitors: Classroom Connect
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The Knowledge Web – 15 May 2000
17. The K-12 e-Education Landscape
Like other industries where the Internet has a strong presence, e-learning
companies can be classified into five categories:
•
Community
•
Content
•
Commerce
•
Infrastructure
•
Ancillary Services
Favorite Bookmarks of Judy Hamilton,
CEO of classroom.com
www.classroom.com
www.amazon.com
www.nytimes.com
www.mercurycenter.com
www.mlol.ml.com
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18. Linking Homes and Schools – The Next
Online Land Grab For e-Portals & Hubs
K-12 Education Hub Statistics
Size of Market (1999)
$50 million
Market Growth Rate
100%
Key Players
ZapMe!
Lightspan
Classroom Connect
BigChalk
eSCORE
Family Education
Source: Merrill Lynch Global Growth Group
“Education Hubs” are more
than portals (gateways) to the
broader Internet, they are entire
education communities. These
hubs provide education
resources, access to
information and interaction
with colleagues.
Forty-two million kids and teens online at home, not to mention their parents, by
2003 clearly make the home e-education market attractive. The school market is
equally compelling, covering 53 million school children and 3 million teachers.
Today the rush is on to own key groups of this market – teachers, students and their
parents. The Holy Grail of these efforts is to effectively capture all three through an
education hub offering content, services and community. Start up companies and
established publishers alike have announced plans to serve this triumvirate.
These so-called “Education Hubs” are more than portals (gateways) to the broader
Internet, they are entire education communities. These hubs provide education
resources, access to information and interaction with colleagues. They provide a
structure in which to share ideas and collaborate. They also serve as repositories
of knowledge and skill improvement resources, as well as ideas for fun and
engaging ways to use the Internet in class and on one’s own.
The lynchpin to many of these efforts is the teacher. Once endorsed by the
teacher, these sites can enjoy an audience multiplier effect of twenty to fifty times.
One teacher may be able to deliver 25 children, and 25 to 50 moms, dads, and
even grandparents. Teachers can have incredible sway over parental decisions
about education, influencing, for example, decisions about what books or software
to buy. If teachers are online, posting homework, grades or other student or class
specific information, you can bet that many concerned parents will log on too. So
will kids, interested in tracking their progress on the web. Thus, companies who
have locked up the teacher relationship will continue to build their market
presence with services for students and parents.
“To understand the land-grab strategy, consider an analogy. It is as if Texas
suddenly said ‘All of our land is free, and whoever builds a fence around a piece
of land owns it.’ VCs would fund a flurry of fence-laying companies that burn
through their cash. In their gut, they would be saying, ‘Real estate will have
some value.’ The fence-layers would have some interesting projections on how
they could make money in the future. In contrast, some old-school businesses
will raise cattle and fund expansion out of well-managed earnings. They will
lose the land grab. Some cynics will sit back and crunch the numbers to argue
that the state will soon be over saturated with a glut of cattle. They will properly
predict price drops and short the fence-laying companies stock. They will lose
their shorts. Meanwhile, some early signs of alternative monetization will crop
up-cotton, oil wells, tractor-pulls, etc. Some fence layers will look really
prescient for locking up the premium properties in advance.”
– Steve Jurvetson
Managing Director, Draper Fisher Jurvetson
Once endorsed by the teacher,
these sites can enjoy an
audience multiplier effect of
twenty to fifty times. One
teacher may be able to deliver
25 children, and 25 to 50 moms,
dads, and even grandparents.
Classroom Connect has taken this strategy with the release of its teacher-centric
“education hub” Teacher Connect. It provides teachers with training, classroom
tools and resources, real time curriculum supplements and a community of other
teachers who can share with and support each other. In the future, Classroom
Connect plans to add content and resources for families and students. Lightspan is
taking a similar strategy, releasing PageOne for teachers, with plans to expand into
the home, particularly through delivering the rich curriculum product it owns,
AchieveNow, with the broadband distribution capabilities of its investor-partners.
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Home-School Hub – Lightspan.com’s Strategy to Leverage Curriculum Assets
Lightspan
Lightspan
Network
Classr oom
Home Page
Par ent S tor e
PageO ne
Teache r Store
Internet
Strategy
.COM
Academic
Systems
Achieve
Now
Source: Lightspan
Home-School Hub – Classroom Connect’s Strategy Build Teacher, Parent Communities
Classroom Connect
Con nected
Con ferenc es
Classr oom
Today
Con nected
Univer sity
Classr oom
Products
Classr oom
Community
Teache r
Community
Qu est s
Con nected
Teache r
Newslette r
Classroom
Connect
Hub
Future
Products
Family
Community
Future
Communities
Future
Products
Source: Classroom Connect
ZapMe! is primarily staking its claim around students, but also plans to meet
teacher and administrator needs through technology. ZapMe! provides schools
with 15 free computers and satellite Internet access, supported by commercial
sponsorship. The ZapMe! Netspace is designed for technology-using teens, with
features like the e-locker (homework hosting, so work started at school can be
completed at home), ZapMail, and ZapPoints, a frequent user program. These
programs will encourage teen use at home, providing another opportunity for
ZapMe! to build site membership and drive revenues. For administrators, free
computers facilitate e-commerce of school supplies and services.
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Communities
Teen Oriented
Alfy.com
Alloy.com
Bolt.com
Freezone.com
SurfMonkey.com
Teen.com
Zeeks.com
School Oriented
American School Directory
ASD
BigChalk.com
Classroom Connect
Copernicus.net
E.D.’s Oasis
eduventions
e-Pals
FamilyEducation Company
Knowledge Universe (KidsEdge, Teacher
Universe)
KOZ: Schoolife.net
Lightspan (PageOne)
NCS (ParentConnect)
Netcenter (KidZone)
NSchools
PowerSchool
School City
Scientific Learning (Brainconnection.com)
Teachers.net
Thinkwave
ZapMe!
Still another drive in this land grab takes its first aim at parents and families.
FamilyEducation Network, for example targets parents of school aged children by
providing them with educational resources and references and connects them to
experts and each other to create a community formed around learning. FEN’s
MySchoolOnline helps schools get online by offering free web-building tools and
hosting services. It is currently home to 9,000 schools, teachers and educationfocused organizations. The company’s most recent move was to introduce
TeacherVision.com, where teachers can access free resources and share ideas.
The “Trojan Mouse” – The Power of Free
These education hub and portal sites use various business models in driving traffic
and revenues. FamilyEducation Company and ZapMe! rely on advertising.
Components of Classroom Connect’s site include high-quality content available
for free, with additional, supplemental material and teacher training offered on a
subscription basis. Lightspan.com will focus on meeting the shared needs of
teachers and parents to help students learn while expanding its reach to the
valuable consumer audience. Teacher resources are free, but through expanding
its reach to the consumer, the company intends to create a stream of traffic to
which it can advertise and from which it can generate e-commerce revenue.
There is one common thread across these business models, and that is FREE. Free
hardware, free content, free e-mail and other free services are viewed as critical to
capture teachers’ attention and quickly expand reach among this group. But FREE
is simply the foundation for real revenue streams. The point of these strategies is
to JUST GET IN THE DOOR. The Trojans of the New Economy, however, do
not come in the form of a horse, they come as a mouse.
“Always remember that this whole thing was started by a mouse.”
– Walt Disney (1901-66)
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Teachers, of course, aren’t the only attractive demographic in this market. Parents
too are increasingly concerned about their children’s education and are finding ways
to become more involved. The Internet is proving to be a powerful source of
information for parents, as well as a powerful place to reach this select demographic.
The following advertisement from FamilyEducation Network, clearly highlights this
point, indicating that 80% of its users have “the same first name.”
Creating a Community: One Example
Source: FamilyEducation Company. Reprinted with Permission.
Pre-K
Some companies aren’t waiting for children to enter kindergarten, by capturing them
and their parents as an audience even earlier. ParentWatch, for example, allows
parents to view their kids at pre-school while sitting at their desks at work. These
sites give parents a reason to log on by offering highly individualized content,
providing the opportunity to create parental hubs around common interests.
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FamilyEducation Network
FamilyEducation Network develops and provides
parenting and educational resources and services for
families, schools and other groups interested in education.
The company has built a portal network that includes
familyeducation.com (parents,) teachervision.com
(teachers, students,) and infoplease.com (reference.) In
addition, the company is building a value-added web
hosting network (myschoolonline.com) with over 1,400
school districts currently being hosted. The company
helps parents use online tools including learning games
from FunBrain.com, as well as publications to become
more involved in their children’s education and
Founded: 1990
Headquartered: Boston, MA
development. For educators, the FamilyEducation
Network offers schools free customized web sites to create
a parent/school connection and a range of interactive
learning tools. The company has developed a unique
partnership with public sector associations such as The
National PTA, National School Boards Foundation and
others. The company offers an online e-commerce
program that supports school fundraising. The company
has also partnered with America Online, Harcourt, and
NBC. More than 1,400 districts plus many schools and
teachers schools are now using the FamilyEducation
Network, schools from 48 states, the District of Columbia
and Puerto Rico.
Revenue Components:
Content Sales:
Public/Private: Private
Commerce:
URL: familyeducation.com, infoplease.com, funbrain.com,
teachervision.com, schoolcash.com, myschoolonline.com
Advertising:
Service:
Other:
Claim to Fame: Forging partnerships with education organizations:
The National PTA, American Association of School Administrators,
National School Boards Foundation, National Education Association
Hub/Portal Strategy: Yes
Network Effect:
Investors: Harcourt, Sprout Group, AOL, Intel, Jostens,
Morningside Ventures
Partners: AOL, Harcourt, JuneBox.com (School
Specialty), FamilyWonder.com, Games2Learn, DrKoop.com,
national education organization, PTA
Metrics:
Visits (February, 2000): More than 4 million monthly visits
Page Views (March 2000): Over 56 million/month
Competitors: Lightspan Network
Coolest Feature: Quizlab, Math Baseball, WhatWorks
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Lightspan, Inc.
Lightspan is building an education network for schools and
families. On the Internet, the company offers
Lightspan.com, a free K-12 education portal for teachers,
parents, and students, providing invaluable resources,
research, and grade-specific activities, all in one convenient
place. Lightspan.com also includes Your Class Online and
Your School Online that allow schools and teachers to
create their own customized Web sites quickly and easily.
Your Class Online provides teachers with their own starting
point on the Internet – a classroom Web site where they can
assemble their most valuable Web resources. With Your
School Online any school can publish a customized Web
site, connecting with families to showcase the school
calendar, send school messages, and share favorite Web
links. The Lightspan Network is Lightspan's premier
subscription service for classrooms, providing the largest
collection of standards-based online learning activities,
professional development services, full customer support,
and state- or district-level customization.
Founded: 1993
Headquartered: San Diego, CA
Public/Private: Public (NASDAQ: LSPN)
URL: lightspan.com
Claim to Fame: Mars Moose, lead character in Lightspan’s
interactive curriculum software for grades K-6, Lightspan Achieve Now.
Investors: Kleiner Perkins Caufield & Byers, Accel Partners,
Comcast, Microsoft, Liberty Digital, Institutional Venture Partners
CINAR Films, Cox Communications, Gateway, Sony, Vulcan
Partners: Sony Computer Entertainmnet, CINAR,
SmarterKids.com, Yahoo!, Tribune, Cox, Comcast, AT&T
Coolest Feature: Learning Search, the premier education search
tool, containing over 115,000 quality educator-reviewed sites, lesson
plans, online learning activities, and encyclopedia articles that are
relevant to the classroom and age-appropriate to the student.
Lightspan’s original foundation is Lightspan Achieve
Now, a comprehensive curriculum software that is
proven to increase student achievement in schools across
the country. Featuring rich graphics and cartoon
characters like Mars Moose, Achieve Now is delivered via
PC or a Sony PlayStation. With broadband Internet
access, Achieve Now could be delivered over the Internet
to homes and families, creating a valuable “premium
channel” of educational content.
To become the dominant e*channel, Lightspan needs to be
accepted not only by teachers, it must also be “pulled in”
by the millions of families with school-aged children. To
accomplish this, Lightspan’s Internet products link schools
and homes with e-mail, calendar tools, homework
assignments and educational activities. By providing a
fun, simple and effective means for parents and teachers to
work together, Lightspan increases a family’s involvement
in their children’s education.
FY 2000A Revenues*: $16.9M
FY 2001E Revenues*: $63-65M
Market Value: $349 M (5/15/00)
Revenue Components:
Content: X
Commerce:
X
Advertising:
X
Service:
X
Other :
X
Hub/Portal Strategy: Yes
Network Effect:
Metrics (FY 2000A):
Number of Unique Users 426 M:
Number of Visitors 1,009 M
Number of Page Views 4,504 M
Competitors: Classroom Connect, Family Education Network
*FY ends January 31.
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Chase Capital Partners Keiretsu
Chase Capital Partners (CCP) is a global private equity
organization which provides equity and mezzanine capital
financing to private and public companies. Chase Capital
Partners invest throughout the entire life cycle of the
business development process. The firm’s investment
mandate permits maximum flexibility in supporting the
equity needs of businesses worldwide, and its extensive
global network of strategic relationships complements its
existing base of investments.
CCP's primary limited partner is The Chase Manhattan
Corporation, one of the nation's largest banking holding
companies with approximately $357 billion in assets. This
source of capital provides CCP with an unparalleled
flexibility in structuring and closing a wide variety of
transactions. Chase Capital Partners'affiliation with Chase
provides a number of competitive advantages ranging
from additional deal flow to industry expertise. Through
this partnership, CCP is well positioned to adapt to
changes and opportunities in the marketplace.
In keeping with the keiretsu theme, Chase Capital Partners
also directly leverages its international network to further
add value and enhance business opportunities for its
portfolio companies. The following are the investments
that CCP has made in the education industry:
The Chase Capital Partners Human Capital Keiretsu
Company Name
Apollo International
Advantage Schools
Collegeboard.com
Eduprise.com
JLC Holdings
La Petite Academy
Ninth House Network
Web CT
Company Description
Operator of international post-secondary schools
Operator of charter schools
Creates and administers standardized tests for college bound seniors
Provides a solution to higher ed. Institutions and corporations for creating on-line courses
Provider of educational programs to schools districts
Provides for-profit child care and pre-school educational services
High-quality, media-rich, on-line learning for corporations
Web-based higher education teaching solutions
The Chase Capital Partners Keiretsu
Apollo
International
JLC Holdings
La Petite
Academy
Advantage
Schools
Chase Capital
Partners
Ninth House
Network
Collegeboard.com
Eduprise.com
Web CT
Source: Merrill Lynch Global Growth Group
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19. Learning Redefined – Content Goes Digital
K-12 *Content Statistics
Size of Online Market
$20 million
Market Growth Rate
40%
Key Players
Classroom Connect
APEX Learning
Source: Merrill Lynch Global Growth Group
Even education hubs will need great content. We see the ability to provide strong
educational content in a way that takes advantage of the unique characteristics of
the Web as a compelling opportunity. Content that has not simply been
repurposed, but has been rethought for Internet delivery, is content for which
schools and parents are most likely to pay.
The Internet is the world’s greatest library. Even those institutions that held this
distinction in the old economy, such as the Smithsonian Library, are digitizing
their collections, contributing a tiny, but valuable portion of the enormity of
content on the Net.
Undeniably, one of the greatest applications of the Internet in education is
providing students with access to this rich content. Paradoxically though, the
breadth of content available on the Internet also creates challenges for educators
and students. How can they effectively sift through all the information out there?
Among the clearest opportunities for e-learning companies is contributing valueadded content to the Internet’s expansive portfolio and/or identifying what that
content is and how it can be used in enriching student education.
We estimate that the size of the
educational content market
overall is approximately
$4 billion.
We estimate that the size of the educational content market overall is
approximately $4 billion, which represents total U.S. spending on textbooks and
instructional technology. Currently only a fraction of that market is captured by
online content sales, although we expect the Internet to both capture share from
offline content sources, such as textbooks, as well as expand the size of this
market overall.
Home-Directed Content
Educational Content Goes Digital
BennySmart
Cartoon Network
Children’s Television Workshop
Crayon Crawler
CyberKids/CyberTeens
Disney.com
Headbone Interactive
JuniorNet
KOLA
MaMaMedia
Nickelodeon (Nick Jr. & Noggin)
e-Learning companies with content on the Internet are posting it for a variety of
reasons and are taking a variety of approaches.
Source: Merrill Lynch Global Growth Group
Parent-Directed Content
Parent Soup
Parent Time
FamilyEducation Company
Source: Merrill Lynch Global Growth Group
116
1.
Adding online content to supplement offline content: Most publisher
websites provide activities and website links that reinforce lessons taught in
their formal curriculum programs.
2.
Digitize formerly offline-only content: Newspapers, encyclopedias and other
reference materials are excellent examples of the benefit of digitizing
previously offline only content. Digital conversion of rare books, scholarly
texts or general reference material makes these works much easier to access.
3.
Some entire books are already available as e-books, digitized versions of their
paper-based selves. Currently e-books are loaded onto portable readers. One
such reader, the Rocket e-book, has sufficient memory for up to 10 books.
The complete works of Shakespeare, for example, can be downloaded from
the Internet in about 10 minutes.
E-books have strong potential to replace paper-based textbooks. Not only
would e-books lighten the weight of student backpacks, they can also be kept
more up to date than books printed every five to seven years, benefiting
students, content authors and smarter “textbook” publishers alike. For
textbooks, if not reference materials, however, the real opportunity is
transforming paper-based books in a way that takes advantage of rich
multimedia, hyperlinks and other technology, not simply supplying the same
materials in an electronic format.
The Knowledge Web – 23 May 2000 (Reprint)
4.
Create content specifically for the Internet: Some content has never been
recorded in print format because there was no way to compile it in a
meaningful way or reasonably distribute it. For example, acclaimed authors
have agreed to work with Scholastic to provide writing seminars on its
website. Students get tips on biography, folktale, mystery or myth writing
from noted authors. Some students’ work will be published online, along
with comments from the authors, based upon what they reveal about the
writing process. Other content is much more suited to the Internet’s non-linear
presentation of information, with hypertext links enabling students to explore
certain aspects of a topic before others.
5.
Replace offline content: Instead of lectures, books, videos or slideshows,
teachers can choose to lead entire lessons with the Internet as guide. The
computer can facilitate “real-world” inquiries that require students to use
higher-order skills such as problem solving, collaboration, statistical analysis
and simulation. These types of projects require greater student initiative,
meaning kids take a more active role in learning. In these cases, students
often retain more of what they learn.
School-Directed Content
AbleMedia.com
APEX Learning, Inc.
BigChalk.com (Electric Library)
Bonus.com
Boxer Learning
ChildU
Class.com
Classroom Connect
DiscoveryKids
Eplay
Family.com
FamilyEducation Company (TeacherVision)
FunBrain.com
FunSchool.com
HomeworkCentral
iStation
Kaplan (e-score)
Knowledge Adventure (EduCast)
Knowledge Universe (KidsEdge)
Learning Outfitters
Lightspan (StudyWeb, Global Schoolhouse)
MainXChange
MathForum
Mathsoft
N2H2 (Searchopolis)
NCS (Educational Structures, NovaNet)
NetLibrary
New York Times (NYT Learning Network)
Newsbank
On Line Class
Oz New Media
PBS (PBS Online)
Pearson (CCCNet)
Princeton Review (Homeroom.com)
Riverdeep (Logal)
Scholastic
Scientific Learning
TRO Learning (Plato)
ZapMe!
Encyclopedias: Microsoft’s Encarta.com,
Brittanica.com, Comptons, Groliers
Textbook publishers: Harcourt Brace, Houghton
Mifflin, McGraw Hill, Pearson, etc.
Educational Software companies: The Learning
Company, Knowledge Adventure, etc.
Adding Value Through Organization
Integrating and organizing this online content is a second means of adding value.
The spectrum of content, once organized, ranges from a compilation of related
Internet “links” on a particular topic all the way through to a complete high school
degree delivered online. Almost every e-learning company participates in the first
box on the spectrum, providing links to the “10,000 top educational websites.” for
example. Many also develop some unique content and post in on their sites.
Some companies have aggregated these various content sites into coherent lesson
plans.
Few companies have yet pushed beyond this point on the spectrum to integrating
content beyond the subject level. The most notable exceptions are APEX
Learning, which delivers instructor-led Advanced Placement courses, and Idiploma.com and class.com, which are seeking to deliver an entire suite of courses
online that would qualify students for a fully accredited high school degree.
Resources can also be organized for specific groups. Homeschoolers, for
example, once isolated from each other, can now access not only a rich spectrum
of lesson resources, but also each other. Both the content and the community
aspects of the Internet have powerful applications in this market.
Online Content Spectrum
Online
Content
Spectrum
Online
Content
Providers
Links to
Content Pages
Content
Pages
Virtual Lesson
Plan
Virtual
Class
Virtual High
School
All Portals, Most
e-Learning
Companies
Most Content
providers
Classroom
Connect
APEX Online
Learning
State Initiatives
Publishers
NCS
Classroom
Connect
Homework
Central.com
Source: Merrill Lynch Global Growth Group
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Portals with Education Verticals
Portal
Education Channel
America Online AOL Research & Learn
AOL @ School
Microsoft/MSN MSN Ref & Ed/Encarta
Microsoft Classroom Teacher Network
Lycos
LycosZone
Classroom Tripod
Yahoo
Yahooligans
Ask Jeeves
AJKids
N2H2
Serachopolis (Inktomi)
Rethinking Educational Content
The real value in online educational content, in our view, is not in simply putting
existing content online, but taking advantage of the Internet’s unique attributes to
create new content. The network effect. Its global reach. Its interactivity. These
attributes can be powerfully applied in education. Two examples highlight what
we see this as an important content opportunity.
•
ePALS is an online version of the traditional “pen pal”, but instead of linking
individuals, ePALS links entire classrooms. Corresponding with children in
other countries can help students learn language arts, cultural, history,
geography, social studies, and science in a very personal and immediate way.
Remember the country report on Ireland you wrote in 5th grade? Imagine
talking with students in that country about what their lives are really like.
One 5th grade classroom in New Jersey did just this, linking with a class in
Ireland to compare the impact of the great Irish migration in the early 20 th
century to the U.S. Together, they explored what this meant to Ireland as well
as the U.S., adding perspective beyond what most teachers or textbooks alone
could ever do. To date, ePALS connects 1.5 million students and teachers in
20,135 registered classrooms from 108 countries. With technological
breakthroughs being made in Internet voice and video communications,
ePALS classrooms will soon be able to share photographs, images, sound and
video clips. Technology will ultimately be able to help students surmount
language barriers by offering simultaneous language translation, hence
expanding the unique network of the global Internet.
•
The Classroom Connect Quest series is another example of how education
can be transformed through the power of the Internet. On these adventure
learning field trips, a small group of experts – an anthropologist, archeologist,
biologist, technologist and team leader – ride their bicycles through the land
of an ancient culture, such as Guatemala, the Rift Valley of Africa, or China.
The team is seeking answers to a mystery, such as “Did Marco Polo Really
Discover China?” Students are invited to theorize along with the experts, and
vote on the next moves of the Quest team.
Homeschool Directed
Content
Homeschool Media
Homeschool World
Homeschoolers Curriculum Swap
Homeschooling Zone
Unschooling.com
Home2School.com
The real value in online
educational content, in our
view, is not in simply putting
existing content online, but
taking advantage of the
Internet’s unique attributes to
create new content.
Learning Redefined – Discovering China Goes Digital
Old School
Read about China in a book
See a filmstrip on China, if your teacher ordered one
ahead of schedule.
Listen to a guest speaker who has lived in or visited
China, if available.
Look up more information in the Encyclopedia, if still
interested.
New School
Follow a team of experts as they ride through
China over four weeks. Map out their daily travels
and read about their discoveries.
Hunt for clues that would shed light on an era in
Chinese history.
Learn about Chinese culture through encounters
with natives; read observations on biology from an
expert.
Ask questions of experts via e-mail and read posts
from other students monitoring the Quest.
Vote on where the Quest team goes next. Log on
again to see if the team followed your
recommendations or if your class is featured on
the site.
Source: Merrill Lynch Global Growth Group
The number of examples like these two is growing, adding a richness, interactivity
and perspective that K-12 classes have never enjoyed before.
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Show Me the Money – Schools Will Buy ValueAdded Content
Will K-12 schools pay for good online instructional content? At the upper end of
the content spectrum, the answer is clearly yes. Schools today are paying for
value-added content such as virtual lesson plans, online courses or degrees. These
may be on a per use basis or subscription form. Classroom Connect has made
some of its Quest materials available at no cost, by signing on corporate sponsors
to underwrite a portion of the trips. Teacher resource materials and the ability to
interact with the Quest team, however, are “premium” services that schools pay for.
Brands are incredibly important
online, whether in the business
market or the consumer market.
“Free” continues to be an operative word in the content side, with e-learning
companies using links to content or content pages as “hooks” to drive traffic to their
sites. These companies hope to monetize this traffic through advertising or selling
products, such as textbooks, portal subscriptions or teacher training to visitors.
Leveraging and Creating Content Brands
Brands are incredibly important online, whether in the business market or the
consumer market. Companies that have existing offline brands are finding some
success now in taking their content online. For the most part, these companies are
doing so on their own, without infrastructure partners. Interestingly, the opposite
has been true in higher-ed markets, where the strongest brands tend to be colleges
and universities themselves, and not for-profit companies with strong market
orientations.
Business-to-Business Business-to-Consumer
Branded
Content
Scholastic
Princeton Review
APEX Learning
Kaplan
Classroom Connect
Aggregated
Content
BigChalk
FamilyEducation
Company
Source: Merrill Lynch Global Growth Group
Previously unknown brands are building them on the net by creating content of their
own, or leveraging content of others. APEX Learning and Classroom Connect have
found traction by creating strong content and marketing to teachers. Homework
Central has taken a different approach, aggregating teacher-created content on one
site to create a database of lesson plans that is over 14,000 plans strong.
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Teacher Training Online
Teacher Training
Advantage Learning (Gen21)
Apex Learning, Inc.
Apple Computer (Apple Staff Development Online)
Blackboard.com (targeting engine to school )
Classroom Connect (Connected University)
Minerva
Knowledge Universe (Teacher Universe)
Universities with online course offerings
WebEd
wwwrrr.com
We estimate that schools spend
$3 billion annually in teacher
training.
120
Teacher training should be an area of tremendous growth in the next few years, as
we seek to hire the two million new teachers needed to fill our classrooms, help
teachers integrate technology in the classroom and raise standards for academic
achievement.
We estimate that schools spend $3 billion annually in teacher training, although
today most of that takes place in offline formats. However, as teachers become
increasingly familiar with technology, it will become an easy and accessible way
for them to learn. Combine ease of access with a very real economic motivation –
teacher pay scales are driven in part by certification and education levels – and the
result is the likelihood of major growth in online training for teachers.
Another benefit of teacher online training is the opportunity to overcome the
isolation of the classroom. Today’s teachers spend most of their time with their
students, maybe escaping to the teacher’s lounge for a 30-minute break for lunch.
With the Internet, teachers can meet online with other teachers who share their
interests, either professionally or personally. A high school might have just one
AP Biology teacher, for example, whereas an online community could connect a
dozen AP Biology teachers and use training content to drive an interactive dialog
between them.
Mentoring, or the oversight of young teachers by Master teachers, is also
recognized as one way to both improve new teacher effectiveness and satisfaction
in their jobs. Online training can easily be complemented with mentoring,
bringing an ongoing level of support to new teachers. Given that one-third of new
teachers leave the profession within the first three years, the ability to reduce this
high level of turnover should provide very real benefits to schools.
The Knowledge Web – 23 May 2000 (Reprint)
First Grade Wisdom
A first grade teacher collected well-known proverbs. She gave each child in the class
the first half of the proverb, and asked them to come up with the rest:
People in glass houses shouldn’t …………………………………………… run around naked.
Better to be safe than ………………………………………………………. punch a 5th grader.
Strike while the …………………………………………………………….. bug is close.
It’s always darkest before ………………………………..………………… daylight savings time.
Never underestimate the power of ………………………………………… termites.
You can lead a horse to water but …………………………………………. how?
Don’t bite the hand that …………………………………………..……….. is dirty.
No news is …………………………………………………………………. impossible.
A miss is as good as a ……………………………………………….…….. Mr.
You can’t teach an old dog ………………………………………………… math.
If you lie down with dogs, you ……………………………………………. will stink in the morning.
Love all, trust ……………………………………………………………… me.
The pen is mightier than ………………………………………………..…. the pigs.
An idle mind is …………………………………………………….……… the best way to relax.
Where there is smoke, there's ……………………………………………... pollution.
Happy is the bride who …………………………………………………….. gets all the presents.
A penny saved is ……………………………………………..……………. not much.
Two is company, three's …………………………………………………… the Musketeers.
None are so blind as ……………………………………………………….. Helen Keller.
Children should be seen and not …………………………….………….…. spanked or grounded.
If at first you don't succeed ………………………………………….…….. get new batteries.
You get out of something what you …………………………………..…… see pictured on the box.
When the blind lead the blind ……………………………………………… get out of the way.
There is no fool like ………………………………………..……………… Aunt Edie.
Laugh and the whole world laughs
with you. Cry and ………………………………………………………… you have to blow your nose.
Source: Perkins Capital Management
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APEX Learning, Inc.
Microsoft co-founder Paul Allen began Apex Learning,
Inc. in 1997. APEX is an innovative online service
providing quality Advanced Placement courses to schools
with limited resources for AP instruction. APEX courses
enable college-oriented high school students the
opportunity to take an AP course not normally offered at
his or her school. These courses feature experienced AP
teachers working with students over the Internet.
APEX courses are self-paced, but are not independent
study. Experienced faculty interact with students online
Founded: 1997
and are also available by telephone. The company, funded
by Vulcan Northwest, currently offers two courses: U.S.
Government & Politics and Microeconomics. Upcoming
courses include Calculus, Physics, Statistics and History.
Providing the best content to learners will deliver on the
promise of the Internet. The company’s website offers
crash courses in A.P. exam topics. The company plans to
launch a line of AP teacher training products in the
summer of 2000, plus a full line of online teacher training
products in the Fall. It is now in pilot with over 100
teachers in 5 schools districts plus Edison School Systems.
Revenue Components:
Headquartered: Bellevue, WA
Content Sales: X
Public/Private: Private
Commerce:
URL: www.apexlearning.com
Advertising:
Claim to Fame:
Service :
Investors: Vulcan Ventures; Edison Schools, Warburg Pincus,
Maveron Ventures, Kaplan, Inc.
Partners: Kaplan, Inc., Edison Schools, Inc., Michigan Virtual
University (MVU)
Coolest Feature: Course demos in Calculus AB, Statistics,
U.S. Government and Politics, and Microeconomics
Hub/Portal Strategy: No
Network Effect: Yes: More students could mean
more course options, as well as richer online class discussions
Metrics to look for:
Unique Users: 500 full enrollments, 18,000 participants in
review program
Number of schools: 2000
Competitors: Class.com, CCC, Classroom Connect
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Class.com, Inc. – Providing quality education over the Internet to learners worldwide
Class.com, Inc. offers students a fully accredited high
school diploma over the Internet. The company delivers its
high school course offerings from the University of
Nebraska, through its Independent Study High School,
founded in 1929 and which, in 1978, became the nation’s
first fully accredited university-based independent study
high school. The high school offers more than 150 courses
(36 are Internet delivered) and has over 6,000 students
currently enrolled in every state and in 135 countries
worldwide. The school has graduated more than 3,200
students since 1968. A student who completes a minimum
of 40 required courses receives a full college-preparatory
diploma not a high-school-equivalency credential) from
the Independent Study High School.
In what we expect will be the company’s primary growth
driver, Class.com also sells its Internet classes to public
and private schools and universities. For these customers,
Class.com’s offerings enable them to continue to serve and
ultimately grant degrees to students who are unable to
Founded: 1998 (spun from program founded in 1929)
complete their full education at a physical campus. The
state of Kentucky’s virtual high school is the company’s
first major client and has started to purchase Class.com’s
online offerings for the -spring 2000 semester. In what we
expect will be the dominant model for public school
systems considering offering classes online, the Kentucky
program is designed to complement its high school
offerings, not replace them. In addition, the company has
recently completed a similar deal with the state of Kansas
and is offering its courses to every public high school in
that state during the spring 2000 semester.
The Company’s stated goal is to provide the highest
quality courses that will meet the educational needs of
students, parents and school officials together with the
support services to ensure student success. Its Internetbased courses use video, graphics, sound, interactivity, and
text to encourage individualized discovery and learning,
while maintaining the quality demanded of an accredited
diploma program, a necessary condition for “education
without boundaries” to be successful in the K-12 market.
Revenue Components:
Headquartered: Lincoln, NE
Content:
Public/Private: Private
Commerce: X
URL: class.com
Advertising:
Claim to Fame: First Accredited High School Online
Service:
X
Other:
Coolest Feature on the Website:
Network Effect:
Key Investors: University of Nebraska and Individual Investors
Key Partners: University of Nebraska, Edunexo.com
Hub/Portal Strategy: X
Key Metrics: (at 12/31/99)
Key Clients: State of Kentucky, State of Kansas
Number of users/students: over 6,000
Number of employees: 115
Number of Internet courses: 36
Number of page views: 250+m/month
Number of clients
123
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Scientific Learning Corp. – Using its Brain
Scientific Learning develops and markets proprietary
science-based software products that help accelerate
learning, especially learning to read. The company offers
a line of training programs and skill building programs
with an emphasis on developing reading skills.
Training Programs: 1) Fast ForWord® was Scientific
Learning Corp.’s first product. It is a patented Internet and
CD-ROM based training program for young children to
improve language and reading skills. 2) 4wd was developed
as a result of the success of Fast ForWord®. Both Fast
ForWord® and 4wd target a similar stimulus set to improve
language and reading skills, but 4wd utilizes more advanced
technology and interactive tools to engage a more mature
audience of adolescents and adults. 3) Step4Word, a sequel
to Fast ForWord® and 4wd, uses interactive exercises to
cross-train the brain on a number of skills to rapidly
improve listening, thinking, and reading skills.
Skill Building Products: 1) Away We Go! is a skill
building game and assessment tool developed by leaders in
brain research to improve the critical early learning skills
for reading success. 2) Away We Go! Bookshelf is an
award winning, multi-media reading kit of original
storybooks and stories on CD that offers students a fun
early reading adventure. 3) Reading Edge was developed
by reading experts from Harvard, Stanford and Johns
Hopkins to measure the language and early reading skills
that are necessary for success. It is available in educator
version and home version.
In addition, there are multiple additional applications for
the company’s patented, proprietary technology in the
areas of human performance and learning.
The company recently launched BrainConnection.com,
with the mission to make it the premier site on the Internet
for credible, interesting and easily understandable
information about how the brain works and how students
learn. There is growing popular interest in brain research
and its implications for learning and performance at all
ages particularly among educators.
For BrainConnection.com, the company will develop and
purchase content, as well as partner with relevant players
to develop the intellectual content on the site. This
includes content from the producers of National Public
Radio’s The Infinite Mind, Reuters Health, and original
articles from noted brain researchers and scientists. The
company will also develop online assessment tests and
professional development for teachers, and sell a range of
science-based learning products through e-commerce
engine, including its own proprietary software.
Given its foundation in neuroscience, we believe Scientific
Learning is well-positioned to use the Internet to create
niche communities around a shared interest, capturing an
audience that is highly-focused and, hence, has strong
likelihood of a high rate of conversion and a high repeat
visit rate.
Founded: 1996
1999 Revenues: $10.3 M
Headquartered: Berkeley, California
2000E Revenues: $26.1 M
Public/Private: Public (Nasdaq: SCIL)
Market Value: $169 M (5/15/00)
URL: scientificlearning.com / brainconnection.com
Revenue Components:
Claim to Fame: Research based products based on results.
The company holds numerous patents covering a wide range of training
methodologies and regimens related to learning and brain plasticity.
Content:
X
Commerce: X
Advertising: X
Key Investors: E.M. Warburg, Pincus & Co., Lazard Capital Partners,
and HLM Management Company
Service:
X
Other:
Key Partners: Lichtenstein Creative Media, creators of NPR’s “The
Infinite Mind,” Reuter’s Health, Nidus Information Services
Network Effect:
Key Customers: Public schools
Hub/Portal Strategy: No
No
Metrics to look for:
Number of users/students
Number of clients
:
124
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wwwrrr.com
wwwrrr (pronounced 'whir') stands for World Wide Web
reading, 'riting, 'rithmatic. Based in Minneapolis,
Minnesota, wwwrrr is an Internet site for K-12 families
and schools, and acts as a communications link between
schools and homes. The company provides an interactive
learning destination on the Internet for parents, teachers
and students, and offers a wide variety of innovative
products including the wwwrrr@myschool
communications platform which provides communications
between parents and their children’s teachers.
Additionally, wwwrrr offers training for teachers and
parents; and learning products for children. The company
provides original online learning and training products;
that enable teachers, parents and students to use
technology to more effectively support student learning.
Additionally, the site offers topical editorial content; and
consumer goods and services that are utilized on a daily
basis, and can assist in organizing fundraising partnerships
that benefit schools.
Founded: 1999
1999E Revenues: NA
Headquartered: Minneapolis, MN
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: wwwrrr.com
Content Sales:
X
Claim to Fame:
Commerce:
X
Advertising:
Service :
Coolest Feature on the Web: daily quiz question
Other:
X
Hub/Portal Strategy: Yes
Investors: North American Funds of Chicago
Network Effect:
Yes
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20. e-Commerce
K-12 E-Commerce Statistics
Size of Online Market
$175 million
Market Growth Rate
120%
Like other markets, we believe the potential for e-commerce in education is
tremendous. We estimate that business-to-business commerce in the K-12
education market tops $70 billion in purchased goods and services. Two-thirds of
this is products, such as textbooks, technology, office and school supplies, buses,
and so forth. The remaining one-third is services such as janitorial, food service
and transportation.
23% of School Budgets Directly Spent on Purchased Goods & Services
Key Players
Epylon.com
SchoolSpecialty
J.L. Hammett
SmarterKids.com
Amazon.com
Simplexis.com
Purchased Services
8%
Other
2%
Supplies
15%
Source: Merrill Lynch
Employee Benefits
16%
Salaries
59%
Source: National Center for Education Statistics. Reflects “current” expenditures only, e.g.. excludes capital outlay and
interest on school debt.
We estimate that business-tobusiness commerce in the K-12
education market tops $70
billion in purchased goods and
services.
Commerce
Amazon.com
epylon.com
EToys
FamilyWonder.com
Games2Learn
J.L. Hammett
KB Toys (brainplay.com)
NoodleKidoodle
School Specialty
Simplexis.com
SmarterKids.com
ToySmart
Zany Brainy
Source: Merrill Lynch Global Growth Group
This $70 billion likely understates the market size in that it excludes opportunities
for commerce in what comprises the largest component of school current
expenditures – salaries and benefits. Clearly there are private market opportunities
for training, recruiting, and benefits administration in schools. Moreover, school
capital expenditures also lend themselves to e-commerce opportunities.
Consumer-oriented K-12 commerce, at $8 billion, while small by comparison to
school e-commerce, is a significant market in an absolute sense. This also
includes a mix of products and services, such as toys, games, interactive products,
tutoring and test preparation services.
Like our other e-education categories, e-commerce providers are focusing on
either the business or consumer market, or are seeking to straddle both.
Epylon.com, for example, is exclusively addressing the e-commerce opportunity
in the business-to-business category. Companies such as ZapMe! and e-Chalk
also intend to capture a portion of school purchases, with plans to leverage their
positions as technology providers to schools into e-commerce revenue streams.
Education hubs too, are seeking to monetize their relationships with parents,
teachers or children into e-commerce revenues. Many of these portals have or will
create store fronts which should serve as powerful distribution channels for ecommerce of education products. Classroom Connect and Lightspan have online
retailing capabilities through partnerships with other providers.
“Offline” school supply companies have been leaders in the transition to ecommerce in schools to date. School Specialty and J.L. Hammett, the two largest
school suppliers in the U.S. have been the most aggressive about providing online
ordering options to schools
“Born on the web” educational e-commerce company SmarterKids.com relies on
J.L. Hammett for all its fulfillment, but, in keeping with its web roots, has
aggressively sought partnerships. SmarterKids provides the online store for
Lightspan.com, for example, in a co-branded initiative.
Partnerships have been important for both online and offline school suppliers, as
shown in the following table.
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E-Commerce Partnerships
E-Commerce Provider
SmarterKids.com
School Specialty
J.L. Hammett
Content Partner
Homeroom.com (Princeton Review)
Lightspan.com
National Computer Systems
Scientific Learning
ZapMe!
Games2Learn
Scientific Learning
Source: Merrill Lynch Global Growth Group
In a continuation of the idea that the Internet makes it possible to re-think the
delivery of education, we see e-commerce taking on a much stronger relationship to
educational content and objectives. The Internet’s ability to electronically evaluate a
student’s abilities and then make specific recommendations for products that can
enhance his or her skills is, in our view, a tremendous opportunity.
The Internet’s ability to
electronically evaluate a
student’s abilities and then
make specific recommendations
for products that can enhance
his or her skills is, in our view,
a tremendous opportunity.
SmarterKids.com was really the first to take its services beyond a simple retailing
capability by offering a very simple diagnostic of a child’s learning style. It then
highlights for parents those toys that would appeal to that child’s particular
learning method. A more sophisticated example is its partnership with NCS. This
jointly sponsored web-site, “WeHelpKids.com,” evaluates a student’s scores on
standardized tests, identifies areas for improvement and recommends specific
products to parents using the site. We also expect Scientific Learning’s
BrainConnection.com to use online assessments, with a possible link to specific
products addressing individual needs as identified by the tests.
The e-commerce link for teachers is also an enhanced one. Teachers searching the
web for ideas tied to specific lesson plans could, for example, get prompts for
products that would enhance instruction of that particular lesson. Teachers, who
are typically given a fixed budget from their principal and spend another $200 of
their own money for classroom supplies, represent a significant market.
Improving Management of School Resources
Through E-Commerce
The administrative aspects of education are also ripe for improvement through
technology. The ordering process for school products and services is usually slow
and paper-based, with triplicate forms making their way from teacher to principal
to school district purchasing agent. The ability to automate purchasing of district
products and services could mean significant improvement in the administration of
district resources.
The administrative aspects of
education are also ripe for
improvement through
technology.
Epylon.com and Simplexis.com, recognizing the power of a vertical buying portal
for education, are aggressively developing an education marketplace where
schools and commercial providers can negotiate for products and services and
administer those relationships online.
Teachers can benefit too, receiving requested resources at the speed of business,
rather than the speed of bureaucracy. The typical delay between the time a teacher
fills out an order with School Specialty, and the time that order is placed with the
company (once it has moved through all the necessary administrative steps), is
three weeks. By the time a teacher gets her materials, a full month has passed. As
a result, teachers have to plan way ahead (reducing flexibility in how and when to
teach certain subjects), do without certain supplemental materials in class, or
purchase herself by spending her own money and time. None of these cases is
ideal, and hence we see teachers being one of the beneficiaries of improving the
process of procurement through the Internet.
127
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Epylon.com- the marketplace for educational institutions
Epylon.com is creating an online market, a business-tobusiness e-commerce hub where education buyers meet
companies selling products and services into the education
market. The school procurement process, especially at the
K-12 level, is generally low tech, heavily paper-based and
people-intensive.
The online buying community envisioned by Epylon.com
would enable schools to better utilize their resources. Not
only would schools reduce the time necessary to manage
their procurement, they could also benefit from access to a
wider range of products and a greater supplier list than
before. This should enable schools to find the products
and services that best fit their needs, at the most
competitive pricing.
Founded: 1998
Headquartered: San Francisco, CA
Vendors benefit from access to a wider customer base and
improved customer service. It could also reduce their
order management and fulfillment costs, through its
electronic quote and bid systems, better invoicing and
payment monitoring and the potential for less seasonal
inventory requirements. High-quality suppliers would also
be highlighted by favorable customer reviews.
Epylon’s five co-founders are experienced in the Internet,
finance and education. Co-founder Kelly Blanton, for
example, is former superintendent of Kern County
Schools, where, as the local paper observed, he was
“legendary for his ability to use corporate business
practices to expand the services offered to local school
districts by his office.”
Revenue Components:
Content Sales:
Public/Private: Private
Commerce:
URL: epylon.com
Advertising:
Claim to Fame: B2B e-commerce company creating a vertical
in the education market
Service :
Investors: Intel, ITVentures
X
X
Hub/Portal Strategy: Yes
Network Effect: Yes
Partners: To be announced
Competitors: Simplexis and potentially CommerceOne or VerticalNet
Coolest Feature: Site launch in April 2000
Metrics to look for:
Number of Schools: 50 pilot districts
Number of Partners
128
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Simplexis.com – cutting procurement costs to the bones
Co-founded by former Secretary of Education, Lamar
Alexander, Simplexis.com is a B2B marketplace for public
institutions and their suppliers with an initial focus on
public schools. It helps school business officials save
money and time when they buy goods and services and
offer related content and information for school business
operations. Simplexis.com is an e-commerce hub for
procurement of the best products and services at the lowest
prices simply, and quickly.
Simplexis.com leverages the expertise of its management
team and Board of Directors with a solid knowledge base
of the public sector, business, e-business, supply chain
management and most significantly, education. Some have
served at the highest levels of government and played a
leadership role in setting educational policies at the state
and national levels. Others come from leadership
positions in supply chain management with some of the
world’s most successful companies. Still others were
school business officials who worked in the business of
education for decades.
Simplexis.com provides school districts with an automated
requisitioning process that incorporates all required
approvals and audit requirements - reducing procurement
costs, increasing service and reducing cycle times. It will
enable cooperative purchasing among a large number of
school districts across many local, county, and state
boundaries - lowering procurement costs through volume
discounts and provide suppliers access to a larger customer
base and reduces – even eliminates – the paperwork
Founded: February, 2000
Headquartered: San Francisco, CA
associated with contract negotiations, order fulfillment and
delivery. Furthermore, Simplexis.com will ensure that all
participating agencies comply with legal requirements set
forth by local and state regulatory authorities.
Simplexis.com launched the pilot program in March 2000
in the Glendale, CA Unified School District. More than
100 school districts that spend an estimated $3 billion
annually for goods and services have lined up to use
Simplexis.com. More than a dozen public school districts
across the county with annual purchases totaling roughly
$400 million will join in the pilot program. Completely
free to schools, the fully implemented Simplexis.com
system will save participants an estimated 10-15 percent of
their procurement budget while providing news, content
and community for all involved in the business of
education.
Through its alliance with application service provider
Corio, Inc., Simplexis.com deployed a customized version
of Commerce One's BuySite (tm), reducing time-to-market
to a bare 40 days. Simplexis.com outsources all
installation, setup and maintenance of Commerce One's
hosted BuySite(tm) e-procurement application 6.0 to
Corio. Corio's solution allows Simplexis.com to give
customers a complete, custom e-procurement solution
without any installation on customer premises.
Simplexis.com has secured $30 million in capital and
operational support from Internet Capital Group
(contributing $25 million) and Kaplan, WR Hambrecht &
Company, Schoolhouse Partners and Commerce One.
Revenue Components:
Content Sales:
Public/Private: Private
Commerce:
URL: simplexis.com
Advertising:
Claim to Fame: Uses state of the art technology to “cut procurement
costs to the bone”
Service :
Investors: Internet Capital Group (ICG), Kaplan, WR Hambrecht &
Company, Schoolhouse Partners and Commerce One
Partners: Kaplan, Inc., Corio, Inc., Arius, in2action, e-rate
X
X
Hub/Portal Strategy: Yes
Network Effect:
Yes
Competitors: Epylon.com and potentially
CommerceOne or VerticalNet.
Metrics to look for:
Number of Schools: 100 school districts
Number of Partners
129
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Educational Services Online
Tutoring and Test Prep
Achieva
CollegeLink.com
EdPoint
EducationTalk
E-Tutor
GlobalTutor.com
Homework Central
HomeworkHelp.com
Kaplan (e-Score)
Princeton Review (Homeroom.com)
SuperTutor
Test University (TestU)
TopClass
TopTutor
Tutor.com
TutorNet.com
Source: Merrill Lynch Global Growth Group
Sales of educational services are slowly following sales of educational products
online. One of the more interesting areas is the evolving online tutoring industry,
with a number of companies competing for a piece of this market. In the corporate
training market, companies such as DigitalThink and SmartForce have included
online tutoring as a powerful (but free) complement to their content. In K-12, of
course, the economics and dynamics are different, and it is primarily start-up
companies that are seeking to fill this niche by targeting busy and concerned parents.
These companies use various technologies to capitalize on the Web’s unique
attributes. As technology and the market progresses, we expect that companies
like these will be able to do find even smarter ways to leverage an individual
tutor’s time.
Tutoring and Homework Help On the Internet
Company
Tutor.com
TopTutor
EdPoint
Tutornet.com
One of the more interesting
areas is the evolving online
tutoring industry, with a
number of companies
competing for a piece of this
market.
Approach
Facilitates one-on-one tutoring by serving as a clearinghouse between tutors and
interested students. Matched pairs meet offline.
Enables one-on-one tutoring online by matching interested teachers and students and
providing the technology platform.
Enables one-on-one tutoring online by matching interested teachers and students and
providing the technology platform, an interactive white board.. Helps tutors manage
business aspects of online tutoring.
Subscribers get unlimited access to online tutors holding “office hours” in math, science
and language. Tutoring is one-to-potentially many. No appointments required.
Source: Merrill Lynch Global Growth Group
Test preparation is another service we see migrating to the Internet. Until now,
students prepared for high-stakes tests like the SAT, GRE or GMAT by taking an
instructor-led class or alone, with a book or software program. We see the
opportunity to combine these two instructional methods online, offering the best of
both. We may see this model approaching the corporate training model, where selfdirected study predominates, supplemented with online tutors and other services.
“Stand firm in your refusal to remain conscience during algebra. In real life, I
assure you, there is no such thing as algebra.”
– Fran Lebowitz
130
The Knowledge Web – 23 May 2000 (Reprint)
eSCORE.com – skills assessment for learning fun
eSCORE.com is the online unit of SCORE! Learning, Inc.,
which provides tutoring and academic enrichment to
students in its after-school education centers. SCORE!
Learning is wholly owned by Kaplan, Inc., which is a
subsidiary of the Washington Post Co. SCORE currently
has more than 100educational centers and serves over
40,000 kids. eSCORE.com, founded in 1999,
complements and expands upon the services offered in the
company’s physical locations, creating an integrated
“clicks and bricks” strategy.
eSCORE.com’s central offerings are services to help
parents of children newborn to age 18 understand a child’s
particular developmental and learning needs. These
services include more than 300 online skills and abilities
assessments, detailed feedback reports, one-to-one
learning consultations with specialists, and topic-specific
workshops. For school-age children, eSCORE.com offers
diagnostic skills testing, determines areas for academic
improvement and then recommends resources, products
and services [both online and offline] to address those
specific skill gaps. Many of the assessments are directly
tied to state standards and are geared to help students build
the skills evaluated on state proficiency tests.
eSCORE.com is also developing parent communities
around learning issues. Through several collaborations,
eSCORE.com offers a suite of tools to serve parents of
children with special needs and learning disabilities as well
as gifted and talented students. These collaborations with
such organizations as LD Online and the National Research
Center on the Gifted and Talented offer parents information
to identify and address the learning issues relevant to them.
SCORE! recently announced plans to form a strategic
alliance with Pearson plc, the world’s largest educational
publisher, in which the two companies will co-develop
technology to provide customized learning experiences for
children. eSCORE.com will use the technology as the
foundation for its launch later this year of online tutoring
services, in which children will work synchronously with a
live, online academic coach on math, reading, spelling and
other skills. Pearson will give eSCORE.com premium
placement on the pre-K through 12 section of its education
network, a portal scheduled to launch later this year on the
Web and on AOL. The network will be AOL’s preferred
educational content provider. Pearson also plans to invest
at least $20 million in SCORE!.
The company has expanded into the pre-K market with
purchase of ParentPartners.com. The purchase of
ParentPartners enables eSCORE.com and its customers to
access ParentPartners’ internationally recognized panel of
pre-K child development experts from organizations
including Harvard Project Zero and the Brazelton Institute.
The acquisition helps eScore.com meet the needs of parents
of very young children, providing them with information
and resources to understand their children’s developmental
patterns and enrich their learning and growth.
To round out its offerings, eScore.com also provides a
range of other services including information on state
education standards, state test resources, skill-building
activities, and an Action Planner, an interactive portfolio to
track and record recommended products, activities and
services. Its e-commerce arm offers an expansive online
catalog of educational products: 25,000 book titles, 5,000
music titles, 5,000 video titles, 7,000 toy products, and over
1,000 software products. In addition, the company offers
parents a home-delivered subscription to Weekly Reader’s
15 publications. By providing products and resources
tailored to a specific child’s needs, eSCORE.com seeks to
solidify these parent relationships and to be their source for
all aspects of their children’s education.
Founded: 1999
1999E Revenues: $22 million (SCORE! Learning total)
Headquartered: Alameda, CA
2000E Revenues: $50 million (SCORE! Learning total)
Public/Private: subsidiary of Kaplan/Washington Post Co. (NYSE: WPO)
Revenue Components:
Content:
URL: eSCORE.com.
Commerce: X
Claim to Fame: First educational services site for parents, with plans
to launch children’s services such as online tutoring in the near future.
Advertising:
Coolest Feature on the Website: Customization of content, advice and
services based on the age, grade, strengths and needs of each child.
Service:
X
Other:
Key Investors: Kaplan/The Washington Post Company, Pearson plc
(pending final agreement)
Network Effect:
No
Key Partners: Weekly Reader Corp., Dragonfly Toys, LD OnLine,
Harvard Project Zero, the Brazelton Institute, Imagine the Challenge,
Educators’ Resource, Baker & Taylor, National Research Center
on the Gifted and Talented (UCONN), Center for Talented Development
(Northwestern), Instructional Fair Group, Virtual Learning Technologies,
Developmental Skills Institute
Hub/Portal Strategy: No
Metrics to look for:
Number of registered students/families
131
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21. Infrastructure
K-12 E*Infrastructure Statistics
Size of Online Market
$1 billion
Market Growth Rate
20%
Key Players
Chancery Software
ZapMe!
schoolbell.com
NetSchools
NCS
ProjectACHIEVE
HighWired.com
High Fusion
Source: Merrill Lynch
Infrastructure development has been one of the most dynamic areas of growth in
schools in the last two years. Given the early stage of Internet integration in K12 education, we expect that sales of enabling hardware, software and
infrastructure services will continue to gather steam in the next few years.
In the 1998-99 school year, K-12 schools spent $6.7 billion on technology.
Most of this was on high-speed instructional machines that are multimedia and
Internet capable, as well as school networking equipment and other
infrastructure components that, broadly speaking, enable schools to get online.
Hardware and the necessary service and support associated with it comprise a
significant percentage of this total.
Administrative software, Internet access and teacher training also capture a
considerable part of this $6.7 billion. Instructional content, discussed in an
earlier section, captures the remaining portion of school technology
expenditures. We estimate that, last year, almost none of the funds spent on
administrative software and teacher training was Internet related, although we
anticipate this will rapidly change.
Access through Hardware Solutions
To integrate the Internet into schools and classrooms, kids and adults first need
access—a way to get online. The K-12 education market has unique attributes
that create both opportunities for hardware providers.
Infrastructure
ACTV
Blackboard.com
Chancery
e-chalk
eCollege.com
Edutest
Edventions
ETS
Filtering Software from N2H2, Learning Company,
School Specialty, etc.
Gemstar (Rocketbook)
HighWired.com
iMind
Into Networks
Kaplan (e-score)
LearningStation.com
MC2 Learning Systems
NetSchools
NSchool
PowerSchool
Princeton Review (Homeroom.com)
Testmaster
ThinkWave
WebTV
ZapMe!
Source: Merrill Lynch Global Growth Group
Unique Characteristics of School Technology Use
Challenge
Less Money to Buy Technology – Nearly half of
corporate spending on durable equipment is for
computers. Just 2% of school spending overall is
for technology.
Opportunity
Help Schools Redefine Priorities – Only 50% of
school budgets spent on classroom instruction
Help Schools Find Financial Resources –
grantwriting assistance
The power of Free
Less Money to Maintain Technology
Central administration of computers
Still a Missionary Sell
Provide teacher support. Provide documentation on
technology success.
Child and Teen Users
“Fisher Price” Computers Heavy-duty, easy to use.
The Classroom Setting
Big Screen, sharing files, teacher information systems
Constraints of Physical Plant
Wireless
Source: Merrill Lynch Global Growth Group
ZapMe! and NetSchools have both developed hardware solutions for K-12 schools
that address these challenges and capture these opportunities. ZapMe! resolves
the financial aspects of the access conundrum, providing a lab of high-speed
computers to schools with high-speed satellite Internet access at no cost to
schools. Schools agree, in exchange, to let ZapMe! post advertising on its
computers and access the computer labs after hours for tutoring, teacher training
and student testing.
Technology is most effective if every child has access; this is the foundation of the
NetSchools solution. NetSchools gives every student a rugged laptop computer
designed for the school market. Each is connected to the school server with a
wireless remote. These can both be used in class or at home. In contrast to ZapMe!,
this is a classroom-based solution that enables complete technology immersion for
schools. Hardware companies Apple, Dell, Toshiba, Gateway, Intel, Cisco and
132
The Knowledge Web – 23 May 2000 (Reprint)
Expanding parental
involvement and learning time
are two significant ways in
which the Internet can improve
educational performance.
others sell millions in computers and networking equipment to schools. For the
most part, however, this hardware is not tailored specifically for the education
market, nor are their business models. Hence, we will not spend time in this
report discussing the status of these various hardware providers in schools. We do
note, however, that these companies have been increasingly interested in forming
partnerships with and/or investing in other companies in the e-learning sector.
Their strong brands, deep pockets and interests in the education markets clearly
make them forces to watch in K-12 technology. Another group that may find
themselves in the same position shortly – Internet Access Providers. AOL,
Earthlink and their broadband counterparts will, in our view, show increased focus
on K-12 education in the next few years.
Favorite Bookmarks of Don Tapscott,
President of the New Paradigm Learning Corporation and author of Growing Up Digital
www.harmony-central.com – a great resource for musicians
www.audiofind.com – cool mp3 file search site
www.growingupdigital.com – explores the impact of technology on youth
www.britannica.com – now free, a co-navigator to the world of digital knowledge
www.refdesk.com – need facts fast? Go here, a great home page.
We expect that other access options will increase access to e-learning. These may
include WebTV or videogame consoles, such as the Sega Dreamcast system.
Nearly half of young online consumers own or play games on Nintendo, Sega and
Sony game consoles. Last fall, the Dreamcast system debuted with a built-in 56
Kbps modem, creating an Internet access device. These low-cost options will
most likely find their broadest acceptance in homes instead of schools. Even so,
they provide a means for parents and children to continue to access educational
content and interact with teachers and peers outside of traditional classtime hours.
Expanding parental involvement and learning time are two significant ways in
which the Internet can improve educational performance.
Schools are increasingly being
held accountable for student
academic achievements, a trend
we expect will only grow
stronger in the next decade.
Administrative Software Tools
We predict that web-based software for schools will find a fertile market. Schools
are increasingly being held accountable for student academic achievements, a
trend we expect will only grow stronger in the next decade. Pressured by
requirements to teach to academic standards, demonstrate student achievement
(particularly on standardized state and national tests) and show benefits from
technology expenditures, schools will need software to manage and track
information as well as enable teachers to focus more of their attention on teaching
and less on administration.
Administrative software for schools falls into two categories: programs aimed at
improving school operations and programs geared toward helping teachers manage
their classrooms. For the most part, school administrative software must be customdeveloped for the education market. Hence, we have seen many new companies
spring up to address the new opportunity for Web-based solutions, and have seen
little participation by traditional ERP providers such as PeopleSoft and SAP.
133
The Knowledge Web – 23 May 2000 (Reprint)
School Information That Can Be Captured By Enterprise Software
Student Information Systems
Attendance
Grades
Test Scores
Health
Demographics
Schedules
Courses
Discipline
Guidance
SpecialEd
Enrollment
Instruction Management Systems
Curriculum
Assessment
Standardized Tests
Student Work
Standards
Lesson Plans
Lesson Materials
Source: Merrill Lynch Global Growth Group
School management information
systems, or “SAP for schools,”
automate and manage school
backoffice and some classroom
management functions.
School management information systems, or “SAP for schools,” automate and
manage school backoffice and some classroom management functions. Other
Internet software solutions perform such diverse functions as helping teachers
organize their online class projects or involving parents in their children’s education.
School Management Software
Software Application
Manage school and student
information
Manage teacher resources and
classroom instruction
Manage school activities
Manage school technology
Integrate parents
Example
Student Records, School Finances
Online Software Providers
ProjectACHIEVE; ThinkWave;
PowerSchool
Lesson Plans, Student Performance
Advantage Learning; MC2
Data; Alignment to State Standards Learning Systems; MediaSeek;
NCS, ProjectACHIEVE
Student Newspapers, sports schedules
HighWired.com
Internet security and
N2H2; The Learning Company
filtering software
Grades and homework online; School ProjectACHIEVE; ThinkWave;
websites
NCS; PowerSchool;
FamilyEducationCompany
Source: Merrill Lynch Global Growth Group
We see particular potential in
those solutions that improve the
management of the learning
process.
School Enterprise Software
Edventions
Chancery Software
i-mind
National Computer Systems
nSchool
PowerSchool
Project ACHIEVE
SchoolNet
Thinkwave
Source: Merrill Lynch Global Growth Group
134
n School Enterprise Management Software
We see particular potential in those solutions that improve the management of the
learning process. By collecting and managing information on what children are
learning, how that relates to district or state standards, teacher ability or even
school finances, these software applications have the potential to professionalize
teaching and school administration, as well as significantly increase parental
involvement in their children’s education.
The Knowledge Web – 23 May 2000 (Reprint)
Chancery Software
A
Edventions
A
Project ACHIEVE
NCS
A
A
O
O
O
X
A
A
A
O
O
O
X
A
A
A
O
O
A
A
A
O
O
O
O
O
O
A
PowerSchool
iMind
A
A
A
nschool
A
A
ThinkWave
A
O
O
O
A Teacher
Functionality
X
X
X
X
X
X
O
O
X
X
X
X
O
X
Y
Y
Y
Y
Y
Y
Y
X
Y
th In
terne
t upl
oad
Intra
net w
i
Z
Z
Z
Z
Y
Z
Z
X
X
X Student
Functionality
Y
Y
X
X
O Parent
Functionality
Y
Intra
net
Com
task prehen
s
-ma
nage ive dail
y
men
t too
Stan
ls
curr dards-b
iculu ased
m to
ols
Ema
chat il/comm
appl
icati unity
on
Edu
catio
nal r
esou
rces
/too
Pare
ls
stud ntal acc
ent i
ess t
nfor
o
mati
on
Ema
il/co
mm
unit
y ch
at
Edu
catio
nal r
esou
rces
/too
Onli
ls
perf ne grad
orm
ance es and
asse
Onli
ssm
ent
testi ne hom
ewo
ng c
apab rk an
ilitie
d
Onli
s
ne T
utor
help
Onli
n
reso e educ
urce
a
s an tional
d too
Ema
ls
il/co
mm
unit
y ch
at
Com
and prehens
pare
ive t
nt in
e
form acher, s
Scho
ation tude
ol-w
track nt
ide r
ing
epor
ting
capa
Cus
bilit
tom
ies
izab
le re
port
ing c
Ema
apab
il/co
ilitie
mm
s
unit
y ch
a
t
ASP
Mod
el
K-12 Online Enterprise Solution Providers
Y
Z
Z
Y Administrator
Z Product
Functionality
Delivery
Source: Merrill Lynch Global Growth Group
Computerized school management systems have yet to fully replace the old paper-andpencil based system for keeping student attendance and grades, ordering and managing
school supplies or maintaining and updating lesson materials, but we believe this
transition will happen quickly. Just as Management Information Systems have
become essential to the efficient functioning of successful businesses, Learning
Information Systems have the potential to become permanent fixtures in schools,
providing administrators and teachers with tools to improve student learning.
Just as Management
Information Systems have
become essential to the efficient
functioning of successful
businesses, Learning
Information Systems have the
potential to become permanent
fixtures in schools.
Moreover, these systems have the potential to personalize instruction as never
before. The diagnostic capabilities of computers, resulting from their ability to
track and evaluate large amounts of data, means that teachers can pinpoint
instruction to the needs of each individual student. Previously, teachers needed to
spend time on the diagnostic aspects of instruction before they could focus on
specific remediation. The computer frees the teacher from these tasks, enabling
her to spend her one-on-one time with children to meet their specific needs.
With these systems, we believe “educational productivity” can increase
substantially, just as the productivity of corporate America has seen substantive
gains with technology.
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The Knowledge Web – 23 May 2000 (Reprint)
NCS and Project ACHIEVE
American schools are entering a new era of accountability.
Powerful reform initiatives underway bring with them the
need for better management of the school as an enterprise.
Several companies have entered the market to provide
information systems to schools that allow them to track
various aspects of school operations and the learning
process.
The two most comprehensive of these systems are National
Computer Systems (NCS) and web upstart Project
ACHIEVE. Both provide schools with information
management solutions designed to enhance the learning
process and improve the potential for student achievement.
These systems are also designed to report critical student
achievement and school performance information for school
and district administrators, as well as track student and
school progress against state standards.
NCS is currently the leader in this market, with over
35,000 schools using at least one of its several
management modules. However, only two components
(ParentConnect and Educational Structures) are webbased. Most of the current software is client-server based.
Moreover, 25% of schools still use at least one DOS-based
product. How will NCS fare as these schools become
wired? Clearly its installed base is a tremendous asset and
many of these schools have historical databases that can be
readily uplinked to new NCS software. The software is
proven and robust. At the same time, the Project
ACHIEVE concept of a from-the-ground-up, fully webbased and easy to use system has tremendous appeal.
NCS will have to continue to be as nimble as it has to
counter the growing number of web-based school
management information systems.
NCS
Project ACHIEVE
Background: CEO Russ Gullotti has parlayed this company’s
traditional expertise in large scale data collection and test processing
into a leading position in education software and services. Through
internal development and acquisition, NCS has put together the leading
suit of school enterprise software programs. At this point, the software is
driven off a local client server, with a web interface for parents.
Background: Founded in 1998 by charter school principal and Harvard
MBA, Stacey Boyd, Project ACHIEVE was designed to capture information
that she, as a principal, found important and useful. Having concluded that
no alternative system was sufficient, she created a sophisticated yet easyto-use Web-based management system.
Products:
SASI: Student information system tracks scheduling, attendance,
grading discipline.
ABACUS: Instructional management software tracks curriculum
development, student academic programs, and skills-based
assessments.
ParentConnect: Web-based interface with SASI.
Mentor: Customized teacher tools and training.
Educational Structures: Teacher lesson plans delivered daily by Internet
NovaNet: Intranet-delivered curriculum.
CIMS: Accounting, Payroll, Personnel, Inventory
The current versions of SASI, ABACUS and ParentConnect are fully
integrated..
Financial Backing: Publicly traded. Stock has appreciated at a CAGR
of 36% over the past five years since CEO Russ Gullotti joined the
company.
Products:
ACHIEVE: Single comprehensive system for student information and
instructional management. Tracks attendance, schedules, grades,
discipline, and student mastery of state and district standards. Combines
functionality of NCS’ SASI, ABACUS and ParentDirect, but adds ability to
track parent involvement, capture all teacher created lesson plans and
whether teachers have covered state curriculum standards.
Key Partnerships: University of Cambridge
Key Partnerships: Jostens, Inc. is providing initial sales force, a select
group of 10.
Metrics:
Schools Installed: 35,000 schools have at least one NCS software product.
Metrics:
Schools Installed: 50
Source: Merrill Lynch and company documents
.
136
Financial Backing: Jostens, Inc., Sprout Group, KECALP
The Knowledge Web – 23 May 2000 (Reprint)
Chancery Software LTD
Chancery Software is in the business of helping educators
manage schools effectively and efficiently. The company
develops and markets student information systems and
library management systems for the Windows® and
Macintosh® environments. Information on close to five
million students is managed by 350,000 educators and
administrators using our Win School® and Mac School®
student information systems, Library Pro® library
management systems, District Data Integrator and Open
District systems. Chancery Software makes something for
everybody at school: teachers, counselors, principals,
librarians, administrators, district office personnel and,
most important, students.
Chancery products will be help students register, track
their attendance, report grades, monitor his or her progress
and even integrate the Internet into their day-to-day
studies.
Founded in 1983, Chancery Software started with the
premise that schools would benefit from the efficiency and
flexibility of an easy-to-use student record keeping system.
The result was Mac School, a site-based student Information
System (SIS) which offered schools a welcome alternative
to large, district-oriented mini and mainframe-based
systems. Developed for Apple Macintosh, the user-friendly
graphical interface and intuitive design represented
breakthrough technology for customers.
Over the years Chancery's product offerings have grown to
meet the evolving needs of education. The company has
added eClass Grades and eClass Attendance, the first of
several new cross-platform modules for Mac School and
Win School, to meet the on-line needs of teachers.
In 1997, the company launched Library Pro 2.0, an
innovative new information system for school media
centers and released District Data Integrator, a decision
support systems for school districts. In the spring of 1998,
Open District was launched-the first district information
system to harness the power of open systems, network
computing and relational database management.
Chancery Software recently launched K12Planet, a schoolto-home communication gateway for parents to access
important information about their children and their school
through the Internet. K12Planet is a gateway that gives
parents access to everything from their children's daily
grade and attendance information to homework help and
career and college planning resources. Teachers use
K12Planet to communicate with parents about their
students' day-to-day performance and to suggest resources
to help students succeed in school. Administrators use
K12Planet to share information with parents about
important issues in the school community.
Founded: 1983
1999E Revenues: NA
Headquartered: Vancouver, Canada
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: chancery.com
Content Sales:
X
Claim to Fame: best-selling Windows and Macintosh based student
information systems for K-12 schools and districts in North America
Commerce:
X
Advertising:
Service :
Other:
X
Hub/Portal Strategy: Yes
Investors: Arcadia Partners, Sylvan Learning Systems, Quad Capital
Partners, The Gale Group (a subsidiary of Thomson), Ventures West,
Growth Works Capital
Network Effect:
Yes
Metrics to look for:
School, parent, student and library participation
137
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Edventions, Inc. (Starship School)
Starship School is a developer of software tools that
enable elementary schools to operate online communities.
The company is a education technology firm that has
developed an online communications and learning system
for K-12 school use. The system provides Internet and
Intranet communication tools for each school to link
parents, students, teachers and administrators into a single
community. Parents can use the communication network,
E-mail, chat, use bulletin boards, to more easily monitor
their children's progress and talk directly with teachers and
administrators. In addition, they can view the published
student progress reports for their children.
Starship School puts the Internet at the disposal of the
entire community safely and efficiently to save time and
frustration. Safety is assured because student access to the
Internet is limited to a library of thousands of Internet
sites. Schools and teachers have complete control over the
sites students visit. Starship School also offers a filtering
capability that can be used to allow certain students to
search beyond Starship School, with adult approval. The
result is that parents know exactly what children are
downloading – approved educational and community
websites.
The Starship School library of sites cuts the Internet down
to manageable size. The company also reduces in-school
Internet waiting time because it's physically connected to
school computers, which means quick answers to
questions. This unique tool saves teachers huge chunks of
time and frees them up to do what they do best - educate
children. With just 15 minutes of training, Starship
Creator lets educators with no prior computer experience
write professional-looking lessons and reports. The
system leads users through lesson writing with step-bystep instructions. This translates into time-savings and a
portable portfolio – teachers can reuse the same material
each year and easily add new content.
Founded: 1999
1999E Revenues: NA
Headquartered: Skokie, IL
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: edventions.com, starshipschool.com
Content Sales:
X
Commerce:
X
Advertising:
Service :
Other:
X
Hub/Portal Strategy: Yes
Investors: River Cities Capital Fund, M Group, individual investors
Network Effect:
Metrics to look for:
Number of users
138
Yes
The Knowledge Web – 23 May 2000 (Reprint)
Online Assessment and Testing
We believe the Internet will reshape the role of testing and assessment in
education. Indeed, in the future, it may be that assessment is hardly separable
from content. In its most connected form, ongoing online assessment would
determine what content a student receives and when.
Today, when we talk about assessment, the biggest debate is over whether those
tests are delivered online, via secure Intranet or in a paper-and-pencil format. But
moving tests into a digital format is only the very first step in effectively
leveraging the potential of the Internet in testing. Today, these tests are essentially
the same as their paper-and-pencil ancestors.
“If you prove that technology can raise test scores, then the only issue is, why
doesn’t every kid have a computer?”
– Princeton Review President and CEO, John Katzman
Looking forward, we expect that the look of tests will change, incorporating audio and
visual components, computer simulations and a variety of test response possibilities
(e.g., essay or oral exam, in addition to the traditional multiple choice format).
As content and exams become increasingly digital, we anticipate that the
frequency of testing increases significantly, moving from one “high-stakes” exam
at the end of each year to an ongoing assessment of performance as a student
moves through a class or the course material. Once we get to this stage, decisions
like whether a student has mastered a course or is qualified for graduation, or the
effectiveness of a specific school or teacher, likely will no longer be based on one
examination given at a single point in time. Rather, these judgments will
incorporate information from a series of measurements. Ultimately, the need for
stand-alone testing centers could disappear, as the concept of testing as a one-time
snapshot of performance is overcome by the view that it become an embedded part
of the learning process. We are in the very early stages of this transformation,
with the conversion of paper-and-pencil tests to a computerized format being the
first step. This is only the first generation of computerized tests, according to
ETS’ Policy Information Service, with the third generation being a full reinvention
of our concept of high-stakes testing.
Favorite Bookmarks of Jonathan Carson,
Chairman and CEO, FamilyEducation Network
www.familyeducation.com
www.aol.com
www.infoplease.com
www.funbrain.com
www.schoolcash.com
www.teachervision.com
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Transformation of Testing in the Internet World: Three Generations of
Large-Scale Educational Assessment
Generation
First-Generation Computer-Based Testing
(Infrastructure Building)
Key Characteristics
1. Primarily serve institutional needs
2. Measure traditional skills and use test designs and item
formats closely resembling paper-based tests, with the
exception that the tests are given adaptively
3. Administered in dedicated test centers as a “one-time”
measurement
4. Take limited advantage of technology
Next Generation Electronic Tests
(Qualitative Change)
1.
2.
3.
4.
Generation “R” Tests (Reinvention)
1.
2.
3.
4.
5.
Primarily serve institutional needs
Use new item format (including multimedia and
constructed response), automatic item generation,
automatic scoring and electronic networks to make
performance assessment an integral program
component, measure some new constructs
Administered in dedicated test centers as “one time”
measurements
Allow customers to interact with testing companies
entirely electronically
Serve both institutional and individual purposes.
Integrated with instruction via electronic tools so that
performance is sampled repeated over time, designed
according to cognitive principals
Use complex simulations, including virtual reality, that
model real environments and allow more natural
interaction with computers
Administered at a distance
Assess new skills
Source: ETS Policy Information Center “Speculations on the Future of Large-Scale
Educational Testing" by Randy Elliot Bennett. Reprinted with Permission.
140
The Knowledge Web – 23 May 2000 (Reprint)
Highwired.com – the online community for high schools
Highwired is the largest community of high schools on the
web, encompassing over 8,500 schools in all 50 states and
61 countries.
Highwired got its start in 1998 by helping schools publish
their student newspapers online. The appeal of this effort
was obvious. Not only could student work reach a broader
audience by being published online, students could interact
and share stories with others from schools around the
country, and even the globe. Student newspapers are able
to capitalize on the Internet’s network effect, and
accordingly, the company’s reach has expanded
significantly. It took HighWired.com 11 months to sign up
the first 1,000 high schools. The second 1,000 high
schools took four months. The most recent 1,000-school
acquisition was accomplished in just 50 hours. In
addition to student readers, parents, grandparents, friends
and community members are able to access the
newspapers, creating an additional audience for
Highwired.
Founded: 1998
Highwired’s easy-to-use web publishing service empowers
students (and their instructors) with online publishing
capabilities without the need to know HTML, receive
training or read manuals. The service is free to schools,
with corporate sponsors and advertisers underwriting the
costs of providing the service. Schools can also sell
banner ads on an individual basis and keep the proceeds,
very similar to the efforts of students on their offline,
advertising-sponsored newspapers.
Highwired has now expanded its offer of free web
publishing tools and free email to five major areas of high
school life: classrooms, guidance offices, sports teams,
student activities and, of course, newspapers. These new
areas not only leverage existing school relationships, they
provide additional traffic and the associated ability for the
company to monetize it through e-commerce, advertising
and other services.
Revenue Components:
Headquartered: Watertown, MA
Content Sales:
Public/Private: Private
Commerce:
URL: highwired.com
Advertising:
Claim to Fame: Largest high school community website
X
Service:
Other:
Coolest Feature: Free web publishing tools
Hub/Portal Strategy: Yes
Investors: Charles River Ventures, North Bridge Venture Partners
Network Effect: Yes
Partners: Lycos, FamilyEducation Network, State of Maryland, PBS,
AOL@School, Boston.com and Embark.com
Metrics to look for:
Number of Schools
Number of Students
Number of Visitors
141
The Knowledge Web – 23 May 2000 (Reprint)
Test University, Inc. (TestU)
Test University, Inc. (TestU) provides online test
preparation service over the Internet to help students
achieve superior results on any standardized examination.
The company was founded by a team of seasoned
entrepreneurs, educators, marketers, technologists and
venture capitalists to exploit the demand for online test
preparation services. TestU’s courses are designed to be
visually rich, customized, performance-driven, dynamic
and humorous with a spirit in harmony with its target
market. Its potential marketplace spans every age group,
background and lifestyle. Its first course – targeted at SAT
test prep – is in beta-test phase now. Its target market
segments going forward include:
a. K-12, State Exit Exams (Regents in NY, state-specific
in 20 other states), Elementary Proficiency Exam
(state-specific promotional exams), PSAT/National
Merit Scholarship, Skill Builders for kids
b. Undergraduate: SAT, ACT, SAT II, Advanced
Placement
c. Graduate: GRE, MCAT, GMAT, LSAT
d. Professional: CPA, Praxis I & II (Teachers’), CFA,
Series 6, Series 7, PE, Real Estate Bar Exam, Dental
Administration, NTE, Optometry, Insurance Agent
Exam
e. Other: TOEFL, TOEIC, GED, Citizenship, Driver's
License
TestU is an Internet-based virtual university that is accessible
anytime, anywhere, on-demand. Features include:
i) SMART CurriculumSM – Customized curriculum that
provide adaptive, personal guidance for each student
ii)
Dynamic Setting – Animated, multimedia
environment that is entertaining, dynamic, intuitive,
engaging and easy to manipulate, control, and interact
with
ii) A Virtual Living Campus (in development) – Chat
rooms, e-mail tutor, cafe, library, gym, game room,
bookstore, registrar, screening room, and more
The intuitive intelligence embedded in the TestU’s SMART
System (Self-Modifying Ability-Reactive Training System)
customizes the lesson plan for each student based on his/her
abilities, aptitude and performance in real time. Each
student's experience with the TestU site will be unique, as
the curriculum adjusts itself:
i) based on the amount of time available to the student
before the test date;
ii) from session to session, based on the results of
diagnostic and practice tests that identifies specific
areas of weakness and/or strengths; and
iii) from key click to key click, based on the student's
answers to questions or desire to navigate through the
site.
The TestU customized program is designed to enable the
student to achieve the highest possible score within the
amount of prep time available. Students will be exposed
to "MicroCourses" that shore up their weaknesses in basic
skill areas, as well as “Practorials” that teach innovative
problem-solving strategies, designed by some of the
world's most noted test experts to achieve test-taking
mastery. In addition, they will hone their skills in labs,
sectional practice exams and full exams.
Since its formal inception in July 1999, TestU has
established relationships with leading examination authors,
publishers and academic leaders, forming its Academic
Council – an unparalleled organization in this space – that
advises the company on product development and
contributes critical knowledge to the policy and learning
model development at TestU.
Founded: July 1999
1999A Revenues: NA
Headquartered: New York, NY
2000E Revenues: NA
Public/Private: Private
2001E Revenues: NA
URL: www.testu.com
Revenue Components:
Claim to Fame: TestU claims to be the first online test preparation
Company to offer customized study programs
Coolest Feature on the Website: SMART Curriculum that selfmodifies to adapt to students’ abilities, Virtual Mentor to guide
students’ through courses, and Campus Life where students can R&R
Content:
X
Commerce: X
Advertising: X
Service:
Other:
Key Investors: Selway Partners, CIP Capital/ SCP Equity Investment
Partners, Dr. Samuel Waksal, Greenwich Street Capital/Tower Hill
Capital Group
Key Partners: Barron’s, Research & Education Association (REA),
National High School Association, California League of High Schools,
National Urban League, Institute for K-12 Leadership at University of
Washington
142
Network Effect:
Yes
Hub/Portal Strategy: Yes
Key Metrics:
Number of Registered Students and Licensed Schools
Student Course Completion Rate
Student Testing Success Rate
The Knowledge Web – 23 May 2000 (Reprint)
schoolbell.com – making the education connection
schoolbell.com provides an Internet based solution to
improve operational efficiencies, expand access, decrease
costs and provide increased value across the entire school
community. By utilizing schoolbell.com’s online
information management solution, schools obtain many
benefits, including:
1) allows a school to dramatically reduce information
management costs;
2) prepares schools to meet new and unprecedented
demands for the assessment, tracking and detailed
reporting of student performance; and
3) allows schools to open new pathways of communication
between the school and home by repackaging selected
information recorded by the school for easy, secure
Internet viewing by parents and students.
Hence, the company’s solutions allow its users to solve
one of the most important problems facing K-12 education
today – the information gap between schools and homes.
By enabling the secure exchange of information among all
members of the school system, schoolbell.com provides
many benefits. The hardware and software that deliver
schoolbell.com’s solution are hosted on remote servers,
which greatly reduce technology costs. Additionally, the
company’s solution allows the educational community to
become more closely knit through enhanced communication
via schools and homes via the Internet. schoolbell.com’s
technology platform is designed to scale to accommodate a
high volume of transactions and large numbers of
simultaneous users. schoolbell.com believes that this
increased information flow within the community will
ultimately result in more accurate and relevant information
in a timelier manner. For example, teachers can use the site
to take attendance, conduct weekly planning, enter student
grades, post student work, create and update instructor
web-pages, communicate with instructors and parents and
view school calendars and information.
Founded: 1999
1999E Revenues: NA
Headquartered: Minneapolis, MN
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: schoolbell.com
Content Sales:
X
Commerce:
X
Advertising:
Partners: Computer Control Technologies, ActiveTouch,
Sihope Communications
Service :
Other:
X
Hub/Portal Strategy: Yes
Network Effect:
Yes
Metrics to look for:
Number of Users (schools, districts, teachers, parents, students and
administrators)
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The Knowledge Web – 23 May 2000 (Reprint)
22. Supplemental Services
Supplemental Services Statistics
Size of Market
$10 million
Market Growth Rate
50%
Key Players
Escrip
SchoolPop
Synapse
YourSchoolOnline
RocketCash
DoughNet
iCanBuy
Source: Merrill Lynch Global Growth Group
The Internet creates a low-cost
method of raising money for
nonprofit organizations and
schools by capturing a
percentage of online sales for
schools of the shopper’s choice.
Innovative companies have identified other new ways to use the Internet to serve
the K-12 market. These companies are providing services that aren’t core to
instruction or school operations, but are valuable nonetheless and offer profitmaking potential.
From U-Bake to U-Bid
For better or worse, fundraising has always been a part of public education. A
primary function of active Parent-Teacher Associations has been raising money
for school programs. Well, the bake sale of the new economy is online.
The Internet creates a low-cost method of raising money for nonprofit
organizations and schools by capturing a percentage of online sales for schools of
the shopper’s choice.
Charity fundraising websites help individuals benefit their favorite groups or
schools by doing things they'd do online anyway, like shop and browse the Web.
Schools have been a favorite beneficiary of these charity sites, with two
companies focusing exclusively on the school fundraising opportunity: Schoolpop
and YourSchoolShop.com.
Schools have also used scrip to raise funds. Scrip is like a gift certificate, except that
it is purchased for one’s own use, instead of cash when shopping. Schools buy the
scrip at discount, sell it at face value and keep the difference. Schools can buy scrip
directly from merchants (many large grocery store chains participate, for example),
or they can buy it from a national clearinghouse for participating merchants.
This process is greatly simplified with the Internet and the introduction of eScrip,
With eScrip, schools ask parents, grandparents and community residents to
register their credit cards and grocery cards with ESI, the company that
administers the eScrip program. When these cards are used for purchases from
participating merchants (online or offline), ESI pays back a percentage to the
school. The schools eliminate much of the administrative burden of the program,
and, because the scrip is not paid for in advance, the risks of advance purchasing
and holding large amounts of cash is eliminated.
Online School Fundraising Companies
Company
Schoolpop
YourSchoolShop.com
EScrip.com
The Deal
What’s Different?
Online shopping mall sends 30-75% of Each of the 12,000 schools
registered has a coordinator who
each purchase to school or schoolserves as its contact at Schoolpop ,
related group of buyer’s choice
making sure all checks arrive on
time, troubleshooting and providing
marketing help
Signs an agreement with each
Online shopping mall, operated by
GreaterGood.com, sends up to 30% of school before listing it on the Web
site
purchases to the school or schoolapproved group of buyer’s choice
The program brings an
Program that allows participating
merchants to contribute a percentage of unprecedented ease of use to the
ones credit or debit card purchases to fund raising process and allows
simple, year-round fundraising
the school, group or organization of
choice
Source: San Francisco Chronicle; Merrill Lynch
Synapse, the company that raises the most money for schools through magazine
subscription fundraising drives, also sees the potential in online fundraising, and
has partnered with ZapMe! to utilize the ZapMe! network of schools and students
to deploy its fundraising program. We expect to see other fundraising tie-ins, such
as sharing of advertising revenues on school websites, or other initiatives as the
online presence of schools and their supporters grow.
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The Knowledge Web – 23 May 2000 (Reprint)
e-Commerce Enablers
Most children don’t have credit cards, a fact that once made it a challenge for
them to shop independently on the Web. Typically, mom or dad was usually
called in to complete the transaction – nearly 2/3 of teenagers who have made
purchases online used their parents’ credit cards, according to Forrester Research.
Today, there are at least three online payment services that let children shop the
web without a credit card. In these cases, parents register, with one of these ewallet services, RocketCash, iCanBuy or DoughNet. They indicate how much
their children can spend, where they can shop and, in one case, what time of day
they can make purchases. The services also encourage children to save money or
donate to charitable causes. DoughNet even lets kids play the stock market.
In true Internet fashion, these sites have signed on a myriad of e-commerce
partners that appeal to teens and children. A sampling of these partners is listed in
the table below.
Internet Shopping Enablers – An Allowance Online
RocketCash
CDNow.com
Delias.com
Eve.com
Fogdog.com
Outpost.com
Reel.com
ICanBuy
Alloy.com
Beyond.com
CDNow.com
EToys.com
PacSun.com
World Wildlife Fund
DoughNet
Amazon.com
Autoweb.com
Egghead.com
Jcrew.com
MP3.com
ToysRUs.com
Source: Merrill Lynch Global Growth Group
The Internet is a powerful
source for information of all
kinds, and, not surprisingly, is
playing an increasing role in
college choice.
To date, only 5% of teens aged 16-18 making online purchases have ever used one
of these Internet alternate currencies, according to Forrester. We expect this
percentage to increase as the Internet becomes more ubiquitous.
Online College Preparation
One of the most important decisions teens make is whether and where to go to
college. The Internet is a powerful source for information of all kinds, and, not
surprisingly, is playing an increasing role in college choice. From college
applications to financial aid to textbook purchases, the Internet helps teens and
families make that significant jump from high school senior to college freshman.
Companies offering these services are described in greater detail in the Higher
Education section of this report, and include Embark.com, FastWEB.com,
Finaid.org, Achieva, Princeton Review and CollegeNet.com.
“An author should write for youth of his own generation, the critics of the next
and the schoolmasters of the ever afterward.”
– F. Scott Fitzgerald
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The Knowledge Web – 23 May 2000 (Reprint)
Schoolpop, Inc. – makes raising funds for schools easy
The company’s number one objective is to give anyone who
has access to the Internet a way to contribute much needed
funds to the school of their choice, just by shopping through
Schoolpop.com. The model builds off of "affiliate
marketing," in which a vendor (like Amazon.com) pays
independent Web sites a fee every time a visitor clicks on a
link and buys a product or service.
Schoolpop, Inc. currently served more than 16,000 schools
nationwide with more schools added everyday. It enables
online shoppers to contribute funds to their favorite school
through more than 200 retailers, including Amazon.com,
Toysrus.com, Gap, Buy.com and Dell. Once a school
registers with Schoolpop, parents, teachers and alumni
raise funds merely by shopping − through Schoolpop − at
its participating online retailers. If they buy, a portion of
the purchase price, typically between 5 and 10 and up to
20 percent, will go to the school of their choice. Each
school has set a Schoolpop fundraising goal ranging from
$500 to more than $20,000 for the 1999-2000 school year.
So far the company has given away over $600,000. A
quarterly report as well as a check is then sent to each
school listing the total purchases made during that time
period and the amount of money raised. Schools can also
get real-time reporting from the website.
Schoolpop’s vendors find that the partnership translates
into longer customer life. Community conscious parents
recognize that they can raise much-needed funds
effortlessly for their schools simply by purchasing items
they were going to buy anyway. It is a significant
customer acquisition tool for the merchants.
Founded: January, 1999
In addition to the investment by The Reader’s Digest
Association, Inc., Schoolpop recently announced a
strategic partnership with QSP, a subsidiary of Reader’s
Digest. In operation for over 35 years, QSP is the world
leader in fundraising for schools. QSP will link its sales
force and fundraising programs with Schoolpop's online
technology and e-commerce partners to provide schools a
complete range of online and offline fundraising programs.
This alliance provides an estimated 50,000 schools with
greater access to Schoolpop's fundraising tools.
Based on Ernst & Young's 1999 online shopping
expectations of nearly $30 billion (November 1999),
Schoolpop shoppers have the potential to raise as much as
$1 billion for U.S. schools. More than 23 million families
in the United States have at least one child in grades K-to12, meaning Schoolpop's potential customer base is big.
Schoolpop is closely affiliated with and has received
endorsements from leading national education groups,
including the National Association of State Boards of
Education, the American Association of School
Administrators, the National Schools Boards Foundation and
the National Association of Secondary School Principals.
Revenue Components:
Headquartered: Menlo Park, California
Content:
Public/Private: Private
Commerce: X
X
URL: schoolpop.com
Advertising: X
Claim to Fame: Leading online fundraiser for K-12 schools
Service:
Coolest Feature on the Website: Real time online reporting
enables schools to monitor progress of fundraising efforts
Other:
X
Key Investors: Accel Partners, Meritech Capital Partners, The
Reader’s Digest Assn, Inc., Chase H&Q, Wit Capital and Thomas
Weisel Partners
Network Effect:
Key Partners: QSP, Inc. (subsidiary of Reader’s Digest Assn, Inc.),
EBay, Webvan Group, Inc.
Metrics to look for:
Number of partners: 200+ merchants
Number of schools: 16,000 at end of Q1
Number of registered users
Merchant Partners: 200+ merchant partners including Qwest, Cisco,
Dell, Webvan Group, Inc., Amazon.com, Toysrus, Gap, Buy.com
and eSCORE!.com
146
Schoolpop has received funding of $49 million so far from
Accel Partners, Meritech Capital Partners, The Reader's
Digest Association, Inc, Chase H&Q, Wit Capital, Thomas
Weisel Partners and angel investors. This amount is
believed to be the largest ever received by a for-profit
company dedicated to fundraising.
Yes
Hub/Portal Strategy: Yes
The Knowledge Web – 23 May 2000 (Reprint)
Achieva Online
Achieva College Prep Centers offers college preparatory
services to students at centers around California. Through
Achieva Online, it is taking these services to the World
Wide Web, vastly expanding its presence among collegebound high school students and creating a significant
opportunity to broaden its services for this very attractive
demographic of young (striving-to-become), welleducated students. The Internet offers the open
communication necessary for quick feedback and
enhances the one-on-one interaction between the counselor
and student. In light of the speed at which teenagers have
embraced the Internet (according to IDC 40% of home
Internet users are between 12 to 17 years old), Achieva
Online has positioned its service offering to reach the
widest audience in the quickest, most efficient manner.
Achieva provides individualized college counseling that
takes students through the whole spectrum of the college
entrance process. The company offers a one-stop shop in
a highly fragmented market. Achieva counselors help
with everything from selecting colleges to planning for
Founded: 1996
standardized tests to writing essays and preparing for
interviews. For students early in their high schools years,
the counselors also offer advice on study skills, college
preparatory curriculum, and career choices. Achieva also
provides SAT test preparation and academic tutoring to
students anxious to improve their test scores, grades and
core academic abilities.
In the last two years, 100% of Achieva's students have
gained acceptance to one of their preferred colleges, with
85% admitted to one of their top two schools. Moreover,
Achieva students saw an increase of their SAT 1 scores on
an average of 150 points. This phenomenal record,
combined with increased competition for seats in U.S.’s
leading universities, point to the opportunity for Achieva
to create a highly leverageable business out of its offline
properties. Through the Internet, companies such as
Achieva can drive markets for services that have, to this
point, been underdeveloped.
Revenue Components:
Headquartered: Palo Alto, California
Content:
Public/Private: Private
Commerce:
URL: achievaonline.com
Advertising:
Claim to Fame: Very high efficacy rate in helping students to
get accepted to the college of their choice
Service:
Key Investors: Many Silicon Valley leaders and investors including
Lauren Powell Jobs, Audrey MacLean, Tim Draper, Jim Katzman,
Walter Loewenstern, Burt McMurtry, Russell Pyne, and Marc Jones
X
X
Other:
Network Effect:
No
Hub/Portal Strategy: No
Metrics to look for:
Number of users/students
Number of partners
147
The Knowledge Web – 23 May 2000 (Reprint)
College Coach LLC
College Coach offers a program that is designed to
simplify the admissions process and ensure students that
get into their top choice of schools. The process includes:
1) a proven method for selecting colleges to ensure
students apply to the right schools, 2) hands-on help
writing college essays that stand out, 3) established
marketing tools that pinpoint what makes an individual
unique, 4) mock interviews with real admissions pros that
boost confidence and improve technique and 5) expert
college financing advice to simplify the complex process.
Recognized by educators, parents and students as a
powerful college advisory offering, College Coach
provides corporations with a turnkey college consulting
solution. The company offers workshops on Application
Review, Financial Aid, Selecting the Right College, The
High School Plan, Saving for College and many others.
Developed with guidance and admissions counselors and
continuously tested with families and students, the
program workshops address seven individual aspects of
the college entrance process, including school selection,
essay writing, financing and interviewing.
Founded: 1998
1999E Revenues: $900,000
Headquartered: Newton, MA
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: www.getintocollege.com
Content Sales:
X
Claim to Fame:
Commerce:
X
Investors: angel investors, company is currently raising $3-5 million
Advertising:
X
Service:
X
Yes
Metrics to look for:
Hub/Portal Strategy:
Yes
Number of clients: more than 40,000 schools
148
Network Effect:
The Knowledge Web – 23 May 2000 (Reprint)
The College Board
Led by former West Virginia Governor Gaston Caperton,
The College Board is a not-for-profit educational
association that supports academic preparation and
transition to higher education for students around the world
through the ongoing collaboration of its member schools,
colleges, universities, educational systems, and
organizations.
In all of its activities, the College Board promotes equity
through universal access to high standards of teaching and
learning and sufficient financial resources so that every
student has the opportunity to succeed in college and work.
In addition to administering the widely known SAT and
PSAT/NMSQT tests, the College Board also helps:
1) students prepare academically for and enter college,
2) adult students enter college,
3) international students make the transition to U.S. colleges,
4) students earn college credit and placement,
5) families secure financial aid information,
6) colleges and universities identify, recruit and place students,
7) educators develop and advocate public policy, and helps
8) educators and policymakers understand the changing
world of education.
Founded: 1900
Revenue Components:
Headquartered: New York, NY
Content:
Public/Private: Private
Commerce: X
URL: www.collegeboard.com
Advertising: X
Service:
X
X
Other:
Coolest Feature on Website: SAT question of the Day
Network Effect:
X
Hub/Portal Strategy: X
149
The Knowledge Web – 23 May 2000 (Reprint)
23. Issues in K-12 e-Learning
The Promise of Broadband
The real breakthrough in children’s online media will come through broadband,
with WebTV or other fat pipes providing the opportunity to combine the rich, fullmotion video and sound of TV with the interactive and information-intense
attributes of the Internet.
Broadband providers, particularly cable, are eagerly eyeing the attractive home
marketplace. Demand for broadband consumer access will be driven by
bandwidth hungry applications that we expect to be rapidly adopted by consumers
over the next five years.
Educational content will be of
particular value in the
broadband world, and
broadband service providers
have actively invested in
promising content providers to
secure those relationships.
Educational content will be of particular value in the broadband world, and
broadband service providers have actively invested in promising content providers
to secure those relationships. Free educational content may be the “hook” that
induces parents to subscribe to a broadband service or it may be a “premium
service” that parents are willing to pay more for. In either case, broadband service
providers are beneficiaries. Hence, these companies have been active partners in
developing promising content, as shown in the following table:
Education Investments By Broadband Providers
Broadband Investor
RCN
Vulcan Ventures
Media One
Sponsored e-Learning Company
JuniorNet
Lightspan
Classroom Connect
Source: Merrill Lynch Global Growth Group
Current connection speeds currently available of up to 56 Kbps or 128 Kbps
through ISDN are not adequate for rich educational applications. However, this is
a “chicken and egg” situation since the more data-intensive applications won’t
develop until bandwidth is available. To this extent, the Internet is a greenhouse
to test the most successful services that can then migrate into broadband.
At a school level, bandwidth will enable teachers to instantly include rich content
in the classroom in all forms, whether downloadable multimedia software or fullmotion film and video. The value of high-speed connections will increase as more
content becomes available to schools. We expect to see creative ways for schools
to obtain high-speed connections in the future, with ZapMe! the leading example
of innovation in this area.
For the time being, however, “mindwidth is more important than bandwidth”
Kids want to be engaged.
Time to E-Mail the Declaration of Independence (344,000 bits)
Year
Rate
Speed
1965
1200 bps
4 minutes and 46
seconds
Source: QED. Bps = Bits per second.
150
1993
115.200 bps
3 seconds
1998
448,000 bps
0.76 second
1999
39,872,000 pbs
86/1000 of a second.
The Knowledge Web – 23 May 2000 (Reprint)
The Need for Qualified Salespeople
Capturing market share fast is a key mantra of the Internet. Hence, a huge weapon
to accelerate adoption of e-learning solutions in schools will be a qualified sales
force. Selling to schools is currently very relationship driven, particularly with
bigger ticket items where district or even school board approval will be required.
The relationships and know-how of an experienced sales force can be critical in
quickly moving forward the decision-making process.
A huge weapon to accelerate
adoption of e-learning solutions
in schools will be a qualified
sales force.
Selling into schools can also be complicated by the fact than many are seeking to
use special sources of funding, particularly grants, or sources requiring a formal
Technology Plan. As a consequence, these salespeople (or these companies) may
take on consulting-type roles, providing grant-writing assistance or aid with
technology planning to jump-start the selling process, illustrating again the
specialization in the role. One consequence is that there appear to be growing
differences between salespeople with experience in selling technology into
schools, and those whose products are not technology-based.
We believe that, ultimately, deployment of e-commerce solutions to schools, such
as those envisioned by Epylon.com, Simplexis.com or School Specialty will
reduce, although not altogether eliminate, the specialized nature of school sales.
In this area, we believe the Internet will demonstrate, once again, its ability to
reduce inefficiencies and transaction costs, potentially freeing more resources that
can be directed at improving education.
The Internet will demonstrate
its ability to reduce
inefficiencies and transaction
costs, potentially freeing more
resources that can be directed
at improving education.
Ads, Privacy and Marketing to Children
The Internet presents children with an extraordinary new means to tap into rich
sources of information that previously were difficult to access, and to
communicate with their peers and others in ways never before imaginable. There
are many positive aspects to this new freedom for children. At the same time, the
interactive activities available on Web sites, such as chat rooms, message boards,
personal home pages, pen pal programs, and free e-mail services, also make it
easy for children to disclose their personal information to the general public
without their parents' awareness or consent.
In addition, the Internet's technology enables marketers to establish direct and
ongoing one-to-one relationships with individual children in ways previously
unavailable to traditional media. The increasing number of children online
coupled with their growing economic power create enormous opportunities for
marketers to promote their products and services to an eager, targeted, and
vulnerable audience. In some cases, marketers do not post privacy policies nor do
they advise children to seek parental approval before divulging personal
information that could later be used for targeted advertising or promotions.
The Federal Trade Commission has set up guidelines, that went into effect April
21, to address the dual concerns of protecting children’s privacy as well as leaving
unhindered the growth of the internet as a medium for commerce, education and
entertainment. The FTC guidelines require operators of kid sites to post privacy
policies, notify parents about their practices and get parental consent before
collecting any personal information from children under age 13. The FTC stopped
short of strict legislation, wanting to leave room for industry self-regulation.
Parents have different sensitivity levels to the issues of advertising to their
children, and e-learning companies have sprung up to serve these diverse needs.
Some parents reason that advertising is already ubiquitous, and are accepting of
online advertising, particularly in exchange for the free or low cost services that
advertising subsidizes. Others, concerned about the number of commercial
messages their children already receive or the potential for captivating, interactive
online advertising would prefer to pay for services that are advertising-free.
(JuniorNet, for example, is targeting this market with its advertising – free
151
The Knowledge Web – 23 May 2000 (Reprint)
subscription service). In either case, there is general objection to advertising that
is integrated seamlessly into a website’s content. Responsible sites are
forswearing this and many children’s sites go so far as to clearly delineate content
from advertisements. Even so, parents of younger children often escort their kids
online; at this stage the Internet-connected computer does not have the
“babysitter” status of TV.
Given the mandate that schools
have to provide Internet access
to students, the fact that the
Internet in general adheres to
an advertising model, and the
national concern over the
“digital divide” between income
classes, we believe that
advertising-sponsored services
will continue to have an
important, if not universal, role
in schools.
152
These issues are intensified in a school environment, and we believe the resolution
will be the same as in the home environment. Specifically, some schools will be
pragmatically accepting of advertising in exchange for valued resources or
services and others will adhere to their philosophical objections. Some e-learning
companies will bridge both worlds by offering two pricing mechanisms for their
services, one that is free or discounted but subsidized by advertising, and the
second, one that is full price and advertising free. Given the mandate that schools
have to provide Internet access to students, the fact that the Internet in general
adheres to an advertising model, and the national concern over the “digital divide”
between income classes, we believe that advertising-sponsored services (ZapMe!,
for example) will continue to have an important, if not universal, role in schools.
It is also clear that not everything need be “free” for schools to adopt it. Schools
are spending on programs they believe have value, assisted in part by state,
federal, and corporate grants such as the e-rate and Technology Literacy Fund.
The Knowledge Web – 23 May 2000 (Reprint)
ZapMe! Corporation
ZapMe! offers schools an interactive global education
portal that delivers safe, meaningful and educational
content and services to the K-12 community. And it’s
free. ZapMe! will give K-12 schools 15 PCs, satellitedelivered Internet access and its aggregated education
content at no cost. In return, schools pledge to ensure that
the system is used for at least four hours each day. The
ZapMe! solution enables all schools to employ technology
to help children learn. The company has thousands of
schools interested in its technology solution.
On ZapMe!’s Netspace, students can access 10,000
educational websites, message boards, e-mail and chat
functions, as well as the Microsoft Office suite. If school
administration and parents approve, students can also
access the broader Internet. The ZapMe! lab is funded by
technology placement fees from partners such as Compaq,
Philips, Microsoft and Gilat Satellite Networks as well as
paid advertising on the ZapMe! Netspace, school ecommerce and, in the future, home access charges. The
company manages costs through standardization of
hardware and software configurations. As the technical
support provider, this standardization also enables ZapMe!
to provide a high-level of customer service to schools,
ensuring that the network always available.
Founded: 1997
1999A Revenues: $2.5 M
Headquartered: San Ramon, CA
2000E Revenues: $36.0 M
Market Value: $127 M (5/15/00)
Public/Private: Public (Nasdaq: IZAP)
URL: ZapMe.com
Claim to Fame: It’s free!
Investors: Dell, Sylvan Learning Systems, Ares Fund (Apollo),
QuestMark Partners, Gilat Satellite Networks
Revenue Components:
Content Sales:
Commerce:
X
Advertising:
X
Service :
Other:
X (Services that utilize the network)
Partners: Yahoo!, Ask Jeeves, Amazon.com, Classroom Connect,
School Specialty, Microsoft, Dell, Toshiba, Sylvan Learning Systems,
Gilat Satellite Networks
Hub/Portal Strategy: Yes
Coolest Feature: The e*locker. Students who save their work
on the Netspace can access it through ZapMe! from home too.
Metrics:
Unique Users (Nov. 1999): approximately 300,000
Number of schools: 1252 (as of 12/99)
Network Effect: Yes. Home adoption will be driven through
word of mouth.
153
The Knowledge Web – 23 May 2000 (Reprint)
24. The Empire Strikes Back? Publishing &
Media Companies vs. Web Upstarts
Media buzz about the insurgence of traditional offline companies on the web
reached its height at the Christmas shopping season, when newly christened “brick
and click” brands were among the top shopping websites in December.
Are traditional companies finally using their powerful assets to make themselves
real net players? Or will cautious efforts mean they continue to be outpaced by
agile, smart, and aggressive netcos?
In the K-12 education arena, the traditional powerhouses are the publishing
companies. What are their online efforts, and how do they compare to born on the
web brands?
e-Commerce consultants David Sanderson and Chris Zook recently identified
“countermoves” that traditional companies are taking to stake online positions and
trump Internet start ups in their industries:
Traditional Companies Can Capitalize on Internet Opportunities
Strategy
Creating Separate Web Units
Buying and Allying
Using their Deep Pockets
Defined
Separate business structures to
escape bureaucracy and risk-averse
culture of traditional firms.
Gain speed to market by acquiring,
investing or partnering
Spend from their vast resources to
build out sites
Creating Click-and-Mortar
Find synergies, such as handling
Companies
exchanges and returns
Capturing Brand Loyal Customers Leverage existing customer base to
decrease customer acquisition cost.
40% of visitors to established
company sites came because of an
offline affiliation.
Achieving Efficiency Gains
Decrease costs, time to market by
putting operations online.
Example
Barnesandnoble.com,
WingspanBank.com
CVS buys Soma.com
American Greetings partners
with AOL
Microsoft, Macy’s, Sears, WalMart
Wal-Mart
Wal-Mart—100 million people
shop at WalMart stores each
week.
e-GM
Source: David Sanderson & Chris Zook, “The Problem With Purity.” The Industry Standard, Jan. 14, 2000
Publishing Companies – Starting to Leverage Clout
How are traditional publishing companies responding to these opportunities?
Publishing is one of the industries that has the potential to be completely
transformed by the Internet. Given that we expect significant upheaval in this
industry over the long-run, the relatively small and contained Internet strategies of
most education publishing companies so far suggest that we are in the early stages
of this change. At the same time, trying to keep pace with the market, rather than
lead it, is not the way to achieve the outsized gains possible in the Internet’s
“winner take all” environment (although doing so may require wrenching changes
for an existing company).
Publishing is one of the
industries that has the potential
to be completely transformed by
the Internet.
154
All the publishing companies we reviewed had some presence on the Internet.
Generally all had e-commerce that allowed for online purchases of books or
supplemental materials. In addition, the majority had designed online content to
supplement their textbooks or curriculum programs. Many are also maintaining
all their content in a digitized format, with the expectation that they will use it at
some point in the future. Any effort beyond this, for most companies, is still in the
planning stages. In the table below, we note current or planned initiatives that
extend beyond these two fundamental components.
The Knowledge Web – 23 May 2000 (Reprint)
While none of the publishers currently appears likely to spin off an entire Internet
company, a la WalMart or Barnes & Noble, some appear to view the Net as a
more strategic opportunity than others. In our view, about half appear to see it as
a high-level opportunity that should be directed by a corporate executive officer.
The other half appear to view it as a supplement to their current business
operations. In these cases, the primary direction of these efforts is taking place at
the business unit level.
Scholastic’s experience is instructive. It shifted its Internet strategy to the
corporate level after years of allowing its various divisions to pursue their own
initiatives. Scholastic was an early leader on the Internet, launching its first
offering in the early 1990s. Most of the activity, however, took place at the
operating units. When the different divisions pursued their own visions, the result
was a collection of Internet experiences that were organized around the divisions
themselves, not a cohesive user experience. One year ago, Scholastic integrated
its efforts, focusing instead on experiences that would leverage companywide
assets, such as strong content and distribution to teachers and families. We
believe other publishers will elevate their Internet initiatives as they become more
core to their businesses, rather than supplementary initiatives to each division.
We also note that several publishers have taken venture stakes in Internet
companies, although few have purchased such companies outright. As for
spending as an Internet strategy, it varies significantly between companies.
155
The Knowledge Web – 23 May 2000 (Reprint)
Digitize or Perish? Publishers Go Online
Corp-orate
Position
“Deep
Websites to
Pocket”
Investing &
Online
support
Spending
Buying
Purchases Content
Yes
1000 sites in
Initiated K-12 e120 mm
Pearson
pounds in ventures group on
Education
1/14/99. Invested
2000 (*)
in e-Score, edGate
Blackboard
Pearson
No
McGraw Hill
Yes
NA
Invested in
NetLibrary
Yes
Houghton
Mifflin
Yes
NA
Invested in Online
Learning.net &
NetLibrary
Yes
Harcourt
General
Yes New
Position
NA—Still
part of
operating
groups
Owns 17% of
Family Education
Network
Yes
Thomson
No
NA
Purchased Sylvan
Prometric and
Wave Technology
Yes
Scholastic
Yes
$20 mm in
FY00 (*)
No
Yes
Tribune
No
No
Primedia
Yes
Torstar
No
Invested in
Lightspan,
teach.com
$40 mm in Primedia Ventures
1999 (*)
(no ed.
Investments to
date)
Yes
Yes
Yes
Invested in
SmarterKids. Com,
DigitalThink
Yes
Yes
NA
Source: Merrill Lynch Global Growth Group
156
Additional Initiatives
K-12: Developing Pearson Education Network, a portal for teachers,
parents, students and has announced partnership with AOL to carry
the network (Kaplan, blackboard). CCC has Internet component to
deliver instructional content.
Higher-Ed: Instructional websites can be customized for professors.
Releasing Pearson Course Management System in fall. Sites will also
be compatible with commercial course management providers (ecollege, WebCT, BlackBoard)
500 book and K-12: Creating McGraw Hill Learning Network for teachers, parents,
32 subject students.
sites
Higher-Ed: PageOut allows instructors to create own websites. 6,200
registered users. Will also have 170 online learning centers by
12/31/00, password protected sties where instructor supplemental
materials can be housed (PowerPoint slides, web index, etc.) Also,
some reference books from professional publishing division now
converted to online subscriptions.
Over 200 K-12: Offers EduPlace, a site for teachers, parents, and students.
book sites Sees opportunity in teacher training.
Higher-Ed: Developing content management system for own content.
Corp: CAT testing and certification will ultimately be online.
Yes
K-12: Developing a distance learning company. Is pursuing high
school accreditation for courses.
Higher Ed.: Developing a distance learning company.
Corp: Half of NETg’s titles can be delivered over the Internet
580 sites in Higher-Ed: Compcopy.com enables professors to review textbooks
Thomson online well ahead of published editions. Has “e-sampling” of textbook
learning chapters. Could ultimately offer entire text online and simply charge
“license fee” for each student taking a course. 900,000 students used
Petersons.com to apply for college in 1999.
Corp: Has over 100 web-enabled IT courses. Does online
assessment for Microsoft. Sylvan Prometric (testing) and Wave
Technology (IT training) will build out lifetime learning cycle of training
and assessment.
Yes
K-12: Built a teacher site with 15,000 pages on commonly taught skills
and subjects. Relaunched on Nov. 1, 1999, as free comprehensive
instructional site for teachers. Will roll out comprehensive teacher’s
store by Fall 2000. Premium content, such as distance learning and
training are next.
No
K-12: No publicly released strategy for K-12 assets.
K-12: Developing teen strategy around seventeen.com and
broadband content – ChannelOne and Films for the Humanities. Sold
supplemental materials unit in Nov. 1999.
Corp: Developing strategy around broadband content, Primedia
Workplace Learning (13,000 hours of specialized workplace training).
K-12: On Aug. 26, announced plans for “Internet business aimed at
simplifying many of the challenges faced by teachers as they prepare
for class everyday.”
Higher-Ed: Has 40% investment in ITI Education.
The Knowledge Web – 23 May 2000 (Reprint)
Long run, we believe the
potential for e-books in
education is tremendous, and
holds benefits for content
owners.
On the cost side, 20-22% of
publishing costs are associated
with printing physical books.
On the revenue side, estimates
suggest that, in the college
market, about 30% of the
market is captured by used
books.
Long run, we believe the potential for e-books in education is tremendous, and
holds benefits for content owners. Conversations with McGraw-Hill, for example,
suggest that there are savings on the cost side and positives on the revenue side.
On the cost side, 20-22% of publishing costs are associated with printing physical
books. Eliminating this, could, of course, have bottom-line benefits for
publishers. On the revenue side, estimates suggest that, in the college market,
about 30% of the market is captured by used books. New digital books, with their
ability to be updated on a yearly or even semester basis, can potentially recapture
some of this market share for major publishers. McGraw-Hill is preliminarily
addressing this opportunity by including CD-ROM updates with about half of the
non-first-year textbooks it sells into the college market.
At the same time, the Internet as a publishing mechanism makes it easier for
content providers to get their materials online, likely increasing competition for
the traditional publishers as they move to the Web. This competition could come
in the form of professor class notes, or even entire courses from “celebrity
professors” who might use UNext or other vehicle to put their courses online.
Government and corporate resources will also be more widely available. Hence,
publishers will have to continue to provide strong content, but also services to
accompany that (McGraw’s PageOut or Thomson’s e-sampling of textbook
chapters being two examples). Moreover, publishers will forced to find business
models that continue to generate revenue. Currently, much of the technology in
textbook sales is given away to sell the book. We may see that business model
flipping in the next few years—where the technology is recognized by the market
as having real value on its own, not simply as an “ancillary” to paper and ink.
Currently, much of the
technology in textbook sales is
given away to sell the book.
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The Knowledge Web – 23 May 2000 (Reprint)
WRC Media
WRC Media is the education division of Ripplewood
Holdings, LLC, an investment firm established in 1995 to
fund and grow market leaders. The divisions of WRC
Media include CompassLearning, the Weekly Reader, the
World Almanac Education Group and the American
Guidance Service.
CompassLearning is located in San Diego, CA, and is the
first education company acquired by Ripplewood.
Formerly Jostens Learning, Compass is the largest
publisher of supplementary educational materials in the
world. It is a leading provider of instructional software
with over 7,000 hours of instruction. More than 20,000
schools serving nearly 14 million students use
CompassLearning programs designed to help teachers
manage student performance, personalize learning, and
connect communities of learners.
Weekly Reader, located in Stamford, CT, is the leading
periodical serving over nine million elementary school
children. It also publishes other branded periodicals and
instructional materials, including Teen Newsweek,
published for middle and high school students. The
company also provides a content-rich web site for children
at www.weeklyreader.com, which received 31 million hits
in 1999, with an average view time of 10.5 minutes
World Almanac Education Group, headquartered in
Mahwah, NJ, publishes the World Almanac, Facts on File,
Gareth Stevens, and Funk and Wagnalls, and has a
subscriber base of nearly all public, private and school
libraries.
American Guidance Service, located in Circle Pines, MN,
is a leader in individually administered assessments to
diagnose learning traits and deficiencies and publishes a
variety of high interest, low reading level text books for
middle and high school.
WRC Media is committed to anticipating and applying
leading technology in education, and products from its
companies are now found in 90 percent of school districts
nationwide, in nearly all public and private libraries, as
well as in nine million homes.
Founded: 1999
1999A Revenues: $214.1 million (fiscal year ends 3/31)
Headquartered: New York, NY
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: wrcmedia.com
Content Sales:
X
Commerce:
X
Advertising:
Investors: Ripplewood Holdings LLC, SG Capital Partners,
Northwestern Mutual Life Insurance, Jackson National Life, DLJ
Service :
Other:
X
Hub/Portal Strategy: Yes
Network Effect:
Metrics to look for:
Number of schools
Number of students
Number of homes
158
Yes
The Knowledge Web – 23 May 2000 (Reprint)
Pearson plc Keiretsu
Founded in 1844, Pearson plc is one of the largest
publishers in the world with operations in over 40
countries. Its operations include the Financial Times
Group, the Penguin Group, Pearson TV and Pearson
Education. In addition, Pearson recently announced the
formation of Pearson Broadband Education Television and
the Pearson Education Network. The new ventures will
draw upon intellectual properties and distribution
platforms from across Pearson capitalizing on Pearson
Education’s position as the world’s premier education
company and Pearson Televisions’ skills as a preeminent
independent television production company.
Financial Times: The Financial Times Group aims to be
the international business community’s authoritative
source of general business news and analysis. Built around
the flagship of the group, The Financial Times, FT
branded newspapers and electronic services are used by
over two million business people everyday. One of the
Group’s subdivisions, FT Knowledge, has partnered with
the University of Michigan Business School to offer online
executive education. The first courses will be launched in
the summer 2000 and will be limited to 50 students per
course to facilitate greater interaction and a richer learning
experience than through courses with open enrollment.
The Penguin Group: The Penguine group is the world’s
most renowned English language publisher with some 50
million readers of Penguin books in 105 countries around
the world. In addition to the bird, one of the most
recognized brands of any kind, Penguin owns some of the
most highly respected publishing imprints and trademarks.
Pearson Education: Pearson Education is the world's
premier educational publisher. Their products reach 70
million students in countries all around the world. English
is just one of the languages: throughout Europe, Asia and
Latin America the print and on-line educational texts and
programs are published in 18 languages.
Pearson Television: Pearson Television is the largest
independent international television producer with over
150 programs currently in production in over 30 countries
and programs sold to 100 countries. 200 million viewers
watch Pearson produced TV programs monthly. Pearson
TV takes ideas for popular television and adapts them for
different markets, making them in the local language in
countries all around the world.
Pearson Education Network: Pearson plc will partner
with American Online, Inc. to launch a new online
consumer portal later this year. It will position Pearson’s
education network as the preferred supplier of educational
content and online learning tools with AOL providing
delivery of Pearson’s education network on the AOL
service and other America Online brands. The two
companies will also investigate opportunities to
collaborate on the development of a curriculum
architecture and a range of select education tools.
It will supplement in-school activities from elementary
school through adult learning, with both ongoing
education and professional training. The portal will draw
on content, tools and distribution channels from Pearson
businesses, and incorporate content from other leading
print and Internet educational and consumer publishers,
both within and outside Pearson.
The network will earn revenues from a mix of individual
subscriptions and site licences from schools and ecommerce and advertising revenues in the open access part
of the network. Advertising will not appear on the site
when accessed from schools. The overall development of
the education network is being led by Pearson’s in-house
digital publishing company, San Francisco-based
Headland Digital Media. The brand identity for the
network will be announced at a later stage.
The education network will extend the ongoing learning
activities of its participants. For example, the elementaryschool teacher portal will include lesson planning software
and teacher training materials. Parents of school-age
children will have access to a fully integrated site that ties
back directly to the components of the student’s
experience, thus establishing a genuine home-school
connection. The college student portal will provide
detailed, subject-specific learning materials for key
academic disciplines. The adult-learning portal will
provide information and resources relating to personal and
professional development. Each portal will integrate the
components that the online environment makes possible fast communication, easy access to peers and tutors, a set
of always accessible organizational tools, self-paced
learning and assessment opportunities, and a host of
subject- and grade-specific learning resources.
Pearson Education also has formed the first of many
strategic alliances with, and equity investments in, leading
Internet educational companies. The alliances are with:
SCORE! Learning Inc.: Pearson will take an equity
stake worth $20 million. SCORE! Learning is a division
of Kaplan, Inc. This alliance strengthens the relationship
already in place between these partners. More than 100
neighborhood SCORE! after-school centers already use
adaptive digital curriculum created by Pearson’s Computer
Curriculum Corporation. Pearson and SCORE! will work
together to develop the technology required to create new
services for Internet delivery which will be available at
SCORE! centers as well as Pearson’s education network.
Copernicus: Pearson is taking a 10% equity stake and will
sit on the Board of Edgate.com, Inc., creator of The
Copernicus Education Gateway (Copernicus), which
provides customized, local education portals for teachers,
parents and students in local schools and school districts
across the United States. Copernicus will co-brand their
localized online education gateways with Pearson’s
education network, and the combined offering will be
159
The Knowledge Web – 23 May 2000 (Reprint)
promoted by Pearson and Copernicus as a key element of
the kindergarten to 12th grade section of the network.
Blackboard: Pearson is partnering with, and will invest
in, Blackboard Inc., a leading Internet Infrastructure
company whose software platform powers "edu" online
environments at more than 3,000 institutions and in more
than 70 countries around the world. In addition to online
administrative and community services, the Blackboard
CourseInfo product line enables educators to enhance inclass instruction and/or deliver distance learning by
bringing their course materials, class discussions,
assignments, and quizzes to the web. More than 2 million
people worldwide teach and learn in online education
environments powered by Blackboard.
160
The Blackboard partnership will further position Pearson
as the premier provider of higher education content and
services for online course environments. The Blackboard
CourseInfo course management platform will be featured
in the education network serving the Higher Education, K12, Professional Development and Adult Learning
markets. Pearson and Blackboard are also in the process of
developing plans for cross promotion and development of
content and services for Blackboard's Scholar.com and
Blackboard.com web properties and the Higher Education
portion of the education network.
Partnerships with Internet-focused companies are nothing
new to Pearson plc. Since the mid-1990’s Pearson plc has
partnered with and/or invested in companies such as The
Industry Standard, Cisco Systems, Lycos, Netscape,
Barnesandnoble.com, iMind, webCT, and ecollege.com,
among others.
The Knowledge Web – 23 May 2000 (Reprint)
The Pearson plc Keiretsu
P - Partnership
% - Equity Stake
m - Minority Stake
M - Majority Stake
m
The Industry Standard
22%
Audiofina, CLT.UFA
Pearson TV Merger
Pearson plc
Pearson
Education
Network
Financial Times
Headland
Digital Media
America
Online, Inc.
Global
Publishing
Management
Education
Prentice Hall
Direct
10%
Copernicus
Education
Gateway
m
Blackboard
FT Knowledge
PH Press
Univ. of
Michigan
Business
School
Pearson
Broadband
Education
Television
Assoc. for
P Computing
Machinery
Pearson
P
Sun
Technology
Microsystems
Group
P Mindshare
Systems
Addison Wesley
P
Professional
Adobe
NY Inst.
of Finance
Cisco Press
m
New Riders
SCORE!
Learning
100%
Reward
NY Inst.
of
Finance
SAMS
Prentice
Hall
Kaplan, Inc.
100%
P
Asia
The
Washington
Post
QUE
FT-PH Books
BNBN
Parker
Macmillan Tech
Publishing
Canada
Peachpit Press
Center for
Applied
Research in
Education
Europe
Penguin
Professional
Publishing
1%
Tribune
Pearson Education
Macmillan USA
Macmillan
Software
M2S Sverige AB
(Sweden)
Macmillan
Lifestyles
Middle
East
BradyGAMES
Africa
InformIT
The Place
for Linux
Latin
America
Reuters
P
P
Hewlett-Packard
Elementary
Adam.com
Addison
Wesley
eVentures
Group
Benjamin
Cummings
Electronic
Education
Pearson
Reading Ctr.
Consumer
Reading
Pearson
Development
Group
Allyn &
Bacon
P
Skylight
Professional
Development
Prentice
Hall
Scott
Foresman
Adobe Press P
Allyn & Bacon
Professional
Development
Macromedia
P
Press
Infinity
Softworks
P
P
Music Match
Inc.
P
P
World Organization
of Webmasters
P
P
KnowZone
Globe Fearon
Pearson Custom
Publishing
P
iMind
Pearson
Distributed
Learning
P
ecollege.
com
Prentice Hall
Professional
Technical
Reference
SmartForce.com
P
webCT
P
Daedalus
Blackboard
P
Informix
P
Peregrine
P
IBM
P
P
Stanford
EPGY
P
P
National
Instruments
Computer
Curriculum
Corp
Pearson
Learning
Enhanced Software
P
Technologies Inc.
Prentice Hall
College
Mobile
P
Insights
Netscape
Silver
Burdett
Ginn
Peregrine
Publishers
Lycos P
Lycos
Press
Univ. of Washington
P
Early
Learning
Group
Secondary
Longman
Pub.
FT.com
Australia
Sun Microsystems
U.S.Schools
Addison
Wesley
Longman
Software
P Engineering
Institute
P
Commun.
Workers of
America
P
Cisco Systems
Earth Web
US/ELT
U.S. Higher
Education
Silicon Graphics
P
Software Quality
Institute
Source: Merrill Lynch Global Growth Group
161
The Knowledge Web – 23 May 2000 (Reprint)
Scholastic.com – Leveraging An Offline Audience
Scholastic.com is the Internet portal for Scholastic, the
global children’s publishing company. Scholastic.com is
primarily geared toward K-8 teachers, with over 15,000
pages of content.
Scholastic’s Internet strategy benefits from an already
significant offline customer base. Nearly one million
teachers participate in the company’s book clubs and
software clubs, and each book club order form goes to
about 25 households (which come home with the explicit
endorsement of the teacher). The company’s classroom
magazines have a circulation of 7.5 million. Finally, the
company holds 85,000 book fairs per year attended by
hundreds of thousands of parents and kids. This
distribution channels to this already expansive audience
are in place and can be tapped relatively inexpensively to
drive traffic to scholastic.com. Hence we expect that
Scholastic.com will enjoy very low customer acquisition
costs as a result of its existing distribution channels to
teachers, parents and students.
Scholastic.com is designed to be a classroom vehicle, with
content relating to the most commonly taught themes,
subjects and skills in grades K-8. Instructional activities are
focused broadly on developing literacy. The majority of the
content on the site is proprietary, except for the popular web
guide which links to other relevant sites on the Internet.
Scholastic.com’s free classroom resources are designed to
attract teachers to the site. Given the company’s access to
parents, primarily through their children’s teachers, we
believe the company could capture a meaningful following
of parents as well. To monetize this traffic, we expect the
company to offer e-commerce and online professional
development services. Scholastic already has a significant
business in the supplemental materials field, and the web
resources complement that. We expect that the company
could package school modules for teachers, for example,
with free content and a related “web shopping list” covering
topics from Black History Month to Plate Tectonics.
Founded: Scholastic in 1922, Online endeavor on AOL in 1993,
Relauched online service on World Wide World in 1996
1999A Revenues: $1.3 B
Headquartered: New York, NY
Revenue Components:
Market Value: $755 M (5/15/00)
Public/Private: Public (Nasdaq: SCHL)
Content:
URL: scholastic.com
Commerce: X
Claim to Fame: World recognized brands such as the Magic School
Bus, Clifford The Big Red Dog®. and Goosebumps, The Baby-sitter’s
Club
Advertising: X
Service:
X
X
Other:
Coolest Feature on the Website: Cool links to information and
resources for kids, parents and teachers
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of users/students
162
The Knowledge Web – 23 May 2000 (Reprint)
Harcourt, Inc.
Harcourt, Inc., owned by Harcourt General, is a leading,
global multiple-media learning company providing
educational, training and assessment products and services
to classroom, corporate, professional and consumer
markets. It consists of four major sections: K-12
Education, Higher Education, Corporate and Professional
Services, and Worldwide Scientific, Technical and
Medical Group.
K-12 Education: The companies in the K-12 Education
Group work together with other Harcourt businesses to
produce content, and develop innovative technology-based
education tools. Here is a sample of some of these
companies:
Harcourt School Publishers is a publisher of print- and
technology-based instructional materials for students in
kindergarten through grade eight.
Holt, Rinehart and Winston is a publisher of print- and
technology-based educational materials in secondary
education. .Steck-Vaughn is one of the world's leading
supplemental educational publishers for pre-kindergarten
through adult learners.
Harcourt Religion Publishers is a publisher of catechetical
materials. Harcourt Trade Publishers publishes distinguished
fiction and non-fiction for children and adults.
In addition, Harcourt, Inc. invested $17 million in the
FamilyEducation Network. Harcourt is a primary source
of educational, training and assessment content available
through FEN. Other prominent partners of FEN include
America Online, AT&T, NBC, and educational advocacy
groups such as the National PTA, the American
Association of School Administrators and the National
Schol Boards Foundation.
Harcourt Higher Education develops technology-based
accredited courses and degree programs that will be
delivered directly to the consumer (adult learners/nontraditional students) as well as campus-based and
corporate markets.
Harcourt Professional Publishing is a provider of
multimedia educational resources for the professional and
graduate level test preparation market, including the
BAR/BRI review course for law students, and ECAS for
human resources.
Harcourt Corporate and Professional Services: The
companies collaborate to provide integrated training and
assessment solutions for corporate and professional people.
Assessment Systems, Inc. (ASI) is a provider of computerbased tests for the professional and regulatory licensing
and credentialing markets and the corporate preemployment testing market.
Drake Beam Morin (DBM) is a career consulting and
outplacement services firm with more than 200 offices in
40 countries around the world. To further enhance career
development DBM now offers streaming audio versions of
the Knowledge Communications programs over the
Internet. The DBM Knowledge Communications Program
Library contains courses on soft skills such as
communication and customer service as well as industry
specific skills.
Knowledge Communication is a provider of technologybased professional development and business skills training.
NETg is a major global provider of technology-based
training for information technology professionals. NETg
has agreements with eMind and click2learn.com to
provide strategic content.
Higher Education: The companies work to bring
technology-based learning programs to campuses, homes,
and corporations. Here is a sample of some of these
companies:
The Psychological Corporation is the nation's largest forprofit publisher of products and services for educational
and psychological assessment.
Harcourt College Publishers is a publisher of textbooks
and technology-based instructional materials for postsecondary markets.
Worldwide Scientific, Technical and Medical Group:
The companies provide content across virtually every
major discipline, including cardiology, oncology, nursing,
and a number of growing biomedical specialties.
Harcourt Learning Direct is the world's largest distance
learning organization, enrolling more than 400,000
students each year.
Archipelago Productions is a multimedia publisher
dedicated to bringing technology-delivered quality content
and interactive learning to students.
Harcourt Educational Measurement develops assessments
and related support services to help measure educational
performance.
Harcourt Health Sciences is the world's largest producer of
print- and technology-enabled information for the medical,
nursing, and health fields. Brands include W.B. Saunders,
Mosby, Inc., and Churchill Livingstone.
Academic Press is one of the largest global publishers, in
print and electronic formats, of scientific information.
Harcourt International is the global distributor of the
Company's content, with offices on five continents.
MD Consult is an online medical information service with
nearly 100,000 subscribers that is utilized by health
science professionals.
163
The Knowledge Web – 23 May 2000 (Reprint)
Founded: Harcourt General founded in 1922
1999A Revenue: $2.1B*
Headquartered: Chestnut Hill, Massachusetts
2000E Revenue: $2.3B*
Market Value: $1.9B (5/15/00)
Public/Private: Part of Harcourt General (NYSE: H)
Revenue Components:
URL: www.harcourt.com
Content:
Claim to Fame: World recognized educational publishing brand
Commerce: X
X
Advertising: X
Key Investors: Wholly owned by Harcourt General
Service:
X
Other:
Key Partners: FamilyEducation Network, TakeAClass.com, Zvia
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of users/students
Number of clients
*Revenue figures for FY ending Oct. 31.
164
The Knowledge Web – 23 May 2000 (Reprint)
Select Company Profiles in this Section
Company Name
Achieva Online
APEX Learning
Bigchalk
Chancery Software
class.com
Classroom Connect
College Coach
Edventions
Epylon.com
eSCORE (a division of Kaplan)
FamilyEducation Network.
Harcourt
Highwired.com
JuniorNet
LeapFrog
Lightspan
MaMaMedia
NCS
Pearson plc (LSE:PES)
Project Achieve
Scholastic.com
schoolbell.com
Schoolpop, Inc.
Scientific Learning Corp.
Simplexis.com
Teacher Universe
TestU
The College Board
wrcmedia.com
wwwrrr.com
ZapMe! Corporation
Page Number
147
122
92
137
123
106
148
138
128
131
113
163
141
96
97
114
96
136
159
136
162
143
146
124
129
107
142
149
158
125
153
165
The Knowledge Web – 23 May 2000 (Reprint)
Index of K-12 Companies
Content
School Directed
AbleMedia.com
APEX Online Learning
bigchalk.com
Bonus.com
Boxer Learning
ChildU
Class.com
Classroom Connect
Discovery Kids
ePlay
Family.com
FamilyEducation Company
FunBrain.com
FunSchool.com
HomeworkCentral
i-station.com
Kaplan (e-score)
Knowledge Universe (KidsEdge)
Learning Outfitters
Lightspan
MainXChange
MathForum
Mathsoft
N2H2 (Searchopolis)
NCS (Ed. Structures, Novanet)
NetLibrary
NYT Learning Network
Newsbank
On Line Class
Oz New Media
PBS Online
Pearson (CCCNet)
Princeton Review (Homeroom.com)
Riverdeep (Logal)
Scholastic
Scientific Learning
TRO Learning (Plato)
WRC Media (Ripplewood Holdings)
ZapMe!
Encyclopedias:
Microsoft Encarta.com
Brittanica.com
Compton’s
Groliers
Textbook Publishers:
Harcourt Brace
Houghton Mifflin
McGraw Hill
Pearson
Educational Software Companies:
Compass Learning
The Learning Company
Knowledge Adventure
Teacher Training
Advantage Learning (Gen21)
Apple Computer (Staff Development Center)
Blackboard.com (targeting engine to schools)
Classroom Connect (Connected University)
Knowledge Universe (Teacher Universe)
wwwrrr.com
Source: Merrill Lynch Global Growth Group
166
Ticker
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
WPO
Private
Private
LSPN
Private
Private
Private
NTWO
NLCS
Private
Private
Private
Private
Private
Private
Private
Private
RVDP
SCHL
SCIL
Private
Private
IZAP
MSFT
Private
Private
Private
Private
Private
Private
Private
Private
TLC
Private
ALSI
APPL
Private
Private
Private
Private
Content (continued)
Kids-Directed
BennySmart
Cartoon Network
Children’s Television Workshop
Crayon Crawler
CyberKids / CyberTeens
Disney.com
Headbone Interactive
JuniorNet
KOLA
MaMaMedia
Nickelodeon (Nick Jr. & Noggin)
Parent Directed
Parent Soup
Parent Time
Family Education Company
Community
School Oriented
American School Directory
ASD
bigchalk.com
Classroom Connect
Copernicus.net
eduventions
e-Pals
FamilyEducation Company
Knowledge Universe (KidsEdge)
KOZ
Lightspan (Page One)
NCS (Parent Connect)
Netcenter (KidZone)
NSchools
School City
Scientific Learning (Brainconnection.com)
Teachers.net
Thinkwave
ZapMe!
Teen Oriented
Alfy.com
Alloy.com
Bolt.com
Freezone.com
SurfMonkey.com
Teen.com
Zeeks.com
Commerce
Products
Amazon.com
epylon.com
e-Toys
FamilyWonder.com
Games2Learn
JL Hammett
KB Toys (brainplay.com)
NoodleKidoodle
School Specialty
Simplexis.com
SmarterKids.com
ToySmart
ZainyBrainy
Ticker
Private
Private
Private
Private
Private
DIS
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
LSPN
NLCS
Private
Private
Private
SCIL
Private
Private
IZAP
Private
Private
Private
Private
Private
Private
Private
AMZN
Private
ETYS
Private
Private
Private
Private
NKID
SCHS
Private
SKDS
Private
ZANY
Commerce (continued)
Tutoring & Test Prep. Services
Achieva
EdPoint
EducationTalk
e-Tutor
FastWeb
GlobalTutor.com
Homework Central
HomeworkHelp.com
Kaplan (e-score)
Princeton Review (Homeroom.com)
SuperTutor
TopClass
TopTutor
Tutor.com
Tutor.net
Systems / Infrastructure / Tools
Infrastructure
ACTV
Blackboard.com
e-chalk
ecollege.com
Edutest
ETS
N2H2
The Learning Company
School Specialty
Gemstar (Rocketbook)
HiFusion
HighWired.com
Into Networks
Kaplan (e-score)
LearningStation.com
MC2 Learning Systems
NetSchools
Princeton Review (Homeroom.com)
Testmaster
WebTV
ZapMe!
School Enterprise Software
Chancery Software LTD
Edventions, Inc.
i-mind
National Computer Systems
nSchools
PowerSchool
Project ACHIEVE
SchoolNet
Thinkwave
Online Fundraisers
e-Scrip
SchoolPop
YourSchoolShop.com
e-Wallets
DoughNet
iCanBuy
RocketCash
Ticker
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
ECLG
Private
Private
NTWO
TLC
SCHS
Private
Private
Private
Private
WPO
Private
Private
Private
Private
Private
Private
IZAP
Private
Private
Private
NLCS
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
The Knowledge Web – 23 May 2000 (Reprint)
25. Appendix I
Sizing the opportunity in this market is not a simple task. The following table
describes the analysis and sources we consulted to derive our estimate of a $7
billion market in 2003.
K-12 Learning Opportunity
Segment
Portals & Hubs
Content
E-Commerce
Infrastructure
Ancillary Services
Total
Note
(a)
(b)
(c)
(d)
(e)
Addressable Online Market
Market
(1999)
Growth Rate Market in 2003
$50 million
$50 million
100%
$800 million
$4 billion
$20 million
40%
$80 million
$509 billion
$175 million
120%
$4 billion
$7 billion
$1 billion
20%
$2 billion
$5 billion
$10 million
50%
$50 million
$525 billion
$1.3 billion
80%
$6.9 billion
(a)
Merrill Lynch estimate based on bottoms up analysis of industry. Includes non-content, non-ecommerce related
revenues from both teen-oriented and school-oriented community sites, including Alloy.com, Bolt.com
Snowball.com .FamilEducation Company, Lightspan.com, etc. Clearly, the opportunity to add content and
commerce to a portal or hub greatly increases the revenue opportunity for companies in this arena.
(b)
Merrill Lynch estimate based on bottoms-up analysis of industry. Cowles-Simba estimated in its report “Electronic
Media for the School Market: 1999-00 Review, Trends & Forecast” that online curriculum sales would grow from
an actual $20 million in the 1999 school year (a number our analysis corroborates) to $35 million by 2002, a
CAGR of 20%. We believe this growth rate is far too low, a as we expect to see significant conversion of software
from a CD-ROM format to an online format. Hence our growth rate of 40%, which we would view as conservative.
Cowles-Simba, for example, estimates that “standalone software” and “comprehensive courseware” purchases by
schools will cumulatively reach $1.4 billion by 2002, growing at a 23% CAGR. We would anticipate that a portion of
these estimated sales will in fact be online sales based on shifts we see at these same software publishers to put
their content online and shift toward subscription and ASP business models. The advancing rate of bandwidth will
also affect this shift.
(c)
Merrill Lynch estimates, and 1999 research from Jupiter Communications and Forrester Research. Includes all
online spending by kids and teens, as estimated by Jupiter Communications in 1999 for 1999 and 2002. Also
includes spending by parents on educational products and services, based on a bottoms up analysis of industry.
Includes all revenues for SmarterKids.com and a portion of revenues from E-Toys, Amazon.com, and other toy
and book sellers. Growth rate envisions growth in services, particularly tutoring and test preparation, but is
primarily based on the average growth rate for business-to-consumer e-commerce from Forrester Research
(Nov.1999). School e-commerce based on bottoms up analysis of industry, and growth rates of business-tobusiness e-commerce from Forrester Research (Nov. 1999). Addressable market includes total spending by
schools, teens and kids, and spending on educational products by parents. It then backs out potential double
counting.
(d)
QED. February 2000 estimate of school technology spending. Represents all spending on internet infrastructure.
Includes networking hardware, services and ancillary services.
(e)
Merrill Lynch estimate based on bottoms-up analysis of industry.
167
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168
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Higher Web – Universities Online
169
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This Page Left Intentionally Blank
170
The Knowledge Web – 23 May 2000 (Reprint)
26. Higher Web: Universities Online
Higher Ed e-Learning
Market Stats
Addressable U.S. Market Size: $250 Billion
U.S. Online Market Size 1999E: $1.2 Billion
U.S. Online Market Size 2003E: $7.0 Billion
U.S. Online CAGR 1999E-2003E: 55%
Public Companies Profiled
Apollo Group (APOL)
Private Companies Profiled
Blackboard
Campus Pipeline
Capella University
Embark.com
Edu.com
Jenzabar.com
Fathom
KaplanCollege.com
NYUonline
SMARTHINKING
UNext.com
University Access
WebCT
ZUniversity
Fast Facts
•
Colleges and universities are the most wired community on the Web with
over 90% of college students accessing the Internet, 52% daily.
•
College students represent the single largest non-gender-based online
demographic, constituting 24% of the total number of adult Internet
users.
•
Students average nearly 19 hours per week on the Internet, with 85% of their
time spent on academic pursuits, according to one study.
•
In 2002, 2.2 million students are expected to enroll in distributed-learning
courses, up from 710,000 in 1998, representing a CAGR of 33%.
•
Approximately 84% of four-year colleges are expected to offer distance
learning courses in 2002, up from 62% in 1998.
•
The number of college students using the Internet is expected to reach 13.5
million by 2002, up from 3.4 million in 1995.
•
U.S. colleges and universities offer over 6,000 accredited courses on the Web.
•
College students spend approximately $105 billion annually. Online, they
spend $1.5 billion, an amount which is expected to almost triple to $3.9
billion by 2002.
•
Currently, 3% of 18-22 year olds in China have access to higher education.
By 2020, demand is expected to grow to 20%, or 240 million people. This
compares to 8% in India and 20% in Hong Kong.
Megatrends Shaping the Higher Education Online Learning Market
Trend
Impact
Demographics
In the knowledge economy, the pay gap between those who have a college education and those
who don’t has widened from 50% in 1980 to an estimated 111% today. Yet only 21% of American
adults over the age 25 have a bachelor’s degree or better. In an era when education has never
been more important, online learning enables individuals to obtain a degree around work, family
and personal obligations, anytime and anywhere. Today, nearly 50% of all college students are 25
years or older.
Internet
Over 90% of college students access the Web, spending an average of 19 hours per week on the
Net. The Internet will “democratize” education, reducing its cost, increasing its geographic
accessibility and ultimately improving the quality. Online learning enables schools to leverage the
power of the Internet and broaden their reach to include new markets such as corporate employees
and students abroad. The Internet facilitates research, communications and commerce.
Globalization
Content from world-class postsecondary institutions in many parts of the world is limited. Students
abroad are hungry for top quality, and specifically U.S.-based, education. We estimate that for
every one foreign student studying here, there are three to five students who would if they had the
resources or the access. We expect virtual global universities to be created to meet demand.
Branding
Branding in education is everything on the Internet. Harvard, Stanford and Princeton have spent
decades building their brand names. With the advent of the Internet, individuals now have the
ability to access brand-name content anytime and anywhere.
Consolidation
In response to the high demand for online learning, companies are providing individuals with a
single destination for all of their lifelong learning needs. Internet consolidation can aggregate
communities and act as a link to a variety of services, content and information.
Outsourcing
Designing, developing and deploying effective and comprehensive enterprise-wide online learning
solutions is difficult and expensive. Most schools do not have the internal resources, funding and/or
expertise for such a large undertaking. As such, universities will look to outsource to providers who
can assist them in the development, maintenance and management of their online learning efforts.
ASPs are likely to gain significant traction in this market.
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27. The World Wide Web of Higher Education
“The biggest danger is that higher education may be the next railroad industry,
which built bigger and better railroads decade after decade because that’s the
business it thought it was in. The reality was that it was in the transportation
industry, and it was nearly put out of business by airplanes. Colleges and
universities are not in the campus business, but the education business.”
– The Soul of a New University
Arthur Levine, President of Teacher’s College, Columbia University
The Internet is bringing access, information and speed to college campuses, and
redefining them on almost all levels. Universities and colleges are bringing
everything from their courses to administrative functions online, finding ways to
more efficiently and effectively serve their student body. Students are integrating
the Internet into their daily lives, using it for everything from research to buying
groceries. Innovative companies are melding the power of the Internet with brand
name content, capturing opportunities in new markets such as corporate
employees and international students.
Online Market Opportunity is Tremendous
n By Students:
•
In 2002, 2.2 million students are expected to enroll in distributed courses, up
from 710,000 in 1998, representing a CAGR of 33%.
•
More than 50% of US college students will have Internet access from their dorm
rooms in 1999 and virtually all will have access from some campus location.
•
Over 90% of college students access the Internet, with 50% accessing the web
daily.
•
The college online market is expected to reach 13.5 million by 2002, up from
3.4 million in 1995.
•
Students average almost 19 hours per week on the Internet – spending 85% of
that time on academic pursuits, according to one study.
•
Over 35% of students report shopping online as a regular activity. 75% of these
students say that they have made online purchases, compared to 51% a year ago.
•
40% of students have their own World Wide Web home pages, up from 36%
last year.
n By Faculty:
•
Nearly 40% of all college classes are using Internet resources as part of the
syllabus in 1999, compared with 25% in 1997 and 15% in 1996.
•
Over 25% of all college courses have a Web page, compared to 22.5% in
1998 and 9.2% in 1996.
•
Nearly 20% of college faculty maintain a personal Web page, not linked to
any specific class or course.
•
Approximately 50% of college courses use e-mail, up from just 8% in 1994.
n By Administrators:
172
•
84% of four-year colleges are expected to offer distance learning courses in
2002, up from 62% in 1998.
•
U.S. colleges and universities offer over 6,000 accredited courses on the Web.
The Knowledge Web – 23 May 2000 (Reprint)
•
Over 75% of the institutions in a 1999 survey provide online undergraduate
applications on their Websites, up from 55.4% in 1998.
•
75% make the course catalog available online, compared to 65% last year.
Four powerful trends are driving the online learning opportunity:
1.
Demographic Trends: We believe the demographic landscape for the higher
education sector has never been better. The education industry is currently
faced with the “baby boom echo,” the children of the 76 million baby
boomers born from 1946-1964 after World War II. The number of high
school graduates is expected to increase 24% from 2.5 million in 1995 to 3.1
million in 2008. More importantly, more high school graduates are enrolling
in higher education today then ever before. In 1995, 65% of high school
graduates enrolled in a postsecondary institution, up from 49% in 1980.
2.
Underserved and Growing Group of Working Adult Students – While
adults over 25 represent nearly 50% of our postsecondary student population,
most colleges and universities are still operating in the old education
paradigm, set up to serve students ages 18-22 who are looking for a general
education as well as a “college experience” – football games, student unions,
and fraternities or sororities. The lack of convenient education options
translates into opportunity for innovative proprietary postsecondary
institutions that can provide a “no nonsense,” “customer-oriented”, efficient
education model that is convenient, accessible, and relevant in today’s world.
3.
Widening Wage Gap Between High School and College Graduates – In
today’s knowledge-based economy, the pay gap between those who have a
college education and those who don’t has widened from 50% in 1980 to an
estimated 111% today. Yet only 21% of American adults over age 25 have a
bachelor’s degree or better. These economic facts are driving “nontraditional” students back to school in record levels. Adults age 25 and over
represent 43% of all postsecondary enrollments, up from 28% in 1970.
Return on Investment of an MBA is Enormous
Harvard
Dartmouth
Stanford
UC Berkeley
UCLA
MIT
Columbia
Pennsylvania
Chicago
Virginia
5 Year MBA Gain
Total
% of
Years to
($000s) Expenses Break Even
$ 101
75%
3.3
87
66%
3.5
74
57%
3.5
64
64%
3.4
63
58%
3.7
59
45%
3.7
58
50%
3.7
56
44%
3.9
55
43%
3.7
54
51%
3.6
Class of 1994 Salary
Class of 2000
Pre MBA
1998 Tuition GMAT
($000s) ($000s) ($000s) Score
50
171
52.5
689
45
160
53.3
670
47
140
52.2
722
38
110
40.1
680
42
140
42.7
690
45
136
54.2
690
40
125
54.3
680
45
150
52.6
690
44
122
52.4
695
38
112
44.2
690
Source: Forbes Magazine
4.
Demand for Skilled Workforce – As we move towards a more automated
society, human labor is being displaced by advanced technology, creating the
need for higher skilled employees. By the year 2000, skilled jobs are expected
to constitute 65% of all employment, a dramatic increase from 20% in 1950.
The demand for a more educated workforce and the lack of skilled labor creates
attractive economic incentives that are driving people back to school.
There are a number of innovative e-learning companies, most of which are still
private, that have emerged to help universities and colleges in this time of
transformation. We categorize e-learning companies that serve the higher
education market in four groups: Content, Infrastructure, Community and
Commerce. We think each of these areas has tremendous potential.
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The Knowledge Web – 23 May 2000 (Reprint)
The Higher Ed Market
INFRASTRUCTURE
CONTENT
Virtual Universities
“Clicks and Bricks”
Creating Online
Courses and
Campuses
3,706 institutions in US
1mm faculty in US
2.8 mm faculty abroad
84 mm students abroad
15 mm students in US
1.6 mm
administrators
57 mm alumni
COMMUNITY
College Lifestyle,
College Bound
Students, Academic,
Career/Recruiting
COMMERCE
Textbooks
General Items
Source: Merrill Lynch Global Growth Group
To prepare the higher education institution for the new millennium, universities need
to reconceptualize the model they use to educate students.
To prepare the higher education
institution for the new
millennium, universities need to
reconceptualize the model they
use to educate students.
For over 2000 years, students have aggregated in a classroom, where teachers
lecture. Online learning eliminates scheduling and monetary barriers, delivering
education to individuals wherever they happen to be – whether it be Boston,
Beijing or Barcelona – anytime they are ready to learn. The Internet should
“democratize” education, increasing the access, reducing its cost and ultimately
improving the quality.
“There are two fundamental equalizers in life - The Internet and Education.
E-Learning eliminates the barriers of time and distance, creating universal,
learning-on-demand opportunities for people, companies and countries.”
– John Chambers, President and CEO of Cisco Systems
Online learning has the
opportunity to create an
experience that combines the
richness of an elite institution
with global reach facilitated by
the Internet.
174
Traditionally elite universities have provided a very rich education experience to a
relatively small number of students. For instance, Stanford is rich in content, but
only reaches approximately 10,000 students annually in its undergraduate and
graduate programs. On the other extreme, correspondence schools provide
extraordinary reach, but with little richness. Online learning has the opportunity
to create an experience that combines the richness of an elite institution with
global reach facilitated by the Internet. We are seeing the emergence of “born on
the web” virtual universities such as Cardean University (UNext.com), Concord
University School of Law and Capella University fully leveraging the power of
the Internet and operating entirely online.
The Knowledge Web – 23 May 2000 (Reprint)
Richness Versus Reach in Higher Education
Online
Higher
Education
Favorite Bookmarks of Andrew M. Rosenfield,
Chairman, Founder and CEO of UNext.com
www.myyahoo.com
www.thestandard.com
www.redherring.com
www.northernlight.com
www.cartoonbank.com
www.sec.gov/edgarhp.htm
www.uchicago.edu/
www.miso.wwa.com/~cgobiker/
www.ursusbooks.com/home.cfm
www.britannica.com
Richness
Ivy League
State University
Correspondence School
Reach
Source: Merrill Lynch Global Growth Group
Similar to many innovations in their early stages, many e-learning solutions fail to
take advantage of all available resources, and simply repurpose or post content on
an HTML page. Leading e-learning companies will truly leverage the power of
the Internet, reconceptualizing learning and the dramatic improvements that
innovation could allow.
Leading e-learning companies
will truly leverage the power of
the Internet, reconceptualizing
learning and the dramatic
improvements that innovation
could allow.
“Education’s purpose is to replace an empty mind with an open mind.”
– Malcolm S. Forbes (1919 – 1990)
American publisher
Typically what most people think of as “education” – going to a class lecture – is
ironically is the least efficacious way to learn. Studies show – and common sense
validates – that the more one is involved and participates in the learning
experience, the more one retains. For example, according to studies, only 5% of
information is retained when obtained from a lecture. Only 20% is retained from
audio-visual means, and only 30% retained from demonstrations. In contrast,
when individuals “learn by doing,” they retain 75% of the information conveyed.
Finally, when individuals teach others, they retain 90% of the information, clearly
indicating that interaction and hands-on learning are the most effective ways to
convey and obtain information.
How People Learn
Online learning can require
students to use higher-order
skills such as problem solving,
collaboration, statistical
analysis and simulation.
Teach Others
Learn By Doing
Discussion Groups
Demonstration
Audio Visual
Lecture
90%
75%
50%
30%
20%
5%
Source: Andersen Consulting
Effective use of technology can transform the learning process. With the right
features, online learning can require students to use higher-order skills such as
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problem solving, collaboration, statistical analysis and simulation. These types
of projects require greater student initiative, making students take a more active
role in the learning process. According to a study conducted by California State
University, Northridge, students scored an average of 20% better in a virtual
class compared to a traditional class.
“Cognitive learning”, or learning by doing, is ideally suited for the Internet.
One company that has invested significant resources and time to create a “learn by
doing” experience online is UNext.com. Through the incorporation of multimedia
simulations, relevant case studies, threaded discussions and real time collaboration
tools, UNext is creating a dynamic interactive virtual environment where
individuals become actively engaged and captivated by the curriculum and learn in
a truly innovative and meaningful manner.
“Cognitive learning”, or
learning by doing, is ideally
suited for the Internet.
Recently, we have seen a major shift with regard to the online strategies of
colleges and universities. Two years ago, universities and colleges were tentative
about moving online, with many going on “dates” to get a feel for different
outsourced online solutions, but not yet willing to make any true commitments.
Today, these “dates” have moved past the marriage stage and are starting families.
Traditional institutions such as University of Chicago, Stanford and Duke are
seeking the help of e-learning companies to help them leverage their assets
(knowledge, content and experience) on the Internet. This allows them to serve
their existing students better and reach new markets, such as corporate employees
and students abroad.
“An investment in knowledge pays the best return.”
– Benjamin Franklin
Given the obvious needs of colleges and universities and the related opportunity,
hundreds of companies have now offer solutions, providing the tools, strategies,
and solutions to help bring content and courses online. Two companies gaining
considerable traction in the higher education market are WebCT and Blackboard,
which provide instructors with web-based teaching and learning platforms that
enable them to create and manage courses online. Their robust product offerings
enable educators to enhance and supplement in-class instruction by bringing
course materials, class discussions, assignments and quizzes to the Web. WebCT
currently boasts over 1,300 institutions, 6 million students and 39,000 faculty in
53 countries. Likewise, Blackboard has a growing base of 3,000 institutions and
more than 2 million students in over 70 countries, including trial users.
While much of the attention revolves around creating online content, there is also
a transformation occurring at the administrative level on college campuses.
Universities and colleges are drastically changing the way they operate, bringing
everything from recruiting to enrollment online.
The price tag of a college education has skyrocketed in the past two decades with
tuition increasing fivefold, much faster than personal income and inflation. For
example, today it costs $3,408 a year to attend the University of Wisconsin, up
from $654 in current dollars in 1935. Private schools are even more expensive,
reaching upwards of $30,000 a year for some schools.
The price tag of a college
education has skyrocketed in
the past two decades with
tuition increasing fivefold,
much faster than personal
income and inflation.
176
University Tuition ($ per year for residents)
University of Wisconsin – 1935
UC Berkeley – 1964
Wharton – 1975
Source: Milken Institute
Actual In Current $
$
55 $
654
$
203 $
1,067
$ 3,430 $
9,826
Today
$ 3,408
$ 4,176
$ 24,570
The Knowledge Web – 23 May 2000 (Reprint)
Here’s the issue: Colleges and universities are being hit over the head to respond
to the changing needs of their students, faculty and alumni, yet at the same time
must strive to keep costs down. As such, colleges and universities are outsourcing
either to create an online infrastructure that would cost them millions to develop
on their own or, in some cases, outsourcing the admissions process or athletic
ticket sales. Many private companies have identified this opportunity, providing
colleges and universities with robust, scalable Internet solutions. Several of these
companies serving colleges’ needs have made substantial inroads in the higher
education market, focusing on specific niches:
Colleges and universities are
being hit over the head to
respond to the changing needs
of its students, faculty and
alumni, yet at the same time
must strive to keep costs down.
•
Campus Pipeline is essentially the school’s intranet, providing a school with
an enterprise-wide information-based platform where students can register,
enroll and pay online, as well as access information on campus events and
outside resources. Campus Pipeline has gained significant penetration in the
higher education market in a short period of time. Launched in February
1999, Campus Pipeline already has more than 550 schools signed up (more
than 20 of which are fully deployed and live).
•
Embark.com focuses on bringing the admissions process online, allowing
students to apply online and colleges to process applications online. Through
Embark.com's website, students can research information on higher education
institutions, as well as financial aid programs and other relevant information.
Students can then communicate with these institutions, be recruited and
submit applications online.
•
FANSonly (division of Student Advantage) focuses on creating online
athletic departments, providing schools with brand management, content
delivery, marketing and sales support and e-commerce solutions, as well as
creating and maintaining their Official Athletic Site.
Market Niches for Higher Education Companies
FANSonly
Rivals.com
Embark.com
College Search
Sports Complex
Campus Pipeline
Financial Aid Office
Campus Pipeline
Registration Office
Campus Pipeline
Student Center
TAKE A STUDY BREAK!
Embark.com
Admissions Office
Source: Merrill Lynch Global Growth Group
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Once a company has
established itself within the
community, it can migrate its
affiliation into other areas to
monetize the total opportunity.
One critical focus is to control
the email, which is the gateway
to the student market and the
link to keeping students once
they graduate.
Fundamental to each strategy is to lock in a key function or constituency at a
university by providing a compelling proposition or solution to a problem. Free or
near free services “hook” the constituency, and through viral adoption and the
network effect a scale presence is created. For example, WebCT has provided a
very inexpensive but highly functional way for professors and textbook publishers
to webify their content. Through grassroots adoption, WebCT now has more than
1,300 schools and six million students.
Once a company has established itself within the community, it can migrate its
affiliation into other areas to monetize the total opportunity. One critical focus is
to control the email, which is the gateway to the student market and the link to
keeping students once they graduate.
College students are expected to represent approximately 13% of the online
community, reaching 13.5 million by 2002, up from 3.4 million in 1995.
College Students Get Online
14
12.6
13.5
11.0
12
8.9
10
Millions
13.0
7.1
8
5.0
6
3.4
4
2
0
1995
1996
1997
1998
1999E 2000E 2001E 2002E
Source: Jupiter Communications
At an estimated $105 billion,
the spending power of college
students is huge. Not
surprisingly, a growing
percentage of their spending is
moving online. Currently
students spend $1.5 billion
online, an amount which is
expected to almost triple to $3.9
billion by 2002.
At an estimated $105 billion, the spending power of college students is huge. Not
surprisingly, a growing percentage of their spending is moving online. Currently
students spend $1.5 billion online, an amount which is expected to almost triple to $3.9
billion by 2002. According to Jupiter Communications, total advertising expenditures in
the U.S. are expected to reach approximately $200 billion by 2003, with $11.5 billion of
it being directed online. Much of it will target the attractive student demographic.
College Students Spend More Online
$3.9 BB
$3.1 BB
$2.4 BB
$1.5 BB
$875 MM
$97 MM
1996
$367 MM
1997
1998
1999E
2000E
2001E
2002E
Source: Jupiter Communications
Higher Ed e-hubs provide advertisers and e-commerce companies access to a very
significant and compelling demographic: College students and their credit cards.
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The Knowledge Web – 23 May 2000 (Reprint)
College students, for the first time, are making critical lifetime purchasing
decisions on their own. These brand-conscious college students are choosing
where to bank, what long distance carrier company to use and which credit card
company to trust. In fact, studies have found that college students keep the same
credit card carrier that they used in college for an average of 15 years.
Studies have found that
college students keep the same
credit card carrier that they
used in college for an average
of 15 years.
Top Twelve Web Sites in Higher Education
Heard of
Site
38%
32%
29%
28%
24%
20%
20%
15%
14%
13%
13%
12%
VarsityBooks.com
ecampus.com
Textbooks.com
BestBookBuys.com
Princeton Review
Kaplan
Student Advantage.com
AT&T College Network
e-Follett.com
College Student.com
CollegeClub.com
Jobtrak.com
Visited This
School Year
10%
8%
7%
6%
6%
4%
7%
5%
5%
5%
6%
5%
Site Visited
Most Often
5%
3%
2%
2%
1%
2%
4%
1%
2%
2%
4%
3%
Source: Student Monitor
Putting all of these factors together, we see a tremen dous opportunity in higher
education for e-learning companies.
Enormous Global Opportunity in Higher Education
84 Million Students
Worldwide
+
Highly Attractive
Demographic Group
Metcalfe’s
Law
Moore’s
Law
Transistors per
Microprocessor
The Network Effect
+
Utility
20,000 Institutions
Worldwide
P rocessin g P ow er
$250 Billion U.S. Higher
Education Market
The
Higher Ed
= e-Learning
Opportunity
Time
Users
Source: Merrill Lynch Global Growth Group
“If you’re smart enough to go to college, you’re smart enough to pay for it
yourself.”
– Governor Jesse “The Body” Ventura
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28. The Market Opportunity
The postsecondary market is enormous, measuring $240 billion in size and
representing nearly one-third of United States education spending. We estimate
that the U.S. market for online higher education alone will grow from $1.2 billion
in 1999 to $7 billion in 2003, a 55% CAGR.
We estimate that the U.S.
market for online higher
education alone will grow from
$1.2 billion in 1999 to $7 billion
in 2003, a 55% CAGR.
U.S. Higher Education e-Learning Market
U.S. Online Market Size
Segment
U.S. Addressable
Market (2000E)
1999E
2003E
Higher Education
$250 billion
$1.2 billion
$7.0 billion
CAGR:
1999E-2003E
55%
Source: Merrill Lynch, based on bottoms-up analysis of the industry and IDC research. See Appendix 1.
The demographic backdrop in the higher education market has never been better,
in our opinion.
•
The number of high school graduates is expected to increase 24% from 2.5
million in 1995 to 3.1 million in 2008.
•
More high school graduates are enrolling in higher education today then ever
before. In 1995, 65% of high school graduates enrolled in a postsecondary
institution, up from 49% in 1980.
•
Enrollments in higher education are expected to reach 16 million by 2008, up
from approximately 15 million today.
•
Adults over the age of 25 represent nearly 50% (6.1 million students) of all
higher education enrollments, up from 28% in 1970.
At the same time, college campuses and students have embraced the web:
•
In 2002, 2.2 million students are expected to be enrolled in distributed
courses, up from 710,000 in 1998, representing a CAGR of 33%.
•
More than 50% of U.S. college students will have internet access from their
dorm rooms in 1999 and virtually all will have access from some campus
location.
•
Over 90% of college students access the Internet, according to Student
Monitor, with 50% accessing the web daily.
•
Students average almost 19 hours per week on the Internet – spending 85% of
that time on academic pursuits, according to one study.
•
Students are expected to spend $3.9 billion on line in 2002, up from $200
million in 1997.
•
Over 35% of students surveyed in Greenfield’s Online Campus Market study
report shopping online as a regular activity. 75% of these students say that
they have made online purchases, compared to 51% a year ago.
•
40% of students have their own World Wide Web home pages, up from 36%
last year.
•
78% of the institutions that offer distance learning courses use web-based
technology.
In 1998, higher education institutions spent approximately $3.1 billion on all
information technology. Of this amount, approximately $305 million, or 9.8%,
was spent on support for distance learning. This figure includes spending on
hardware, software, communication products and services and excludes staff
salaries. This averages $128,953 of spending for distance learning per institution.
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The Knowledge Web – 23 May 2000 (Reprint)
Breakdown of Spending on Distance Education
Communication
products & services
18%
Other
9%
Technical
support/maintainance
14%
Software
12%
Content Creation
21%
Professional training
7%
Hardware
19%
Source: International Data Corporation
We have seen a dramatic uptick in the number of public and private colleges and
universities that are seeking to develop education delivery systems that combine
the best of traditional classroom instruction with the power of technology. This
trend is illustrated by the growth in students enrolled in distributed learning and
the number of distributed learning courses offered by two- and four-year
institutions. In 1998, 710,000 students were enrolled in distributed courses, a
figure that is expected to jump to 2.2 million in 2002, representing a compound
annual growth rate of 33%.
Enrollment Growth in Distributed Learning Courses
In 1998, 710,000 students were
enrolled in distributed courses,
a figure that is expected to jump
to 2.2 million in 2002,
representing a compound
annual growth rate of 33%.
2,230,000
2,500,000
CAGR: 33%
2,000,000
1,590,000
1,420,000
1,500,000
980,000
1,000,000
710,000
500,000
1998
1999E
2000E
2001E
2002E
Source: International Data Corporation
According to IDC, approximately 84% of four-year colleges are expected to offer
distance learning courses in 2002, up from 62% in 1998. Two-year colleges are
also quickly moving into the distributed learning arena, with 85% expected to
offer distance learning courses in 2002, up from 58% in 1998.
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The Knowledge Web – 23 May 2000 (Reprint)
Growth in Distributed Learning Courses at Two and Four year Institutions
90%
95%
85%
75%
65%
58%
62%
64%
67%
70%
72%
77%
78%
84%
55%
45%
35%
1998
1999E
2000E
Two y ear Institutions
Source: International Data Corporation
182
2001E
Four Year Institutions
2002E
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29. The Global Opportunity
The Internet creates one economy and one market. This adds both stress and
opportunity for corporations and the employees that work for them. Today
approximately 30% of earnings for the S&P 500 come from outside of the United
States.
“I think the world is run by C students.”
– Al Maguire
American basketball coach
As large as the online higher education opportunity is in the U.S., the global
opportunity is significantly greater.
As large as the online higher
education opportunity is in the
U.S., the global opportunity is
significantly greater.
First, there are 84 million students enrolled in higher education worldwide.
Coupled with projection that, by 2003, 65% of web users will be international,
shows us that the global online learning market is enormous. Moreover, non-U.S.
countries are expected to account for over half of worldwide Internet commerce
by 2003.
International Internet Commerce
44%
50%
35%
40%
34%
29%
31%
27%
30%
20%
10%
0%
United States
Western Europe
1998
Other
2003
Source: International Data Corporation
The real reason why the global higher education opportunity is so large is that the
United States is already a higher education powerhouse and the engine to the world.
The U.S. has nearly 15 million students already enrolled in higher education.
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The United States Is a Higher Education Powerhouse
United States
265 mm people
15 mm students
2.6 mm faculty
Germany
82 mm people
1.7 mm students
198,000 faculty
Former USSR
287mm people
5.3 mm students
404,000 faculty
China
1.2 billion people
3.2 mm students
397,000 faculty
Japan
126 mm people
2.7 mm students
271,000 faculty
India
1 billion people
6.1 mm students
303,000 faculty
Source: Milken Institute, World Bank
Unlike the U.S., where postsecondary education is relatively available, access to
world class postsecondary institutions in many parts of the world is limited. There
is insatiable demand for knowledge workers on a global basis and a gross
imbalance between what the marketplace demands and current availability.
Students abroad are hungry for top quality, and specifically U.S.-based, education.
Currently, nearly 500,000 foreign students study in the U.S., and are spending
approximately $13 billion.
Demand for U.S. Education by Students Abroad is Huge
500,000
# of Foreign Students Enrolled in
US Higher Ed Institutions
Students abroad are hungry for
top quality, and specifically
U.S.-based, education.
Currently, nearly 500,000
foreign students study in the
U.S., and are spending
approximately $13 billion.
453,787
457,984
481,280
490,933
450,000
407,529
400,000
343,777
350,000
311,880
300,000
250,000
1980/81
1985/86
Source: Institute of International Education
184
1990/91
1995/96
1996/97
1997/98
1998/99
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While undoubtedly some of these students study in the U.S. because they want the
cultural experience of living in a new country or to attend a specific university, a
significant number likely came because they did not have access to a university
education in their home country or did not have the diversity of choices that we
enjoy in the U.S. We believe that for every foreign student studying here, there
are three to five students who would if they had the access or resources.
Currently, this translates to a potential of approximately 1.6 million international
distance learning candidates. Clearly, online learning makes it possible to serve
these students who would never have had this chance before.
Global demand for higher
education is forecast to reach
160 million students in 2025. If
distance learning grows even
half as fast as this, which we
think is extremely conservative,
there would be 45 million users
of online higher education.
Global demand for higher education is forecast to reach 160 million students in
2025. If distance learning grows even half as fast as this, which we think is
extremely conservative, there would be 45 million users of online higher
education. Assuming that the average annual tuition is approximately $4,800, the
global market for online higher education would be $216 billion.
For example, currently in Malaysia, only 14% of the population have access to
higher education. To achieve the status of a developed nation, the Malaysian
government has calculated that 40% of its population needs access to education,
which, based on current population figures, translates to an additional 5.4 million
higher education slots. Online courses will likely capture at least half of this
growth. In China, the proportion of 18-22 year olds enrolled as full-time students
at higher education institutions is only 3%. The current demand forecast projects
that this figure will reach 19% by the year 2020 based on economic growth. The
projections are similarly robust in many countries across the globe, with 8% for
India up from 4%, 20% for Hong Kong and 45% in the U.S.
Proportion of 18-22 Year Olds with Access to Higher Ed
China
Hong Kong
India
Malaysia1
US
Current %
3%
15%
4%
14%
42%
Projected by 2020
% of Students
# of Students (mill)
19%
20.0
20%
0.1
8%
11.0
40%
8.3
45%
16.1
Source: World Bank, Unesco, US Census Bureau, Government of Hong Kong, Ministry of Education of India
1As a percentage of total population.
In China, the proportion of
18-22 year olds enrolled as
full-time students at higher
education institutions is only
3%. The current demand
forecast projects that this
figure will reach 19% by the
year 2020.
An example of a company that is positioning itself to capture the gigantic
opportunity abroad is UNext.com. Through partnerships with world-class
institutions such as Columbia University, Stanford University, the University of
Chicago, Carnegie Mellon and The London School of Economics, UNext.com is
creating an elite online academic institution, Cardean University. By marrying
brand name content and providing an effective learning experience designed
specifically for the web, UNext provides a window to what we see as the vast
possibilities for online education.
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30. Infrastructure – “Webifying” the University
The move online is not without challenges. Most schools do not have the
resources, funding and/or expertise for such a large undertaking. In a survey of
many of these schools, the Department of Education found that:
•
43% of institutions cited program development costs as a deterrent to offering
distributed learning.
•
31% cited a limited technological infrastructure.
•
23% cited equipment failures and cost of maintaining equipment as inhibitors.
We believe a growing number of colleges and universities will choose to
outsource the development and/or management of their online solutions. Several
companies, many of which are still private, are taking advantage of the
opportunity. Some of these companies focus on creating online courses while
others focus on bringing the mission critical functions of a campus to the Internet.
Higher Education Market Infrastructure
Top Down
Embark
XAP.com
Admis s ions
Jenzabar,
Campus Pipeline,
Blackboard
Ins titutions
SCT
Peoplesoft,
Datatel
IT Departments
Market Size Statistics
Adminis tration
WebCT,
Blackboard,
eCollege
CollegeClub.com,
Student Advantage,
EDU.com
20,000 Global Institutions
84 million Global Students
F ac ulty
$250 billion Domestic Spending
S tudents Academic Life
S tudents Campus Life
JobDirect,
JobTrack
zUniversity,
CollegeClub.com,
Campus Pipeline,
Student Advantage
Careers
Alumni
Bottom Up
Source: Merrill Lynch Global Growth Group
Creating Online Courses
Cost and Expertise Are Largest Deterrents
Designing, developing and deploying an effective, comprehensive enterprise-wide
online learning solution is difficult and expensive. Colleges and universities first
have to figure out how to create online courses to serve the needs of their current
on-campus students. At the same time, colleges and universities are exploring
opportunities to leverage their content to reach new markets and potential
students, such as corporate employees or students abroad.
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Higher Ed e-Learning
Infrastructure Companies
Creating Online Courses & Programs
Blackboard, Inc.
Campus Cruiser
Certilearn
Cognitive Arts
Convene
ECollege
Educational Video Conferencing
Eduprise
Embanet
Intralearn
Jenzabar
Lotus Learning Space
Pensare
Tegrity
VCampus
WBT Systems
WebCT
Source: Merrill Lynch Global Growth Group
Creating an effective, engaging
online course can cost up to $1
million, with entire programs
easily costing tens of millions of
dollars.
Like many innovations in their early stages, much of what e-learning has meant to
date has been simply repurposing existing content without reconceptualizing it to
realize the dramatic improvements that the innovation could enable. Creating
online courses is vastly more complicated than taking a professor’s lecture notes
and posting it online. For example, when television was introduced, you could not
take a radio personality and immediately transform him into a television
spokesperson (although that’s what was tried).
The new medium required new solutions, and the same analogy applies for online
learning. A great instructor in a classroom setting is not necessarily appropriate for
online learning. Colleges and universities may need to either retrain or find new
instructors to teach online or supplement instructors’ offerings with multimedia
and interactive features. We believe the e-learning companies that will be the
leaders in the space and that will be well-positioned to capture the gigantic
opportunity are the ones that create an experience fully leveraging the medium.
Redefining Learning As We Know It
Expert-Rich Content and Curriculum
Easy to Use
Flexibile and Convenient
Continuous Assessment
Real Time Feedback, Tracking and Metrics
Multimedia Simulations
Rich Case Studies
Threaded Discussions
Dynamic, Engaging Environoment
Another barrier to online learning is cost. Creating an effective, engaging online
course can cost up to $1 million, with entire programs easily costing tens of
millions of dollars. For these reasons and others, a growing number of colleges
and universities are seeking the help of private e-learning solution providers. For
example, Duke University's Fuqua School of Business recently entered into a joint
venture with Pensare, a leading provider of Business Learning Communities for
the Internet, to outsource the production and delivery of a new accredited Duke
MBA program.
Several innovative companies (many of them still private) have emerged to serve
the online learning requirements of colleges and universities. Some companies
focus solely on the technology platform, while others offer the entire learning
solution including the content, technology, implementation and deployment.
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Campus Pipeline – Bringing the Campus Online
Campus Pipeline has created a fully integrated, enterprisewide information portal and application platform that
effectively links students, faculty, alumni and
administrators. In essence, Campus Pipeline webifies the
entire college campus, bringing basic functions such as
registration, payment and admissions online. From
Campus Pipeline’s platform, students can access e-mail,
register for classes, conduct online research, get class
assignments, participate in chat rooms and threaded
discussions, apply for jobs and buy textbooks, among
other things. Faculty can create course syllabi and
assignments online, conduct online office hours and
facilitate secure chat rooms. Perhaps the most compelling
feature of the Campus Pipeline solution is that the platform
is completely integrated with an institution’s back-office
software systems. Thus, many administrative tasks are
streamlined, allowing schools to capture operating
efficiencies and reduce transaction costs. SCT is a major
investor in Campus Pipeline, providing back-office support
and ERP systems to more than 1,300 higher education
institutions. This key partnership gives Campus Pipeline
significant inroads into the higher ed market – SCT sold
Campus Pipeline to 526 institutions in 1999 alone.
Campus Pipeline has gained significant penetration in the
high ed market over a short period of time. Launched in
February 1999, Campus Pipeline already has more than
550 schools signed up, 45 customers installed and 20 live
customers.
Campus Pipeline Brings the Campus Online
Campus
Center
Research
Center
Academic
Services
Career
Center
Calendar
Central
Campus
Pipeline
Integrated
E-mail
Course
Resources
Alumni
Services
Web Shopping
Source: Merrill Lynch Global Growth Group
Founded: 1999
Headquartered: Salt Lake City, Utah
Public/Private: Private
URL: campuspipeline.com
Claim to Fame: Webifies the college campus from the registration
process to online course creation
Revenue Components:
Content:
Commerce:
Advertising:
Service/Licensing:
Other:
Investors: Oak Investment Partners, Inktomi, Dell Computer,
Amerindo Investment Advisors, Hambrecht & Quist’s
Access Technology Partners, C.E. Unterberg, Towbin,
Thomas Weisel Partners and McKinsey & Co.
Network Effect:
Yes
Hub/Portal Strategy: Yes
Key Strategic Partners: PricewaterhouseCoopers, SCT,
Sun Microsystems, Dell, and Amazon
Metrics to look for:
Number of schools: 550 signed, 45 installed, 20 live
Number of students
Number of page views
Key Institutions: Appalachian State University, University of Idaho,
Saint Joseph’s University, Saint Louis University,
Southern Alberta Institute of Technology, University of Oregon,
University of Memphis, Salt Lake Community College and
Villanova University
188
X
X
X
X
The Knowledge Web – 23 May 2000 (Reprint)
Jenzabar.com
Jenzabar is a provider of Intranet application services to
educational institutions that enable them to set up a
customized online campus community. Jenzabar’s service
allows students, faculty, administrators and staff to access
information, use course management tools and develop
and publish course materials online. Unlike a Web site, an
Internet destination, or software company, Jenzabar.com
provides its Web-based Intranet application to educational
institutions around the globe. The company’s system can
be applied to small schools, large universities, private
colleges or public systems, and can be used from any
computer with a connection to the Internet, allowing
students, faculty, administrators and staff access to
information they need when they need it.
Jenzabar is tailored to the school, the user, down to the
very date of use. At each login, the Jenzabar application
pulls the relevant information from registration systems,
professors' Web pages, the Internet, e-mail systems and
other school-specific resources. Rather than sorting
through page after page of generic information, each user
is presented with resources for their class, their professors,
their students, their friends, their classmates, their e-mail
and other relevant academic information.
Founded: 1998
1999E Revenues: NA
Headquartered: Cambridge, MA
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: jenzabar.com
Content Sales:
X
Commerce:
X
Advertising:
Coolest Feature on the Website: User access to JenzaMail, a webbased email system that allows students and educators to stay
connected around the world
Service :
X
Other:
X
Hub/Portal Strategy: Yes
Investors: Omnicom Group, Pegasus Capital Advisors, New Media
Investors, Cyrk, Fleet Financial Group, Zero Stage Capital
Network Effect: Yes
Metrics to look for:
Number of Users
Number of Schools
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n Course Tool Companies
The most basic category of companies that serve the online learning needs of the
higher education market are course tool providers. Course tool companies provide
schools and faculty members with software that enables them to develop, create
and deliver web-based courses. Using course tools, faculty members can enhance
and supplement their courses with online materials, class discussions, assignments
and quizzes, providing students with access to learning resources any time of the
day from any location.
Faculty members have significant power on college campuses, selecting and
determining course content, materials and method of instruction. Their “buy in” is
essential, as they alone can determine whether a solution will sink or swim.
Understanding this dynamic, most course tool companies have taken a “bottom
up” approach, selling to and placing an emphasis on serving the needs of the
faculty.
Course tools empower faculty
members, providing them with
the opportunity to play a
significant role in the transition
to online learning, as they
actually design and repurpose
the content themselves.
Course tools empower faculty members, providing them with the opportunity to
play a significant role in the transition to online learning, as they can actually
design and repurpose the content themselves. Teaching is a very personal trade,
with style and technique being unique to the instructor. Course tools put the
instructor in the driver’s seat, allowing him or her to design and deliver courses to
his or her own specifications and own personal teaching style. Furthermore,
because the content always remains in the faculty’s control, the ownership of
intellectual property is never in question.
This “bottom up” approach has been very successful for companies, such as
WebCT, who have gained significant buy-in and demand from faculty members.
WebCT and its main competitor, Blackboard, provide instructors with web-based
teaching and learning platforms that enable them to create and manage courses
online. Their robust product offering enables educators to enhance and supplement
in-class instruction by bringing course materials, class discussions, assignments
and quizzes to the Web.
“Colleges are like old age homes, except for the fact that more people die in
colleges.”
– Bob Dylan
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WebCT and Blackboard – Providing Webification Tools to Schools
WebCT and Blackboard are leading providers of course
tools, providing instructors with web-based teaching and
learning platforms that enable them to create and manage
courses online. The two companies are similar in several
ways. Both have a robust product offering that enables
educators to enhance and supplement in-class instruction by
bringing course materials, class discussions, assignments
and quizzes to the Web. Both are experiencing growing
momentum in the higher ed marketplace. WebCT currently
boasts over 1,300 institutions, 6 million students and 39,000
faculty in 53 countries. Including trial users, Blackboard
enjoys a growing interest from 3,000 institutions and more
than 2 million students in over 70 countries.
While viewed as the most comparable competitors in the
space, their strategies are beginning to diverge,
differentiating them from each other. WebCT recently
launched an e-learning hub strategy. The e-learning hub,
located at www.webct.com, will provide students with
support for their classes, including resources for
assignments, practice quizzes, homework help and leads
for summer internships and jobs in a variety of fields.
WebCT.com will offer WebCT-ready content from college
textbook publishers, including Pearson Education, the
world’s largest educational publisher, which represents
such imprints as Addison Wesley, Longman, Allyn &
Bacon and Prentice Hall. W.W. Norton, the oldest and
largest publishing house owned wholly by its employees,
with distinguished publishing programs in both the trade
and the college textbook areas, will also provide content.
Blackboard, on the other hand, with the introduction of the
CourseInfo Enterprise Edition, is further penetrating and
establishing deeper relationships with institutions,
providing them with a more integrated, enterprise-wide
online platform. In our view, both of these strategies make
sense, as they leverage their large and growing installed
user base. Moreover, we believe both companies are
highly regarded in the industry and are well positioned to
seize opportunity in the dynamic online learning market.
WebCT
Blackboard
Background
WebCT was created by the merger of Universal Learning Technology
(ULT) and WebCT in May 1999. Both Universal Learning Technology
(ULT) and WebCT were formed in 1995 to provide colleges and
universities with a Web-based teaching and learning platform. ULT was
founded by Carol Vallone, the former President of Information Mapping,
Inc. (IMI), North America, a company specializing in research-based
methodologies for developing granular text and computer-based
curriculum. WebCT was founded in 1995 by Murray Goldberg, a respected
faculty member at the University of British Columbia.
Products:
WebCT 3.0 - WebCT 3.0 is a comprehensive set of tools that allows
faculty to develop, deliver and administer compelling online curricula to
supplement their classroom-based courses. From WebCT’s online
platform, students can access course content, take quizzes, submit
homework and interact with their instructors and fellow students.
WebCT.com - These e-learning hubs will offer academic discipline-based
communities in areas such as English, computer science, and biology, as
well as broad-based communities such as Teaching and Learning on the
Web, Student Resource Center and WebCT Training and Course
Development Support.
Background
Based in Washington DC, Blackboard was founded in 1997 by Matt
Pittinsky and Michael Chasen, two professionals from KPMG’s higher
education consulting practice. In May 1998, they acquired CourseInfo LLC,
a spin-off of Cornell University which had developed a course website
technology to support local Cornell faculty.
Financial Backing:
CMGi @Ventures; BancBoston Ventures; NetInvest; Boston Millennia
Partners; Kestrel; MTDC; Chase Capital; Duke; SCT
Financial Backing:
Novak-Biddle Venture Partners of Reston, VA; Carlyle Venture Partners LP;
Merrill Lynch Kecalp LP; Internet Capital Group; Aurora Funds Inc.; Bill
Brock, former Senator of Tennessee and former Secretary of Labor; Frank
Bonsal, co-founder of New Enterprise Associates; Charles Oswald, former
Chairman of National Computer Systems (NCS).
Key Partnerships: Peoplesoft and SCT, Pearson, Thomson, Harcourt,
McGraw-Hill, W.W. Norton, Campus Pipeline
Key Partnerships:
Archipelago Productions, Houghton Mifflin, KPMG LLP, LearnWare, NextEd,
Microsoft, PeopleSoft, Sun Microsystems, Sylvan Learning Systems, Oracle
Metrics:
Institutions: over 1,300
Seats: More than 6 million
Countries: 53
Licenses: 1009
Courses built on WebCT platform: NA
Metrics (including trial users):
Institutions: Over 3,000
Seats: More than 2 million
Countries: More than 70
Licenses: NA
Courses built on Blackboard platform: 12,000
Products:
Blackboard.com - a free service designed for instructors to add an online
component to their classes and/or host an entire course on the Web.
CourseInfo – CourseInfo is designed to serve the online teaching and
learning needs at colleges, universities and K-12 school districts around the
world. CourseInfo enables educators to enhance in-class instruction and/or
deliver distance learning by bringing their course materials, class
discussions, assignments and quizzes to the Web.
CourseInfo Enterprise Edition – The enterprise edition offers further
functionality providing schools with an integrated, customizable and
scalable large-scale system solution.
Source: Merrill Lynch and company documents
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n e-Learning Outsourcers
For schools that are looking for a more comprehensive, integrated, enterprise-wide
solution, there are total e-learning outsourcers such as eCollege, Embanet and
Convene. While these companies provide a technology platform similar to course
tool companies, the true value they provide is service, expertise, convenience and
customization. They can design a comprehensive online learning solution
specifically tailored for schools based on their needs, alleviating some of the
burdensome decision-making process.
The Internet is bringing access,
information and speed to
college campuses, redefining it
on almost all levels.
Unlike course tool companies, total e-learning outsourcers generally take a “top
down” approach, selling to school administrators, as their solution is integrated
and system-wide in nature. While the value proposition of total e-learning
outsourcers is compelling from an institutional and efficiency standpoint, some
companies have experienced some resistance from faculty members who are not
comfortable with handing over their content to another party for online
conversion. Thus, total e-learning solution providers are offering schools the
option to convert the content themselves.
Two Approaches to Creating Online Courses
These websites bring missioncritical functions, such as
admissions, registration, and
financial aid services, to the
web all in one location.
Course Tool Companies
Total E-Learning Outsourcers
Software License Revenue Model
Gain Buy in from Faculty Members
Typically costs $3,000-$8,000per license
Service Revenue Model
Gain Buy in From School Administrators
Typically cost $30,000+ per contract
Companies
WebCT
Blackboard
Intralearn
Jenzabar
Tegrity
Companies
E-college
Embanet
Eduprise
Convene
Cognitive Arts
Source: Merrill Lynch Global Growth Group
Creating Online Campuses
Functional Point-of-Contact
Sites
Creating Online Campuses
Apply.com
Campustores.com
College Health Hub
Embark.com
FansOnly (Student Advantage)
GoCampus
Jenzabar
Mascot Network
netlibrary
Rivals.com
SMARTHINKING.com
WebCT.com
Source: Merrill Lynch Global Growth Group
192
The Internet is bringing access, information and speed to college campuses,
redefining them on almost all levels. With the help of some nimble private
companies, campuses are quickly moving online, drastically changing the way
schools operate, enabling them to reduce the time, costs and resources required to
transact business.
School websites are not new. They have been around since the advent of the
Internet, serving as a place to access content and information. What we are seeing
today is the emergence of powerful, functional websites that not only link the
front-end with the back-end functions of a school, but also provide students,
faculty members and administrators with a single virtual destination point where
they can communicate.
These websites bring mission-critical functions, such as admissions, registration,
and financial aid services, to the web all in one location. Students no longer have
to wait hours in line to find out that they can’t register for a class because it is full.
With a click of the mouse, students can access e-mail, register for class, conduct
online research, get class assignments, participate in chat rooms, apply for jobs
and buy textbooks. At the same time, faculty members can create course syllabi
and assignments online, conduct online office hours, facilitate secure chat rooms
and e-mail information to their students, all from one online location.
The Knowledge Web – 23 May 2000 (Reprint)
Many private companies have identified this opportunity, providing colleges and
universities with a robust, scalable Intranet solution – one that would cost millions
to design, implement and manage on their own. Harvard was one university that
opted to go it alone, spending approximately $12 million and taking over 2 years
to create its own platform. Our understanding is that it has half the functionality
of solutions on the market today.
According to a survey conducted by Yahoo! Internet Life, at the top 100 most
wired colleges:
•
98% offered online course schedules
•
90% allow prospective students to apply electronically
•
82% allow students to register for courses online
•
72% allow students to add and drop courses online
•
54% offer distance learning courses
•
51% permit graduates to keep their e-mail address for life
•
48% offer alumni free access to the campus network
•
45% allow students to set up multiple e-mail accounts
“The 1st Law of the Internet states that the answer is on the Internet. Therefore
the quest is no longer where to find the answer, but how to word the question.”
– Randi
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Embark.com
Embark.com's web-based services enable colleges and
universities, high schools, middle schools, community
colleges, community youth programs, students and parents
to manage more efficiently the critical steps involved in
the transition to higher education, including school
selection, recruiting and admissions.
The company offers several products and services:
Enrollment Services System (ESS) Designed for higher
ed institutions, ESS is a web-based management tool for
automating and improving the recruiting and admissions
processes. ESS provides colleges and universities with an
integrated, hosted online solution for conducting highly
targeted recruiting programs, tracking recruiting program
results and processing inquiries and applications from
students around the world. As of April 2000, over 350
schools licensed Embark’s enrollment system including
Boston College, Columbia University, INSEAD,
Northwestern University, Stanford University and The
University of North Carolina at Chapel Hill.
Founded: 1995
Embark.com At Embark.com, students and parents can
efficiently research-detailed information on more than
5,000 colleges, universities and vocational schools and
over 1,450 graduate schools. Students can also research
financial aid and other information that is relevant to their
higher education decisions, as well as submit applications
directly online to college and university subscribers of
Embark.com ESS. As of April 2000, Embark had over
one million registered users on its website.
Education and Career Opportunities System (ECOS)
This service helps guidance counselors provide in-depth
college and career advice while also providing the
functionality to monitor their students' progress. As of
April 2000, Embark had licensed Embark.com ECOS to
approximately 1,200 high schools, middle schools,
community colleges and community youth programs.
Embark.com ECOS is a fully outsourced solution designed
to improve guidance counseling results while reducing
high technology costs.
Revenue Components:
Headquartered: San Francisco, CA
Content:
X
Public/Private: Private (recently withdrew application for S-1)
Commerce:
X
URL: embark.com
Advertising:
Claim to Fame: Online recruiting solution for colleges and
Universities
Service/Licensing: X
Investors: Norwest Venture Partners, Thomas Weisel Partners,
Morgan Stanley Dean Witter Venture Partners,
Sienna Holdings, Vertex Management and Doll Capital Management
Other:
Network Effect:
Yes
Hub/Portal Strategy: Yes
Key Strategic Partners: Excite@Home, Lycos, Inc., Sallie Mae,
US News & World Report, Business Week, Looksmart,
NetNoir, About.com, Highwired.net, EXP.com, Inc., TrustE,
United Airlines, Capital One, Visa, and SINA.com
Key Institutions: Boston College, Columbia University, INSEAD,
Northwestern University, Stanford University and
The University of North Carolina at Chapel Hill
194
Metrics to look for:
Number of schools: 350 on ESS; 1,200 on ECOS
Number of students/registered users: one million
Number of applications processed
The Knowledge Web – 23 May 2000 (Reprint)
31. Community and Commerce
The new generation of webified college students present advertisers with an
explosive e-commerce opportunity. College students have embraced the Internet,
incorporating it into their daily lives, using it for everything from research to
buying groceries. Over 90% of college students access the Internet, according to
Student Monitor, with 50% accessing the web daily. College students represent a
large part of the online community, expected to reach 13.5 million by 2002, up
from 3.4 million in 1995.
Over 90% of college students
access the Internet, according
to Student Monitor, with 50%
accessing the web daily.
The spending power of college students is tremendous, at an estimated $105 billion,
which equates to $6,500-$7,000 annually per student. Not surprisingly, a growing
percentage of the spending is moving online. Currently students spend $1.5 billion
online, an amount which is expected to almost triple to $3.9 billion by 2002.
A majority of the current focus of e-commerce activity in the higher education
market revolves around serving the textbook needs of college students. These
textbook e-tailers are proliferating rapidly, capitalizing on the power of the
Internet, providing students with a virtual location where students can go for their
courseware needs. Students no longer have to wait hours in line to pay for a heavy
armload of books – assuming, of course, that they are even in stock. Today, with
companies such as VarsityBooks.com, Textbooks.com and e-follett.com serving
the market, students can buy books with a click of the mouse. E-tailers provide
students with access to more options at discounted prices and have the
convenience of 24-hour shopping.
Textbooks e-tailers
BIGWORDS.com
Book Swap
Campus books
Classbook.com
Ecampus.com
efollett.com
Fatbrain.com
Textbooks.com
TextTrader.com
VarsityBooks.com
Source: Merrill Lynch Global Growth Group
Schools also reap benefits when partnering with textbook e-tailers. As more book
purchases are made online, less inventory is needed on hand and less staff and
facility space is needed on site. Accordingly, school can reduce expenses. We
believe that, to the benefit of both students and colleges, brick-and-mortar campus
bookstores will eventually be entirely outsourced to e-tailers such as
VarsityBooks.com, campusbooks and BIGWORDS.com.
Top Five BookSellers*
The spending power of college
students is tremendous, at an
estimated $105 billion.
Site
BIGWORDS.com
ecampus.com
VarsityBooks.com
efollett.com
textbooks.com
Unique Users
580,000
438,000
406,000
243,000
105,000
Page Views
5,536,000
3,002,000
4,889,000
1,009,000
995,000
Source: PC Data
For the week ending Jan. 22, 2000
There are also several e-tailers that focus on the general merchandise needs of
college students. College students are a significant and compelling demographic
to retailers, as they are large in number, young in the consumer lifecycle and
highly brand-conscious. College students, for the first time, are making critical
lifetime purchasing decisions on their own, choosing where to bank, what long
distance carrier company to use and which credit card company to trust. In fact,
studies found that college students keep the same credit card carrier that they used
in college for an average of 15 years.
195
The Knowledge Web – 23 May 2000 (Reprint)
Higher Ed e-Commerce
BigWords.com
Book Swap
Campusbooks
classbook.com
CollegeClub.com
ecampus.com
CollegeDepot.com
ecollegebid.com
edu.com
efollet.com
fatbrain.com
oncampus.com
Student Advantage
Studentmarket.com
textbooks.com
Thedormstore.com
Texttrader.com
VarsityBooks.com
Textbooksatcost.com
Source: Merrill Lynch Global Growth Group
196
We believe there are several companies that are well positioned to take advantage
of e-commerce opportunities in the higher education market including Student
Advantage and edu.com.
Two companies, edu.com and Student Advantage, recently signed a partnership,
together making them one of the largest e-commerce companies focused on this
space. edu.com offers college students "student-only" discounted prices from
brand-name companies across multiple product categories. The company has
negotiated enticing discounts on items such as computers, software, books, credit
cards, bank services and more.
Student Advantage, Inc. (STAD, NR), is a membership and media company
focused exclusively on the student market that has an established presence both
online and off. Through studentadvantage.com, students have access to content
and relevant links covering a number of “general college life” topics. For a small
membership fee, students get access to 10-50% discounts from 20,000 national
and local merchants.
The Knowledge Web – 23 May 2000 (Reprint)
zUniversity.com
zUniversity.com is partnering with universities to create
relevant content, commerce and community on the Web to
bridge a relationship with alumni, students, faculty and
fans. Each of these university-branded, customized
websites will maintain the official spirit of each individual
university. zUniversity plans to build upon the loyalty of
universities, from freshman to alumni, by providing
customized portals that offer information, utility,
commerce and entertainment to create a lifetime bond
between alumni, students and their universities.
The company’s mission through the individual
zUniversity.com school sites is to create a daily, lifelong
bond with the university constituents-alumni and studentsthrough all their life stages and transitions, such as
freshman to senior years, graduation, first job, first
apartment, first house, family, career and retirement.
The zUniversity.com model is designed to serve the
growth of each partner school by guaranteeing that a
percentage of all revenues from advertising, sponsorship,
and e-commerce will be returned to the school to further
growth toward their fundraising and educational goals.
Founded: 1999
1999E Revenues: NA
Headquartered: Stamford, Connecticut
2000E Revenues: NA
Public/Private: private
Revenue Components:
URL: zuniversity.com
Content:
Claim to Fame: Bridging the gap between universities and alumni
Commerce: X
X
Advertising:
Network Effect: Yes
Service:
Hub/Portal Strategy: Yes
Other:
X
197
The Knowledge Web – 23 May 2000 (Reprint)
edu.com – deep discounts for students only
Utilizing an integrated marketing and distribution platform,
edu.com is the first online destination where manufacturers
and service providers can build relationships, reinforce
brand loyalty, and train buying behavior of their most
valuable consumer – college students.
service that help students make educated purchasing
decisions. Conversely, edu.com offers its marketing partners
loyalty-building tools that influence and shape the behavior
of this key demographic as they embark on their purchasing
careers and begin to establish brand preferences.
Acting as the student’s agent, edu.com negotiates
exclusive student-only pricing on products and services
from premium brands, such as AT&T, Apple, Citibank,
Microsoft and IBM, and then enhances the offer with
unbiased information, decision-making tools and customer
edu.com also offers students eduPoints, a student-only
loyalty program, for purchases and other online
transactions. eduPoints can be redeemed for movie
tickets, music CDs, electronics, gifts and gear.
Founded: 1998
Headquartered: Boston, Massachusetts
Public/Private: Private
URL: www.edu.com
Claim to Fame: The first, and only, multi-category e-commerce
destination exclusively for verified college students.
Revenue Components:
Content:
X
Commerce: X
Advertising: X
Service:
X
Other:
Coolest Feature on the Website:
Brand Stores that give top-tier manufacturers the opportunity to
integrate their brands with a shopping experience that informs and
educates college students in a protected environment.
Network Effect: Yes
Hub/Portal Strategy: Yes
Key Investors:
Mayfield Fund, Information Technology Ventures, Student Advantage,
HarbourVest Partners, Arcadia and others
Key Partners:
AT&T, Apple, Adobe, Citibank, Fleet, IBM, Microsoft, Student
Advantage, Wells Fargo and others.
198
Metrics to look for:
Number of users/students
Number of marketing partners
Number and amount of transactions
Number of page views
The Knowledge Web – 23 May 2000 (Reprint)
Traditional Non-Profits Capitalize on Online Learning
Realizing the enormous potential of online learning, some of the most traditional
non-profit academic organizations have created for-profit arms specifically
designed to capitalize on what we believe is an open-ended opportunity.
Columbia University spun out a for-profit arm, Morningside Ventures, created to
capitalize on opportunities in the online learning market. Specifically,
Morningside Ventures is exploring ways to leverage Columbia’s intellectually rich
content on the web. Headed by President and Chief Executive Officer Ann
Kirschner, former vice president of interactive programming and development for
the National Football League, and Vikram Nagrani, former principal at Morgan
Stanley, we expect Morningside to launch its online programs soon.
“In business school classrooms they construct wonderful models of a nonworld.”
– Peter Drucker
American business philosopher and author
New York University’s School of Continuing and Professional Studies created
NYUonline, a for-profit division that will offer corporations NYU accredited
courses online. NYUonline was specifically created to serve the needs of
corporations, providing them with a virtual corporate program where employees
can access career-relevant courses.
The most recently announced for-profit venture is from College Board, a not-forprofit educational association that provides students with resources and services
and administers college-entrance exams. Led by former West Virginia Governor
Gaston Caperton, College Board announced the formation of a for-profit
subsidiary which is expected to create a robust e-hub designed to serve college
bound student’s needs. Currently the non-profit College Board has two similar
sites up and running – collegeboard.org and collegelink.com.
The e-Learning Scorecard
We have created an e-learning solution scorecard that summarizes some of the key
attributes we look for when evaluating companies in this industry. This scorecard
would be used in concert with the Human Capital Solutions scorecard we
presented in the introductory section of The Knowledge Web.
e-Learning Solutions ScoreCard
1
2
3
4
5
6
7
8
9
10
Ease of Use
Scalable, reliable and secure
Ease of Maintenance
Interactivity/Engaging
Strength of course-management capabilities
Integrate with other technologies/open architecture
Breadth and Depth of Program/Platform Features
Recurring, Predictable Revenues
Established Brand Name
First Mover Advantage
TOTAL
15
15
15
10
10
10
10
5
5
5
100
199
The Knowledge Web – 23 May 2000 (Reprint)
Fathom – Integrating Culture With Online Education
Six of the world’s leading educational and cultural
institutions will create Fathom, a new company formed to
launch the premier site for knowledge and education on
the web. The founding partners are Columbia University,
The London School of Economics and Political Science,
Cambridge University Press, The British Library,
Smithsonian Institution’s National Museum of Natural
History and The New York Public Library. Together, they
plan to invest an estimated $80 million over the next year.
Other institutions are expected to join the consortium.
Operations are set to begin later this year.
Fathom will present free and fee-based content from
universities, libraries, and museums on a wide variety of
professional, cultural, and academic subjects as well. For
example Columbia University will contribute major
selections from its oral history project, one of the largest
archives in the world. Taped interviews range from a
discussion with writer Dorothy Parker to memoirs from
Soviet Premier Nikita Khrushchev, architect Frank Lloyd
Wright and Arkansas Gov. Orval E. Faubus, who
describes his conversations with President Dwight D.
Eisenhower during the 1957 Little Rock school
desegregation crisis. Also, a collection of more than
54,000 photographic views of New York City, from the
Founded: 2000
200
New York Public Library will be available on the site.
Working directly with the prominent faculty and curators
of these institutions, Fathom will cover a wide range of
subjects, including business, law, economics, social
sciences, medicine, computer science and technology, the
arts, journalism and physics.
Much of Fathom’s content has never been available outside
of the participating institutions. The philosophy behind
the creation of Fathom is that learning is not limited to the
classroom. Although Fathom will offer courses created by
its partners for distance learning, it will also provide many
other types of content that will impart a more complete
and accessible context for knowledge.
Fathom will include a comprehensive directory of related
online courses offered by universities and cultural
institutions, plus textbooks and other academic titles,
specialized periodicals, individual articles and other
publications, CD-ROMs, academic travel, and learning
resources. Users will access online courses through
Fathom, with tuition fees, accreditation, and admission
policies set at the discretion of the offering university or
cultural institution.
Revenue Components:
Headquartered: New York, NY and London, England
Content:
X
Public/Private: Private
Commerce: X
URL: www.fathom.com
Advertising: X
Claim to Fame: Made up of a consortium of prestigious universities
and public knowledge institutions
Service:
X
Other:
Key Investor: Morningside Ventures, Inc., Columbia University’s
for-profit Internet incubator
Network Effect:
Key Partners Columbia University, The London School of
Economics, Cambridge University Press, The New York Public
Library, The British National Library and the Smithsonian
Institution’s National Museum of Natural History
Key Metrics to look for:
Number of users/students
Number of clients
Number of Internet courses
Number of page views
Average time spent per visit/Frequency of visits
X
Hub/Portal Strategy: X
The Knowledge Web – 23 May 2000 (Reprint)
NYUonline – NYU’s Online Program and Much More
Founded in 1998, NYUonline claims to be the first forprofit educational subsidiary by a major American
university. Backed by the educational resources of NYU’s
School of Continuing and Professional Studies,
NYUonline will offer career-focused non-degree courses,
certificate programs and knowledge management
consulting to companies and individuals. The initial
education products will be for non-credit instruction and
will be marketed to 1,800 “corporate universities,” other
corporate training programs and individuals interested in
professional certification or in satisfying state-mandated
continuing professional education. Later courseware may
include specialized courses designed to augment currently
limited offerings by small colleges and universities.
Course and certificate program offerings are expected to
cover a broad range of business and professional areas,
including Management, Marketing, Information
Technologies, Accounting, Nursing and Real Estate. The
company has partnered with click2learn.com for the
delivery of its courses and plans to collaborate with every
school in NYU, with an emphasis on IT disciplines.
Founded: 1998
Leveraging the capabilities of the Internet and
communication technology, NYUonline combines an
interactive, dynamic learning environment with courses
that are fully asynchronous. All NYUonline courses are
asynchronous, providing learners with the flexibility to
study on their own schedule, at their own pace and in their
own space. At the same time, NYUonline has
incorporated several synchronous elements to their courses
that allow direct interaction with experts in the field, and
follow-up with fellow students through tutor feedback and
student-to-student chat rooms.
NYUonline also offers companies a turnkey virtual
corporate university, relieving corporate staff of all
enrollment services, administration, planning for
scalability and growth and technology systems
management. NYUonline consultants will assist
corporations in tailoring cohesive programs that align
learning with on-the-job, day-to-day business activities as
well as long-range corporate strategies.
The company recently initiated a soft launch of 6 courses
leading to a Certificate in Management Training. It has kept
enrollment levels to only 75 students for the beta phase to
receive the maximum depth of feedback from each student.
Revenue Components:
Headquartered: Boston, Massachusetts
Content:
Public/Private: Private
Commerce:
URL: nyuonline.com
Advertising:
Claim to Fame: First for-profit educational subsidiary by a major
Service:
American university
Other:
Backer: NYU’s School of Continuing and Professional Studies
Network Effect:
X
X
No
Hub/Portal Strategy: No
Key Partners: click2learn.com
Metrics to look for:
Enrollment: 75 students in beta testing phase
Number of Courses: 6 courses in beta testing phase
Number of Corporate Clients
201
The Knowledge Web – 23 May 2000 (Reprint)
SMARTHINKING, Inc. – It’s HOW you know
SMARTHINKING, Inc. provides real-time, online human
academic support services to supplement global education
and training classes, textbooks and software, standardized
test preparation and related services. To beta-test its
online academic support services, SMARTHINKING now
serves as a virtual learning assistance center to thousands
of college students nationwide, through 25 educational
institutions and 2 business partners. SMARTHINKING
plans to launch its full service in the fall of 2000.
The company’s goal is to organize people around core
knowledge areas in order to help institutions supplement
their current academic support systems and respond to the
changing needs of today's students. By harnessing the
Founded: 1999
Led by a management team with a background in business
operations, education and technology, SMARTHINKING
will first serve the 16.5 million students who attend U.S.
higher education institutions and receive inadequate
academic support services, and then leverage its core
competencies in online academic support into related
education and training markets.
Revenue Components:
Headquartered: Washington, DC
Content:
Public/Private: Private
Commerce: X
X
URL: smarthinking.com
Advertising: X
Claim to Fame: First company to apply customer service methodology
to core academic subjects.
Service:
X
Other:
X
Coolest Feature on the Website: Real-time, subject-specific
interactive whiteboard.
Network Effect:
Key Investors: Steve Walker & Associates and Paul Stephens,
Robertson Stephens Investment Mgmt.
Metrics:
Number of users/students: 10,000 free accounts distributed
Number of clients: 25 pilot schools and 2 partners
Number of courses: Academic support for math (basic math –
calculus) and writing (all subjects). Approximately 4 courses to
be added for fall 200 full launch.
Number of page views: 200,000 per day
Average amount of time spent per visit/Frequency of visits
Key Partners: Houghton Mifflin, Pallas Learning
Key Clients (Pilot Partners): 25 state and community colleges and
Universities including: Antioch College-OH, City College-WA,
Central Florida Community College-FL, Effat College-Saudi Arabia,
Charter Oak State College-CT, Charles County Community CollegeMD, City College-WA, Charter Oak State College-CT, College of
Eastern Utah-UT, Cornerstone University-MI, Southeastern UniversityDC, University of North Caroline Greensboro-NC, Prince Georges
Community College-MD, Northern Virginia Community College-VA
202
power of the Internet, SMARTHINKING has created a
virtual learning assistance center where students can get the
additional support they need to excel. SMARTHINKING
connects students in real-time to online e-structors, the
company's qualified tutors, and academic resources from
wherever they are, whenever they need help.
Yes
Hub/Portal Strategy: Yes
The Knowledge Web – 23 May 2000 (Reprint)
32. e-Hubs – All Roads Lead to the e-Hub
Career/Recruiting
College Hire
Collegecentral.com
Jobtrak.com
The Job Resource
Ad
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Academic
Blackboard.com
California Virtual University
Collegelearning.com
CollegeNews.com
e-education (Jones)
Hungryminds.com
Learn.com
Learn2.com
Mybytes
Petersons.com
Smartplanet.com
Versity.com (acquired by CollegeClub.com)
WebCT.com
Higher Education e-Hubs
t
ity en
un cont
mm e d
Co ient
or
College-Bound Students
CampusTours.com
College Coach
Collegeboard.com
CollegeBound.com
CollegeLink.com
CollegeNet
CollegeQuest
CollegeView.com
CollegeXpress
edupass.com
Embark.com
FastWEB.com
Finaid.org
GradAdvantage
Petersons.com
RankIT College Site
Review.com
Scholarstuff.com
StudyAbroad.com
Xap.com
The new generation of webified college students presents advertisers with an
explosive e-commerce opportunity. College students have embraced the Internet,
incorporating it into their daily lives, using it for everything from research to
buying groceries. To recap some of important statistics, over 90% of college
students access the Internet, according to Student Monitor, with 50% accessing the
web daily. College students represent 13% of the online community, with
approximately 12 million online today. This figure is expected to grow to 13.5
million by 2002.
Course content
College Lifestyle
Animalhouse.com
CollegeClub.com
Colleges.com
edu.com
Learning.com
Student Advantage
Student.com
zUniversity.com
Merchants
e-Hubs
We’ve seen a number of interesting companies that provide a unique solution to
problems affecting a specific segment of campus life, such as webifying courses,
campus Intranet, admission, etc. The lesson of the importance of the land grab has
not been lost, and hence most of these companies, in order to get market share,
provide their services for free or virtually so. The strategy of “communitizing”,
then “monetizing” requires the creation of a hub that enables students and faculty
to access additional services and information.
Source: Merrill Lynch Global Growth Group
Higher Ed e-hubs provide advertisers and e-commerce companies access to a
significant and attractive demographic – college students and their credit cards.
We again note that college students, for the first time, are making lifetime
purchasing decisions on their own. These brand-conscious college students are
choosing where to bank, what long distance carrier company to use and which
credit card company to trust. In fact, a study has found that college students may
keep the same credit card carrier that they used in college for an average of 15
years.
203
The Knowledge Web – 23 May 2000 (Reprint)
e-Hubs – Capitalizing on the Network Effect to Build Value
E-Hubs
Provide College Students with Access to:
• Content
• Community
• Collaboration
• Convenience
Provide Advertisers with Access to:
• 84 million students internationally
• 15 million students domestically
• $105 billion of total buying power,
$6,500-$7,000 annually per student.
• $1.5 billion online buying power, going
to $3.9 billion by 2002.
• Highly brand-conscious student body
Source: Merrill Lynch Global Growth Group
The spending power of college students is large at an estimated $105 billion,
equating to $6,500-$7,000 annually per student. Not surprisingly, a growing
percentage of the spending is moving online. Currently, students spend $1.5 billion
online, an amount which is expected to almost triple to $3.9 billion by 2002.
Attempting to capture the attention, and, more importantly, the buying power, of
these 15 million higher ed students are e-hubs. Accordingly, the amount of
advertising dollars that is focused on this attractive demographic group is large
and growing. With the rapid penetration of the Internet on college campuses, we
believe an increasing amount of advertising budgets will be directed online.
Academic hubs give students a
virtual location where they can
access information to support
their studies, and more
importantly, collaborate with
other students around academic
topics.
U.S. college students are a large demographic – 15 million, with varying needs
and interests, thus it is not surprising that a number of different types of hubs have
emerged. These hubs provide students with relevant content, resources and links
around academic disciplines such as biology, social studies and science.
Academic hubs give students a virtual location where they can access information
to support their studies, and more importantly, collaborate with other students
around academic topics. We categorize these student-oriented hubs into four areas:
•
Academic Hubs– Provide students with relevant information and resources
around academic disciplines and/or aggregate and sell curriculum.
•
College Bound Student Hubs – To help guide college-bound students
through the important transition from high school to college, these hubs
provide critical resources and information needed for the difficult application,
selection and admissions process.
•
College Lifestyle Hubs – These hubs provide students with links and
information to general college life topics such as sports, music, relationships
and travel. Communication is especially vital for college students; they have
an integral impact on viral adoption.
•
Career/Recruiting Hubs – These hubs provide students with links and
information to career opportunities, assisting them in getting a job after
graduation.
n Academic Hubs
There are two types of academic-oriented hubs emerging. First, we are seeing
some companies create content hubs that will provide students with relevant
information and resources around academic disciplines. Second, in response to the
high demand for online courses, we are seeing some companies aggregate and sell
curriculum from companies and universities, providing students with one virtual
location for their lifelong learning needs.
204
The Knowledge Web – 23 May 2000 (Reprint)
WebCT.com – Hub for Academic Discipline-Based Communities
Leveraging off of its large and growing user base, WebCT
launched WebCT.com, an e-learning hub that provides
students, faculty and web education professionals a place
where they can find content and community to support
them as they teach and learn using the Internet. For
faculty, there will be places to find content to easily link or
download into web-based courses, and places to
communicate with colleagues about teaching within their
discipline, teaching in general, and teaching with the web.
For students, the hub will offer support in their courses,
including resources for assignments, practice quizzes and
homework help, as well as leads on summer internships
and jobs in their field. For professionals supporting webbased learning, the hub will be a place to gather, share
materials, offer or find services and get answers to
questions, as well as hints, tips and support.
Currently, WebCT offers many discipline-based communities
in areas such as English, computer science and biology, as
well as broad-based communities such as Teaching and
Learning on the Web, Student Resource Center and WebCT
Training and Course Development Support.
Founded: 1995
WebCT.com offers the following functionality:
•
A library for each community where web content and
courses can be placed in downloadable form.
•
Discipline-targeted web search – a unique capability
that allows students and faculty to search the web
within a discipline area and avoid irrelevant search
hits.
•
A directory of useful, educational websites for each
community.
•
Ability to sign up for and serve a community-specific
newsletter.
•
Community forums using bulletin board technology.
•
Ability to find discipline-specific WebCT resources
from the company’s publishing partners.
•
Ability to recommend and purchase tradebooks of
interest to community members.
•
Ability for students to purchase access to publisher
WebCT materials online.
Revenue Components:
Headquartered: Massachusetts, Boston
Content:
Public/Private: Private
Commerce: X
X
URL: webct.com
Advertising: X
Coolest Feature on the Website: Students can win a $500 scholarship
For writing about how they use WebCT’s e-learning hub in conjunction
With their WebCT courses or education in general.
Service:
Investors: CMGi @Ventures, BancBoston Ventures, NetInvest,
Boston Millennia Partners, Kestrel, MTDC, Chase Capital,
Duke Management, SCT
Key Partners: Peoplesoft and SCT, Pearson, Campus Pipeline, Thomson,
Harcourt and McGraw-Hill
X
Other:
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics:
Institutions (Higher Ed and K-12): 1,300
Students: 6 million
Countries: 53
WebCT-ready course materials: 422
Courses built using WebCT platform
Key Customers: University of California, Los Angeles, University
of Georgia, University of Central Florida, and University of Iowa
205
The Knowledge Web – 23 May 2000 (Reprint)
n Life-long learning portals
In response to the high demand for education, some companies are creating elearning portals, aggregating and selling curriculum from companies and
universities. These sites are designed to serve the needs of both the students and
the schools. It provides students with one convenient virtual location for their life
long learning needs. At the same time, it provides schools with a distribution and
marketing channel.
“Don’t major in minor things.”
– Life’s Little Instruction Book
An example of this is California Virtual University (CVU), which serves as a
clearinghouse of distributed learning courses, acting as a link between students
and online courses offered by California’s accredited colleges and universities.
Initiated by former governor Pete Wilson, CVU is a joint project of the University
of California, California State University, California Community Colleges and the
Association of Independent California Colleges and Universities. While students
cannot get a degree or certificate from CVU, they can get them from the
participating schools.
n College-Bound Student Hubs
Designed specifically for college bound students, these sites provide individuals
with critical resources and information needed for the important transition from
high school to college. Specifically, these sites commonly include information on
the college search, test prep, financial aid and careers, as well as facilitate
submission of online applications.
Common Characteristics of College-Bound Hubs
College Search
Get Recruited
Apply Online
Test Prep
Financial Aid
Message/bulletin boards
Careers
Source: Merrill Lynch Global Growth Group
Interestingly, many of the information hubs were created by traditional “brick and
mortar” companies that have historically served the needs of college-bound
students, such as Princeton Review, College Board and Peterson’s. The success of
these companies provides a good example of offline companies effectively
leveraging their content on the web. For example:
206
•
Princeton Review, a provider of test prep services to high school students,
created review.com and online application tool Apply!.
•
CollegeBoard, a non-profit educational association that administers several
college entrance exams, sponsors two websites, collegeboard.org and
collegelink.com.
•
Peterson’s (a division of The Thomson Corporation), a provider of lifelong
learning online resources, software, reference guides and books, created
collegequest and GradAdvantage.
The Knowledge Web – 23 May 2000 (Reprint)
•
Carnegie Communications (a division of Landon Associates), publishers of
Private Colleges & Universities magazine, created Collegexpress.com.
•
Hobsons DMI, a provider of electronic publishing of educational software,
created CollegeView.
•
Kaplan, Inc. (formerly Kaplan Education Centers), has long been known by
consumers as a provider of test preparation and admissions courses. The
name change to Kaplan, Inc. reflects Kaplan’s broader strategy of developing
a network of educational businesses to serve consumers throughout their
lifetimes. Today, Kaplan is truly a “bricks and clicks” company, using the
Internet to expand its reach, provide access to untapped consumers, and
deliver the promise of anytime, anywhere learning that meets the unique
needs of each student.
Traditional “brick and mortar” Leverage Content Online
Traditional “brick and mortar”
Carnegie Communications, Inc.
CollegeBoard
Hobsons DMI
Kaplan
Peterson’s
Princeton Review
.com Strategy
Collegexpress.com
Collegeboard.org and collegelink.com
CollegeView.com
KaplanCollege.com, BrassRing
Collegequest.com and GradAdvantage.com
Review.com and online application tool Apply!
Source: Merrill Lynch Global Growth Group
However, there are also a few newcomers. Most noteworthy are Embark.com and
Achievaonline.com.
Examples of College Bound Hubs
Achieva
CampusTours.com
College Coach
Collegeboard.org
CollegeBound.com
CollegeLink.com
CollegeNet
CollegeQuest
CollegeView.com
CollegeXpress
Edupass.com
Embark.com
FastWEB.com
Finaid.org
GradAdvantage
KnowledgeFirst
Petersons.com
RankIT College Site
Review.com
Scholarstuff.com
StudyAbroad.com
Test University (TestU)
Xap.com
Source: Merrill Lynch Global Growth Group
n College Lifestyle Hubs
Some portals are leveraging their existing infrastructure and adding functionality
to serve the needs of higher education institutions. These companies will create a
customized portal or hub specific to the needs of a particular school, providing an
area where administrators, faculty and students can collaborate and share
information. The sites are equipped with college courses, campus events, college
services and career/ alumni service specific to a school. Other common features
include email, bulletin boards, chat, publishing, club and team home pages and
course management and calendaring.
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Examples of College Lifestyle Hubs
Animalhouse.com
Colleges.com
Student Advantage
CollegeClub.com
Jenzabar
Student.com
Source: Merrill Lynch Global Growth Group
n Career/Recruiting Hubs
These hubs provide students with links and information to career opportunities,
assisting them in getting a job after graduation. Additionally, these sites provide
information on a wide variety of topics concerning campus news & issues, sports
and travel. Students may use these sites to transform the job-hunting process,
making it much easier to obtain employment after graduation, or for summer
internships. As every job-hunter knows, networking is vastly more efficient than
mass mailings, cold-calling or pounding the pavement. The Internet’s greatest
strengths – mass distribution, globalization and the networking effect – make
looking for a job much easier over the web.
The Internet’s greatest
strengths – mass distribution,
globalization and the
networking effect – make
looking for a job much easier
over the web.
Examples of Career/Recruiting Hubs
College Hire
Collegecentral.com
Jobtrak.com
The Job Resource
Kaplan.com
www.bridges.com
Source: Merrill Lynch Global Growth Group
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33. Universities Online
Academic institutions are rich
in content and intellectual
knowledge with core assets
including scholars, expertise,
curriculum and research.
Uniting the power of the Internet with content-rich higher education institutions
translates into an explosive opportunity. Academic institutions are rich in content
and intellectual knowledge with core assets including scholars, expertise,
curriculum and research. By taking the core competencies of academic
institutions and leveraging them onto the Internet, colleges and universities can
reach a much broader audience, as well as new markets such as corporate
employees and students abroad. At the same time, we are seeing the emergence of
“born on the web” virtual universities that leverage the power of the Internet and
operate entirely online.
Content
Capella University
Cardean University
Cognitive Arts
Cogito
Concord University
Jones International University
National Technological University
NYU Online
OnlineLearning.net
euniversity.com
Pensare
University Access
Universityalliance.com
Western Governors University
Open University
Apollo Group
Education Management
DeVry
Strayer Education
Source: Merrill Lynch Global Growth Group
The benefits of online learning in the higher education sector are significant:
Education is a key determinant
of economic success in the new
economy, yet only 21% of adults
over the age of 25 hold a
bachelor’s degree.
•
Increase Access: Education is a key determinant of economic success in the
new economy, yet only 21% of adults over the age of 25 hold a bachelor’s
degree. Available around-the-clock, online learning enables adults to balance
work, family and personal responsibilities and access education at their
convenience, anytime and anywhere.
•
Decrease Cost: The price tag of an education has skyrocketed in the past two
decades with tuition increasing fivefold, much faster than personal income
and inflation. For example, it costs $3,408 a year today to attend the
University of Wisconsin, up from $654 (in current dollars) in 1935. Private
schools are even more expensive, reaching upwards of $30,000 a year for
some schools.
•
Access to Best-in-Class Content: Online learning increases the reach of
highly-regarded professionals or programs, providing students with the ability
to take courses from the Wharton School of Business, UCLA’s screenwriting
program or MIT’s engineering programs. Top education brands such as these
(or Harvard, Stanford or Columbia, for example) can find appropriate ways to
leverage their quality content using e-learning. There is no reason to take a
film class from a community college when you can access one from the
University of Southern California online.
“There was an old cannibal whose stomach suffered from so many disorders
that he could only digest animals that had no spines. Thus for years, he
subsisted only upon university professors.”
– Louis Philips
Virtual Universities
Recently, we have seen several “born on the web” virtual universities emerge on
the scene. These “schools without walls” take full advantage of the new medium
and operate entirely online, enabling individuals to obtain a degree around work,
family and personal obligations, essentially anytime and anywhere.
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To date, there are only a small number of purely virtual universities. Given the
accreditation issues and sophistication needed to create an online university, we
don’t expect two Stanford grads in their garage to create meaningful near-term
competition to the first-movers in the marketplace today. We do believe,
however, that traditional universities have unreplicable assets that could be
leveraged online. Here are some examples of virtual universities:
•
UNext.com is creating a globally recognized, brand-name, virtual academic
institution, Cardean University, providing corporations and individuals with
“expert-rich” content from prestigious schools such as Columbia University,
Stanford University, the University of Chicago, Carnegie Mellon and The
London School of Economics.
•
Concord University School of Law, (a division of Kaplan which is a
subsidiary of the Washington Post), is the first major institution to offer a
Juris Doctor (JD) degree earned wholly online.
•
NYUonline is the for-profit, online presence of New York University. The
company recently initiated a soft launch of 6 courses leading to a Certificate
in Management Training. The accredited courses are developed with
instructors for asynchronous delivery. The company has partnered with
click2learn.com for the delivery of its courses and plans to collaborate with
every school in NYU, with an emphasis on IT disciplines.
•
Capella University (formerly called The Graduate School of America) built
its reputation by focusing on delivering only advanced degree programs such
as masters and doctoral degrees online. Note, however, that Capella is
expanding its offerings to include undergraduate programs in 2000.
•
Jones International University, the first online university to receive
accreditation from a nationally recognized accrediting body, focuses on
business communications offering certificate, bachelors and masters programs
in only that curriculum area.
•
Western Governors University (WGU), a non-profit organization of
governors from 18 Western states, is a very unique virtual university, as all of
the content comes from other schools, yet students receive a WGU degree.
For example, a student in WGU’s Master’s in Learning and Technology
program will first get a list of required courses (i.e., Instructional Design 101)
and then a list of schools that provide those courses (Washington State
University, Texas Tech University, etc.). Students then select which online
course to take to fulfill the required curriculum. With a catalog of hundreds
courses from numerous schools, students can, in a way, create a customized
program, picking and choosing the best content specifically tailored to their
unique interests.
Virtual Universities
Capella University
Cardean University (UNext.com)
Concord University School of Law
Jones International University
Founded Enrollment
1993
1,500+
1999
In development
1999
175
1993
6000
# of Courses
200
NA
4
42
National Technological University
NYUonline
OnlineLearning.net
1984
1998
1995
600+
75
10,300
1300
6
175
Pensare
University Access
1996
1996
In development
3000
NA
450
210
Types of Degrees
PhD/MBA/Masters/Undergraduate
Undergraduate & Graduate
Juris Doctor
B.A. and
M.A. in Business Communication
Masters of Science
Certification programs
Certification programs in Business,
Computer, Education and Writing
Customized MBAs
Standard and customized corporate
MBA program.
Cost
NA
NA
$4,200
$24,000 for BA
$7,700 for MA
$625/credit
$550/course
$400-$600 per course each
about 10 wks long
NA
$90,000 for the customized
MBA program.
The Knowledge Web – 23 May 2000 (Reprint)
UNext.com – Creating a Global Virtual University
University, Stanford University, the University of
Chicago, Carnegie Mellon and The London School of
Economics, all top universities. As a consequence,Cardean
University students will have access to the latest academic
theories from leading authorities in areas including
accounting, finance, marketing organization development
and international business, without the high cost and
restrictive admissions process. Employees, as well as
individuals from around the world, will have access to the
latest thinking from distinguished professors, such as
Nobel Laureates Kenneth Arrow, Gary Becker and Merton
Miller, and from prominent institutions, such as Stanford,
Columbia and the University of Chicago.
UNext.com combines expert-rich content with an online
learning experience that is engaging, interactive and
effective, providing a big-time solution to an enormous
problem. UNext.com effectively captures the convergence
of technology, the Internet and education, to create a
unique state-of-the art learning experience where
individuals can gain the skills necessary for survival in
today’s knowledge-based economy.
Through Cardean University, UNext.com intends to create
a globally recognized, brand-name, virtual academic
institution, providing corporations and individuals with
expert-rich content from the prestigious schools with
which it has partnered. These include Columbia
UNext.com’s Network Effect
Corporations & Learners
Elite University Content & Brands
&
Scale Delivery of
Elite Learning
Source: Merrill Lynch Global Growth Group
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UNext’s Business Model Creates a Virtuous Cycle
Maximize Sales Leverage
Validating Cardean/UNext brands
Content Partners
Distribution Partners
• Branded Elite
• IBM
Universities
Technology
Vision
• Validation
• Maximize Sell-
• Oracle
• Key Academics
Through
• Key Global Leaders
• Non-Dilutive to
Community Based,
Collaborative
Learning Platform
Institutional Partners
Back-End
• The Key to Scalability
• Efficacy
• Assessment (Internal
and External)
• Utilization
• 100,000 Learners ↔
1 Learner
Source: Merrill Lynch Global Growth Group
UNext is creating a unique online environment where
students can experience learning in a meaningful and
innovative manner. Through the incorporation of
multimedia simulations, relevant case studies, threaded
discussions and real-time collaboration tools, UNext is
creating courses that are specifically designed to take
advantage of the power of the Internet. Courses are
interactive and engaging, providing students with an
online environment where employees and individuals truly
“learn by doing.” Courses are primarily asynchronous with
real-time activities and demand-driven learning events
appropriately incorporated, providing students with the
flexibility and convenience of anywhere, anytime learning,
yet at the same time enabling them to enjoy an interactive
and personal virtual learning experience.
UNext.com’s growth strategy first envisions providing
Fortune 1000 corporations with courses critical to their
employees’ professional and financial success. Longerterm, the growth potential for UNext.com will be much
more significant if the company capitalizes on
opportunities abroad. Unlike the U.S., where
postsecondary education is relatively readily available,
212
content from world-class postsecondary institutions in
many parts of the world is limited. Students abroad are
hungry for top quality, and specifically U.S.-based,
education. UNext.com, with its best-in-class content,
superior learning network and universal curriculum, is
poised to serve this excess demand.
UNext.com is led by Chairman and CEO Andrew
Rosenfield, who brings experience and relationships in the
higher education market as a former professor and a
current trustee at the University of Chicago. Most recently
he was founder, President and Chairman of Lexecon Inc.,
a highly regarded economic consulting firm. In addition,
UNext has an unmatched Academic Council to coordinate
curriculum and set academic policies that includes Nobel
Laureates Kenneth Arrow, Gary Becker and Merton
Miller. Other renowned members include Meyer Feldberg,
Dean of the Columbia Business School; Robert Hamada,
Dean of the University of Chicago Graduate School of
Business; Geoff Cox, Deputy Provost at Stanford
University and Stephen Hill, Pro-Director at The London
School of Economics.
The Knowledge Web – 23 May 2000 (Reprint)
Superior Learning Environment
Expert-rich Content
Multimedia Simulations
Flexibility
Demand Driven Events
Continuous Assessment
Peer Review and Exams
Asynchronicity
Rich Case Studies
High-Involvement Labs
Real Time Communication
Founded: 1999
Revenue Components:
Headquartered: Deerfield, Illinois
Content:
X
Public/Private: Private
Commerce: X
URL: UNext.com
Advertising:
Service:
Investors: Knowledge Universe, Pritzker, Gleacher & Co.
Key Content Partners: Columbia University, Stanford University,
University of Chicago, Carnegie Mellon, and
The London School of Economics
Key Strategic Partners: IBM, Oracle
Other:
Network Effect:
Yes
Hub/Portal Strategy: No
Metrics to look for:
Number of Clients
Number of Content Partners
Number of Users/Students
Number of Courses
Average Cost of Course/Program
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Capella University – Leveraging the Internet to Empower Adult Learners
Capella University offers undergraduate and graduate
degree programs, certificates and continuing education to
adult learners who seek to integrate advanced study with
their professional lives. Its mission is to deliver high
quality programs that provide traditional and
contemporary knowledge through flexible and innovative
forms of distance learning. Capella University explicitly
recognizes adult learners as active partners in the design
and implementation of their academic experience.
Capella University embraces a learner-centered
educational philosophy. Recognizing that adult learners
possess a wealth of knowledge, experience and maturity,
the University seeks to honor and build upon these
attributes in their programs. They also recognize that
education and learning must be a continuous, lifelong
process in our constantly changing world. For this reason,
Capella University places special emphasis on helping
their learners d evelop self-managed learning skills and
personal leadership attributes
Capella University is a regionally accredited degreegranting institution offering online master’s and doctoral
degree programs in Business, Education, Human Services
Founded: 1991
and Psychology. The university will begin offering
undergraduate degrees in 2000 including a program in
information technology. Capella University provides high
quality education solutions for adult learners based on
their schedules and specific needs. In addition to degree
programs, Capella University is focused on leveraging the
Internet to provide a full portfolio of non-degree, high
quality learning and personal development experiences for
segments of the business, human behavioral and education
markets. The offerings range from short on-demand
courses in a variety of content areas to forming Internetbased communities around specific topic areas.
In the fall of 1999, the company launched a pilot program
to offer customized, online MBA degree programs to
employees of Honeywell, Inc. This pilot includes 18
employees from Honeywell’s Western region. The
employees will take 14 different courses over the next
two-plus years, including two from Capella’s recently
created e-business program. Capella University and
Honeywell training executives partnered to establish a
curriculum and course order, so all students will study the
same subject at the same time. The courses will be
completed in November 2001.
Revenue Components:
Headquartered: Minneapolis, MN
Content:
Public/Private: Private
Commerce: X
URL: capella.edu
Advertising: X
Key Investors: Forstmann Little, Cherry Tree Investments, National
Computer Systems
X
Service:
X
Other:
X
Network Effect:
X
Hub/Portal Strategy: X
Key Clients: Honeywell, Lawson Software, State of Minnesota,
National Youth Leadership Council
Key Partners: SmartForce
214
Key Metrics to look for:
Number of users/students: 1,500+
Number of Internet courses: 200 + certification courses
Number of clients: 4
Average Cost of Course/Program
The Knowledge Web – 23 May 2000 (Reprint)
KaplanCollege.com
Launching in spring of 2000, KaplanCollege.com is a new
kind of online university, which is built around the needs
of busy working professionals who want to advance their
careers. KaplanCollege.com provides hundreds of online
courses, certification and degree programs that will enable
its students to acquire the credentials and knowledge that
lead to job advancement, higher salaries and new job
opportunities. Programs are offered in nine subject areas
including: Nursing, Education, Computing/IT, Business,
Management, Real Estate, Criminal Justice, Legal
Professions and Law.
Like many of the Kaplan programs which use assessments
and technology to provide customized learning
experiences, the KaplanCollege.com courses are highly
personalized to address the specific academic, professional
and scheduling needs of its students. Courses are
developed and taught by industry experts, and offer
enriching and interactive educational experiences. By
offering its courses completely online, KaplanCollege.com
makes career education convenient and accessible for busy
working professionals because they can learn anytime,
anywhere, and at their own pace.
KaplanCollege.com programs will also be available
through BrassRing Inc., a B2B recruiting and hiring
management business. In addition, KaplanCollege.com
helps students explore a variety of career-related issues
and opportunities through articles, career management
resources and professional communities.
KaplanCollege.com includes Concord University School
of Law, the nation's first online law school launched by
Kaplan in the fall of 1998. Concord is now the second
largest part time law school, and is expected to serve 750
Founded: 1999
students in 2000. Concord delivers a rigorous online legal
education toward a four-year Juris Doctor (J.D.) degree or
a three -year Executive J.D. degree using cutting-edge
technology and teaching tools. Concord has been
authorized to award the J.D. degree by the Bureau of Private
Post-Secondary and Vocational Education in California, and
is accredited by the Distance Education and Training
Council. Concord serves working professionals, family
caretakers and others whose circumstances prevent them
from pursuing a legal education at a fixed facility law
school. Concord students hail from many top universities
including Columbia, Harvard, Princeton, MIT, the
University of California Berkeley, Duke and the University
of Chicago. More than 40% of Concord students already
hold advanced degrees. Graduates of the four-year degree
program are eligible to sit for the California State Bar
Examination. Concord's tuition is 1/3 to 1/4 less than that
of a traditional, fixed facility law school.
KaplanCollege.com will also include courses and degree
programs offered by the National Institute of Paralegal
Arts and Sciences, which was renamed Kaplan College in
August 1999. Kaplan College is one of the largest
distance education providers in the U.S. and has graduated
more than 50,000 students since its inception in 1976. In
1999 alone, Kaplan College provided distance learning to
more than 8,000 students.
KaplanCollege.com will build on the brand recognition,
reputation and expertise that Kaplan has built over 60+
years. Kaplan has served more than 3 million students in
its test preparation courses alone, and has reached millions
more through books, after school learning programs, retail
software and the Internet.
Revenue Components
Headquartered: New York, NY
Content sales:
Public/Private: Division of Kaplan, Inc., a subsidiary
Commerce:
The Washington Post (NYSE: WPO)
Advertising:
URL: kaplancollege.com
Service:
Claim to Fame: launched nation’s first online law school, Concord
University School of Law, which will provide the law program for
KaplanCollege.com
X
Other (licensing):
Network Effect:
Yes
Coolest Feature on Web Site: Online learning quiz, which will help
test student’s aptitude for online learning
Hub/Portal Strategy: Yes
Key Partners: ZDU, Trainingnet.com, SkillSoft, Law.com
Metrics to look for
Number of Students: more than 8,000 in 1999
Investors: The Washington Post, Kaplan, Inc.
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The Knowledge Web – 23 May 2000 (Reprint)
“Bricks and Clicks”
“Bricks and Clicks”
Apollo Group (University of Phoenix)
DeVry (Keller Graduate School of Management
and Bachelor’s Degree Program)
Education Management (Art Institute Online)
Strayer Online
UNext.com
Whitman Education Group (Colorado Tech Online)
Recognizing the opportunity as well as the threat of online learning, many
traditional “brick and mortar” institutions have found ways to leverage their
quality content into new distributed learning education models, enabling them to
expand their market presence and reach new audiences.
Four public companies that have implemented online learning models are Apollo
Group’s University of Phoenix, DeVry’s Keller Graduate School of Management,
Education Management’s Art Institute Online and Strayer’s Online program, as
highlighted below. All four programs are excellent examples of the opportunity
created through the powerful combination of technology, strong academic content
and highly marketable brand names.
Distance Learning at Proprietary Postsecondary Providers
University of Phoenix
(Apollo Group)
Programs
Offers BS, MA, MS, MBA
Degrees via the Internet. No
classtime required.
Keller Graduate School of
Management
(DeVry)
Art Institute Online
(Education Management)
Offers MBA Degrees via the Currently piloting courses in
Internet, although most students graphic design with plans to
eventually offer a BA
utilize as supplement to
degree in graphic design.
classroom-based courses.
Strayer Online
Strayer Online offers
undergraduate and graduate
degrees online
1989
Late 1998
Fall 1999
Fall 1997
Students
Over 10,000
6,500
90
Approximately 900
Partners
Microsoft
e-college
Convene
Lotus/Databeam
Launch Date
Not all universities have made wholesale shifts to meet this new learning model.
Many are fearful about potentially diluting the brand name and reputation that
they have built over tens, or, in some cases, hundreds, of years. To avoid brand
name dilution, many schools are limiting their online offerings to continuing
education programs and/or non-degree courses that are designed for working
adults. It also costs significant amount of money to create rich content. However,
schools should not neglect the power of online learning, as they will not only miss
a significant opportunity to expand upon their educational mission, but also risk
being less relevant in the 21st Century.
“A professor is someone who talks in someone else’s sleep.”
– W.H. Auden, American poet
Understanding the dilemma, one company, UNext.com, has devised a solution that
allows schools to capitalize on the online learning opportunity while leaving their
brand name intact. As we discussed above, UNext is partnering with world-class
institutions such as Columbia University, Stanford University, the University of
Chicago, Carnegie Mellon and The London School of Economics to create online
courses (with plans to eventually offer degrees) which would be marketed under
the name Cardean University. Thus, by acting as an “intermediary,” UNext is
enables these world-class institutions to leverage their expert-rich content on the
Internet, allowing them to reach new markets, such as the corporate world and
students abroad, without brand-name dilution. Moreover, UNext is providing
universities with the opportunity to fully realize and capitalize on the online learning
opportunity as they receive royalties, and even pre-IPO options, for their content.
216
The Knowledge Web – 23 May 2000 (Reprint)
Apollo Group – Leading Pioneer in Online Learning
The success of Apollo Group best illustrates the demand
for access to education. The University of Phoenix
(UOP), a subsidiary of Apollo Group, is the largest private
university in the United States with over 65,000 students
enrolled and one of the first pioneers to explore the
uncharted terrain of the new world of distributed learning.
assignments, engage in discussions with the instructor,
classmates and study groups via email and upload their
responses to assignments and case write-ups in real time.
The online platform is convenient and flexible, allowing
students to complete their course requirements at any time
of the day from virtually any location.
Launched in 1989, UOP’s online education is the largest
(and probably the oldest) online program in the nation with
current enrollment of approximately 12,200 students
growing at a CAGR of approximately 50%. The online
program provides campus-based courses on an interactive
computer conferencing system that enables students and
faculty to participate in a learning group of 8 to 13 students
without having to be online concurrently, making the course
convenient and accessible. Students can download
Recently, Apollo announced that it filed a registration
statement with the SEC relating to the initial public
offering of University of Phoenix Online common stock,
which is intended to track the performance of the online
operations of University of Phoenix. UOP Online currently
has over 12,000 students and had approximately
$75 million in revenue last year. Importantly, UOP Online
was also highly profitable last year.
Founded: 1973
CY1999A Total Revenue: $527 million ($75 mill. UOP online)
Headquartered: Phoenix, AZ
CY2000E Total Revenue: $640 million
CY2001E Total Revenue: $765 million
Public/Private: Public (Nasdaq: APOL, C-1-1-9)
Market Value: $2.1 billion (5/15/00)
URL: www.apollogrp.com
Revenue Components:
Claim to Fame: Operates the largest online program in the U.S.
Content:
X
Commerce: X
Key Partners: Hughes Network Systems, Apollo International, Inc.
Ingram Micro, Inc., AT&T
Advertising:
Service:
X
Other:
Network Effect:
X
Hub/Portal Strategy: X
Metrics to look for:
Number of users/students: 94,046 total degree students at 2/29/00
Approximately 12,200 students at 2/29/00 in UOP Online
Number of courses offered online
Average price per course/program online
217
The Knowledge Web – 23 May 2000 (Reprint)
34. The Corporate Market Opportunity
The Corporate Market
Caliber
Global Education Network
National Technological University
Pensare
UNext.com
University Access
Corporations are struggling to reinvent themselves in the face of structural change
in our economy—an economy that is increasingly shifting rewards to service and
technology companies made up of “knowledge workers.” Not surprisingly,
improving the education level of employees has become mission critical for
corporate success. Adults and corporations alike are increasingly realizing that
education is a lifelong process that no longer stops after graduation from high
school or college. In today’s knowledge-based economy, a four-year degree is
just a prerequisite to participating in the industries of the future.
Consequently, employers in the new economy are spending tens of billions of
dollars to increase employee skill levels, offering everything from remedial to
executive education. The global corporate learning market is huge, measuring
over $265 billion for 1998, and is expected to grow to over $365 billion by 2003.
Knowledge is to today’s corporation what gold was to the prospectors in 1849,
and colleges and universities are the “mines” where is knowledge is abundant.
In today’s knowledge-based
economy, a four-year degree is
just a prerequisite to
participating in the industries
of the future.
Global Corporate and Government Learning Market is Large and Growing
$365 Billion
$315 Billion
$400
$265 Billion
Billions
$300
$200
$100
The global corporate learning
market is huge, measuring over
$265 billion for 1998, and is
expected to grow to over $365
billion by 2003.
$0
1998
2001
2003
Source: International Data Corporation, Merrill Lynch
Illustrating the heightened importance of corporate learning is the rising number of
corporate “universities,” which are formalized corporate education programs that
cut across all company divisions. There are over 1,600 corporate universities, up
from only 400 in 1988. To put this figure in perspective, there are currently
approximately 3,700 postsecondary institutions in the United States. Forty percent
of the Fortune 500 companies have implemented a corporate university.
Corporate Universities Up 10-fold
2,000
By the year 2003 expectations
are for approximately 2,000
corporate universities, up from
only 200 in 1970
2,000
1,600
10x in 33 Years
1,500
1,000
400
500
200
0
1970
Source: Corporate University Xchange, Inc.
218
1980
2000
2003E
The Knowledge Web – 23 May 2000 (Reprint)
We believe the demand for best-in-class, relevant content from higher education
institutions in the corporate market is large and real. Academic institutions are
rich in research-based content. By taking their content and leveraging it on the
Internet, universities and colleges can create courses tailored for the corporate
environment, providing employees with the learning they need, when they need it.
Seeking opportunities in the corporate market is not a new strategy for universities
and colleges. Many have captured the opportunity by offering continuing
education courses and non-degree programs designed to suit the needs of working
adults. Continuing Professional Education (CPE) has become a big business.
Harvard’s Continuing Education division contributed approximately $65 million
in revenues last year with almost all students enrolled in classroom-based courses.
Harvard recently began offering some of its computer courses on the Web, with
lectures digitally taped and archived. Imagine the opportunity when all of its
extension courses migrate online and are made available to the world.
Harvard is not the only institution that is capitalizing on the continuing education
opportunity. The top ten executive programs have online courses already
available or are in the process of bringing them online.
Continuing Professional Education is a Big Business
1. Harvard
Revenue 5-Year
# of
98-99* Growth Programs
$65.0
124%
69
2. Michigan
25.3
29
79
3. Pennsylvania (Wharton)
40.1
151
89
4. Northwestern (Kellogg)
31.0
158
129
5. Stanford
11.0
43
18
6. Virginia (Darden)
16.7
71
70
7. Center for Creative Leadership
50.6
120
244
8. Duke (Fuqua)
14.0
94
19
9. INSEAD
40.0
60
124
10. Columbia
16.0
135
51
Claim to Fame
Best in general management, No.2 in leadership. About to offer exec ed courses
at Silicon Valley location.
No.1 in human resources, second in general management. Top clients include
Reuters, Ford, Sony.
Best in accounting, No.2 in entrepreneurship, third in marketing. Online offering
Wharton Direct cited as creative by educators.
Top score in marketing, No.5 in general management. Major clients include U.S.
Navy and AT&T.
No.1 in innovation, fourth in general management, e-commerce, and
entrepreneurship. Customers include Hewlett-Packard.
Second in custom programs, third in leadership, fourth in marketing. Running
innovative e-commerce program with PWC.
Only non-B-school to crack the top 20. Tops in leadership, cited as creative by
providers, third in innovation, custom programs.
Fourth in custom, running marketing program with London. Working with Ford
and Eli Lilly.
Top-ranked non-U.S. provider. Best in global business. Doing custom work with
Pfizer, Alcatel.
Second in marketing. Working with Sony, Deloitte & Touche. Runs popular
Value Investing course in New York and London.
Source: Business Week
* Business Week estimates
219
The Knowledge Web – 23 May 2000 (Reprint)
Three companies, in particular, that we believe are well-positioned to capture
opportunity in the corporate learning market are UNext, Pensare and University
Access. These companies are partnering with world-class higher education
institutions, creating a comprehensive library of expert-rich online curriculum to
be marketed to corporations, and in some cases to students abroad and colleges
and universities.
220
•
UNext.com is partnering with Columbia University, Stanford University,
University of Chicago, Carnegie Mellon and The London School of
Economics to create an elite online academic institution, Cardean University,
specifically designed to serve the needs of Fortune 500 companies as well as
individuals abroad. Cardean University students will have access to the latest
academic theories from leading authorities in the areas of accounting, finance,
marketing, organization development and international business. Employees
from around the world can learn from distinguished professors, such as Nobel
Laureates Kenneth Arrow, Gary Becker and Merton Miller, and from
prominent institutions such as Stanford, Columbia and the University of
Chicago. In addition, UNext has created courses that are specifically
designed to take advantage of the power of the Internet. The company has
invested significant resources and time to create a “learn by doing”
experience, developing a dynamic interactive virtual environment where
individuals become actively engaged and captivated by the curriculum and
learn in a truly innovative and meaningful manner.
•
Pensare has signed a partnership with Duke University's Fuqua School of
Business to produce, deliver and market a new online accredited MBA
program. To add to its curriculum offerings, Pensare has partnerships with
Harvard Business School Publishing, The Wharton School, best-selling author
and sales expert Anthony Parinello and the University of Southern
California’s Annenberg Center for Communication. One of Pensare’s core
competencies is its technology platform – enabling it to create robust
“knowledge communities.” These communities provide expert-rich curricula,
and allow for the generation of new information and knowledge through
exercises, case studies, discussion boards and threaded discussions. Most
importantly, the platform facilitates the widespread dissemination of
information, allowing individuals to share best practices and learn from each
other.
•
University Access differentiates itself in its focus solely on business
management education and training, serving the needs of the academic and
corporate markets. University Access is partnering with Kenan-Flagler
Business School at UNC-Chapel Hill to create a global Corporate MBA
(CMBA). The CMBA provides a return on investment to its clients with
students working on a consulting project relevant and specific to each
respective corporation. University Access is also partnered with the London
Business School and USC’s Marshall School of Business, among others, to
create graduate and executive education programs. In addition to executive
education programs, University Access is providing a complete management
education program designed to serve the needs of its corporate clients at every
level, comprising Business Knowledge Curriculum, Executive Excellence
Curriculum, Boot Camps, Online Executive Seminars and Custom and
Partner Programs.
The Knowledge Web – 23 May 2000 (Reprint)
University Access
University Access (UA) is an e-learning company focusing
solely on business management education and training and
serving the needs of the corporate and academic markets.
Its mission is to be the global leader in providing total elearning solutions encompassing content, technology and
service. UA specifically excels at delivering a world-class
learning experience, as evidenced by 16 awards for
excellence, including Inc. Magazine/Cisco System’s Grand
Prize in the “Growing With Technology” awards program.
Founded: 1996
In addition, John Chambers of Cisco Systems, Inc. has
nominated UA in the Smithsonian ComputerWorld Program
for its “revolutionary approach to learning,” resulting in
inclusion in the Smithsonian’s permanent research
archives.
UA creates best-of-breed content by partnering with
business leaders, such as professors from the University of
Chicago, London Business School, University of
California in Los Angeles, University of Southern
California and UNC-Chapel Hill.
Revenue Components:
Headquartered: Los Angeles, CA
Content:
Public/Private: Private
Commerce: X
URL: www.universityaccess.com
Advertising: X
Claim to Fame: World-class learner experience
Service:
X
X
Other:
Key Investors: Arcadia Partners, Investor AB, GE Equity and FT
Knowledge (division of Pearson plc)
Network Effect:
X
Hub/Portal Strategy: X
Key Partners: PBS, Intel, AACSB, Yahoo!, Broadcast.com,
Hungry Minds, SightPath
Key Clients: University of North Carolina-Chapel Hill, University of
Chicago, University of California-Los Angeles, University of
California, London Business School, Nortel
Key Metrics to look for:
Number of users/students:
Number of clients: 6
Number of Internet courses:
Number of page views:
Average price per course/program
221
The Knowledge Web – 23 May 2000 (Reprint)
“Born on the Web” Universities Tapping into the Corporate Market
Company
UNext.com
Key Partnerships
Columbia University, Stanford
University, the University of Chicago,
Carnegie Mellon and The London
School of Economics
Strategy
Claim to Fame
Involvement of
To become a globally recognized, •
distinguished professors
brand-name, virtual university
such as Nobel Laureates
serving the learning needs of
Kenneth Arrow, Gary
corporate employees and students
Becker and Merton Miller
abroad.
•
Creation of a "Learn by
Doing" Experience
Pensare
Duke University’s Fuqua School of
Business, Harvard Business School
Publishing, The Wharton School and
University of Southern California’s
Annenberg Center for
Communication.
•
To create “knowledge
communities” featuring brandname, expert-rich content from
leading universities such as Duke •
University’s Fuqua School of
Business and industry experts. In •
addition, the company plans to be
a provider of expert-rich content
and technology solutions (Open
MBA toolkit) to colleges and
universities.
Corporations/Employees
Joint Venture with Duke
University’s Fuqua School Academic Institutions
of Business
“Knowledge Communities”
Platform
Open MBA Toolkit
University Access
University of North Carolina at
Chapel Hill’s Kenan-Flagler Business
School, The London Business
School, the University of California at
Los Angeles, the University of
Chicago, the University of Southern
California and Indiana University
To be the provider of expert-rich
online learning curriculum to
academic institutions and
corporations.
•
Partnership with University Academic Institutions
of North Carolina at Chapel Corporations/Employees
Hill’s Kenan-Flagler
Business School to create
an e-MBA as well as
customized corporate MBA
program.
Award winning teleweb
courses
Established presence in
higher education market as
a provider of online learning
curriculum
•
•
The Wharton School, Georgetown
University, University of Southern
California Marshall School of
Business,Teachers College at
Columbia University, and Johns
Hopkins University School of
Medicine and School of Professional
Studies in Business and Education.
To extend the best qualities of a •
superior live classroom experience
across distances and enable its
corporate clients to transform their
traditional classroom programs
either for live Internet broadcast to
classrooms, workplace desktops or
home PCs or for on-demand
access.
National Technologic 50 of the top Engineering schools in
the United States including the
University
Massachusetts Institute of
Technology, University of California,
Berkeley and Michigan State
University
To provide the “best of the best” •
programs in each discipline of
engineering broadcast through the
internet or satellite
Global Education
Network
•
To provide the best, most
comprehensive on-line liberal arts
education for adults
Caliber Learning
Network
(Nasdaq: CLBR, Not
Rated)
Has approached many top-notch
liberal arts schools, including
Williams College and Brown
University
Source: Merrill Lynch Global Growth Group
222
Formed as a joint venture
between Sylvan Learning
and MCI WorldCom to
provide consulting and
telecommunications
services to businesses,
enabling them to transform
their traditional training
content to the Web and for
transmission via other
electronic media
Offers fullly accredited
courses from an allliance of
large, prestigious technical
education and training
providers
Customers
Corporations/Employees
Individuals
Students Abroad
Corporations/Employees
Classroom Teachers
Physician Executives
International Students
Individuals and Corporations
Government Agencies
Academic Institutions
Co-founded by Herb Allen, Adult students
the President of the
investment bank and
venture capital firm Allen &
Co., will offer a fully
accredited liberal arts
education to adults
The Knowledge Web – 23 May 2000 (Reprint)
Select Company Profiles in this Section
Company Name
Apollo Group
Blackboard
Campus Pipeline
Capella University
edu.com
Embark.com
Fathom
Jenzabar.com
KaplanCollege.com
NYUonline
SMARTHINKING
UNext.com
University Access
WebCT
ZUniversity
Page Number
217
191
188
214
198
194
200
189
215
201
202
211
221
191, 205
197
223
The Knowledge Web – 23 May 2000 (Reprint)
Index of Higher Education Companies
Content
Capella University
Cardean University
Cognitive Arts
Cogito
Concord University (subsidiary of Kap
Jones International University
National Technological University
NYU Online
OnlineLearning.net
euniversity.com
Pensare
University Access
Universityalliance.com
Western Governors University
Open University
Apollo Group
Education Management
DeVry
Strayer Education
System s / Infrastructure / Tools
Online Courses and Program s
Blackboard, Inc.
Jenzabar
Campus Cruiser
Cognitive Arts
Convene
e-College
Eduprise
Certilearn
Embanet
Intralearn
Lotus Learning Space
Pensare
Tegrity
VCampus
WBT Systems
WebCT
Educational Video Conferencing
Creating Online Cam puses
Apply.com
Campus Pipeline
Campusstores.com
College Health Hub
Embark.com
FansOnly (Student Advantage)
Smartthinking.com
Go Campus
Jenzabar
Mascot Netw ork
Rivals.com
netlibrary
Source: Merrill Lynch Global Growth Group
224
Ticker
Private
Private
Private
Private
WPO
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
APOL
EDMC
DV
STRA
Private
Private
Private
Private
Private
ECLG
Private
Private
Private
Private
Private
Private
Private
VCMP
Private
Private
EVCI
Private
Private
Private
Private
Private
STAD
Private
Private
Private
Private
Private
Private
Hubs
College Lifestyle
Animalhouse.com
CollegeClub.com
Colleges.com
Jenzabar
Student Advantage
Student.com
Career / Recruiting
College Hire
Collegecentral.com
Jobtrak.com
The Job Resource
bridges.com
College Bound
Achieva
CampusTours.com
CollegeCoach
Collegeboard.org
CollegeBound.com
CollegeLink.com
CollegeNet
CollegeQuest
CollegeView .com
CollegeXpress
edupass.com
Embark.com
FastWEB.com
Finaid.org
GradAdvantage
RankIT College Site
Review .com
Scholarstuff.com
StudyAbroad.com
Xap.com
Know ledgeFirst
Academ ic
Blackboard, Inc.
California Virtual University
CollegeLearning.com
CollegeNew s.com
e-education (Jones)
HungryMinds.com
Learn2.com
Mybytes
Petersons.com
SmartPlanet.com
Versity.com
WebCT.com
Ticker
Private
Private
Private
Private
STAD
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Com m erce
Textbook e-tailers
BigWords.com
Book Sw ap
campus books
Classbook.com
efollett.com
Fatbrain.com
Textbooks.com
TextTrader.com
varsitybooks.com
Textbooksatcost.com
General e-tailers
CollegeDepot.com
edu.com
OnCampus.com
Student Advantage
StudentMarket.com
Thedormstore.com
eCollegebid.org
Ticker
Private
Private
Private
Private
Private
FATB
Private
Private
Private
Private
Private
Private
Private
STAD
Private
Private
Private
The Knowledge Web – 23 May 2000 (Reprint)
35. Appendix 2
More detail on how we calculated market size.
Higher Education e-Learning Market
U.S. Online Market Size
Segment
Higher Education
U.S. Addressable
Market (2000E)
$250 billion
1999E
$1.2 billion
2003E
7.0 billion
CAGR:
1999E-2003E
55%
Source: Merrill Lynch., based on bottoms-up analysis of the industry and IDC research
IDC’s report “Distance Learning in Higher Education: 1999 Market Update,” found that colleges and universities spent
$305 million in 1998 on distance learning and projected that figure to grow to $380 in 1999. The breakdown of spending
was: Communication products & services (18.2%), content creation (21.0%), hardware (19.0%), professional training
(7.1%), software (12.2%), technical support & maintenance (13.6%) and other 8.9). Despite the fact that hardware was
clearly very narrowly defined—during this same period, higher education institutions spent $3.1 billion on all information
technology, according to IDC—we were conservative in our inclusion of hardware when estimating our market size.
At the same time, not all of the expenditures captured were on web-based training. Of those institutions surveyed, 78%
were using web-based instruction, 59% video-based instruction, 58% video conferencing, etc. So this reduces the
estimate further.
However, IDC’s estimates do not capture the activity taking place to develop college communities. Companies such as
Student Advantage, Embark.com, and Campus Pipeline based on our bottoms-up analysis of the industry, increase the
1999 market size for this industry to $350 million, and contribute substantially to its growth rate.
IDC, in its report, “Online Distance Learning in Higher Education, 1998-2002,” indicates that the number of students
taking distance learning courses is expected to grow at a 33.1% CAGR from 710,000 in 1998 to 2.23 million in 2002.
Based on the activity in this market, we believe the growth rate of the market will exceed the student growth rate
estimated by IDC, particularly with a significant number of companies in this space also attempting to address the
corporate learning market. Therefore, to come to our estimate, we made certain assumptions regarding students using
distance learning, average tuition costs and market growth potential.
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226
The Knowledge Web – 23 May 2000 (Reprint)
Corporate e-Learning –
Feeding Hungry Minds
227
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This Page Left Intentionally Blank
228
The Knowledge Web – 23 May 2000 (Reprint)
36. Corporate e-Learning:
Feeding Hungry Minds
Fast Facts
Corporate e-Learning
Market Statistics
Addressable Global Market Size: $300 Billion
U.S. Corp. e-Learning Market Size 1999E:
$1.1 Billion
U.S. Corp. e-Learning Market Size 2003E:
$11.4 Billion
U.S. Corporate e-Learning CAGR 1999E-2003E:
79%
Public Companies Profiled
click2learn.com (CLKS, Formerly Asymetrix)
DigitalThink (DTHK)
Learning Tree (LTRE)
Provant (POVT)
Saba Software (SABA)
SmartForce (SMTF)
Smartplanet.com (division of Ziff Davis)
Thomson Learning (Div. of Thomson Corp.)
Private Companies Profiled
Brainbench
Acadio
CBM Tech. (TEDS)
Docent
EMind.com
Englishtown.com
GlobalEnglish.com
Headlight.com
Hungry Minds
KeepSmart.com
KnowledgePlanet
Ninth House
notHarvard.com
Pensare
PlanetLingo.com
Trainingnet.com
•
The global corporate and government learning market is huge, measuring
approximately $300 billion this year and is expected to grow to $365 billion
by 2003.
•
Total technology-delivered learning is projected to grow rapidly, from $3.0
billion in 1998 to $8.2 billion in 2001, an annual growth rate of nearly 40%.
•
Web-based corporate learning is expected to enjoy explosive growth,
measuring $11.4 billion by 2003, up from $550 million in 1998, representing
a CAGR of 83%.
•
Eleven percent, or 55, of the Fortune 500 have a Chief Knowledge Officer
today, up from virtually none five years ago.
•
Motorola calculates that every $1 it spends on corporate learning translates
into $30 in productivity gains within three years.
•
Skilled labor is expected to represent 85% of all jobs in 2005, up from 20% in
1950.
•
Currently, it’s been estimated that 50% of employees’ skills become outdated
within 3 to 5 years.
•
Seventy percent of CEOs cite finding and retaining skilled employees as a
serious problem.
Megatrends Shaping the Corporate E-Learning Industry
Trend
Demographics
Impact
In an economy with 4.0% unemployment, an under-degreed adult population and 85% of new jobs created
requiring higher skills by 2005, corporate learning has never been more important. To serve the new needs of the
workforce of the 21st century, we are seeing the emergence of a new paradigm for corporate learning – online
learning. Accessible around-the-clock, online learning gives employees access to learning where they want it,
when they need it.
Technology
We are in a new era driven by access, information, convenience and speed, all brought on by the advent of the
Internet. Moore’s Law is alive and well, making change a constant.
Globalization
The Internet creates one market, one economy. Approximately 30% of the S&P 500 earnings come from outside
of the United States. In today’s global knowledge-based economy, corporations need consistent, multi-lingual
education that is accessible anywhere, anytime.
Branding
Brands are everything in knowledge services and on the Internet. We believe companies will rely on brand-name
providers with a global presence to serve their e-learning needs.
Consolidation
The highly fragmented corporate learning industry is made up of thousands of “mom and pop” shops. Many
companies that began as niche players are rapidly acquiring content and technology companies to “fill in the
holes” in the areas where they are lacking.
Outsourcing
The mandate for corporations is to focus on core competencies and outsource the rest. Currently, 25% of
corporate learning is being outsourced. As companies focus on core competencies and increasingly view
corporate learning as an investment, the rate of outsourcing will only accelerate.
229
The Knowledge Web – 23 May 2000 (Reprint)
37. Corporate e-Learning
“Education over the Internet is going to be so big it is going to make e-mail
usage look like a rounding error.”
– John Chambers, CEO, Cisco Systems
The new economy moves at a
pace never seen before. eCommerce has forced even
traditional businesses to
operate at Internet speed.
Time-to-competency is key for
organizations to compete.
The new economy moves at a pace never seen before. The Internet has radically
changed the way we do business, driving rapid change in the demands on human
capital. e-Commerce has forced even traditional businesses to operate at Internet
speed. The workforce is presented with an unprecedented challenge, as it must
now gain and continuously upgrade its skills.
A half century ago, a man could learn how to drive a tractor and have that job skill
remain useful for 40 years or more. Today, a person learns a software program
and has that skill current for, maybe, 18 months. There are several trends fueling
the growth of corporate learning as well as driving the rapid adoption of online
learning:
•
Dramatic Shift to a Skilled Workforce
•
Widening Wage Gap Between High School and College Graduates
•
The Fast Pace of Technological Change
•
Shortening Product Life Cycles
•
Increased Globalization
•
Skills Shortage
•
Changing Perception of Corporate Learning from a Cost to an Investment
We are in a new era driven by access, information, convenience and speed, all
brought on by the advent of the Internet. Time-to-competency is key for
organizations to compete. An old solution was simply to replace workers with
obsolete skills with those possessing the right skill set. However, in a 4%
unemployment economy with one of five IT jobs going unfilled, the real world
option isn’t to find new people with the right skill set (good luck), but to provide
learning continuously for existing employees.
“In three years, every product my company makes will be obsolete. The only
question is whether we’ll make them obsolete or somebody else will.”
– Bill Gates
Business @ the Speed of Thought
230
The Knowledge Web – 23 May 2000 (Reprint)
“Push & Pull” Forces Create Opportunity
Push From Employers
• Time to competency is key for
organizations to compete.
• The fast pace of technological change
driven by Moore’s Law
Pull By Employees
• Need for continual retraining to
advance
• Increased globalization
• Pay gap between college and high
school graduates is dramatic, yet only
21% of US adults have a college degree
• Low employment creates highly
competitive employment landscape
• Testing and certification establishes
immediate credibility
• Changing perception of corporate
learning from a cost to an investment
• Basis for higher compensation and
increased job opportunity
• Dramatic shift to a skilled workforce
• Skilled labor is expected to represent
85% of all jobs in 2005, up from 20%
in 1950.
• Shortening product life cycles
• Testing and certification provide a
standard measurement
Source: Merrill Lynch Global Growth Group
The four engines of the new
economy – computers,
telecommunications, health
care and instrumentation –
employ approximately 50
knowledge workers per 100
employees and are growing.
Integrating quality educational content with testing/assessment and certification
programs is the new learning paradigm for the 21st century. The four engines of
the new economy – computers, telecommunications, health care and
instrumentation – employ approximately 50 knowledge workers per 100
employees and are growing. These technology-intensive industries are growing 36 times as fast as economy-wide job growth. The “push” from employers
demanding relevant skills and the “pull” from employees seeking better jobs or
keeping the one they have has created a fertile growth environment for online
learning companies that can provide cost-effective solutions to address the
growing knowledge crisis within their organizations.
“The person who figures out how to harness the collective genius of the people
in his or her organization is going to blow the competition away.”
– Walter Wriston, former CEO of Citibank
Assessment is the currency to
value skills in the knowledge
economy.
Corporate learning is a transition from “seat time” and “credits” as a means toward
earning degrees and certifications to demonstration of competence as measured by
valid and reliable test assessments. Similarly, demonstration of work-related
competencies, particularly in technology-related professions, is becoming the key
criteria for getting or maintaining a job or promotion. The 1999 ASTD (American
Society of Training and Development) study of corporate training directors found
the number one criteria for choosing a learning provider was the ability to prove
that learning occurred and productivity improved as a result of the learning
investment – or, in other words, tangible ROI. As such, assessment is the
currency to value skills in the knowledge economy.
231
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Corporate e-Learning “Net-Scape”
INFRASTRUCTURE
CONTENT
Information Technology,
Performance Improvement,
Industry Specific,
Higher Education
Dislocation caused by the
Internet economy, coupled with
the speed of change, has
created an incredible need to
provide knowledge
instantaneously.
Authoring Tools,
Delivery Tools, Total
Solution Outsourcers,
Learning Management
Systems
$300-billion
Global Market
COMMUNITY
COMMERCE
Corporate Employees,
Professionals,
Individual Consumers
Corporate Learning,
Marketplaces
& Exchanges
Source: Merrill Lynch Global Growth Group
In the new economy, businesses
need personalized and
constantly changing corporate
learning.
Dislocation caused by the Internet economy, coupled with the speed of change,
has created an incredible need to provide knowledge instantaneously.
Technological innovations, such as the Internet, video-conferencing and satellite
systems, have transformed not only what we learn, but also how we learn. In the
old economy, businesses were able to get by with general and generic corporate
learning programs for a large, stable workforce. In the new economy, businesses
need personalized and constantly changing corporate learning. Corporate learning
was once viewed as a cost, and courses were “just-in-case.” In the new economy,
corporate learning is a career-long necessity that employees, who know that in
today’s economy their earnings power rises with knowledge, are eager to use as a
tool for career advancement. Courses are delivered “just-in-time” anywhere,
anyplace and anytime.
New View of Corporate Learning in Our Knowledge-Based Economy
Old Economy
Four-Year Degree
Training As Cost Center
Learner Mobility
Distance Education
Resume
One Size Fits All
Geographic Institutions
Just-in-Case
Isolated
Source: Merrill Lynch Global Growth Group
232
New Economy
Forty-Year Degree
Learning as #1 Source of Competitive Advantage
Content Mobility
Distributed Learning
Competency
Tailored Programs
Brand Name Universities & Celebrity Professors
Just-in-Time
Virtual Learning Communities
The Knowledge Web – 23 May 2000 (Reprint)
The problem is that today’s corporate learning solutions only partially solve an
organization’s needs. They are:
•
Difficult to deploy across an organization
•
Difficult to customize and update
•
Difficult to track and monitor learning effectiveness
•
Lacking control and processes
•
Lacking diverse, up to date content
•
Lacking the ability to calculate ROI
•
Human- and paper-intensive
•
Lacking automation or scalability
•
Costly and fragmented
“I don’t have to know everything, I just have to know where to find it when I
need it.”
– Albert Einstein
The Online Learning Solution
Web-based corporate learning is
expected to enjoy explosive
growth, measuring $11.4 by 2003,
up from $1.1 billion in 1999,
representing a CAGR of 79%.
The Market Reality
•Knowledge is the fuel for the new economy
•Human capital is the corporation’s asset that
propels earnings growth
•Learning is a strategic weapon
•Global Marketplace
•Hyper-growth, hyper-efficiency
•Worker supply constraints
The Problem
Learning Organization
•Costly, fragmented operations
•Lack of control and processes
•Human- and paper- intensive
•No automation or scalability
•Lack of diverse, up to date content
Learning Providers
•Isolated pockets of excellence
•Scaling pains
•Internet threat/opportunity
•Enterprise reach and scalability
The Solution
Online Learning
•Integrated and Scalable
•Accessible 24x7
•Convenient and flexible
•Cost effective
•Just-in-time, Just-for-me
•Centralized management system
•ROI driven
•Mass customization
Source: Merrill Lynch Global Growth Group
The combination of tremendous demand for effective and ongoing learning from
corporations and knowledge workers and the potential solution that online
learning provides creates enormous growth opportunities for companies that can
effectively marry learning, technology and commerce. IDC projects that U.S.
Web-based corporate learning is expected to enjoy explosive growth, measuring
$11.4 by 2003, up from $1.1 billion in 1999, representing a CAGR of 79%.
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The Knowledge Web – 23 May 2000 (Reprint)
Anytime, anywhere learning
can greatly increase student
retention and satisfaction.
Corporate e-Learning Projected to Enjoy Explosive Growth
Domestic Corporate Web-Based Learning
$11.4
$12.0
$10.0
$7.1
($ Billions)
$8.0
$6.0
$4.1
$4.0
$2.2
$2.0
$0.6
$1.1
$1998
1999E
2000E
2001E
2002E
2003E
Source: IDC
As much as 40 cents of every
dollar spent on in- person
corporate learning is eaten up
by travel costs.
The growth in Internet-delivered learning is driven by both compelling economics
and the potential for more effective education. The Internet reduces the cost of
learning, both direct and indirect, and increases its relevance and retention. In
addition, it enables learning programs to be customized and tailored for individual
employees and facilitates knowledge management by providing the means to
collect and re-deploy knowledge more efficiently throughout the organization.
Whereas employees once had to congregate in one location to receive corporate
learning, sometimes flying in from around the country or even the globe, the
corporate learning can now come to them. Anytime, anywhere learning can
greatly increase student retention and satisfaction.
“If investments in factories were the most important investments in the
industrial age, the most important investments in the information age are surely
investments in the human brain.”
– Lawrence Summers
U.S. Treasury Secretary
Online learning has several significant benefits:
Companies experience 40-60%
cost savings when comparing
instructor-led courses with
technology-delivered courses.
234
•
24 Hours a Day/7 Days a Week: The most obvious benefit of online learning
is convenience. Employees can access learning 24 hours a day, 7 days a
week, around their work, family and personal schedule. No longer do
employees need to take time away from their busy workweek to sit through a
day of corporate learning or travel to the other side of the country for training.
Moreover, instead of waiting for the next scheduled seminar, employees can
access learning instantaneously when and where they need it.
•
Tremendous costs savings: As much as 40 cents of every dollar spent on inperson corporate learning is eaten up by travel costs. Brandon Hall, a wellrecognized industry expert, believes that companies experience 40-60% cost
savings when comparing instructor-led courses with technology-delivered
courses. Bill Raduchel, Chief Strategy Officer for Sun Microsystems,
believes that at the beginning of this decade, it cost $300 per hour of
instruction using the traditional classroom for delivery (not including course
development). By 2005, Raduchel predicts, the same hour will cost $0.03
when delivered through technology, an astonishing four orders of magnitude
difference.
The Knowledge Web – 23 May 2000 (Reprint)
Compelling Economic Benefits of Online Learning
Studies have indicated that
retention of certain subject
matter may be up to 250%
greater with e-learning than
with the classroom-based
model.
Reduced costs per class . . .
• Three years ago it cost Novell $1,800 for a four day certification course that now costs $700-900
over the web. This comparison doesn’t even capture the costs of the employee’s travel, lodging
and time away from job.
• The cost of a Cisco Systems instructor-led course is $1,200-$1,800, compared to only $120 over
the web.
Equates to tremendous savings . . .
• Hewlett Packard saved $150,000 in outside testing costs alone through online learning.
• The FBI’s National Security Division saved $2 million when it developed a distance-learning
course to replace one full week of training at the FBI academy.
Source: Asymetrix Learning Systems
•
Just-in-time learning – One of the biggest benefits of online learning is that
it delivers learning “just-in-time,” at the moment an employee needs that
information. In our view, this is far superior to attending hours of classes
“just-in-case” the materials are needed at some point in the future. The
immediacy of online learning drives retention of information that is frequently
far superior to traditional forms of corporate learning. Studies have indicated
that retention of certain subject matter may be up to 250% greater with elearning than with the classroom-based model.
•
Just-for-me learning – One of technology’s strengths is the ability to create a
customized corporate learning program designed specifically for that
individual, structured to cover only the materials he or she needs on a scalable
basis. This highly customized form of corporate learning enables the
organization to assess individual and group needs, and tailor the learning to
specifically address individual needs based on interests, career objectives and
job profiles.
Benefits of Online Learning
Just-for-Me
Just-in-Time
Learning management systems
provide corporations with the
ability to track and manage the
learning that occurs within an
organization and for the
extended enterprise.
Learning is
Continuous
Immediate
On-demand
Learning is
Personalized,
Customized
Individualized
Just-in-Case
Source: Merrill Lynch Global Growth Group
•
Centralized Knowledge Management: Corporations need a system that will
allow them to know who is participating in what type of corporate learning,
when, where and why. If you can’t measure it, you can’t manage it. One of
the strengths of technology is its ability to collect and interpret large amounts
of information. Learning management systems provide corporations with the
ability to track and manage the learning that occurs within an organization
and for the extended enterprise, with such features as employee registration
and pre-, during and post testing across the entire spectrum of offered courses.
More importantly, learning management systems enable companies to
measure their learning's effectiveness, competency, impact on business
objectives and profitability. Similar to a doctor with a medical chart, learning
management systems allow corporations to know what individuals know and
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The Knowledge Web – 23 May 2000 (Reprint)
don’t know, when an employee completed a course, how they performed and
their level of improvement. The organization that can link corporate learning
and performance has created a powerful competitive asset, which is why we
believe e-learning solutions sit at the top of the enterprise software value chain.
The value proposition of
e-learning extends beyond
employees. We see significant
opportunity to use e-learning to
educate external parties that
are central to a company’s
success such as customers,
suppliers and partners – the
extended enterprise.
Benefits of Online Learning Versus the Classroom
Classroom
Online Learning
Access
Limited
24 X 7
Quality
Varied
Consistent
Difficult
Automatic
Varied
High
High
Low
Results Measurement
Retention of Information
Relative Cost
Source: Asymetrix Learning Network
The value proposition of e-learning extends beyond employees. We see significant
opportunity to use e-learning to educate external parties that are central to a company’s
success such as customers, suppliers and partners – the extended enterprise.
Enterprise Software Value Chain
Client/Server
Web Based
E-Learning
Solutions
Empower
User
Frictionless Interaction
(Supplier, Customer & Employee
Facing)
eProcurement
Corporate
Learning
Services
Salesforce
Automation
Productivity
Gains
Enterprise
Resource Planning
Client Support
& Help Desk
Supply
Chain
Management
Distribution
& Logistics
Front-office
Human
Resources
Control & Cost
Host Based
Payroll,
General Ledger
Manufacturing
& Resource
Planning
Billing
Accounts
Receivable
Back-office
$
Accounts
Payable
Disbursements
LOW
Source: Merrill Lynch Global Growth Group
236
POTENTIAL CONTRIBUTION TO BUSINESS PERFORMANCE
HIGH
The Knowledge Web – 23 May 2000 (Reprint)
As in any situation, the more knowledgeable one is of a product or service, the more
effective one will be at carrying out their responsibilities. The Internet allows
corporations to disseminate information quickly and cost effectively, thus ensuring
that customers, suppliers and partners will be equipped with the most up-to-date
information. The more individuals and parties there are on the network, the more
powerful the network becomes, as Metcalfe’s Law dictates.
•
Customers will be more informed about products and services, enabling them
to make more educated (and a potentially increased number of) purchasing
decisions.
•
Suppliers will be equipped with a better understanding of their client’s needs,
allowing for better service.
•
Partners will gain additional insight into their affiliates, enabling them to
work with them more efficiently and effectively.
“You live and learn…or you don’t live long.”
– Robert Heinlein
The e-Learning Network Effect
Customers & Supply Chain
Content Delivery
Employees
In-House
Learning
Customers
Vendors
Partners
Partners
Customer A
Vendors
Customers
Employees
External
Learning
Employees
Customers
Vendors
Partners
Partners
Customer B
Vendors
Customers
Employees
Corporate
e-Learning
Company
Assessment
Employees
Customers
Vendors
Partners
Customer C
Certification
Partners
Vendors
Customers
Employees
Measurement
Source: Merrill Lynch Global Growth Group
237
The Knowledge Web – 23 May 2000 (Reprint)
38. Size of the Market
Corporations are struggling to reinvent themselves in the face of structural change
in our economy – an economy that is increasingly shifting rewards to service and
technology companies made up of “knowledge workers.” Not surprisingly,
improving the education levels of employees has become mission-critical.
The global corporate learning
market is enormous, measuring
over $280 billion for 1999 and
is expected to grow to over $365
billion by 2003.
The push from employers who need a more educated workforce, combined with
the pull from employees who need to get paid has created an environment in
which both parties are increasingly realizing that learning is a lifelong process that
no longer stops after graduation from high school or college. In today’s
knowledge-based economy, a four-year degree is just a prerequisite to
participating in the industries of the future.
Consequently, employers in the new economy are spending tens of billions of
dollars to increase employee skill levels, offering everything from remedial
education to job corporate learning to executive education. The global corporate
and government learning market is enormous, measuring over $280 billion for
1999 and is expected to grow to over $365 billion by 2003.
Large and Growing Global Corporate Learning Market
$365 Billion
$400
$315 Billion
$265 Billion
Billions
$300
$200
$100
$0
1998
By the year 2005, we expect
the shift from unskilled
labor to skilled labor to
become even greater,
representing 85% of all jobs.
2001
Domestic
2003
Global
Source: IDC, Merrill Lynch Global Growth Group
As we move towards a more automated society, human labor is being displaced by
advanced technology, creating the need for higher skilled employees. In 1950,
unskilled jobs constituted 60% of all jobs, and professional and skilled jobs each
represented 20% of all jobs. In 1991, the percentage of unskilled jobs decreased to
35% while the percentage of skilled jobs increased to 45%. By the year 2005, we
expect the shift from unskilled labor to skilled labor to become even greater,
representing 85% of all jobs.
“It’s what you learn after you know it all that counts.”
– John Wooden
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The Knowledge Web – 23 May 2000 (Reprint)
Corporate Learning: Need for Skilled Workers (1)
70% of surveyed CEOs say they face serious
problems finding skilled, experienced workers (2)
% of Jobs Requiring Skilled Workers
85%
90%
80%
65%
70%
60%
45%
50%
40%
28%
30%
Forty percent of the Fortune
500 companies have
implemented a corporate
university.
20%
10%
0%
1950
1991
2000
2005 (3)
___________________
(1) U.S. Bureau of Labor Statistics.
(2) Coopers & Lybrand “Trendsetter Barometer” survey.
(3) Merrill Lynch and U.S. Bureau of Labor Statistics.
The reality for businesses today is that to be competitive, a strategic corporate
learning plan is vital. The learning needs of the knowledge economy, coupled
with the current system’s inability to satisfy those needs, provide nimble elearning companies with a fertile environment and an open-ended growth
opportunity.
Illustrating the heightened profile and importance of corporate learning is the
rising number of corporate “universities.” Corporate universities are formalized
corporate learning programs that cut across all company divisions. There are over
1,600 corporate universities, up from only 400 in 1988. To put this figure in
perspective, there are currently approximately 3,700 postsecondary institutions in
the United States. Forty percent of the Fortune 500 companies have implemented
a corporate university.
Corporate Universities Up Tenfold
2,000
By the year 2003 expectations
are for approximately 2,000
corporate universities, up
tenfold from only 200 in 1970
2,000
1,600
10x in 33 Years
1,500
1,000
400
500
200
0
1970
1980
2000
2003E
Source: Corporate University Xchange, Inc.
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The Knowledge Web – 23 May 2000 (Reprint)
The technology fueling our economy and driving our need for lifelong education
and corporate learning is also transforming how we deliver that learning.
Corporations have strongly embraced the use of technology for corporate learning.
Web-based corporate learning is a rapidly growing component of technologybased corporate learning, expected to increase from $1.1 billion in 1999 to $11.4
billion by 2003, representing an explosive annual growth rate of 79%.
Web-Based Corporate Learning Expected to Experience Explosive Growth
U.S. Corporate Web-Based Learning Projections: 1999-2003
$11.4
$12.0
$10.0
$8.0
$ Billions
The total corporate e-learning
opportunity in the U.S. is
approximately $1.1 billion in
1999 growing to $11.4 billion by
2003.
CAGR = 79%
$6.0
$4.0
$1.1
$2.0
$1999E
2003E
Source: IDC
We emphasize that the online market opportunity is significantly larger than the
IDC figures presented in the graph above. The Internet creates one market,
meaning the e-learning opportunity is global, not domestic. Combining the
international corporate and government e-learning opportunity would significantly
increase the total market opportunity.
Combining the international
corporate and government
e-learning opportunity would
significantly increase the total
market opportunity.
Corporate Learning Market Estimates
U.S. Online Market Size
Market Segment
Content
Learning Services
Delivery Solutions
Total Corporate Learning
2000E Addressable
Global Market
$300 billion*
1999E
2003E
$0.7 billion $6.2 billion
$0.2 billion $4.1 billion
$0.2 billion $1.1 billion
$1.1 billion $11.4 billion
CAGR:
1999E-2003E
73%
113%
53%
79%
Source: IDC, “The U.S. Corporate e-Learning Market Forecast, 1998-2003,” January 2000; Merrill Lynch Global
Growth Group
* Figure includes government learning market, as well.
We expect companies to adopt a combination of corporate learning delivery
technologies. Delivery alternatives available today are graduating from CD-ROM and
videotape to one-way and interactive satellite video broadcast, the Internet,
intranets/extranets, web-based collaborative learning tools, electronic performance
support systems, multicasting video and others. Most companies will elect to use a
combination of these technologies, leveraging the strengths of each to deliver different
types of corporate learning to different audiences. The following chart represents
computer-delivered corporate learning options and their current market shares.
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The Knowledge Web – 23 May 2000 (Reprint)
Delivery Media of Technology-Delivered Corporate Learning (1999)
Other
14%
Diskette
11%
Intranet
25%
Online
Learning
Internet
13%
CD-ROM
37%
Source: Training Magazine
The market share of U.S.
instructor-led corporate IT
learning is expected to decrease
to 51% in 2003, down from 71%
today.
IT corporate learning, in particular, lends itself to technology-based instructional
methods, and accordingly is expected to be one of the fastest sectors to adopt
online learning. Currently, classroom-led instruction dominates the U.S. IT
corporate learning market in dollar terms, capturing $6.7 billion in 1999, or 71%
of the market. However, technology-based corporate learning, estimated to grow
annually at 33%, is expected to quickly gain market share. According to IDC, the
market share of U.S. instructor-led corporate IT learning is expected to decrease to
51% in 2003, down from 71% today. Technology-based corporate learning is
forecasted to capture a 46% share of the U.S. IT corporate learning market by
2003, up from 24% in 1999.
“Today, knowledge has power. It controls access to opportunity and
advancement.”
– Peter F. Drucker
The performance improvement learning sector is also moving online, albeit at a
less torrid pace relative to IT corporate learning. Topics such as communication,
leadership and general business skills are more difficult to translate to an online
environment as they are often more subjective in nature and usually require a high
level of demonstration and participation. However, through the use of streaming
video, simulations and satellite technologies, coupled with increased bandwidth,
we believe an increasing number of performance improvement programs will be
shifted to technology-based learning methods.
Currently, IT training content dominates corporate e-learning spending,
representing nearly 80% of the $1.1 billion in estimated spending in 1999. Going
forward, though, we expect non-IT corporate e-learning spending, much of which
will be focused on “soft skills,” to grow explosively as content providers take
advantage of technology and increased bandwidth to deliver their offerings via the
Internet. IDC projects that by 2003, over half, or $6.1 billion of the $11.4 billion
total corporate e-learning spend, will be focused on non-IT training content.
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The Knowledge Web – 23 May 2000 (Reprint)
Both IT and Non-IT Corporate e-Learning Content Expected to Explode
1999E ($ Billions)
2003E ($ Billions)
$0.2
$5.3
IT Content
IT Content
Non-IT Content
Non-IT Content
$0.9
$6.1
Source: IDC
While the benefits of online learning are compelling and attractive, in the long-run
we don’t expect instructor-led learning to disappear altogether. We ultimately see
the industry embracing a hybrid solution, with an individual’s corporate learning
involving a combination of the best of technology-delivered and classroom-based
instruction. Accordingly, content providers that can complement their instructor led
offerings with an e-learning strategy have the potential to offer “one-stop shopping.”
We ultimately see the industry
embracing a hybrid solution,
with an individual’s corporate
learning involving a
combination of the best of
technology-delivered and
classroom-based instruction.
An additional feature that we see adding value to the online learning solution is
the integration of tutors and/or mentors. Online tutors and mentors not only serve
as a resource to answer questions, but also provide feedback and advice, keeping
the student involved and motivated to complete the course. According to Jerry
Neece, corporate learning programs manager at Sun Microsystems, when
employees were asked to complete a self-paced online course without the help of a
tutor, only 25% finished. When given the same assignment and access to a tutor
through e-mail, telephone or online discussion group, 75% completed the
corporate learning.
DigitalThink and SmartForce were two of the first companies to incorporate
online mentors and tutors in their courses. With response times of less than 24
hours, students get essentially immediate answers to questions, feedback and
advice. Both companies have found the use of tutors to be an effective strategy
for keeping the student engaged and involved. As a consequence, they have
enjoyed higher retention and completion rates.
Characteristics of a Successful e-learning Solution
Individual Needs Assessment and Professional Development Curriculum
Proven High Quality Intellectual Capital
Anytime Anywhere Access
Engaging User Experience
Simulations
Learn By Doing
Streaming Video
Mentoring
Threaded Discussions
Chat Rooms
Regular Reinforcement
Centralized Knowledge Management Tracking & Administration
Organizational Consulting Integration & Learning Services
Source: Merrill Lynch Global Growth Group
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The Knowledge Web – 23 May 2000 (Reprint)
“Anyone who stops learning is old, whether twenty or eighty. Anyone who
keeps learning is young. The greatest thing in life is to keep your mind young.”
– Henry Ford
As we sit here today, we believe there is enormous potential for e-learning
companies that can provide corporations with the knowledge they need to compete
effectively in the global marketplace. This being said, there is tremendous
confusion by investors and corporate managers in terms of who does what and
how they fit into the e-learning puzzle. Part of this is driven by the companies
themselves who, depending on the audience they are talking to, claim they are
nirvana offering the perfect solution/opportunity for the e-learning market. For
example, in meeting with the corporate learning manager, an e-learning company
may purport to do it all, offering everything from an e-learning platform to
comprehensive content. In a one-on-one with an investor, the e-learning company
becomes “a scalable ASP.” The reality is that it is not that simple.
Where we see this going is analogous to a cable operator providing the
infrastructure to deliver e-learning (TCI) and a content provider (Turner
Broadcasting) creating courses. Today, we have companies that offer pieces of
the infrastructure puzzle, but no TCI, and bits of the programming equation, but
no Turner Broadcasting. Tomorrow, we expect learning management systems to
combine with aggregators/marketplace exchanges and tool providers and
content providers to offer a breadth of courses to become learning networks.
Hence, we see two main categories emerging:
1.
Infrastructure to provide platforms, tools and systems for corporations to
operate e-learning initiatives.
2.
e-Learning Content Providers who produce courses either by repurposing
others’ content or creating their own.
Tremendous Opportunity for e-Learning Companies
+
Metcalfe’s
Law
Moore’s
Law
Transistors per
Microprocessor
The Network Effect
+
Utility
Human Capital Drives
Valuation
P ro c e s s in g P o w e r
$300-Billion Global
Corporate Learning
Market
Time-to-Competency
Demands
Skills Shortage
The
= Corporate
e-Learning
Opportunity
Time
Users
Source: Merrill Lynch Global Growth Group
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The Knowledge Web – 23 May 2000 (Reprint)
39. The Corporate e-Learning “Net-scape”
For most companies and investors, piecing together the parts to the e-learning
puzzle is confusing. We believe that over time, the industry will be simplified,
with two main types of e-learning companies – infrastructure and content.
The Corporate e-Learning Competitive Landscape
INFRAST RUCT URE
CONT ENT
Le arning
Ma na ge me nt
System s
Aggre ga tors,
Marke tpla ces
& Excha nges
Authoring Tools
& Intera ctive
Com munica tion
Ve rtically
Focuse d
Conte nt
Compre he nsive
Content
Saba
click2learn
Centra
SmartForce
Knowledge
Planet
headlight
click2learn
DigitalThink
Course
Technology
(Thomson)
trainingnet
Eloquent
Ninth House
KeepSmart
Acadio
learnspace
notHarvard
emind.com
Docent
ITC Learning
Strategic
Interactive
(Provant)
Unive rsity
Content
UNext
Pensare
University
Access
fathom
Hungry Minds
Lotus (IBM)
SkillSoft
MindLeaders
learn2.com
NetMeeting
(Microsoft)
Corpedia
NETg
PayBack
W BT Systems
Cognitive
Arts
Caliber
Learning
Source: Merrill Lynch Global Growth Group
Infrastructure
Technology providers offer software and hardware programs to convert, deploy,
deliver and manage content.
244
•
Learning Management Systems – Also called “enterprise corporate learning
software,” these programs provide corporate learning coordinators with the
ability to manage the corporate learning process, with such features as
employee registration, monitoring and testing across the entire spectrum of
offered courses.
•
Aggregators, Marketplaces & Exchanges – e-Commerce portals and hubs
bring corporations and individuals significant benefits, including streamlining
the corporate learning selection, approval and buying process, enhancing
employee skills and commitment to achieve company goals, empowering
employees with tools to manage their professional development and create a
self-reliant workforce and centralizing corporate learning activity and reporting
•
Authoring Tools – These software programs enable the development of
computer and web-based courses.
•
Interactive Communication Technology – Technology-based corporate
learning can be delivered in a variety of ways including CD-ROM,
synchronous satellite, synchronous Internet or asynchronous Internet.
The Knowledge Web – 23 May 2000 (Reprint)
We discuss these four components in more detail below.
n Learning Management Systems
If e-learning is the “blood” of
the education process, learning
management systems are the
artery system.
Necessity is the mother of all inventions. Tracking and managing corporate
learning is a huge task that can be especially difficult considering the number of
different mediums used for learning, including instructor-led, video, CD-ROM
and the Internet. If e-learning is the “blood” of the education process, learning
management systems are the artery system. Corporations need such system to
enable them to know who is taking what type of corporate learning, when, where
and why.
“A firm’s IQ is determined by the degree to which its IT infrastructure connects,
shares and structures information. Isolated applications and data, no matter
how impressive, can produce idiot savants but not a highly functional corporate
behavior.”
– Steve H. Haeckel and Richard L. Nolan
“Managing by Wire: Using IT to Transform a Business”
Learning management systems provide corporations with a valuable tool, enabling
them to measure and assess an individual’s corporate learning progress and
improvement. Learning management systems:
Similar to a doctor with a
medical chart, learning
management systems enable
corporations to know what an
employee knows and doesn’t
know, when an employee
completed a course, how they
performed and the level of
improvement.
•
Identify and assess individual and department-level skill gaps
•
Assign appropriate courses to address these gaps
•
Assess and measure performance improvement at the individual level or
across a department or the organization
•
Generate reports comparing performance results across departments or user
groups
Similar to a doctor with a medical chart, learning management systems enable
corporations to know what an employee knows and doesn’t know, when an
employee completed a course, how they performed and the level of improvement.
If you can’t measure it, you can’t manage it.
Learning Management Systems Tie it All Together
Access
Learning
Map
Diagnosis
Courses
Test
Certify
Job
RETURN ON INVESTMENT
Source: Merrill Lynch Global Growth Group
Learning management systems
play a critical role by enabling
companies to measure their
learning’s effectiveness,
competency, impact on business
objectives and profitability.
Learning management systems play a critical role by enabling companies to
measure their learning's effectiveness, competency, impact on business objectives
and profitability. Their functionality is essential, as return on investment in
corporate learning has become increasingly important to businesses.
The basic functionality of a learning management system is, in many cases,
already included as part of an online solution. In fact, we know of very few online
solutions that do not offer some of the capabilities typical of a complete learning
management system. For example, SmartForce, DigitalThink and Ninth House
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The Knowledge Web – 23 May 2000 (Reprint)
solutions all allow for the tracking and management of courses, include pre-,
during and post assessment, and allow students to map out their career objectives
and match courses accordingly.
Leading Providers of Learning
Management Systems
Arista Knowledge Systems
CBM Technologies (TEDS)
Docent
Infotec Commercial Systems
Ingenium (click2learn)
Intralearn
ITC Learning
Knowledge Navigators
KnowledgePlanet (Knowledge Universe)
KnowledgeSoft (Knowledge Universe)
Librarian (click2learn)
Manager’s Edge (Allen Communication)
Pathlore Software
Pathware
Phoenix
Pinnacle Multimedia
Saba
Southrock
Strategic Interactive
SYSCOM
Teamscape Learning Portal
Telemachus (Knowledge Universe)
VCampus
VuePoint
WBT Systems (Provant)
Source: Merrill Lynch Global Growth Group
The problem is that the tracking capabilities offered are limited to their courses
and platform only and fail to capture the rest of the learning that occurs at an
organization. Thus, corporations still have to manage a number of different
tracking systems and reports.
What is needed is a learning management system that can track, manage and
allocate a corporation’s learning on an enterprise-wide basis, regardless of the
delivery method (instructor-led, technology-based or online) or who the provider
is. We liken learning management systems to enterprise resource planning systems
(ERP), which track, manage and allocate a corporation’s resources on an
enterprise-wide basis.
Similarly, learning management systems must be scalable and “integratable” into
key back-office systems, such as human resources, finance and administration.
Thus, the true value that learning management systems bring is not so much the
basic capabilities, but the level of comprehensiveness, scalability and integration
with other departments.
In addition to traditional HR-related ERP software, we think learning management
solutions providers, such as Saba Software, have a lot in common with Internet
B2B procurement and market-making companies, such as Ariba, Free Markets,
Commerce One and Ventro. These companies enjoy premium valuations, owing to
the tremendous solutions they can provide, and we think the leading learning
management solutions providers can garner similar investor attention.
Selected B2B Companies
Company
Ariba, Inc.
Commerce One, Inc.
FreeMarkets, Inc.
Ventro (Chemdex)
Price
$61.75
67.38
55.88
25.13
Mean:
Median:
Mkt. Cap.
Appreciation
Since IPO
Price / Sales
2000E
2001E
$11,869.6
$5,213.9
$1,982.6
$1,123.8
437.0%
862.5%
16.4%
67.5%
201.0x
262.3x
198.1x
29.2x
107.4x
160.1x
102.0x
14.1x
$5,047.5
$3,598.3
345.8%
252.2%
172.7x
199.6x
95.9x
104.7x
Source: Merrill Lynch Global Growth Group
“The 20th century ended with the U.S. unemployment rate remaining at its 30
year low. This confronts managers with one of their biggest challenges –
finding competent people. Talent is the scarcest it’s been throughout the
working careers of most people who currently hold a job.”
– Bureau of Labor Statistics
246
The Knowledge Web – 23 May 2000 (Reprint)
Successful e-Learning Management System
in
g
Te st
m ent
ac
k
in g
A sse ss
Tr
n
Co
Ope n Architecture
Platform
Successful e-Learning
Management System
te n
t
li
De
ve
ry
Scalable
Source: Merrill Lynch Global Growth Group
To summarize, from an administrative standpoint, the e-learning solution
must be:
Companies need the ability to
measure corporate learning’s
effectiveness, impact on
business objectives and, most
importantly, profitability.
•
Enterprise-wide and Scalable – E-learning solutions must be scalable and
designed for enterprise-wide deployment.
•
Comprehensive and Integrated – The e-learning solution should be
integrated with back-office functions facilitating the efficient transfer of data.
•
Easy to Deploy, Update and Revise – Content should be maintained in one
location, preferably on the e-learning provider’s servers, thus eliminating the
need to install courseware or software and/or configure any hardware.
Moreover, courses must be updated and modified easily and immediately,
ensuring that data is always accurate and relevant.
•
Marketable – “If we build it, they will come” does not necessarily ring true
for online learning solutions. One of the toughest challenges corporations
face when introducing online courses is making students aware of and
comfortable with the new delivery medium. Leading e-learning companies
will offer clients strategies to help them market and increase internal
awareness of the new corporate learning initiatives.
•
High in Customer Support – Customer support is critical in the e-learning
industry, as there is nothing more frustrating than experiencing technical
difficulties in the middle of a course. Companies should offer technical
support 24 hours a day, seven days a week.
•
Centralized Learning Management Systems – Return on investment is
critically important to corporations. Accordingly, companies need the ability
to measure corporate learning’s effectiveness, impact on business objectives
and, most importantly, profitability. Learning management systems provide
them with the ability to track student progress, as well as enrollments by
purchase order, cost center or employee. Thus, performance, spend on
corporate learning and the associated return on investment can be monitored,
managed and tracked on a regular basis.
“The main concept behind distance learning is moving education rather than
learners.”
– British Council
247
The Knowledge Web – 23 May 2000 (Reprint)
Saba Software, Inc. – Laying the Knowledge “Tracks” to the New Economy
Saba is a leading provider of e-learning infrastructure to
Global 5000 and government organizations, learning
providers and Internet businesses worldwide. Saba offers
an comprehensive, enterprise-wide, Internet-based
learning management solution that enables businesses to
rapidly and cost effectively assess, plan, deliver, measure
and improve the learning of people throughout their
organization. Its Learning Enterprise product focuses the
learning of customers, partners, employees and suppliers
on achieving rapidly changing business goals. Saba’s
leading platform allows companies to:
•
Continuously assess how each learner learns best, as
well as their competency, certification and content
needs;
•
Plan the best mix of online and traditional educational
offerings and facilitate online content purchase,
conversion, or development based on global demand
forecasts;
•
Deliver learning using a personalized mix of
traditional & online offerings available in any and all
content delivery tools;
•
Track on a global basis the learning and financial
results vendors deliver by type of delivery; and
•
Measure and improve customer satisfaction, education
effectiveness, profitability, return on investment and
bottom-line business results – by type of delivery.
Saba empowers employees by helping them understand how
they learn best, assess their learning needs, build individual
development plans online, browse personalized catalogs,
acquire and participate in the online and traditional
educational offerings that work best for them, take pre- and
post-tests, provide feedback online and receive necessary
certifications. Its competency-driven, Internet learning
environments enable individuals to access personalized, cost
and time-effective online learning.
Its Education Management System (EMS) supports all
learning technologies, as well as open industry standards
such as AICC, and can integrate with all open content
delivery tools, including CBT, WBT, distance learning,
Internet, intranet, EPSS, multimedia, CD and synchronous
and asynchronous delivery tools. With Saba, companies
can now manage all of their learning, may it be on or
offline, that occurs from one centralized system.
Moreover, companies can track and measure key metrics
such as customer satisfaction, education effectiveness,
profitability and return on investment.
The key feature of the Saba System is that it is not limited
to only company employees. The system is global and
designed to reach people located anywhere within the
extended enterprise, whether they be suppliers, employees,
channel partners or customers. Saba enables global
Fortune 500 companies to run diverse operations on a
single system, enforcing the appropriate learner-specific,
local or global business rules and workflows.
Saba completed its IPO on April 7, selling 4.6 million
shares priced at $15 each.
Founded: 1997
FY 1999A Revenues: $1.9 million (Fiscal Year ends May 31)
Headquartered: Redwood Shores, CA
CY 2000E Revenues: $28.9 million
Public/Private: Public (Nasdaq: SABA, D-1-1-9)
CY 2001E Revenues: $63.6 million
URL: saba.com
Market Cap: $804 million (5/15/00)
Claim to Fame: Platform supports all learning technologies and can
integrate with all open content delivery tools
Revenue Components:
Investors: Sequoia Capital, Cross-Link Omega Ventures, Comdisco
and London Pacific & Annuity
Content:
Commerce:
X
Advertising:
Service/Licensing: X
Key Partners: IBM, PriceWaterhouseCoopers
Other:
Network Effect:
Key Customers: Cisco, Adobe, Ford Motor Company, SGI
Baan, Sun-Netscape Alliance, Hewlett-Packard, and
Quest, Anheuser Busch and Wells Fargo
248
Yes
Hub/Portal Strategy: Yes
Metrics:
Number of Clients: 50
Number of Users: 2 million+
Number of Content Partners: 100+
Number and Amount of Transactions on the Learning Exchange
The Knowledge Web – 23 May 2000 (Reprint)
KnowledgePlanet.com
KnowledgePlanet.com provides to training managers and
human resources professionals an internet-based employee
performance assessment and learning solution.
KnowledgePlanet.com helps companies prepare their
employees for crucial business initiatives, such as
launching e-business strategies, increasing workforce
readiness for new product launches and maintaining
regulatory compliance. Members can easily locate,
evaluate, purchase and deliver learning content using
multiple B2B procurement options, enabling them to
reduce cost, time and paperwork and streamline the
delivery of learning to employees. The solution is hosted
by KnowledgePlanet.com and offered through
membership subscription.
KnowledgePlanet.com offers a leading B2B e-learning
solution to accelerate business strategies in today's rapidly
changing Internet economy. The KnowledgePlanet.com
solution focuses employee learning and performance on
business-critical skills by integrating the KP2000
Workforce Performance Management system with eLearning Marketplace where thousands of learning
products and services are available from leading training
providers. KP2000 provides performance management to
define knowledge, skills, and roles for each employee:
Learning management to deliver personalized learning
plans and required courses and assessment management to
measure results. e-Learning Marketplace courses are
organized to help training professionals easily locate and
Founded: December 1999
evaluate product offerings from multiple training providers
at a single location. This eliminates the time-intensive
processes associated with buying and installing learning.
It provides training and human resource professionals with
news, information, chat groups with peers and experts and
research to help shape business initiatives around
Workforce Performance Management.
KnowledgePlanet.com was founded by combining the
assets of four companies: KnowledgeSoft, Inc., of
Mechanicsburg, PA, developed a suite of hosted, Internetbased applications for workforce performance management
that is in use by many leading Fortune 1000 companies.
Kobixx Systems of Minneapolis, a wholly-owned
subsidiary of KnowledgeSoft, sold eLearning software
through a worldwide distribution channel. MindQ, based in
Reston, VA, developed award-winning learning content and
technology for managing individual learning objects.
Knowledge Universe Interactive Studio of Emeryville, CA,
combined the art and science of interactivity with new
ideas in human learning theory to produce highly engaging
and effective online learning experiences.
While its competitors may focus on only one aspect of
enhancing workforce effectiveness and productivity,
KnowledgePlanet.com offers a complete package from
assessment to training based on business objectives with
an eye toward improving the performance of the entire
workforce in the e-business environment.
Revenue Components:
Headquartered: Reston, Virginia
Content:
Public/Private: Private
Commerce:
URL: knowledgeplanet.com
Advertising:
Claim to Fame: Part of the Knowledge Universe keiretsu
Service:
X
X
Other:
Coolest Feature on the Website: Ability for authorized purchasing
agents to launch and evaluate self-paced learning, and review
quality ratings added by the KnowledgePlanet.com member
community during their evaluation process of 3rd party courseware.
Network Effect:
Key Investors: Knowledge Universe, KnowledgeSoft, and
Metrics to look for:
Number of users/students
Number of clients
Number of courses
Harbourvest Partners
Yes
Hub/Portal Strategy: Yes
Key Clients: Chevron, Glaxo Wellcome, Hershey Foods,
Rite Aid, Fidelity, Convergys, PeopleSoft, Wachovia and Morgan
Stanley Dean Witter.
249
The Knowledge Web – 23 May 2000 (Reprint)
Docent, Inc.
Docent Inc. provides e-learning solutions that bring
together enterprises, content providers and professional
communities to deliver business results. Docent's
solutions help to increase revenue, decrease expenses and
increase employee productivity while being recognized as
fast-to-implement, easy to use, and flexible to meet
constantly evolving business needs. Together with their
key strategic partners, Docent is an emerging e-learning
company, combining technology with content in a
comprehensive system that increases a company's business
performance and readily scales to its learning needs.
The company's integrated online learning solutions help
organizations improve front office knowledge and skills
(Sales, Channels, Service & Support) through the unique
combination of methodology, expertise and technology.
Docent provides sophisticated content and proven,
scalable technology that allows companies to choose the
right solution for their needs.
Docent’s Enterprise Learning Solutions allows
organizations to:
Plan & Assess - develop learning needs based on business
goals; assess individual knowledge and skill gaps to
develop personalized learning.
Register - online student enrollment and administration;
with personalized curriculums.
Deliver - enroll and deliver "just-the-right" learning via a
variety of technologies.
Certify - certify completion and competency.
Measure - integrate with other enterprise applications to
measure impact on business goals and continuously
improve learning effectiveness.
Founded: 1997
1999E Revenues: NA
Headquartered: Mountain View, CA
2000E Revenues: NA
Public/Private: Private (has filed S-1 for IPO)
Revenue Components:
URL: docent.com
Content Sales:
X
Commerce:
X
Advertising:
Service :
Coolest Feature on the Web: Docent’s Dimension7 Process
Other:
X
Hub/Portal Strategy: Yes
Investors: Norwest Venture Partners, Advanced Technology
Partners Invesco Private Capital, Comdisco Ventures, CS First
Boston, BancBoston Ventures, Arcadia Partners, Gilde Investment
Mgmt
Key Customers: Merrill Lynch, Sun Microsystems, Lucent
250
Network Effect:
Metrics to look for:
Unique Users
Number of Clients
Yes
The Knowledge Web – 23 May 2000 (Reprint)
CBM Technologies (TEDS) – The Power is in Your People. TEDS is the Switch.
CBM Technologies is a privately owned, U.S.-based
software development and consulting company providing
innovative learning and workforce development solutions to
the industrial and business world for more than 20 years.
Today, its leading product, TEDS, is a leading global People
Resource Planning (PRP)™ solution, providing
organizations with the infrastructure, tools, and support to
maximize and strategically plan workforce performance.
TEDS has established a reputation for delivering real-world
solutions and tools to Fortune 500 companies.
•
Create e-commerce learning portals using a highlyscalable and stable LMS backbone
•
Use people resource planning infrastructure to
increase competitiveness and profitability.
•
Enable employees, customers, and vendors to learn
anywhere – at work, at home, in hotel rooms, in flight,
anywhere their schedules take them.
•
Respond immediately to changing business
requirements anywhere in the world.
TEDS now serves millions of users in the value chain of
companies in over 35 countries. The company has earned a
reputation for rapid and successful global product
installations with an emphasis on innovation and customer
support. Its unique development process utilizing the
TEDS Consortium accounts for the intelligence of the
TEDS Software, developed with insight provided by
training and development experts from some of the
world’s leading companies.
•
Create a continuous workforce improvement process
that runs itself – automatically boosting and finetuning performance and competence.
•
Apply the "best practices" of the largest and most
innovative multinational corporations.
With its recent version 5.0 release TEDS is one step closer
to completing its PRP vision. With TEDS, companies can:
•
Plan for and assure the workforce needed to achieve
business goals – in the shortest time.
•
Take total control of learning, performance, and
Roles, Tasks, and Competencies (RTC) to create an
enterprise learning community of employees,
customers, suppliers, and vendors.
Founded: 1980
n Profile of Offered Services
TEDS staff includes experienced subject matter experts,
software developers, and project planners and managers
who have managed domestic and global implementation
projects. Areas of expertise and experience include
performance analysis, product support, quality assurance,
certification, software development, systems engineering
and integration, learning, database management, business
processes and corporate culture.
Revenue Components:
Headquartered: Atkins, Virginia
Content:
Public/Private: Private
Commerce:
URL: teds.com
Advertising:
Claim to Fame: Providing a simple, easily implemented solution
Service:
X
Other:
Partnerships: PeopleSoft Global Alliance, SAP Independent Software
Vendor, Oracle Global Independent Software Vendor & Reseller
Network Effect: NA
Key Investors: NA
Hub/Portal Strategy: No
Key Clients: Applied Materials, Hewlett Packard, Texas Instruments,
Bell Atlantic, BellSouth, Nortel, Telcordia, U.S. West, GE Capital,
DaimlerChrysler, Nissan North America, Marriott International, Sandia
Eastman Chemical, Celanese, T. Rowe Price, Thiokol, Florida Power
Metrics to look for:
Number of users/learners
Number of clients
Number of courses/content partners
251
The Knowledge Web – 23 May 2000 (Reprint)
Arcadia Partners Keiretsu
Arcadia Partners is a private equity fund focused
exclusively on the for-profit education industry. Arcadia
continuously tracks developments and trends in the U.S.
knowledge enterprises industry, looking for opportunities
for investment. Once an attractive area is identified,
Arcadia chooses the best investment approach for the
particular opportunity. In some cases, Arcadia will make a
minority investment in an existing company, while in
other cases it will build an industry leading company
through strategic consolidation of existing enterprises.
The following is a list of Arcadia’s current investments:
The Arcadia Partners Human Capital Keiretsu
Company Name
Achieva Prep
Chancery Software
Digital Think
Docent
EDU.com
HighWired.com
Lightspan
Parent Watch
Pensare
Project Achieve
University Access
Vista Associates
Company Description
Operates bricks-and-mortar and Internet-based outsourced high school guidance counseling
Publisher of information management systems for districts, schools and homes
Designer, developer and provider of web-based learning courses for Fortune 1000 corporations
Provides enterprise-wide learning management systems, course assembly tools and other software
Student discount etailer focused on the U.S. university market
Provides free web-publishing tools for high school students, classrooms, guidance officers, sports teams & school papers
Provider of K-12 supplemental educational software and is a K-12 school – home portal in 3,000+ schools
Installs video servers in day care centers allowing parents to subscribe to watch their children
Provider of on-line MBA content to Global 1000 customers. Partners include Harvard, Wharton, Stanford and Duke.
Student information and management system for K-12 schools
Provides on-line business courses from leading professors to the college and corporate marketplaces
Develops customized on-line education and administration environments for universities. Clients include MIT, Harvard, et al.
Arcadia Partners Education Keiretsu
Chancery
Software
Achieva Prep
Vista Associates
Digital Think
Docent
University
Access
Arcadia
Partners
EDU.com
Project Achieve
Pensare
HighWired.com
Parent Watch
Lightspan
Source: Merrill Lynch Global Growth Group
252
The Knowledge Web – 23 May 2000 (Reprint)
n Aggregators, Marketplaces & Exchanges
The Internet is changing the way people and businesses communicate faster than
any technological innovation in history. By giving business users an easy to use
and more cost effective medium through which to communicate and share
information, the Internet continues to create new opportunities for conducting
commerce. We believe this is especially true in the corporate learning market.
The current paradigm for selecting and purchasing corporate learning is inefficient
and usually left to the individual or his manager, both of whom lack specialized
knowledge about choosing corporate learning solutions. Moreover, the paperwork
related to attaining corporate learning is usually cumbersome and time-consuming,
requiring manual processing of approval, registration and payment.
Learning Aggregators, Marketplaces and Exchanges Connect People to Learning
The advent of the Internet and
e-commerce companies has
automated the burdensome
process of buying and selling of
corporate learning.
Market
Exchange
Supplier
A
e-Portals and e-hubs are
reshaping the corporate
learning industry, providing
companies with an e-commerce
marketplace that is the most
effective link between the 54
million-plus professionals
seeking skills and corporate
learning and the more than ten
thousand providers of corporate
learning related products and
services.
Supplier
B
Buyer
A
Buyer
B
Source: Merrill Lynch Global Growth Group
The advent of the Internet and e-commerce companies has automated the
burdensome process of buying and selling of corporate learning. Corporate
learning commerce portals are proliferating rapidly, capitalizing on the power of
the Internet, providing companies with one virtual location where employees can
go for all of their learning needs. e-Portals and e-hubs are reshaping the corporate
learning industry, providing companies with an e-commerce marketplace that is
the most effective link between the 54 million-plus professionals seeking skills
and corporate learning and the more than ten thousand providers of corporate
learning related products and services.
253
The Knowledge Web – 23 May 2000 (Reprint)
New Opportunities in e-Learning
Tra ining Market Dyna mics
•10,000+ T raining P roviders
5 4 M illio n Learners:
Indiv iduals, Co rporatio ns. . .
•M illions o f courses
•N o P rovider w ith e ven 2 percen t
m arket share
E-port als
and
e- hubs
Source: Merrill Lynch Global Growth Group
Regardless of the type, we
believe the value proposition of
e-commerce portals is high, as
they provide corporations and
individuals with a cost effective,
efficient and convenient
corporate learning solution.
e-Commerce portals bring corporations and individuals significant benefits:
• Streamlines the corporate learning selection, approval and buying process for
professionals and corporations – improving the speed, quality, results and
lowering administrative costs
•
Enhances employee skills and commitment to achieve company goals by
aligning corporate learning to specific business objectives and company
policies
•
Empowers employees with tools to manage their professional development
and create a self-reliant workforce
•
Centralizes corporate learning activity and reporting – providing data to guide
future selection and strategic decisions about employee performance and
retention
e-Commerce portals that serve the corporate learning market vary immensely by type
of content, industry focus, functions and capabilities. Some focus on a particular niche
or industry. Others define themselves by the type of corporate learning offered, online
learning or offline learning. Some sites claim to provide it all.
“Online continuing education is creating a new and distinct educational realm,
and it is the future of education. There is a global market here that is potentially
worth hundreds of billions of dollars.”
– Peter Drucker
The audience served also varies. Some hubs are B2C and focus on the consumer
market. Others are B2B and focused on the corporate market. Many leverage
their platform to both markets, providing a general marketplace for consumers,
while also offering corporations customized an e-commerce portal that is tailored
to their needs. These corporate e-commerce portals can provide corporations
customized features such as company-specific messaging, integration of internal
and external offerings, employee personalization, electronic approval process
management, on-line purchasing, analysis and reporting corporate learning and
turnkey employee communications programs.
Regardless of the type, we believe the value proposition of e-commerce portals is
high, as they provide corporations and individuals with a cost effective, efficient
and convenient corporate learning solution.
254
The Knowledge Web – 23 May 2000 (Reprint)
click2learn.com
click2learn.com, formerly Asymetrix Learning Systems, is
a leading provider of e-learning solutions that enable
organizations to create, deploy and manage Internet-based
learning inside a company or in a hosted Application
Service Provider (ASP) model. Founded by Paul Allen,
co-founder of Microsoft, click2learn.com offers a single
source solution by incorporating advanced learning
management and authoring software products with awardwinning professional services, including custom
development, strategic consulting and systems integration
services, combined with leading content on a wide variety
of business topics.
click2learn offers companies a single source solution that
includes consulting, authoring software products, custom
development, content and a learning management system.
Clients can:
•
Access to an online learning portal that has thousands
of courses in all areas of business and personal
development;
•
Create their own corporate learning content using
ToolBook, its authoring software product;
•
Track and manage corporate learning resources and
programs using Ingenium, its learning management
system and
Founded: 1984
•
Use its services to custom design and develop
corporate learning strategies and programs.
With its new portal launched in early October 1999,
click2learn.com has already enjoyed significant
momentum and success. click2learn has:
•
Signed a three-year marketing, distribution and cobranding agreement with Go2Net to integrate
click2learn.com into their network of sites;
•
Signed a multi-year marketing and distribution
agreement with VerticalNet to integrate customized
versions of click2learn.com into their network of
vertical communities;
•
Signed strategic content license agreements with
leading companies such as NETg, Skillsoft,
Competence Software, Crisp Publications,
RunZebra.com, Learn2.com, Maxim Training,
netSyndicate, Skills Online, Velocity Business
Publishing, FirstNet and InfoSource and
•
Raised money from smart strategic investors including
Vulcan Ventures, Paul Allen's venture funding arm,
Go2Net and Marshal Capital Management, an affiliate
of Credit Suisse First Boston.
Revenue Components:
Headquartered: Seattle, Washington
Content:
X
Public/Private: Public (Nasdaq: CLKS, Not Rated)
Commerce:
X
URL: click2learn.com
Advertising:
X
Claim to Fame: Established in 1984 by Microsoft co-founder Paul
Allen, click2learn is part of Allen’s “Wired World” of companies and
And is designed to be the lifelong e-learning solution for businesses,
Governments and educational institutions of all sizes.
Service/Licensing: X
Other:
Market Cap: $177 million (5/15/00)
Network Effect:
Key Clients: Intel, the U.S. Navy, Gates Rubber Company,
Symantec Corporation, NYUonline, , Skillsoft, Competence Software,
Crisp Publications, RunZebra.com, Learn2.com, Maxim Training,
netSyndicate, Skills Online, Velocity Business Publishing, FirstNet
and InfoSource
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of Users
Number of Titles
Number of Clients
Key Strategic Partners: NETg (subsidiary of Harcourt, Inc.),
eWork Exchange, B2Bxchange, VerticalNet, and Go2Net
255
The Knowledge Web – 23 May 2000 (Reprint)
Headlight.com – Online Learning for Small and Medium-Sized Businesses
Headlight.com is a leading source of online learning for
small and medium-sized businesses, offering individuals
and managers the largest selection of learning courses via
the Internet. The Company offers a comprehensive range
of business-related topics including learning for desktop
applications (e.g., Word™, Navigator™), IT Professionals
(e.g., Java, C++), software certification (e.g., Novell,
Oracle) and general business skills, including everything
from “how to write a business plan” to sophisticated
financial management. The website offers learners an
easy, convenient, one-stop solution for their learning needs
with prices ranging from $12.95 to $199.99 per course.
Founded: 1998
Courses are delivered directly to the user’s browser with
no downloads or installations. Learners can start and stop a
course as they wish, and then return to a course multiple
times to refresh their skills.
Headlight.com also offers a comprehensive suite of free
services, designed specifically for small and medium-sized
businesses, including free skills assessments, free courses,
and learner management functionality for individuals and
managers. The courses available through Headlight.com
take on average less than half the time of traditional
classroom courses at up to a 90% cost savings.
Revenue Components:
Headquartered: San Francisco
Content:
Public/Private: Private
Commerce: X
URL: www.headlight.com
Advertising:
Claim to Fame: Headlight offers one of the largest selection of online
learning courses geared to the specific needs of small and medium-sized
businesses.
Service:
Coolest Feature on the Website: Headlight.com provides
personalized recommendations on what to learn through the use of free
online skill assessments that provide instant, individualized feedback,
allowing the user to take the courses that are most relevant and useful.
X
Other:
Network Effect:
Yes
Hub/Portal Strategy: Yes
Key Investors: Draper Fisher Jurvetson
Key Distribution Partners: Compaq, Concentric.com, Office.com,
iNiku, AllBusiness, Alta Vista-SkillSoft, Compaq, Office.com, and
PlanetLearn
Key Content Partners: Nearly 30 content partners including:
ActiveEducation, Brainbench, Learn2.com, SkillSoft, and Ziff
Davis Education
256
Metrics to look for:
Number of courses: 1000+
Number of page views
Number of users/students
Number of clients
The Knowledge Web – 23 May 2000 (Reprint)
Acadio Corporation – Helping professionals find the best e-learning products online
Acadio addresses the continuing education market in
which spending topped $330 billion according to
International Data Corporation. In addition, professionals
spend an average of $326 annually on courses and selfstudy materials for personal or professional advancement.
There are approximately 78 million professionals in the
U.S. Acadio targets the high income, high education
business and computing professionals, which represent
about 65% of all professionals or 51 million potential
customers.
Acadio is aggregating supply and demand in the very
large, yet highly fragmented, continuing education
industry. It offers tens of thousands of high quality
education and self-study products plus compelling
editorial content. In addition to product offerings, Acadio
posts independent articles, expert commentary, and skills
assessment tools to assist consumers in making purchase
decisions that best match their interests, time and budget.
Founded: April 1999
Acadio will give consumers the opportunity to find,
evaluate, compare, and purchase learning products and
services.
By partnering with leading providers such as Time Warner,
Microsoft, American Management Association and dozens
of other continuing education organizations, Acadio brings
together a full range of products. The company is in the
initial stages of launching its website, www.acadio.com.
During the first phase, the site will offer 20,000 self-study
products including computing, general business and selfimprovement books, videos, CD-ROMs and audiocassettes.
In the second phase, the site will feature a comprehensive
listing of over 200,000 classroom-based courses and
seminars offered by accredited institutions, seminar firms,
and professional associations. Users will be able to register
online. The final stage of development will include a
variety of Web-based classes, both instructor-led and selfpaced across numerous categories.
Revenue Components:
Headquartered: Seattle, Washington
Content:
Public/Private: Private
Commerce: X
URL: www.acadio.com
Advertising:
Claim to Fame: A comprehensive online destination providing easy
access to resources as well as reviews and comparisons of continuing
education products and services
Service:
Key Partners: 100 partners including: Time Warner, Microsoft,
American Management Association, DiscoverWare, Center for
Creative Leadership, Wiley, Ken Blanchard, American Media, Berlitz,
Pearson Professional Technical Reference (PTR)
X
Other:
Network Effect:
Key Investors: Tokyo-based Trans Cosmos USA, Bancshares Capital,
Phoenix Partners, Steven Sperry (CEO of Acadio Corp.)
X
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of users/students
Number of courses
Number of page views
257
The Knowledge Web – 23 May 2000 (Reprint)
TrainingNet
TrainingNet is a leading e-commerce marketplace for
corporate learning and professional education. Through
partnerships with over 1,000 content providers,
TrainingNet aggregates hundreds of thousands of courseevents annually in over 25 categories via numerous
modalities including classroom, on-site, on-line corporate
learning, books, videos and CD-ROMs. By leveraging
Founded: 1999
key strategic alliances, the company is making its
marketplace the destination of choice for those whose
focus is on career development, including the HR sections
of corporate intranets, the career sections of high-traffic
Web sites, business and professional oriented Websites
and TrainingNet’s own public Website.
Revenue Components:
Headquartered: Bedford, MA
Content sales: X
Public/Private: Private
Commerce:
X
URL: TrainingNet.com
Advertising:
X
Claim to Fame: Largest selection of courses
Service:
Key Investors: Charles River Ventures, Bessemer Venture Partners,
Blue Rock Capital
Other (licensing):
Network Effect: Yes
Key Commerce and Content Partners: Business Week,
DigitalThink, HungryMinds, Oracle, Learning Insights,
New Horizons, Dun & Bradstreet and ExecuTrain
Key Customers: CMGi, Levi Strass & Co., Harley Davidson
NewsEdge, Biogen, Genzyme and Mercury Corporation
258
Hub/Portal Strategy: Yes
Metrics:
Number of Content Providers: 1,000+
Number of Commerce Partners
Number of Users
Number of Customers
The Knowledge Web – 23 May 2000 (Reprint)
Hungry Minds – Gateway to Online Learning
Hungry Minds.com is a one-stop online learning
marketplace, providing individuals with an array of
valuable online courses and resources including discussion
groups, online communities and knowledge databases.
Through its partnerships with more than 30 premier
companies and universities, Hungry Minds will promote
thousands of quality university-level and professional
development courses and services within its Website, such
as nursing, marketing and computer science. The company
has an impressive list of partners that include Yahoo!,
Amazon.com, DigitalThink and TrainingNet.
Hungry Minds has also recently launched People’s
University (People’s U), an online learning community
that enables users to create, teach and participate in a
variety of learning experiences developed by their peers.
Contributors to People's U. will have the opportunity to
own a personalized "classroom site," or online
environment, leverage easy-to-use publishing tools for
developing courses and promote their online learning
experiences. The community offers a non-traditional
learning environment with an open curricula and flexible
attendance schedule. Within course templates,
contributors can post lessons, white papers, stories and any
other variance of digital content. Learning experiences
located within People's U. will be created on a variety of
topics such as, "How to Quilt", "Ballroom Dancing", "Jazz
History" and "Inside the Criminal Mind".
Founded: 1999
Headquartered: San Francisco, California
Public/Private: Private
Revenue Components:
URL: hungryminds.com
Content:
Claim to Fame: Making learning accessible, instantaneous and easy.
The company features editors and Subject Experts to remove the
Information overload from Internet research and help guide users to the
Knowledge they need.
Commerce: X
X
Advertising: X
Service:
Other:
Investors: Dick Albright (cofounder and Vice President of Video
Account Management), Ron Alsheimer (former CEO of the
Factory), Frank Barnako (Managing Editor, CBS MarketWatch),
Steve Berrard (former CEO of Blockbuster), Scott Beck (CEO
of Tango – A Private Investment Company), Tom Byrne
(cofounder New River Capital Partners, former Vice Chairman
of Blockbuster), Josh Green (Director, Venture Law Group),
Anthony Harnett (CEO of Harnetts, Inc., former CEO of Bread
and Circus) and Armond Waxman (President and CEO of
Waxman Industries)
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of courses: 37,000
Number of content partnerships: 46
Number of users
Key Partners: Amazon.com, Yahoo!, DigitalThink, TrainingNet.com,
Blackboard Inc., University of Phoenix (Apollo Group),
Learn2.com, VarsityBooks, Skillsoft, The Princeton Review
259
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The Internet allows individuals
to communicate, collaborate
and share with others from all
over the world, regardless of
location.
The Internet allows individuals to communicate, collaborate and share with others
from all over the world, regardless of location. People who have similar interests
and backgrounds can now congregate in one virtual location, sharing thoughts and
ideas through chat rooms and threaded discussions.
E-hubs build off of e-portals, providing content and collaboration, in addition to
commerce activity. Instead of “clicking through and passing by” a e-portal, hubs
encourage individuals to “click to” and stay, collaborate and share information.
Online Content Aggregators, Marketplaces and Exchanges
Online Content Aggregators
Acadio
Hungry Minds
TrainingNet
SmartPlanet
HRHub.com
PlanetLearn.com
click2learn.com
Geo Learning
Headlight.com
Learn2.com
ScheduleEarth.com
Seminar Finder
Solution Central
Description
Provider of online services related to continuing education
A single destination where you can learn anything, anytime
Marketplace for skills training and professional education
Learning community offering online courses and human interaction
Provider of content, resources and training products for human resources professionals.
The site is interactive, allowing users to exchange ideas in real time or via bulletin boards.
Provider of self-paced training for IT professionals. Offers over 1,500 courses that are
available in video, CD-Rom and on the internet
Provides wide range of training products and services in a variety of formats: CBT, hard
goods (CD-ROM, video, audio, books, etc.), Instructor-Led Training (ILT), synchronous
training, and eManuals.
Provider of computer-based training solutions for business. Offers over a thousand
technical and soft-skill courses available in Internet/Intranet, CBT, CD-ROM, LAN network,
and conventional print-based mediums.
Provider of web-based training in all areas. All courses are web-based.
Provider of online learning solutions. Extensive library of IT and performance improvement
courses.
Resource for personal and professional development schedules for courses, seminars,
and continuing education.
Directory of services of professional seminars, continuing education courses and webbased training programs.
Directory of technical courses, trade shows, seminars, and conferences about IT,
communications, Internet and development. Has over 44,118 scheduled courses and
events are available.
E-Commerce
Yes
No
Yes
Yes
Yes
B2B
X
Yes
X
X
Yes
X
X
Yes
X
Yes
Yes
X
X
X
X
No
No
No
B2C
X
X
X
X
X
X
X
X
X
Source: Merrill Lynch Global Growth Group
Hungry Minds, founded by Stuart Skorman (former founder and CEO of
Reel.com), has partnered with over 30 premier companies and universities
offering over 20,000 courses. Unlike CVU, Hungry Mind’s offerings are not
limited to higher education courses in academic curriculum areas, instead it covers
a broad range of topics from math to cooking. In the near future, Hungry Minds
plans to round out its offerings with supplemental materials such as books, videos
and additional online learning experiences on its Website, making it one of the
largest and most comprehensive learning portals to date.
n Authoring Tools
These software programs enable the development of computer and web-based
courses. Today, authoring software is, in many cases, included as a service by an
e-learning solutions provider. However, there are many companies that still prefer
to do it themselves, as they want to maintain control of the creation and design of
the courses. There are primarily three companies that dominate this market:
Macromedia, click2learn.com (formerly Asymetrix) and Allen Communications,
which was recently acquired by Gilat Communications.
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The Knowledge Web – 23 May 2000 (Reprint)
Leading Authoring Tools Providers
Allen Communications (recently acquired by Gilat Communications)
click2learn.com (formerly Asymetrix)
Generation21 (Advantage Learning)
Macromedia
Source: Merrill Lynch Global Growth Group
The market for authoring products has experienced declining demand in the past
few years as their capabilities have become a standard component of most online
platforms. As a consequence, authoring companies have sought new avenues for
growth. Most have added other products, such as learning management systems
and consulting services to their portfolio of products, enabling them to position
themselves as a total outsource solution provider.
One company that has successfully repositioned itself in this new environment is
click2learn.com. Realizing the market opportunity provided by the Internet,
click2learn (formerly Asymetrix) completely redefined itself from an authoring
software company to a leading online learning portal with over 1,100 titles of
content and numerous partnerships with leading corporate learning providers.
n Interactive Communication Technology
The market for authoring
products has experienced
declining demand in the past
few years as their capabilities
have become a standard
component of most online
platforms.
Technology-based corporate learning can be delivered in a variety of ways including
via synchronous satellite, synchronous Internet or asynchronous Internet.
•
Asynchronous learning (two-way communication in which there is a time
delay between when a message is sent and received) is the most flexible.
Communication is accomplished via email, voicemail and threaded
discussions, thus students are not forced to adhere to anyone’s schedule and
can participate when it is convenient for them.
•
Synchronous learning is conducted in real time and require students to log
onto the Internet or join a video conference system and/or a conference call at
a specific time in order to participate in the instruction. While still convenient
compared to classroom based-instruction, it is more restrictive due to the
required log in time.
The decision regarding which platform to use depends on a number of variables
including the type of content to be delivered, the target audience and the
technology resources available. The dilemma many corporations face is that they
want the flexibility of asynchronous learning, but additionally want the
interactivity and the added human component of a synchronous solution.
The Collaboration-Convenience Decision
Convenience
Collaboration
Synchronous
satellite
Synchronous
Internet
Synchronous
Video Conferencing
Web publishing
Streaming Video
Asynchronous
Internet
Asynchronous
Self paced
Asynchronous
Chat Rooms
E-mail
Threaded Discussions
White Board
Source: Merrill Lynch Global Growth Group
261
The Knowledge Web – 23 May 2000 (Reprint)
While streaming video is one of the most effective ways to engage a learner and
the most preferred by users, companies do not yet have the “pipes” or bandwidth
to deliver it. As consequence, several companies have found other innovative
strategies and techniques to deliver the human element that technology learning
solutions lack. The most basic is through the use of collaboration features, such as
chat rooms, e-mail exchanges and conduced live online and threaded discussions,
which are e-mail exchanges that are indexed and are not live. Collaboration tools
enable employees to communicate with others, sharing ideas and learning from
each other, creating an online community environment.
Another feature that has been very effective in capturing the human component
online is the presence of tutors and mentors. Online tutors and mentors not only
serve as a resource to answer questions, but also provide feedback and advice,
keeping the student involved and motivated to complete the course. According to
Jerry Neece, corporate learning programs manager at Sun Microsystems, when
employees were asked to complete a self-paced online course without the help of a
tutor, only 25% finished. When given the same assignment and access to a tutor
through e-mail, telephone or online discussion group, 75% completed the
corporate learning.
Collaboration tools enable
employees to communicate with
others, sharing ideas and
learning from each other,
creating an online community
environment.
There are several companies that provide synchronous and asynchronous delivery
technologies. Companies that provide synchronous platforms include Centra
Software and LearningLinc. These companies essentially bring the classroom
online, providing live collaboration that include functionalities such as voice over
the Internet, software application sharing, real-time data exchange and shared
workspaces. While not as flexible and convenient as asynchronous delivery,
synchronous delivery is more interactive and personal, appropriate for one-to-one
customer and sales interactions, seminar and presentation events and learning and
interactive teamwork sessions.
Synchronous Delivery Platforms
Centra Software
Eloquent
LearnLinc (formerly ILINC)
NetMeeting
Tegrity
Educational Video Conferencing
Horizon
Lotus LearningSpace
PlaceWare
WBT Systems
Source: Merrill Lynch Global Growth Group
There are few companies that sell pure asynchronous technology solutions – most
bundle the platform with content and services. For example, both SmartForce and
DigitalThink offer a robust, comprehensive asynchronous platform, however the
solution is sold together with their content libraries. The few companies that we
are aware of that license pure asynchronous platforms independent of content
include Eloquent, Tegrity and Lotus LearningSpace.
Asynchronous Delivery Platforms
Eloquent
Tegrity
Lotus LearningSpace
Source: Merrill Lynch Global Growth Group
262
The Knowledge Web – 23 May 2000 (Reprint)
40. Content
Comprehensive Content – Reconceptualizing
Learning As We Know It
Content Companies
Comprehensive Content
BizQuiz
Corpedia
GeoLearning.com
In2win
ITC Learning Corp.
KnowledgeNet
Mindfire.com (Global Knowledge Network)
MindQ (Knowledge Universe)
National Technological University Corp.
NIIT
Ninth House
Ontimetraining.com
Payback Training Systems
Performance Improvement
PrimeLearning.com
ProsoftTraining.com
Provant
Skillsoft
Skillsonline.com
SmartForce
Strategic Management Group (SMGnet)
ViaGrafix (Learn2.com)
Higher Ed Content
Caliber Learning Network
Fathom
National Technological University (NTU)
Pensare
UNext
University Access
Vertical Content
Course Technology (Thomson’s)
MindLeaders.com (Formerly DPEC)
Emind.com (Knowledge Universe)
FIREOnlineTraining
Learning Action
Learning Insights
National Technological University Corp.
NETg
Runzebra.com
ZiffDavis
Source: Merrill Lynch Global Growth Group
Like many innovations in their early stages, much of what e-learning has meant to
date is mainly repurposing existing content without reconceptualizing it to
appreciate the dramatic improvements that the innovation could allow. The
leading e-learning enterprises of tomorrow that ultimately realize the gigantic
opportunity will be those that create a truly unique learning experience leveraging
the power of the new medium.
How People Learn
Teach Others
Learn By Doing
Discussion Groups
Demonstration
Audio Visual
Lecture
90%
75%
50%
30%
20%
5%
Source: Andersen Consulting
Capturing and integrating the “human component” into an online learning solution
is critical, yet difficult. One of the largest challenges of online learning is
effectiveness, and to be effective on the Internet the learning experience must be
engaging and interactive. Content must be presented in a manner that encourages
individuals to read, observe, practice and experience learning in a meaningful and
innovative manner.
While streaming video is an effective way to engage a learner and is preferred by
many users, many do not yet have the “pipes” or bandwidth to deliver it.
However, several companies have found innovative strategies and techniques to
deliver the human element that technology learning solutions lack. The most basic
is through the use of collaboration features, such as chat rooms and threaded
discussions. Collaboration tools not only allow individuals to share ideas and
learn from each other, but also to gather knowledge and disseminate it throughout
an organization.
When evaluating solutions in the e-learning industry, there are several
characteristics that we look for.
From an individual’s perspective, the e-learning solution must be:
•
Easy to use – As a new medium for learning, ease of use is an important, if
not the most important, aspect of an online learning solution. Solutions that
are browser-based, with no downloading, software or plug-ins required, tend
to be the most user-friendly and desirable.
•
Engaging user experience – Online learning must be dynamic. The
experience should be engaging and interactive, capturing the attention of the
learner. Simply posting text on a website does not, in our opinion, constitute
e-learning. We believe solutions that provide opportunity to interact with
others via chat rooms and threaded discussions will have the most success.
•
Personalized and customized – To be effective, the learning experience
must be personalized and customized to individual learning needs. This can
be achieved in several ways. Online tutors have proven to be the most
effective way to personalize courses as they provide an element of human
interaction and allows individuals to get rapid responses to problems they
may encounter. Pre-, during and post- testing also personalizes the learning
experience, as it allows individuals to assess their needs and design a learning
263
The Knowledge Web – 23 May 2000 (Reprint)
program according to their competency. Ninth House, for example, utilizes
technologies that allow the learning to be customized to the individual’s
preferred learning style.
•
Proven, High Quality Content – Brands matter in knowledge services and
on the Internet. Offline brand name corporate learning providers such as Ken
Blanchard and Tom Peters are quickly entering the e-learning arena. At the
same time, we are seeing the emergence of online companies such as
DigitalThink, Skillsoft and eMind (formerly Yippinet) that are building their
brand name based on quality content as well as inclusiveness and
accessibility. Another type of brand-name content that has recently begun to
penetrate the corporate market (made possible by the introduction of online
learning) is coming from traditional brick-and-mortar universities and
colleges. By using the capabilities of the Internet, brand-name schools, such
as Stanford, Columbia University and the University of Chicago, are able to
reach corporate employees as well as students abroad. e-Learning companies
can use brand-name content as a key competitive advantage.
Many pure content owners, such as traditional instructor-led companies, as well as
publishers and authors, are faced with a difficult market reality and realize that
they need to find a way to embrace the new world of online learning quickly. As
such, many are scrambling to “catch up” in the digital world, looking for
technology partners to help bring their content to the web.
Many content partners are
looking to partner with
technology companies, as both
are looking for ways to deliver
convenient, cost-effective online
learning solutions.
To help them in this transformation to the web, many content partners are looking
to partner with technology companies, as both are looking for ways to deliver
convenient, cost-effective online learning solutions. For example:
•
Ken Blanchard, a well-recognized expert on corporate leadership and
development, and Tom Peters, a well-known authority on evolving
competitive business practices, have partnered with Ninth House to offer their
content on its interactive and personalized Online Learning Network.
•
Anthony Parinello, the best-selling author and sales expert, partnered with
Pensare, a leading provider of Internet communities, to offer his content on
Pensare’s innovative Knowledge Community.
•
New Horizons Computer Learning Center partnered with DigitalThink,
allowing them to offer an online learning solution to complement their
instructor led courses.
“Good management consists of showing average people how to do the work of
superior people.”
– John Rockefeller, Jr.
American oil magnate and philanthropist
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The Knowledge Web – 23 May 2000 (Reprint)
SmartForce and DigitalThink
SmartForce and DigitalThink are both leading providers of
e-learning solutions, offering corporations a
comprehensive solution that includes deployment,
administration, content and support capabilities.
SmartForce, formerly CBT Systems, started in 1984 as a
provider of computer-based learning and recently launched
a new e-learning solutions platform, strategically
repositioning itself as a leading provider of online learning
solutions as opposed to a provider of software.
DigitalThink, founded in 1996, provides clients with a
customized e-learning solution that combines the access of
the Internet with high quality content and service.
The two companies are similar in many ways, as they both
boast content as their strength and have won the
endorsement of industry leaders. SmartForce is currently
the largest provider of computer-based learning, twice the
size of its nearest competitor, and has a head start in terms
of content and customer relationships. SmartForce has a
comprehensive library of over 1,100 titles and over 2,500
corporate clients worldwide. However, all of these
customers to date, with the exception of a handful, are
subscribers to its CD-ROM software products. The
challenge SmartForce faces today is to successfully
convert its clients over to its new e-learning platform. We
believe interest will be high given the expected benefits of
the new system (increased convenience and effectiveness)
and its new features, including expert mentors, peer-to-
peer collaboration, expert-led virtual seminars and a
myriad of learning options.
DigitalThink, as a new “born on the web” player, has
generated considerable excitement in the marketplace, as it
was one of the first to introduce a robust, scalable online elearning solution. Founded just four years ago,
DigitalThink has already developed over 200 courses, 150
e-learning solutions and delivered over 100,000 courses
to a rapidly growing blue-chip customer list that include
Adobe, Cisco Systems, Intel, Hewlett-Packard, KPMG,
Seagate and Sun Microsystems.
While we think both are poised to take advantage of
opportunities in the e-learning industry, the companies take
slightly different approaches. DigitalThink offers a more
customized e-learning solution, providing clients with offthe-shelf content, as well as comprehensive services to bring
company-specific, propriety content to the online platform.
SmartForce’s solution is customizable and personal,
enabling clients and individuals to tailor the site specifically
to their learning needs based on their interests, career
objectives and job profiles. Although it does not offer
services to create proprietary content, SmartForce recently
partnered with Macromedia, making Macromedia’s web
publishing tools available on their website. Thus, clients
and individuals now have the ability to add and design their
own content for SmartForce’s e-learning platform.
SmartForce
Background
DigitalThink
Background
Founded in 1984, SmartForce is widely recognized as the leader in
technology-based education. Formerly CBT Systems, SmartForce has
recently repositioned itself as an e-Learning provider by launching a
new e-learning platform, as well as changing its name. Its new elearning solution integrates technology and Internet-delivered learning,
24 x 7 access to expert mentors, peer to peer collaboration, expert-led
virtual seminars and a myriad of learning options.
Founded in 1996, DigitalThink is a leader in designing, developing and
deploying e-learning solutions to Fortune 1000 companies. The company
offers a fully integrated solution that combines course content aligned with
its clients’ business objectives, a compelling, results-oriented e-learning
experience, and robust technologies that are fully outsourced.
Partnerships: Check Point Software Technologies, Novell, Oracle,
Informix, Rational, IBM, RSA Data Security, Intel, Dynamics, Marimba,
Sybase, Microsoft, TIBCO, Netscape, VeriSign, Network Associates, Dell,
SAP, Lotus, Cisco Security, Macromedia, Sun Microsystems, HewlettPackard, Security Dynamics, EarthWeb, Capella University and
ProSoftTraining.com
Partnerships: KPMG Consulting, Microsoft, Adobe, Siebel, Cambridge
Technology Partners, New Horizons Computer Learning Centers, Hungry
Minds, Intraware, Trainingnet.com, Ariba, Skills for You, Lawson Software,
University of Phoenix, BlueU.com, C|Net, Fatbrain.com and beyond.com.
Financial Backing:
Public: (Nasdaq: SMTF, D-1-1-9)
Financial Backing:
Public: (Nasdaq: DTHK, Not Rated)
Private investors included Bankers Trust, Cambridge Technology Partners,
ServiceMaster, Torstar, Intel Corporation, Walden Media & Information Technology
Fund, Adobe Ventures, Texas Instruments Venture and Hambrecht & Quist.
Key Clients: Unisys, Intel, Microsoft, Computer Science Associates,
Whittman-Hart and Manpower
Key Clients: Adobe, Cisco Systems, Intel, Hewlett-Packard, KPMG,
Seagate and Sun Microsystems.
Metrics:
Number of Courses: 1,100
Number of Clients: 2,500
Backlog: $222 million at March 31, 2000
Average Contract Value: $110,000 at March 31, 2000
Metrics:
Number of Courses: ~230 at May 2000
Number of Clients: ~230 at May 2000
Deferred Revenue
Average Contract Value
Source: Merrill Lynch and company documents.
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Thomson Learning
Thomson Learning, owned by Thomson Corporation,
provides teaching and learning content and solutions to
individuals, learning institutions and corporations. It is
focused on two major learning marketplaces – academic and
lifelong learning and corporate training. The Academic Group
serves secondary, post-secondary and graduate-level students,
teachers and learning institutions with market-leading brands
such as Brooks/Cole, Wadsworth Publishing and SouthWestern College Publishing. The Lifelong Learning and
Corporate Training Group provides adult education and
certification for paraprofessionals, training centers and
individual learners; and corporate learning for technology
professionals, chief information officers and employees
seeking skills certifications. Well-known brands include
Course Technology, Delmar Publishers and Peterson’s.
International operations represent 22% of Thomson
Learning’s revenues. Thomson Learning has operations in
Asia, Europe, Australia, Latin America, Canada and the U.S.
Thomson Learning Network
Thomson Learning plans to leverage its strengths in the
academic and lifelong learning and corporate learning
marketplaces by offering a comprehensive solution to
enable students and professionals to acquire the
appropriate learning they need to prepare for tests, select
schools, assess skills, acquire tutoring and certification,
and job search, all on the Internet. The specific vertical
markets targeted are information technology, business soft
skills, skilled trades and healthcare, as well as the postsecondary and graduate student markets.
Thomson Learning already has in place an online core
product offering in various segments of the market. Such
products include:
Thomson Learning Online Store: Users can search for
and purchase textbooks on this site, as well as find an
online resource center at the store.
Peterson’s: Users can download free test prep software.
High school students are also able to pick a college, pay
266
for college, apply to college and prepare for college.
Instructors can find many of the latest distance-learning
courses and programs at this site.
Thomson Learning Custom Publishing: Instructors are
able to build custom books for courses using Thomson
Learning's database of textbook content – plus add their
material, then download it to their PC in minutes to
preview before ordering.
South-Western College Publishing – Wired Resumes:
Wired Resumes help job seekers design and build
resumes. It offers samples and online resources, as well as
the ability to set up a personalized URL.
Delmar – Career Guidance Center and Test Prep &
Assessment Center: Provides online resources in
planning for a career in trades, technology, nursing, career
education or cosmetology. Also provides the resources
that a student or learner needs to find certification and
certification test prep for specific professional career
tracks, such as paralegal (NALA), nursing (NCLEX),
automotive (ASE) and cosmetology, among others.
Prometric: A global leader in computer-based testing and
assessment services delivering standardized tests and
exams at 2,900 testing sites in 141 countries. Prometric
carried out more than 3.5 million tests in 1999.
Thomson Learning plans to expand from its strong
position in post-secondary education course materials
($2.6 billion per annum market) to provide complete
learning and testing/certification solutions for the fastest
growing IT training and testing/certification market
segments. Their strategy would be to offer a total
workplace solution for corporate clients from training
through testing/certification including test development.
The company aims to own the lifelong learning value
chain by integrating quality content with integrated
testing/certifications, from high school through retirement,
as illustrated in the model below.
The Knowledge Web – 23 May 2000 (Reprint)
Thomson Learning Network
Career Management
Continuing Education
Peterson’s
Job Placement
Content/
Courseware
Distance Testing
Thomson Learning Network
Library
Thomson Learning
Online Store
On-Line Tutorials
Research
Practice
Testing/Assessment
Thomson Lifelong Learning “Funnel”
K-12
Education
Choose
Career/
Content
College
Admissions
Testing
(Exit /
Entrance
Exams)
Testing
(Exit /
Entrance
Exams)
PostSecondary Content
Content
Education
Testing/
Professional
Licensure &
Certification
Choose A
Continuing
Graduate Content
Professional Content
School
Development
Testing/
Professional
Licensure &
Certification
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The Knowledge Web – 23 May 2000 (Reprint)
Founded: Thomson Learning 1999
1999A Revenue:
Headquartered: Stamford, Connecticut
Thomson Corp. $3.9 B*
Learning Division $501.9 M*
2000 E Revenue:
Thomson Corp $6.1 B
Public/Private: Part of Thomson Corp. (Toronto Stock Exchange: TOC)
Market Value: $20.7 billion* (5/15/00)
URL: www.thomsonlearning.com
Revenue Components:
Claim to Fame: One of the world’s largest lifelong learning
Information companies
Key Investors: Wholly owned by Thomson Corp.
Content:
Advertising:
Service:
Key Partners: WebCT, Sylvan Learning Systems
X
Commerce: X
X
Other:
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of users/students
Number of clients
Number of courses
Number of page views
*in $US, Exchange rate: $1US=$1.48 Canadian
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notHarvard.com
notHarvard.com is one of the first companies to leverage
the power of eduCommerce, thus offering clients a
complete business-to-business solution that enriches a
company's brand and strengthens e-commerce
opportunities. notHarvard is a pioneer in eduCommerce,
which is an online education tool used as a powerful
customer acquisition driver, as well as a sales and
marketing weapon to drive greater stickiness, deeper
customer intimacy and higher brand loyalty. In other
words, notHarvard enables companies to go beyond giving
out free recipes for Thanksgiving turkeys. notHarvard
enables them to offer free high-quality courses taught by
experts in the field in anything from preparing for a new
baby to computer programming.
So far notHarvard.com has racked up an impressive list of
clients and strategic partners. Clients include
Bloomberg.com, Ask Jeeves.com and Jobs.com, as well as
other leaders of their field. notHarvard has formed
Founded: 1999
strategic partnerships with web powerhouses Vignette and
Exodus to deliver a safe and scalable platform. Today, the
number of registered users of notHarvard.com's clients
totals more than 20 million based on registered customers
of the e-businesses who have signed on with
notHarvard.com.
NotHarvard.com offers a syndication tool to maximize
customer reach. With its FreeSchool EduCommerce Suite™
of software, clients can reach prospective and current
customers as well as students in the greater community of
notHarvard.com client universities. For example, a C++
programming course created for Metrowerks'
CodeWarriorU.com can also be offered by Jobs.com's online
university, enabling Metrowerks to reach out to Jobs.com
clients and enhancing Jobs.com's customer value proposition.
FreeSchool also provides for student/instructor interaction
and student communities and features message boards and
chat, calendar and notebook capabilities.
Revenue Components:
Headquartered: Austin, Texas
Content:
Public/Private: Private
Commerce: X
URL: notharvard.com
Advertising: X
Claim to Fame: Pioneer in eduCommerce, a B2B solution that
strengthens clients’ brand and drives customer acquisition
Service:
Network Effect:
X
Yes
Key Investors: Austin Ventures, TL Ventures, Silicon Valley Bank
Hub/Portal Strategy: Yes
Key Partners: Vignette, Exodus
Metrics to look for:
Number of users/students: 20 million
Number of clients
Number of courses
Number of page views
Key Clients: Bloomberg, Flextrader, Motorola\Metrowerks,
Pervasive, Ask Jeeves.com, Talk City, Hire.com and Jobs.com
269
The Knowledge Web – 23 May 2000 (Reprint)
Ninth House – The Broadband Learning Network
Ninth House is an innovative provider of interactive,
online learning media to businesses and individuals,
utilizing both the Internet and corporate intranets.
Through its Ninth House Network (NHN), the company
integrates the disciplines of technology, storytelling,
movie production and entertainment to create and deliver a
fully interactive, engaging learning experience. The
company’s e-learning solution features Hollywood-quality
storytelling, video-based interactive role playing, just-intime performance support, personalized online mentors
and peer communications, resulting in a personalized,
highly interactive and engaging learning experience.
Ninth House’s powerful solution has caught the attention
of industry leaders such as Intel, Hewlett Packard,
@Home, Texaco, Black & Decker and the U.S. Navy.
Ninth House has secured important exclusive relationships
with premiere content providers, including Ken Blanchard
and Tom Peters, as well as several additional authors and
business leaders focused on employee development.
Furthermore, Ninth House is extending its presence as a
media network by incorporating content from a variety of
diversified sources, including books (Jossey Bass),
magazines (Fast Company), live events (Wyncom) and
other specialized 3rd party partners.
The Ninth House Network
Channel 1: Leadership
Channel 2: Management
Channel 3: Team Effectiveness
Channel 4: Communications
Channel 5: Project Management
Channel 6: Business Essentials
Source: Merrill Lynch
270
Ninth House has established a significant early lead with
an ambitious plan to utilize technology to build a media
network focused on learning. The Ninth House Network
will feature six channels focused in fundamental
competencies such as leadership, communication and
management. The Ninth House Network allows
individuals to access a library of media-rich learning
resources and experience personalized learning and
communicate with other company learners to refine and
improve their skills and performance.
Ninth House utilizes a time-tested pedagogy, media-rich
content and web-based tools such as just-in-time advice and
online virtual communities to create engaging, interactive and
entertaining learning experiences. In order to increase longterm retention, Ninth House customizes each member’s
learning experience according to his or her preferred learning
style. Throughout their exploration of the network, a personal
online mentor provides feedback and advice, carefully
monitoring their progress and tracking their performance.
Ninth House further leverages accelerated learning techniques
by delivering a variety of engaging experiences, in the form
of stories, puzzles, games, communities and interactive
adventures not only to transfer knowledge but also to promote
the practice and application of new ideas. This user
experience is designed to provide a rich and effective learning
experience in order to facilitate changes in professional
behavior for each individual.
The Knowledge Web – 23 May 2000 (Reprint)
Ninth House
Founded: 1996
1999A Revenues: Not Available
Headquartered: San Francisco, CA
2000E Revenues: Not Available
Public/Private: Private
Revenue Components:
URL: ninthhouse.com
Content:
Claim to Fame: Creates and delivers movie-quality content via
Broadband
Commerce: X
Key Clients: @Home, Hewlett Packard, Texaco, Black & Decker,
Intel and the U.S. Navy
Key Strategic Partners: Dell, Cisco, 3Com, Microsoft and @Home
X
Advertising:
Service/Licensing:
Other:
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of Users
Number of Titles
Number of Clients
n Vertically Focused Content Providers
Expansion into various vertical markets represents an enormous opportunity for elearning companies. By leveraging their business models into new vertical
markets, and keeping focus on industries in which continuing learning is
mandatory, e-learning companies can reap a significant revenue windfall.
Potential Vertical Markets
Potential Verticals
Accounting
Financial Health- OSHA/
Services
care
EPA
Real
Estate
Telecom Pharma
Allied
Health
Legal
ArchiQuality
tecture Assurance
Source: Merrill Lynch Global Growth Group
Financial services – specifically accounting, banking, securities and insurance,
represent an estimated $5.5 billion in revenue and almost 7 million learners.
Similarly, the healthcare industry – specifically physician’s offices, care facilities,
hospitals, allied healthcare and pharmacists – represents approximately $9.4
billion in revenues and potentially reaches an estimated additional 7 million
learners.
“Personally, I’m always ready to learn, although I don’t always like being
taught.”
– Winston Churchill
271
The Knowledge Web – 23 May 2000 (Reprint)
Financial services companies
represent an estimated $5.5
billion in revenue and almost 7
million learners. Similarly, the
healthcare industry represents
approximately $9.4 billion in
revenues and potentially
reaches an estimated additional
7 million learners.
The real estate, telecommunications, legal and architecture markets combined
represent a potential $4.0 billion opportunity and more than 5 million users. The
personal development and manufacturing industries alone represent a huge $12.4
billion revenue opportunity and almost 16 million learners.
In addition to expanding into new verticals, e-learning enterprises can also
broaden their reach into existing verticals through increased resources for
certification, assessment and other learning.
Vertical Market Opportunities
Industry
Accounting
Banking
Securities
Insurance
Physician Offices
Care Facilities
Hospitals
Allied Healthcare
Real Estate
Pharmacists
Telecommunications
Legal
Architecture
Personal Development
Manufacturing
Source: Merrill Lynch Global Growth Group
272
Potential Revenue ($ millions)
721
2,247
705
1,851
1,464
2,512
3,878
780
1,162
730
1,383
768
715
5,331
7,023
Estimated # of Learners
913,000
2,844,000
893,000
2,343,000
1,853,000
3,180,000
4,909,000
987,000
1,470,000
925,000
1,751,000
972,000
905,000
6,747,000
8,890,000
The Knowledge Web – 23 May 2000 (Reprint)
eMind.com – A Knowledge Vortal
Founded in 1998 as Yipinet, eMind.com is a leading B2B
e-knowledge services provider focusing on serving critical
vertical markets in regulated industries, such as
accounting, financial services, healthcare and law. The
company has created a Knowledge Hub providing
corporations with a full-service solution for professional
development and continuous learning. Knowledge Hub
features expert-rich accredited courses and support
services, providing a relevant, timely and comprehensive
solution for professionals. With an extensive library of
more than 1,000 courses, eMind.com has already
developed a number of primary verticals, including
accounting, securities, insurance and banking, and expects
to grow this base to over 25 verticals, including real estate,
legal and telecom, representing 15 million learners.
With its focus on industries requiring periodic
“mandatory” learning and certification, eMind.com has
established a powerful vertical infomediary. Its content is
vertically focused and fully accredited. Content partners
are leaders their respective fields, including NETg,
Skillsoft, Grant Thornton and Umass Medical School.
eMind.com also offers horizontally applicable content
aimed at the IT world, as well as “soft skills” training and
client courses.
eMind.com benefits from forces that both “push” and
“pull” users to the site. Mandatory learning needs “push”
knowledge workers to seek knowledge resources to satisfy
the requirements of their jobs. The breadth and depth of
the timely, relevant content offered by eMind.com “pulls”
users specifically to its site. These push and pull forces
drive network value and utilization, creating a highly
visible and recurring stream of revenue. Membership in
the Knowledge Universe keiretsu provides tremendous
leverage by creating unique business opportunities to work
with companies that share similar content, clients,
practices and technologies.
Membership in the Knowledge Universe Network Provides Tremendous Leverage
Founded: 1998 (as Yipinet)
Revenue Components:
Headquartered: Los Angeles, California
Content sales:
X
Public/Private: Private
Commerce:
X
URL: emind.com
Advertising:
X
Claim to Fame: Membership in the Knowledge Universe keiretsu
Provides tremendous leverage by creating unique business
Opportunities to work with companies that share similar content,
Clients, practices and technologies.
Service:
Other (licensing):
Network Effect:
Yes
Hub/Portal Strategy: Yes
Key Investors: Knowledge Universe, Larry Ellison, Gary Winnick,
Rader Reinfrank
Key Partners: Knowledge Universe, Onlinelearning.net, Hungry
Minds, GAMA International, National Association of Enrolled Agents
Key Customers: CitiGroup, SunAmerica, Credit Lyonnais and Arthur
Andersen
Metrics to look for:
Number of Content Providers
Number of Commerce Partners
Number of Users
Number of Customers
Number and Amount of Transactions Through the Site
273
The Knowledge Web – 23 May 2000 (Reprint)
KeepSmart.com – Targeting Compulsory, Continuous Learning Needs
KeepSmart.com is a leading provider of Internet,
electronic and multimedia-based knowledge services
solutions to professionals in key vertical markets.
KeepSmart provides educationally sound, technologically
advanced on-line continuing professional education (CPE)
to professionals with KCPE licensing requirements.
KeepSmart was formed through the merger of four
companies in 2000. The four divisions are Creative Visual
Enterprises (CVE), Virtual Education Corporation (VEC),
Lawline.com and RealNet Learning Services. Through these
divisions, KeepSmart now serves the following vertical
markets: Corporate Accounting and Financial Management,
Accounts in Public Practice, Engineers, Attorneys, Real
Estate Agents and Brokers, and Architects. KeepSmart
produces and distributes content over the Internet and other
delivery platforms, including DIRECTV’s digital satellite
television network, video, CD-ROM, print and live
instructor-led seminars. The company’s online presence is
primarily accessible through these products:
The Financial Management Network (FMN)
(fmnonline.com): Is a community oriented site for
accounting and financial professionals that offers online
continuing professional education (CPE) courses plus
relevant industry information and career advice as well as
links to job opportunities. This program is based on the
nation’s leading corporate video accounting subscription
program used by 1,200 companies.
The CPA Report (cpar.com): Provides established
content and delivery mechanism along with FMN Online
for a CPE center for accountants in public practice.
WileyVirtual.com: Wiley Virtual CPA Exam Review is a
multimedia, Web-based course that includes 50 hours of
streaming video and audio lectures. The course uses a
Founded: 1999
lecture format interspersed with graphic illustrations and
has fully interactive problem-solving by participants.
Lawline.com: Offers continuing legal education in
partnership with leading bar associations and other
providers of legal education courses. The bar associations
can use lawline.com as a course delivery tool to help their
members fulfill annual continuing education requirements
that lawyers must meet as a condition of retaining their
license to practice.
RealNetLearning.com: Is the leading provider of
knowledge services to the professional residential real
estate vertical market, offering a portion of the mandatory
new agent learning plus basic learning through Century 21
Online.
Virtual Education Company (virtualeducation.org): Is
a leading online learning provider that recently formed
alliances with the American Society of Civil Engineers,
National Society of Professional Engineers (NSPE) and
the American Consulting Engineers Council to develop
and deliver Internet-based continuing education classes for
engineers, architects, and other design professionals. All
courses carry Professional Development Hour (PDH)
credits for the maintenance of professional certifications.
Under development are Online Trading Academy, a series
of introductory and advanced online courses for online
stock traders, and continuing education for dentists.
KeepSmart has numerous strategic alliances, many of
which assign KeepSmart the exclusive right to develop
electronic courses sponsored and branded by their
partners. These alliances give KeepSmart instant
credibility and direct access to the societies’ membership
and businesses’ established client base.
Revenue Components:
Headquartered: Hawthorne, New York
Content sales:
X
Public/Private: Private
Commerce:
X
URL: keepsmart.com
Advertising:
X
Claim to Fame: KeepSmart is the VerticalNet of the professional
education sector.
Service:
Investors: Patricof and individual investors
Key Partners: National Society of Professional Engineers, Aubrey
Daniels & Associates, Citigroup, Century 21, Coldwell Banker,
Homestore.com, Financial Executives Institute (FEI), Institute of
Management Accountants (IMA), John Wiley & Sons, New York
County Law Association
Key Customers: 500 of the Fortune 1000 companies
274
Other (licensing): X
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics to look for:
Number of Content Providers
Number of Commerce Partners
Number of Users
Number of Customers
Number and Amount of Transactions Through the Site
The Knowledge Web – 23 May 2000 (Reprint)
41. Assessment
In the knowledge economy, assessment is the currency in which skills are valued.
Post-secondary and corporate learning are transitioning from “seat time” and “credits”
as a means toward earnings degrees and certifications to demonstration of competence
as measured by valid and reliable tests / assessments. Similarly, demonstration of
work-related competencies, particularly in technology-related professions is becoming
the key criteria for getting or maintaining a job or promotion.
In the knowledge economy,
assessment is the currency in
which skills are valued.
The 1999 ASTD (American Society of Training and Development) study of
corporate training directors found the number one criteria for choosing a learning
provider was the ability to prove that learning occurred and productivity improved
as a result of the learning investment – that is, measurable ROI. Integrating
learning content with testing / certification helps enable this to occur.
Targeted IT Training and Testing / Certification Market Segments
Customer
Testing / Certification
IT Professionals
$1.8 Billion
Academic
$1.2 Billion
Professional Licensure
$1.0 Billion
$4.0 Billion
Source: International Data Corporation
The computer based testing / certification industry has grown dramatically over
the past several years. Thomson’s recently purchased Prometric division is the
clear market leader with over 90% market share. The IT testing / certification
market is a $8.4 billion market and is growing at 12%.
275
The Knowledge Web – 23 May 2000 (Reprint)
Companies Providing Testing / Certification
Company
Ownership
# of Centers
Prometric
Thomson
2,509
Virtual University Enterprises
National Computer Services
1,100
Computer Assisted Testing
Service (CATS) (1)
Private
300
Computer Adaptive Testing
Houghton Mifflin
200
Assessment Systems, Inc.
Harcourt
0
Applied Measurement
Professional
National Board for
Respiratory Care
0
ACT, Inc.
Not-for-Profit
0
Brainbench
Private
0
(1) CATS primarily delivers FAA exams at airport locations.
The last 4 companies develop tests as well as deliver / administer.
Companies with "0" testing centers are primarily test developers and pay part-timer fees
for test delivery / administation at public schools and other appropriate facilities. Most are
paper and pencil tests.
Source: Merrill Lynch Global Growth Group
e-Learning companies that successfully integrate course content with testing and
demonstrate a compelling ROI for corporations and learners will be the big winners.
276
The Knowledge Web – 23 May 2000 (Reprint)
Brainbench
The company’s mission is to become the world's most
respected online skills testing and certification authority.
The focus of Brainbench is to help professionals rate their
skills or earn credentials online and help companies obtain
and manage the information they need to make intelligent
hiring decisions and retain and develop the staff. The
founders all come from the IT industry and have strong
backgrounds in measurements, metrics, information
technology and business.
Brainbench, a pioneer in online certification testing, tracks
test results in a central certification repository. Using this
approach, individuals can proactively take certification
exams and have the results go into a single online transcript
of certifications and test results. The individual has private
access to this transcript and can control what is public.
Then, the public transcript is made available to any erecruiting site, through a variety of methods, for integration
into their resume database or job application system.
All of Brainbench’s skills assessments are web-based,
eliminating configuration management and geographical
issues. Brainbench provides high-quality, secure,
computer-adaptive testing and related services to help
businesses target their recruiting and learning. The
company has knowledge tests in the following categories:
Technical, financial, administrative, management, sales,
customer service, job fit and more. In the hot IT sector,
the company covers a range of subjects including HTML,
C++, Linux, Oracle and general web knowledge.
Currently, the company offers free registration and
certification to users and fee-based testing to corporations.
Brainbench’s products and services include:
Brainbench Certification™: Offers comprehensive
certification exams to companies and professionals using a
patent-pending web-testing engine. Each month, over
200,000 professionals from 70 countries use Brainbench to
earn credentials that help them demonstrate their
knowledge to their employers. Certifications can be
verified online. This program features online
convenience, instant results, secure and computer-adaptive
testing and is recognized by employers everywhere.
Brainbench Employment Assessments™: Provides
assessment tools in the technical, financial, administrative,
management, customer service and sales fields. Key
features include online convenience, instant results (about
2 seconds), large list of current tests, secure and computeradaptive testing, simple use and administration and
guaranteed same-day setup.
Brainbench Candidate Database™: Enables clients to
directly access a database of hundreds of thousands of
qualified candidates – and more than 4,000 more candidate
profiles are being added daily. Clients need only find
those candidates who have tested in the skills they need, in
the location they desire.
Brainbench Certified Knowledge Base™: Similar to
quality process certifications, this service identifies and
measures the organization’s knowledge in competencies
that are critical to the client’s business. Certifications are
earned by meeting certain knowledge levels using
Brainbench certification tests. Key features include rapid
assessment of an entire organization with web-based, selfadministered exams, real-time executive reports, and
audits to ensure consistent integrity levels.
Virtual Testing Center™: Enables clients to install a
Virtual Test Center on their website to provide customers,
employees or job candidates access to Brainbench’s entire
line of exams while maintaining the client site’s look and feel.
Custom Certifications™: Can custom build a
certification program to help customers reach the broadest
possible audience through the web.
Advertising: Provides advertising packages to help target
large, professional audiences.
The company’s test volume is estimated at about 5000
exams per day as of March 2000. Brainbench expects to
administer 6 million exams this year.
Brainbench Certifications™ are not affiliated with,
approved by, or endorsed by any vendors of software
products. They are a completely independent certification
authority.
277
The Knowledge Web – 23 May 2000 (Reprint)
Brainbench
Founded: 1998
Revenue Components:
Headquartered: Sterling, Virginia
Content: X
Public/Private: Private
Commerce:
URL: brainbench.com
Advertising:
Claim to Fame: First-mover in online certification testing
Service: X (B2B and B2C)
Coolest Feature on the Website: free certification exam testing
Other:
X
Key Investors: Lycos Ventures LP, Steve Walker Associates
Tritech Investors, Next Generation Fund
Network Effect:
Yes
Key Clients: Computer Science Corporation, Electronic Data Systems,
Ernst & Young, J.P. Morgan, Romac International, Mindbank
International, PriceWaterhouseCoopers, Mastech
Metrics:
Number of unique users: 400,000 / 2,000,000 planned for 2000.
Number of exams administered: 800,000 1999 / 6,000,000
planned for 2000. (1,000,000 achieved in Q1, 2000)
Number of corporate clients: 200
Number of courses/tests: 70 tests (at 3/16/00) plus 400 new
planned for release in 2000.
Hub/Portal Strategy: No
We have created an e-learning solution scorecard that summarizes some of the key
attributes we look for when evaluating companies in this industry. This scorecard
would be used in concert with the e-Human Capital Solutions scorecard we
presented in the introductory section (Part I) of The Knowledge Web.
e-Learning Solutions Score Card
1
2
3
4
5
6
7
8
9
10
Attribute
Ease of Use
Scalable, reliable and secure
Ease of Maintenance
Interactivity/Engaging
Strength of course-management capabilities
Integrate with other technologies/open architecture
Breadth and Depth of Program/Platform Features
Recurring, Predictable Revenues
Established Brand Name
First-Mover Advantage
Total Score
Potential Score
15
15
15
10
10
10
10
5
5
5
100
Higher Ed Enters the Corporate Market
Online learning has allowed new players such as the higher education institutions
to enter the corporate learning market. We believe the demand for best in class,
relevant content from higher education institutions in the corporate market is large
and real. By taking the core competencies of academic institutions (knowledge,
content and experience) and leveraging them onto the Internet, companies can
create courses tailored for the corporate environment, providing employees with
the learning they need, when they need it.
Three companies, in particular, that we believe are well-positioned to capture
opportunity in the corporate learning market are UNext, Pensare and University
Access. These companies are partnering with world-class higher education
institutions, creating a comprehensive library of expert-rich online curriculum to
278
The Knowledge Web – 23 May 2000 (Reprint)
be marketed to corporations, and in some cases to students abroad and colleges
and universities.
•
UNext.com is partnering with Columbia University, Stanford University,
University of Chicago, Carnegie Mellon and The London School of
Economics to create an elite online academic institution, Cardean University,
specifically designed to serve the needs of Fortune 500 companies, as well as
individuals abroad. Cardean University students will have access to the latest
academic theories from leading authorities in the areas of accounting, finance,
marketing, organization development and international business. Employees
from around the world can learn from distinguished professors, such as Nobel
Laureates Kenneth Arrow, Gary Becker and Merton Miller, and from
prominent institutions such as Stanford, Columbia and the University of
Chicago. In addition, UNext has created courses that are specifically
designed to take advantage of the power of the Internet. The company has
invested significant resources and time to create a “learn by doing”
experience, developing a dynamic interactive virtual environment where
individuals become actively engaged and captivated by the curriculum and
learn in a truly innovative and meaningful manner.
•
Pensare has signed a partnership with Duke University's Fuqua School of
Business to produce, deliver and market a new online accredited MBA
program. To add to its curriculum offerings, Pensare has partnerships with
Harvard Business School Publishing, The Wharton School, best-selling author
and sales expert Anthony Parinello and the University of Southern California’s
Annenberg Center for Communication. One of Pensare’s core competencies is
its technology platform – enabling it to create robust “knowledge
communities.” These communities provide expert-rich curricula, and allow for
the generation of new information and knowledge through exercises, case
studies, discussion boards and threaded discussions. Most importantly, the
platform facilitates the widespread dissemination of information, allowing
individuals to share best practices and learn from each other.
•
University Access differentiates itself in its focus solely on business
management knowledge services, serving the needs of the academic and
corporate markets. University Access is partnering with Kenan-Flagler
Business School at UNC-Chapel Hill to create a global Corporate MBA
(CMBA). The CMBA provides a return on investment to its clients with
students working on a consulting project relevant and specific to each
respective corporation. University Access is also partnered with the London
Business School and USC’s Marshall School of Business, among others, to
create graduate and executive education programs. In addition to executive
education programs, University Access is providing a complete management
education program designed to serve the needs of its corporate clients at every
level, comprising Business Knowledge Curriculum, Executive Excellence
Curriculum, Boot Camps, Online Executive Seminars and Custom and
Partner Programs.
“A great deal of learning can be packed into an empty head.”
– Carl Krauss (1874 – 1936)
279
The Knowledge Web – 23 May 2000 (Reprint)
“Born on the Web” Universities Tapping into the Corporate Market
Company
UNext.com
Key Partnerships
Columbia University, Stanford
University, the University of Chicago,
Carnegie Mellon and The London
School of Economics
Strategy
Claim to Fame
Involvement of
To become a globally recognized, •
distinguished professors
brand-name, virtual university
such as Nobel Laureates
serving the learning needs of
Kenneth Arrow, Gary
corporate employees and students
Becker and Merton Miller
abroad.
•
Creation of a "Learn by
Doing" Experience
Pensare
Duke University’s Fuqua School of
Business, Harvard Business School
Publishing, The Wharton School and
University of Southern California’s
Annenberg Center for
Communication.
•
To create “knowledge
communities” featuring brandname, expert-rich content from
leading universities such as Duke •
University’s Fuqua School of
Business and industry experts. In •
addition, the company plans to be
a provider of expert-rich content
and technology solutions (Open
MBA toolkit) to colleges and
universities.
Corporations/Employees
Joint Venture with Duke
University’s Fuqua School Academic Institutions
of Business
“Knowledge Communities”
Platform
Open MBA Toolkit
University Access
University of North Carolina at
Chapel Hill’s Kenan-Flagler Business
School, The London Business
School, the University of California at
Los Angeles, the University of
Chicago, the University of Southern
California and Indiana University
To be the provider of expert-rich
online learning curriculum to
academic institutions and
corporations.
•
Partnership with University Academic Institutions
of North Carolina at Chapel Corporations/Employees
Hill’s Kenan-Flagler
Business School to create
an e-MBA as well as
customized corporate MBA
program.
Award winning teleweb
courses
Established presence in
higher education market as
a provider of online learning
curriculum
•
•
The Wharton School, Georgetown
University, University of Southern
California Marshall School of
Business,Teachers College at
Columbia University, and Johns
Hopkins University School of
Medicine and School of Professional
Studies in Business and Education.
To extend the best qualities of a •
superior live classroom experience
across distances and enable its
corporate clients to transform their
traditional classroom programs
either for live Internet broadcast to
classrooms, workplace desktops or
home PCs or for on-demand
access.
National Technologic 50 of the top Engineering schools in
the United States including the
University
Massachusetts Institute of
Technology, University of California,
Berkeley and Michigan State
University
To provide the “best of the best” •
programs in each discipline of
engineering broadcast through the
internet or satellite
Global Education
Network
•
To provide the best, most
comprehensive on-line liberal arts
education for adults
Caliber Learning
Network
(Nasdaq: CLBR,
Not Rated)
Has approached many top-notch
liberal arts schools, including
Williams College and Brown
University
Source: Merrill Lynch Global Growth Group
280
Formed as a joint venture
between Sylvan Learning
and MCI WorldCom to
provide consulting and
telecommunications
services to businesses,
enabling them to transform
their traditional learning
content to the Web and for
transmission via other
electronic media
Offers fullly accredited
courses from an allliance of
large, prestigious technical
education and training
providers
Customers
Corporations/Employees
Individuals
Students Abroad
Corporations/Employees
Classroom Teachers
Physician Executives
International Students
Individuals and Corporations
Government Agencies
Academic Institutions
Co-founded by Herb Allen, Adult students
the President of the
investment bank and
venture capital firm Allen &
Co., will offer a fully
accredited liberal arts
education to adults
The Knowledge Web – 23 May 2000 (Reprint)
Pensare – the global knowledge network
Pensare is a leading global knowledge network poised to
excel in the large and growing e-learning industry. Its
offerings enable corporations and institutions to bring their
learning online, effectively capturing the convergence of
technology, the Internet and learning. Pensare’s platform
and content create a state-of-the art experience where
individuals gain the skills necessary to survive and thrive
in today’s knowledge-based economy.
Pensare offers blue chip customers, such as Hallmark,
Ernst & Young, Unisys and leading universities across the
country, an elegant, effective solution to their online
learning needs. By combining the access of the Internet
with “best of breed” content and first class service,
Pensare provides a complete end-to-end scalable solution
enabling corporations and institutions to bring their
learning online and exploit the power of the Internet.
Pensare’s Network Effect
Customers
Content Partners
Employees
Custom ers
Vendors
Pa rtners
Pa rtners
Vendor s
Custom ers
Em ployee s
Employees
Custom ers
Vendors
Pa rtners
Pa rtners
Vendor s
Custom ers
Em ployee s
Inside
Employees
Custom ers
Vendors
Pa rtners
Pa rtners
Vendor s
Custom ers
Em ployee s
To illustrate, Pensare has formed a pioneering alliance
with Duke University’s Fuqua School of Business, ranked
among the best business schools in the world, to coproduce and deliver a newly accredited Duke online MBA
program. The relationship affords Duke the opportunity to
leverage its world-class content worldwide, enhancing its
brand and driving incremental revenue. Pensare gains
exclusive distribution rights to the jointly developed
curriculum for resale among its corporate customers and
other business schools. Pensare will provide the Internetbased technology platform, produce the courses in an
online format and provide ongoing support.
Pensare’s partnership with Duke also calls for the
development of an Open MBA Toolkit that can be used by
other business schools and degree-granting organizations to
offer their own accredited MBAs and certificate programs.
The Toolkit will help these institutions to enter the Internetenabled accredited education market in a fraction of the time
it would take them to do it on their own.
Pensare will be combining Duke’s existing delivery
system with its own Knowledge Community platform to
create a state-of-the-art learning ecosystem for students,
instructors, working professionals and corporations. The
Pensare solution leverages the full power of the Internet by
incorporating knowledge capture and sharing, multi-user
simulations, online discussion groups and interactive
exercises. Pensare fosters collaboration and best-practices,
and results can be measured using real-world metrics.
281
The Knowledge Web – 23 May 2000 (Reprint)
Pensare
Founded: 1996
Revenue Components:
Headquartered: Los Altos, CA
Content:
X
Public/Private: Private
Commerce:
X
URL: pensare.com
Advertising:
Claim to Fame: Partners with top business schools and
corporations to offer and end-to-end solutions for e-learning.
Key Clients: Unisys, General Electric, Hallmark, Fujitsu, Intel,
Equistar, P & G, Tommy Hilfiger, Motorola, Harvard Business School
Publishing, The Wharton School, Stanford University, University of
Southern California, Duke University
Key Strategic Partners/Investors: AVI Management Partners; Media
Technology Ventures; Imperial Ventures; Battery Ventures; GE
Capital; WR Hambrecht
Service/Licensing: X
Other:
Network Effect:
Yes
Hub/Portal Strategy: No
Metrics to look for:
Number of Users
Number of Content Partners
Number of Courses
Making the “.com” Transition –
The Innovator’s Dilemma
The Internet has become a driving force within corporations, changing the way
they do business, with online learning being a critical and exploding area of
adoption. Not surprisingly, we are seeing several traditional offline companies
scrambling for a “.com” strategy, but not without difficulty. The transition online
for many is complex and requires companies to essentially redefine themselves in
a new medium, adopting, in some cases, new products, distribution channels and
entirely new ways of conducting business.
The essence of the Internet is
speed, and first-mover
advantage is critical.
Some traditional companies are approaching the Internet opportunity cautiously,
conducting extensive market research and pilot programs before making a big
commitment. While this conservative strategy may have proved effective before,
it no longer applies in the age of the Internet. The essence of the Internet is speed,
and first-mover advantage is critical. Accordingly, adopting a “wait and see”
approach will only, in our opinion, open doors to more nimble “born on the web”
companies.
We believe the Internet poses significant challenges to public companies, as they
may not be able to make the significant investments needed to execute on a
successful online strategy due to the pressure to stay profitable. Yet, at the same
time, they are criticized for not moving online fast enough.
Despite the difficulties, the move into the world of “.com” is inevitable by
traditional companies, and we believe investors over time will be more patient and
tolerant of the transition. There are several knowledge service companies that
have made the move online. One company, in particular, that has been successful
in reinventing itself from an offline to an online company is Smartforce.
“Even if you are on the right track, you’ll get run over if you just sit there.”
– Will Rogers
282
The Knowledge Web – 23 May 2000 (Reprint)
SmartForce – Offering End-to-End e-Learning Solutions
SmartForce (formerly CBT Systems) is a leading provider
of e-learning solutions. The company has historically
focused on developing computer-based (CD-ROM)
corporate learning. However, in October 1999,
SmartForce announced a new e-learning strategy,
repositioning itself from being a courseware vendor to a
provider of a fully integrated, Internet-based e-learning
solutions. To reflect its new direction, the company
changed its name from CBT Systems to SmartForce and
adopted a new accounting policy that required it to
recognize revenues over a period of time, rather than at the
point of sale. Shares declined nearly 40% in response to
the announcement. However, within 50 days the stock
rebounded to pre-announcement levels as the company
began to deliver on the strategy and investors began to
understand its wisdom.
SmartForce works closely with each enterprise customer
to create a tailored e-learning solution customized to its
business objectives, mission, and identity. Enterprise
customers receive an end-to-end e-Learning environment
that integrates technology and Internet-delivered learning,
24 x 7 access to expert mentors, peer-to-peer
collaboration, expert-led virtual seminars and a myriad of
learning options – often including their in-house
courseware. SmartForce also provides e-learning directly
to individuals via mass-customized Internet delivery.
Since its strategic repositioning as a provider of e-learning
solutions, SmartForce has gained considerable momentum,
announcing several exciting agreements with significant
industry leaders such as Microsoft, Macromedia, Cisco,
and Dell. Furthermore, the company has signed a multiyear $17-million contract with one of the Big Five
consulting and systems integration firms, illustrating
strong demand for its e-learning solutions.
SmartForce is aggressively enhancing its product line and
announcing new acquisitions and partnerships.
Advanced Educational Systems: The company recently
acquired Advanced Educational Systems (AES), a
provider of e-testing services over the Internet. AES
provides services that allow companies to administer webbased, proctored certification and compliance testing, and
enable clients to easily track testing results and generate
management reports.
ProsoftTraining.com Partnership: The partnership with
ProsoftTraining.com enables SmartForce to offer
education and certification programs for Internet and
Linux professionals. Prosoft’s Certified Internet
Webmaster (CIW) offering is the industry-leading
certification program for Internet professionals.
SmartForce and Prosoft have agreed to jointly create a
wide-ranging e-learning offering around the Prosoft
vendor-neutral CIW certification.
EarthWeb Partnership: SmartForce has agreed to
subscribe to and provide clients access to EarthWeb’s
Support Source, a premier knowledge-based reference
library for IT professionals that provides instant answers to
technical questions. It is used by leading IT and helpdesk
professionals worldwide for multi-vendor service and
support information by searching over 200,000 reference
documents.
In addition, SmartForce announced two e-Learning
initiatives that we believe demonstrate its leadership in the
space and its ability to innovate products targeted at the
needs of the new economy. First, SmartForce announced
its e-Learning object strategy, which, in layman's terms,
means it has broken down its e-Learning offerings into
discreet units which can be reconstructed into customized
solutions for each client. The technology should enable
SmartForce to offer entirely unique e-Learning
applications for each customer that are precisely targeted
to their needs. The technology also enables each learner at
a particular client to create a personalized path through the
application, providing them with a rich, highly focused
learning environment.
Second, the first set of applications using the new eLearning object technology will be SmartForce's offerings
targeted at e-Business. These products are designed to help
companies re-tool for the new economy and build
expertise within their organizations to succeed in ebusiness. The applications will be focused on
professionals in virtually every business function,
including strategy, network design, product development,
supply chain management, network security, web
development, IT infrastructure, certification and more.
As one of the largest providers of corporate learning, with
over 2,500 corporate clients worldwide and a
comprehensive library of over 1,100 titles, we believe
SmartForce is well positioned in the rapidly growing elearning industry. SmartForce has a major global
presence, with sales offices or distributors in 26 countries.
283
The Knowledge Web – 23 May 2000 (Reprint)
SmartForce
Founded: 1984
1999A Revenues: $198 million
Headquartered: Redwood City, CA
2000E Revenues: $155 million
Public/Private: Public (Nasdaq: SMTF, D-1-1-9)
2001E Revenues: $260 million
URL: smartforce.com
Market Value: $2.3 billion (5/15/00)
Revenue Components:
Claim to Fame: Largest provider of computer-based learning
with a successful transition to Internet-based learning
Key Clients: Unisys, Intel, Microsoft, Computer Science Associates,
Whittman-Hart and Manpower
Content:
X
Commerce:
X
Advertising:
X
Service/Licensing:
X
Other:
Key Strategic Partners: Check Point Software Technologies, Novell
Systems, Oracle, Informix, Rational, IBM, RSA Data Security, Intel,
Dynamics, Marimba, Sybase, Microsoft, TIBCO, Netscape, VeriSign,
Network Associates, Dell, SAP, Lotus, Cisco Security, Macromedia,
Sun Microsystems, Hewlett-Packard, Security Dynamics,
EarthWeb, Capella University and ProSoftTraining.com
284
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics:
Number of Courses: 1,100
Number of Clients: 2,500
Backlog and Deferred Revenue
Average Contract Value
The Knowledge Web – 23 May 2000 (Reprint)
Learning Tree, Inc. – Firmly Rooted in the IT Learning Market
Learning Tree is a leading global provider of vendorindependent, instructor-led learning for IT professionals.
Its high quality client base includes numerous Fortune
1000 and government institutions. Learning Tree develops
and markets a broad, proprietary library of 143 instructorled courses focused on client/server systems,
intranet/Internet technologies, computer networks,
operating systems, programming languages, graphical user
interfaces, object-oriented technology and IT management.
It primarily delivers courses through a dozen of its leased
“education centers” around the world. The company also
provides customized courses for individual clients and can
deliver both customized and general courses at the client
site. Its 800+ instructors are all industry professionals with
real-world expertise.
Learning Tree’s SkillsTree service provides assessment for
clients’ employees. The company also provides testing and
certification for IT workers through 31 professional
certification programs. The American Council on
Education has accredited its courses, which are recognized
by more than 1,500 universities and colleges.
Last year, the company discontinued its unprofitable CDROM product line to focus its efforts on developing an
online learning strategy. Learning Tree just recently
completed beta-testing of its first e-learning course and
plans to begin marketing it immediately. Its strategy is to
convert a handful of its courses to e-learning content over
the next two quarters and then pursue rapid conversion
beginning in 2001.
The company views Internet-delivered courses as a
complement to, rather than a substitute for, its highly
successful instructor-led courses. For example, Learning
Tree offers its clients the freedom to use its multiplecourse enrollment programs, including Training Passports
and Training Vouchers, for participation in both classroom
and Internet-delivered courses. Learning Tree plans to
design its e-learning courses with a “structured
asynchronous” format in mind, enabling students to take
courses when and where they want, but in a structured
environment where they must meet certain milestones and
timetables. Other companies have had success using this
type of environment to encourage course completion.
Learning Tree has chosen Eduprise as its technology
solution for e-Learning, although the relationship is not
exclusive. We think the company has a significant
opportunity to leverage its global brand, 3,700 hours of
course content, 800+ instructors and substantial marketing
resources on the Internet.
Founded: 1974
CY1999A Revenues: $194 million
Headquartered: Los Angeles, CA
CY2000E Revenues: $228 million
CY2001E Revenues: $271 million
Public/Private: Public (Nasdaq: LTRE, D-2-2-9)
Market Value: $1.1 billion (5/15/00)
URL: learningtree.com
Revenue Components:
Claim to Fame: Learning Tree is vendor-independent, meaning it
Provides unbiased learning to IT professionals. The company presents
even-handed treatment of the pros and cons of new products and
Technology, and students learn about third-party alternatives that the
vendors themselves might never tell them about.
Content:
X
Commerce:
Advertising:
Service/Licensing:
X
Other:
Key Clients: U.S. Army, AT&T, Boeing, EDS, Mobil, Intel, IBM,
J.P. Morgan, Visa, Xerox, Hewlett Packard, Credit Lyonnais, BT,
NatWest Bank, Hitachi, Siemens, British Gas, Peugeot Citroen
Network Effect:
NA
Hub/Portal Strategy: No
Metrics to look for:
Number of Courses: 143 courses, 3,700 hours of content
Number of Clients: 15,000+ (historical)
Number of Students: 800,000+ students (historical)
Backlog and Deferred Revenue
285
The Knowledge Web – 23 May 2000 (Reprint)
Provant – Bricks & Clicks
Based in Boston, Provant is a leading provider of
performance improvement corporate learning to Fortune
1000 companies and government agencies. The company
boasts one of the most extensive libraries of performanceimprovement content. Products and services range from
basic training, such as customer service, leadership and
communication training, to more specific, unique training,
such as employee selection, managing change and
diversity training.
At the same time, the company has a significant amount of
technology assets including a powerful simulation product
and robust learning management system. Uniting the two –
its content with technology – will allow Provant to provide
clients with a flexible and effective learning solution, one
that combines instructor-led with online learning. We
believe Provant is well-positioned to take advantage of
opportunities in the online learning space.
Founded: 1998
CY1999E Revenues: $211 million
Headquartered: Boston, Massachusetts
CY2000E Revenues: $232 million
Public/Private: Public (Nasdaq: POVT, D-3-2-9)
CY2001E Revenues: $249 million
URL: provant.com
Market Cap: $106 million (5/15/00)
Claim to Fame: Relationship with 250 of the Fortune 500 companies
Revenue Components:
Key Clients: Home Depot, Kmart, Blockbuster, Motorola
Content:
X
Commerce:
X
Advertising:
Service/Licensing: X
Other:
Network Effect:
No
Hub/Portal Strategy: No
Metrics:
Number of Customers
Type of Corporate Learning
English as a Second Language
ESL Services on the Net
www.globalenglish.com
www.peakenglish.com
http:///englishlive.ef.com
www.nll.co.uk
www.freeenglish.com/english/index.html
www.english-to-go.com
www.berlitz.com
www.parlo.com
www.eslcafe.com
www.esl-lab.com
www.doranet.ne.jp
www.englishpractice.com
www.planetLingo.com
English is the world’s business language, and globalization is driving more people
to learn to speak it. There are more than one billion people in the world currently
studying the English language. The market is over $50 billion now, but is
expected to accelerate its growth when more accessible and flexible services
become available. The Internet can deliver this flexibility and bring instruction
costs way down, making it far more accessible to potential learners.
Recent studies indicate that non-English speaking countries with developed or
developing economies place a high value on English speakers in their societies.
Increasingly, English competency is required to advance socially, academically
and professionally. The global demand for affordable ESL services is substantial.
“If you can speak 3 languages, you’re trilingual. If you can speak 2 languages,
you’re bilingual. If you can only speak one language, you’re American.”
– Anonymous
286
The Knowledge Web – 23 May 2000 (Reprint)
The Global Market for ESL Services is Enormous
Global Demand for ESL Services
200
200
Potential Users in Millions
180
160
140
120
100
80
50
60
25
40
20
10
20
0
China
Europe
Japan
Latin America
Korea
Source: planetLingo.com
287
The Knowledge Web – 23 May 2000 (Reprint)
GlobalEnglish Corporation
GlobalEnglish’s mission is to develop the highest quality,
most effective online English language instruction service
and distribute that service worldwide. The founders of
GlobalEnglish Corporation are dedicated to education and
have a successful history in educational software, online
services, and multimedia foreign language instruction. During
the last fifteen years, they have developed and managed three
successful educational technology companies.
GlobalEnglish is a leading site on the Internet for learning
English, offering a comprehensive curriculum in both
business and general English for a wide variety of English
language learners. The company’s approach utilizes both
proven pedagogy and innovative language-acquisition
tools available on the Internet and through computer
technology. GlobalEnglish believes this combined
approach accelerates and improves English languagelearning success.
GlobalEnglish emphasizes speaking and listening
comprehension skills but is designed to provide a balanced
improvement in all learning skills – reading, writing,
speaking and listening comprehension. The instructional
program combines the respective advantages of text,
audio, graphics and animation, record/playback and speech
recognition to simulate real-life English language
communication experiences.
Founded: 1997
1999E Revenues: NA
Headquartered: Daly City, CA
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: globalenglish.com
Content Sales:
X
Commerce:
X
Coolest Feature on the Web: “Slang Word of the Day” link
Advertising:
Service :
Investors: Mayfield Fund, Investor Group of Santa Barbara
Other:
X
Hub/Portal Strategy: Yes
Network Effect:
Metrics to look for:
Number of users
288
Yes
The Knowledge Web – 23 May 2000 (Reprint)
Englishtown.com
Englishtown is a comprehensive website for learning
English. The site offers users extensive free resources for
learning English, including onsite activities, teacher-led
classes, and resource directories for both students and
teachers. Englishtown is an independent subsidiary of EF
Education, the world's largest private educational
institution. Englishtown divides up its curriculum into 5
distinct sections:
School: Everything a local language school offers: qualified
instructors, classes with other students, listening and speaking
exercises plus total flexibility. One can study at their own
pace, 24 hours a day, from anywhere in the world.
Community: One can use the Englishtown site to chat
with members from over 100 countries. In addition, the
company’s bulletin boards offer grammar tips and current
events, and there are word games and crossword puzzles to
keep the learning fun. People can even use Englishtown to
help find a pen pal.
Tests: The EF Standard English Test is an excellent way
to document progress in English for academic evaluators
and future employers. A corporate testing program enables
the company to evaluate the English ability of a whole
company.
Resources: Englishtown can help find just about anything
relating to English. The website contains an online
dictionary, dozens of great English-related products and
services to buy, as well as resource guides to download –
everything from study abroad organizations to Internet
courses.
Teachers: Englishtown.com can be used in the
classroom. Englishtown's teacher section allows
instructors of English from around the world to meet and
share resources. In addition to bulletin boards and chat
forums, there's an online resource library of classroom
materials, job listings and links to other teacher sites.
Founded: 1997
1999E Revenues: NA
Headquartered: Cambridge, MA
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: englishtown.com
Content Sales:
X
Coolest Feature on the Web: Practice English with other students
From all over the world
Commerce:
X
Metrics to look for:
Number of users
Number of visits per time period
Average time spend on site during visit
Service :
Advertising:
Other:
X
Hub/Portal Strategy: Yes
Network Effect:
Yes
289
The Knowledge Web – 23 May 2000 (Reprint)
planetLingo.com
planetLingo is creating a suite of Web services that will
unlock the Internet to voice. Its intelligent dialogue
systems facilitate man/machine interaction through speech.
The services it initially launches are designed to address
the global need to speak English effectively and with
confidence. planetLingo’s dialogue products and services
have the potential to revolutionize the huge English as a
Global Language (EGL) market by allowing users to
practice their English conversation when and where they
want. Future additional uses for the Company’s
technologies could include voice & mobile portals,
information retrieval, voice e-commerce and
revolutionizing customer sales & support through any
Web-enabled device.
Founded: 1997
1999E Revenues: NA
Headquartered: Los Angeles, CA
2000E Revenues: NA
Public/Private: Private
Revenue Components:
URL: planetlingo.com
Content Sales:
X
Key Investors: Flanders Language Valley Fund, Intel, GE Capital, William
Simon & Sons, Baring Communication Equity (Asia-Pacific), Baring
Private Equity Partners
Commerce:
X
Advertising:
Service :
Metrics to look for:
Number of users, Frequency of visits, Time spent on site per visit
Other:
Hub/Portal Strategy: Yes
Network Effect:
290
X
Yes
The Knowledge Web – 23 May 2000 (Reprint)
Select Company Profiles in this Section
Company Name
click2learn.com
Acadio
Brainbench
CBM Tech.
DigitalThink
Docent
EMind.com
Englishtown.com
GlobalEnglish.com
Headlight.com
Hungry Minds
KeepSmart.com
KnowledgePlanet
Learning Tree
Ninth House
NotHarvard.com
Pensare
PlanetLingo.com
Provant
Saba Software
SmartForce
Thomson Learning
Trainingnet.com
Page Number
255
257
277
251
265
250
273
289
288
256
259
274
249
285
270
269
281
290
286
248
265, 283
266
258
291
The Knowledge Web – 23 May 2000 (Reprint)
Index of Corporate e-Learning Companies
Content
Inform ation Technology
Course Technology (Thompson’s)
MindLeaders.com
GeoLearning.com
ITC Learning Corp.
Know ledgeNet
mindfire.com (Global Know ledge Netw ork)
MindQ (Know ledge Universe)
National Technological University Corp.
NETG
NIIT
SmartForce.com
VCampus
ZiffDavis
Viagrafix (Learn2.com)
Perform ance Im provem ent
Ninth House Netw ork
Corpedia
SkillSoft
Payback Training Systems
Ontimetraining.com
In2Win
BizQuiz
Provant
Higher Education Content
Pensare
UNext
University Access
Industry Specific
emind.com (Know ledge Universe)
FIREOnline Training
Learning Action
Learning Insights
National Technological University Corp.
System s / Infrastructure / Tools
Authoring Tools
Allen Communications (Gilat Communications)
Click2Learn.com
Macromedia
Generation 21 (Advantage Learning)
Synchronous Delivery Tools
Centra Softw are
Educational Video Conferencing
Eloquent
Horizon
LearnLinc (formerly ILINC)
Lotus Learning Space
NetMeeting
PlaceWare
Tegrity
WBT Systems
Source: Merrill Lynch Global Growth Group
292
Ticker
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
SMTF
VCMP
ZD
LTWO
Private
Private
SKIL
Private
Private
Private
Private
POVT
Private
Private
Private
Private
Private
Private
Private
Private
GILTF
CLKS
MACR
ALSI
CNTR
EVCI
ELOQ
Private
Private
Subsidiary
Private
Private
Private
Private
System s / Infrastructure / Tools (cont.)
Total e-Learning Outsourcers
DigitalThink
Know ledgeNet
SmartForce
Learning Byte International
Cognitive Arts
Learning Managem ent System s
Arista Know ledge Systems
Docent
Infotec Commercial Systems
Ingenium (Click2Learn)
Intralearn
Know ledge Navigators
Know ledgeplanet (Know ledge Universe)
Know ledgeSoft (Know ledge Universe)
Librarian (Click2Learn)
Manager’s Edge (Allen Communication)
Pathlore Softw are
Pathw are (Lotus)
Phoenix
Pinnacle Multimedia
SABA Softw are
Southrock
SYSCOM
Teamscape Learning Portal
Telemachus (Know ledge Universe)
VCampus
VuePoint
WBT Manager
Comm unity
about.com
Dreamlife
How 2
HR Hub
HungryMinds
Jones.com
Learn2.com
LibrarE.com
The Learning Netw ork
Lakew ood Publishing
TrainingSupersite.com
Comm erce
Click2Learn.com
Fatbrain
Headlight
Learn2.com
HungryMinds
SmartPlanet
Trainingnet
Virtual Learn
Ticker
DTHK
Private
SMTF
Private
Private
Private
Private
Private
CLKS
Private
Private
Private
Private
CLKS
Private
Private
Subsidiary
Private
Private
SABA
Private
Private
Private
Private
VCMP
Private
Private
Private
Private
Private
Private
Private
Private
LTWO
Private
Private
Private
Private
CLKS
FATB
Private
LTWO
Private
Private
Private
Private
The Knowledge Web – 23 May 2000 (Reprint)
Human Capital Management –
People Power
293
The Knowledge Web – 23 May 2000 (Reprint)
This Page Left Intentionally Blank
294
The Knowledge Web – 23 May 2000 (Reprint)
42. Human Capital Management: People Power
Fast Facts
The Human Capital
Management Market
Addressable Global Market Size: $150 Billion
U.S. Online HCM Market Size 1999E: $5.8 Billion
U.S. Online HCM Market Size 2003E: $28 Billion
U.S. Online HCM CAGR 1999E-2003E: 48%
Public Companies Profiled
CareerBuilder (CBDR)
EarthWeb/Dice.com (EWBX)
Headhunter.net, Inc. (HHNT)
Heidrick & Struggles/Leaders Online (HSII)
HotJobs.com (HOTJ)
Kforce.com (KFRC)
Korn/Ferry/Futurestep (KFY)
Niku (NIKU)
Opus360 (OPUS)
TMP Worldwide/Monster.com (TMPW)
TopJobs.net PLC (TJOB)
WebHire.com (HIRE)
Private Companies Profiled
Nitorum
BrassRing
Personic
BridgePath.com
ComputerJobs.com
SkillsVillage
Guru.com
Techies.com
Hire.com
Vault.com
Icarian
Vivant!
Jobs.com
•
People costs make up 64% of corporate spending. There is an explosion of new
companies targeting online solutions to improve Human Capital Management.
•
Effectively managing human capital can improve shareholder value by up to 30%.
•
The average person entering the workforce today will work for between eight and
ten different employers versus four to six just two decades ago.
•
Unemployment among "knowledge workers" is less than 1% relative to overall
unemployment of 4%. Nowhere is this problem more acute than in the IT space,
where the unemployment rate is effectively negative.
•
In 1999, nearly 720,000 IT positions went unfilled in the US. Today, one of every
five IT jobs remains unfilled, and nearly 75% of new openings fail to receive
interested and qualified candidates.
•
For 58% of executives, finding skilled people is the top issue in getting their ecommerce projects done. Over one-third also lamented that even when they were
able to find people, the prospects didn’t always have the desired or expected
skills. Only one-third of respondents were able to fill their Internet commerce
openings within one month, and 16% needed more than four months – a virtual
eternity in Internet time.
•
Using the Internet can reduce time to hire by up to 66%, from 90 days to 30 days.
•
The average cost per hire on the Net is $1,000 versus $12,000 for a headhunterassisted hiring. The Internet offers cost savings of between 50% and 95%
compared to traditional offline recruiting methods.
•
Online spending per recruiter expected to double to $14,000 from $7,000 by 2003.
•
Effective human capital management is increasingly being identified by global
organizations as the single most important success factor.
Megatrends Shaping the Online Employee Services Market
Trend
Demographics
Technology
Globalization
Branding
Consolidation
Outsourcing
Impact
An aging generation of Baby Boomers and decreasing birth rates are combining with a strong economy to create
a labor shortage. A growing “free agent” mindset among knowledge workers increases the difficulty of retaining
them once hired. In an economy with only 4% unemployment – and less than 1% for knowledge workers – human
capital management has never been more important.
We are in a new era driven by anytime/anywhere access, information, convenience and speed, all brought on by
the advent of the Internet. The Net, coupled with advances in broadband technology, are disintermediating and
streamlining the labor supply chain, putting job seekers in direct contact with companies while arming both parties
with greater access to higher quality information. The Net makes human capital and career management better,
faster and cheaper. The Internet economy is also placing a higher-than-ever premium on knowledge workers.
Although still primarily a local market, the labor market is becoming more and more global. Increasingly,
companies need to move talent to where it is most needed and find new talent in previously unexplored areas.
The winners will be those companies that build a strong brand name known for unique human capital
management solutions where individuals can access first-rate content in an engaging, interactive environment.
Strong brands will drive powerful network effects, exponentially increasing franchise value.
While consolidation used to be the hallmark of a mature industry, this is no longer the case, particularly in
technology, where small start-up companies are acquired for their technology and, as important, for their talented
people. Consolidation causes considerable dislocation and turnover in the labor market, increasing the need for
individuals and businesses to continuously upgrade their knowledge of their market, skills and opportunities.
In today’s fast-changing market environment, corporations increasingly rely on the expertise of third-party
specialists to provide key services that are critical to their success. As companies focus more on their core
competencies, they are outsourcing vital human capital management functions to outside specialists.
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43. Trends & Predictions
n The Internet Is Revolutionizing Recruiting
Corporations and recruiting
firms cannot expect to
maximize their objectives if they
choose to ignore the Internet.
The Internet is having a profound effect on recruiting and employee services.
First and foremost, the Internet is a spectacular information tool, placing more
information about candidates and jobs than ever imagined at the fingertips of job
seekers, corporations and recruiting firms alike. As more constituents use the
Internet for managing their careers and hiring candidates, the Internet’s impact on
the employee services industry is increasing, benefiting from the power of
network effects. Although the recruiting process will almost always require some
level of human interaction, the level of human interaction will vary greatly based
on the nature of the position. Today, with little exception job seekers,
corporations and recruiting firms cannot expect to maximize their objectives
if they choose to ignore the Internet.
n The Pie Is Getting Bigger
A much greater number and variety of jobs will be advertised than in the past due
to the lower costs and greater ease of advertising job opportunities online. In
addition, increased employee turnover is contributing to ever increasing spending
on recruitment. The highly publicized War for Talent catalyzed by advances in
technology is radically expanding the scope and depth of services that
corporations are willing to turn over to outsourced providers, as well as the
manner in which those services are delivered. As a result, companies are
increasingly turning to outsourced specialists to help them Attract, Train and
Retain human capital.
Domestic Online HCM Market Expected to Grow at a four-year 48% CAGR
1999
$5.8 Billion
$1.92bn
Outsourced
2003E
$28 Billion
$16.6bn
Outsourced
Source: Merrill Lynch Global Growth Group
Companies are increasingly
turning to outsourced
specialists to help them Attract,
Train and Retain human
capital.
296
n Rise of Targeted Verticals
There is limited space for generic, catch-all job boards. Without focus, the
primary basis of competition is network size, and only the leaders will survive.
We think most catch-all job boards will evolve into a portfolio of “vortals,” each
focused on a particular profession, such as IT, health care, sales or real estate.
Targeted content will drive “communitization” of users (i.e., site stickiness),
ultimately leading to more and better ways for sites to “monetize” high-value
knowledge worker traffic. Ultimately, even the larger job boards will look to
acquire or develop vertically focused career-related sites in a race to capture the
best content and a critical mass of users while simultaneously eliminating
competition in the space. Those sites that can achieve critical mass will remain
independent, adding a variety of value-added services to provide an end to end
The Knowledge Web – 23 May 2000 (Reprint)
solution, while smaller niche sites will be consolidated into the general job boards
and vortals over time.
There is limited space for
generic, catch-all job boards.
Without focus, the primary
basis of competition is network
size, and only the leaders will
survive.
n Value-Added Services / Information Management Will Be Critical
Ironically, the same qualities that enable the Net to provide better information
exchange than ever before also threaten to bury its users under an avalanche of
data. As a result, the ability to effectively capture, access, maintain, filter and
share information is paramount. These requirements are bringing new software,
ASP and data management providers into the marketplace. Similarly, job boards,
vortals and traditional staffers will offer corporations and job seekers richer
content and high value-added services, including resume management, search,
screening & placement, contracting, background checks, relocation services,
training and skills assessment on the Internet. In fact, some companies are already
providing a fully outsourced function for independent professionals who need
payroll, insurance, benefits, and other services.
n Strategic Partnerships Will Be Critical
Recruiting companies must partner with non-recruiting sites (i.e., Yahoo! & AOL)
to drive traffic to their site. If not, they will miss out on the passive job seeker
(representing the vast majority of Internet users) who won’t come to a job board as
a destination site without direction. Similarly, we look for “brick & mortar”
human capital management companies to partner with “click” companies to
complement each other’s strategies, acquire assets quickly that they don’t already
have and leverage their partner’s brand to help build their own. We also expect
continued partnering between e-recruiters and content providers, such as training
companies and media/publishing firms. Finally, we continue to see partnerships
between software and service providers, such as training firms and skills
marketplaces, to provide a truly robust, highly integrated human capital solution.
We expect continued partnering
between e-recruiters and
content providers, such as
training companies and
media/publishing firms.
n Internet-Enabled Market-Making Opportunities Arise
We estimate that the number of
independent professionals (IP),
who now make up about 6% of
the workforce, could double
over the next several years.
Vendor Exchanges help corporations manage their relationships with numerous
staffing suppliers and facilitate communication between staffing suppliers.
Exchanges streamline the processes of procuring and managing labor resources
across the entire labor supply chain. Efficient staffing vendors could benefit
significantly from participating in such networks by gaining access to a larger pool
of hiring corporations and maximizing placement potential by coordinating with
other staffers. Related Service Providers stand to benefit significantly from
offering their services through the networks.
We categorize human capital exchanges into two categories: Independent
Professional Exchanges and Vendor Exchanges (both Client/Vendor and
Vendor/Vendor).
We estimate that the number of independent professionals (IP), who now make up
about 6% of the workforce, could double over the next several years. In IT, the
impact could be more dramatic. According to GartnerGroup, consultants will
represent 50% of a typical large IT department by 2002, up from 7% in 1993.
Although the market is still very small, it is already very crowded, with at least 20
providers by our count. Those marketplaces that can provide relevant content and
services to attract a critical mass of IPs and assessment services to validate
candidates will attract hiring corporations. Traditional recruiting firms could
benefit by offering their filtering services on an unbundled basis.
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44. Human Capital Management
Human Capital Management encompasses the activities associated with
Obtaining, Developing, Managing and Retaining a company’s most valuable asset,
its people. Whether it comes to managing a corporate Human Resources website,
training new hires or deploying a set of independent contractors, smart
corporations realize that effective human capital management will be the single
most important point of differentiation in the 21st century.
Outsourced human capital management services is nothing new – staffing and
recruiting firms have played an important and increasing role in human capital
management for almost half a century. But the highly publicized War for Talent,
catalyzed by advances in technology, is radically expanding the scope and depth
of services that corporations are willing to turn over to outsourced providers, as
well as the manner in which those services are delivered. As a result, companies
are increasingly turning to outsourced specialists to help them Attract, Train and
Retain human capital.
The Knowledge Services Continuum: The Human Capital Value Chain
Find &
Recruit
Train
Assess
Test
Certify
Retain
RETURN ON INVESTMENT
IN HUMAN CAPITAL
Source: Merrill Lynch Global Growth Group
At the same time, the power of the Internet, a strong economy, a tight labor
market, demographics and cultural factors are all radically changing knowledge
worker mentality and providing individuals with more control over their careers
than ever before. Knowledge workers are demanding access to a complete range
of content and services relevant to their jobs, skills and career goals such as:
There is no magic bullet in the
War for Talent, but the Internet
does provide a quantum leap
forward for human capital
solutions providers and
knowledge workers.
298
•
What opportunities are available
•
How is the professional landscape shifting
•
What career management tools are available
•
Managing skills obsolescence in the face of rapid change
•
What are appropriate compensation and benefit metrics
•
What they are best suited for (skills and interests assessment)
There is no magic bullet in the War for Talent, but the Internet does provide
a quantum leap forward for human capital solutions providers and
knowledge workers. It enables human capital solutions providers to satisfy
the needs of today’s knowledge-hungry businesses and gives knowledge
workers unprecedented access to opportunity and development. Its byproduct is an abundance of exciting new investment opportunities in the
Human Capital Management space.
The Knowledge Web – 23 May 2000 (Reprint)
Enormous Opportunity to Provide Human Capital Solutions
$150 Billion Global M arket
+
Increasing Turnover
Metcalfe’s
Law
Moore’s
Law
Transistors per
Microprocessor
The Network Effect
+
Utility
Human Capital Drives
Market Valuations
P ro c es s in g P o w er
4% Unemployment
Rapid Skills Obsolescence
Time
The
Human
Capital
=
Solutions
Opportunity
Users
Source: Merrill Lynch Global Growth Group
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45. Countering the “Brain Drain”
Investors need not look far for evidence of the importance of human capital in the
new economy – it is reflected in the capital markets. In the old economy, price-tobook was a useful valuation measure, as it was physical capital that companies
leveraged into earnings power. What matters in the new economy, however, is
human capital.
In the old economy, price-tobook was a useful valuation
measure, as it was physical
capital that companies
leveraged into earnings power.
What matters in the new
economy, however, is human
capital.
In 1980, the price-to-book ratio of the largest companies in the U.S. was 1.2x.
Today the price-to-book is 12.1x or ten times greater, indicating that the valuation
of companies today is based more on intellectual capital than physical.
Companies, therefore, must reward knowledge workers with “productivity wages”
or risk losing them to competitors. The result is that the earnings power of
knowledge employees rises in the job market. Those without the necessary
education, however, do not reap similar rewards.
“Capital is accessible, and smart strategies can simply be copied. The half-life
of technology is growing shorter all the time. For many companies today,
talented people are the prime source of competitive advantage.”
Ed Michaels, Director, McKinsey & Company
Accordingly, we have seen the income gap between those with a bachelor’s or
higher degree and those with just a high school education widen significantly, and
we expect this trend to continue as long as the marketplace continues to reward
knowledge-intensive companies. We would expect this pay gap to widen even
further if, in addition to traditional degrees, continuing education and lifelong
learning were factored into the equation.
The correlation between the productivity of a company’s intangible assets—its
human capital—and the need to pay those assets a competitive wage is clearly
illustrated by the close relationship between rising price-to-book ratios and the
rising income gap.
Human Capital is Replacing Physical Capital as the Primary Productive Asset
Salary Gap Between High School and College Graduates
Median Price-to-Book for 10 Largest Companies
111%
12.1x
120%
14.0x
100%
12.0x
10.0x
80%
50%
8.0x
60%
6.0x
40%
1.2x
4.0x
20%
2.0x
0%
0.0x
1980
2000
1980
2000
Source: U.S. Census Bureau, Compustat, Merrill Lynch Global Growth Group
Moreover, the computer is replacing many “left brain,” task-oriented jobs, as it
performs these functions faster, cheaper and better. A significant challenge and
opportunity is to address the necessity to create, recruit and retain knowledge
workers from today’s existing labor pool.
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Industry Job Growth 1988-1998, CAGR
Computer & Data Processing Services
8.2%
Personnel Supply Services
8.1%
Management & Public Relations Services
6.8%
6.2%
Residential Care Services
Business Services
5.7%
4.9%
Social Services
Motion Pictures
4.7%
Child Day Care Services
4.5%
Offices & Clinics of Medical Doctors
3.8%
Engineering and Management Services
3.4%
3.2%
Educational Services
Engineering & Architectural Services
2.1%
Private Nonfarm Payrolls
1.7%
Retail & Wholesale Trade
A company’s ability to execute
on each link in its human
capital value chain is critical to
its success. It must be able to
recruit, train and retain the best
knowledge workers available.
1.4%
Hotels and Lodging Services
1.3%
Finance, Insurance and Real Estate
Manufacturing
-10%
-5%
0.9%
-0.3%
0%
5%
10%
15%
Source: Bureau of Labor Statistics
Back to the First P: The Importance of People
In the first section of The Knowledge Web, we commented on four principles of
growth stock investing which we believe help to create an analytical and
conceptual framework to determine which Internet knowledge enterprises will be
the category killers in their respective areas. We called these principles the Four
P’s: People, Product, Potential and Predictability, and think that the first P, People,
is worth an additional mention here.
Many short-term fortunes have been created by great ideas and evangelical
leaders. Lasting wealth, however, is created through execution of the great idea
by talented people.
“At the end of the day we bet on people, not strategies.”
– Larry Bossidy, Chairman and CEO, Allied Signal
The Internet is the all-in-one
career management tool that
will enable human capital
solutions providers to satisfy the
needs of today’s knowledge
workers.
A company’s ability to execute on each link in its human capital value chain is
critical to its success. It must be able to recruit, train and retain the best knowledge
workers available, or it is unlikely to win in the long-run. A superb product
without an effective sales force is all for naught, and a brilliant software concept is
meaningless without the programmers who can develop it. Accordingly, access to
IT workers, a sales force, marketing and business development teams and the like
is a must, but what is becoming even more important is keeping the good
employees already in-house on the team. This equation is as much mathematical
as it is practical:
Industry sources suggest that the cost of a lost employee is 1x annual wages plus
benefits. For a hypothetical company with 1,000 employees at a $30,000 average
annual wage & benefits package that is experiencing 30% turnover, a 50%
improvement in retention could add $4.5 million to the bottom line (see below).
Assuming revenue of $100,000 per employee, the increase in retention would
mean an additional 4.5% in operating margin.
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Retention Matters
Example: Company with 1000 employees improves retention by 50%
Assumptions:
Average Wage =
Average Turnover =
Cost of Turnover =
Revenue per Employee =
With the unprecedented
importance of human capital
and its availability at 30-year
lows, businesses must refocus
on retention.
302
Annual Cost of Retention
Retention Improves by 50%
Assumed Revenue
Assumed Increase in Operating Margin
$30,000
30%
1.0x annual wages and benefits
$100,000
($9,000,000) =1,000 employees * 30% *$30,000
$4,500,000 =1,000 employees * 15% *$30,000
$100,000,000
4.5% =$4,500,000/$100,000,000
Source: Merrill Lynch Global Growth Group estimates, Saratoga Institute
The importance of employee retention has been largely ignored by businesses for
years. With the unprecedented importance of human capital and its availability at
30-year lows, however, businesses must refocus on retention. Companies
providing human capital solutions, including recruiting, staffing and HR
consulting firms, stand to benefit from this enormous market opportunity. By
improving recruiting and staffing practices and enhancing learning and
information flow, businesses can increase retention and thus provide better
informed employees, which in turn improves overall quality as well as
productivity.
The Knowledge Web – 23 May 2000 (Reprint)
46. The Industry “Net-Scape”
The Internet is having a profound effect on human capital management. Every
link in the human capital value chain is being analyzed and streamlined in much
the same way as have other markets such as travel, stock brokerage and B2B
procurement. The human capital sourcing markets, which include everything
from plain vanilla job boards to online corporate recruiting websites to sites
offering rich and relevant career-related content, are growing exponentially. The
labor “supply chain” stretching from the worker to the company is being
streamlined.
Every link in the human capital
value chain is being analyzed
and streamlined in much the
same way as have other markets
such as travel, stock brokerage
and B2B procurement.
"From now on, successful companies will be the ones that are the most adept
at attracting, developing, and retaining individuals who can drive a global
organization ...."
– Harvard Business Review, "New Mandate for Human Resources"
The human capital solutions industry, in general, and recruiting and career
management, in particular, offer tremendous opportunity. The sector is undergoing
a seismic shift that will significantly alter the competitive landscape. The forces
creating these shifts include a booming economy, a tightening labor pool and
cutthroat competition that are combining to increase the urgency to hire and
retain the best employees. The Internet is enabling companies and workers to
manage the effects of these offline forces with online solutions, changing the
offline landscape to an online “net-scape.”
The convergence of the Internet and these ground-shaking trends is dramatically
increasing business opportunities in the human capital solutions arena. Recruiting
and human capital management are more important than ever before. Companies
must find, hire and retain the best knowledge workers. Knowledge workers must be
continuously aware of all the opportunities open to them and the threats facing them
in our rapidly changing economy, particularly threats related to skill obsolescence.
Tremendous Market Opportunities
The Internet enables human capital solutions that pre-Net were simply
unthinkable. The following is a partial list of how the Net is changing the
landscape. Savvy human capital solutions providers will address the opportunities
created by the Internet, which:
Recruiting and human capital
management are more
important than ever before.
•
Facilitates unprecedented flow of information and, specific to this area, a
supply of resumes and jobs
•
Facilitates outsourced (e.g., ASP-based) processing models (for resumes and
other data) and marketplaces for full-time recruiting and temporary staffing
•
Enables information management solutions, such as quality screens,
aggregation of eyeballs and content and online testing and assessment, that
substantially enrich, yet also streamline, the process
•
Allows aggregation of highly relevant content for knowledge workers or
companies interested in a particular vertical market. This capability in turn
fosters the “communitization” and “monetization” of high-value knowledge
workers
•
Facilitates job fungibility as never before
•
Provides the medium through which far more robust and elegant business
models – combining recruitment, learning, assessment, deployment,
information, etc. – can be born and thrive
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•
Enables companies to offer both global and local approaches to the problem
Finally, the Internet facilitates the convergence of recruiting, temporary staffing,
learning and other HR-centric services to create a tremendous market opportunity
for companies able to provide a complete solution. The addressable market size is
huge and growing.
The Online Human Capital Management Market
We estimate that the $75-billion
U.S. human capital
management market ($150
billion globally) will grow about
twice as fast as GDP, or 6% per
year through 2003, as an
increased percentage of
corporate budgets is spent on
human capital activities.
We estimate that the $75-billion U.S. human capital management market ($150
billion globally) will grow about twice as fast as GDP, or 6% per year through
2003, as an increased percentage of corporate budgets is spent on human capital
activities. Over the same time period, we expect the percentage of total human
capital management spending coming online to increase from 17% to 31%,
resulting in an online domestic market for Human Capital Management services of
$6 billion in 1999 growing at a 48% CAGR to $28 billion in 2003. We estimate
that the global market is at least equal to the domestic opportunity for a global
addressable online market of $12 billion going to $56 billion in 2003. Given our
assumptions for the portion expected to be outsourced (40% in 2000 and 60% in
2003), we think the domestic online recruiting market will be $1.9 billion in 1999
and rising to $16.6 billion in 2003 at CAGR of 72%. See Appendix 1 for detailed
calculations. Note that these figures do not include training. To the extent that
human capital management providers enter the training market, the addressable
market opportunity would be expanded.
Compelling Market Opportunities in Human Capital Management
Human Capital Management Market Size
Total Human Capital Mgmt Market
1998E
1999E
2000E
2001E
2002E
2003E
4 yr CAGR
Total Corporate Recruiting & Deployment
$47.49
$51.22
$54.64
$58.09
$61.78
$65.73
6%
Total staffing (net of direct payroll costs)
$15.73
$17.73
$18.71
$19.62
$20.45
$21.12
4%
$1.42
$1.54
$1.91
$2.18
$2.47
$2.79
16%
$64.64
$70.48
$75.26
$79.89
$84.69
$89.64
6%
Retention, Consulting and Related Services
Total Human Capital Mgmt Market
Note:This is the total addressable market for human capital management services
Online HCM
1998E
1999E
2000E
2001E
2002E
2003E
Online Recruiting & Deployment
$2.37
$5.12
$8.20
$12.78
$17.30
$21.69
Online staffing/contracting (net of direct payroll)
$0.31
$0.62
$1.31
$2.35
$3.48
$5.28
71%
Retention, Consulting and Related Services
$0.02
$0.05
$0.12
$0.32
$0.55
$0.98
109%
Total online human capital management
$2.71
$5.79
$9.63
$15.45
$21.33
$27.95
48%
43%
Note: These are the human capital management services expected to be obtained online by corporations and recruiters
Outsourced Online Recruiting
1998E
1999E
2000E
2001E
2002E
2003E
Online Recruiting & Deployment
$0.47
$1.28
$2.46
$5.11
$7.78
$10.84
Online staffing/contracting (net of direct payroll)
$0.31
$0.62
$1.31
$2.35
$3.48
$5.28
71%
Retention, Consulting and Related Services
$0.01
$0.02
$0.04
$0.13
$0.25
$0.49
137%
Total outsourced online human capital management
$0.80
$1.92
$3.81
$7.59
$11.51
$16.61
72%
71%
Note: This is the total expected outsourced portion of the online human capital management market
Source: BLS, Saratoga Institute, iLogos and Merrill Lynch estimates
The Needs of Today’s Knowledge Worker
Today’s knowledge worker enjoys an unprecedented variety of compelling
opportunities in a booming economy. At just 4%, the unemployment rate is at its
lowest level in three decades. Entrepreneurism is blossoming. Globalization is
bringing heightened competition, which is increasing the premium for knowledge
workers who can make the difference on the competitive battlefield. Thus, as the
old saying goes, “We live in interesting times.”
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Of course, this saying implies a double-edged sword. At the same time that
opportunity is knocking on their door – if not beating it down, knowledge workers
are facing new challenges. Their skills, for example, may become obsolete in less
time than ever before, as exemplified in the computerjobs.com mantra “Outlive
Your Code.” Professionals in the high-tech field face a particularly acute risk of
obsolescence. Outsourcing, globalization and consolidation are changing the
landscape of many industries and occupations.
Today’s knowledge worker
enjoys an unprecedented variety
of compelling opportunities in a
booming economy.
As a result, knowledge workers have needs in the new economy that the Old
World infrastructure cannot meet. They need continuing education and real-time
access to relevant information that will keep them abreast of the trends affecting
their industries and occupations. They need up-to-the-minute updates on the
factors affecting their specific skill set. They need the ability to survey the job
market actively and passively, as they must be constantly searching for new
opportunities to advance their own cause and protect them from the shifting sands
of the new economy.
The New Economy is heavy on intellectual capital. The sharing of knowledge
is what really makes it go. In the New Economy, you expect lifelong learning,
not necessarily lifelong employment. People used to work for wages. In the
New Economy, they work for ownership. Security comes from the stock.
Labor often fought management in the Old Economy. Today, teamwork and
empowerment are crucial to success.
– John T. Chambers, CEO of Cisco Systems
Knowledge workers have needs
in the new economy that the
Old World infrastructure
cannot meet.
The Internet is the all-in-one career management tool that will enable human
capital solutions providers to satisfy the needs of today’s knowledge workers. The
Net is the medium through which anytime/anywhere access to information can be
made readily available. It enables rich content to be delivered instantaneously
right to the desktop at the home or office. Knowledge workers can access the
Human Capital “Net-scape” whenever, wherever and however they please.
“Network Effect” At Work in e-Recruiting
Job Seekers
Independent
Professionals
Temporary
Worker
Human
Capital
Solutions
Providers
Staffing Firms
Headhunters
Content
Commerce
Community
Infrastructure
Advertising
Corporate
Recruiters
Source: Merrill Lynch Global Growth Group
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Growth-Drivers of Human Capital Solutions
Changing Demographics
American society has undergone unparalleled shifts in the past few decades, which
are dramatically changing the nature of our lives. These fundamental changes
have come in five major areas: our ages, our families, our economic status, our
ethnic makeup and our educational achievement.
The Baby Boomer generation,
like a pig in a python, is
gradually making its way
through its generational cycle.
The Baby Boom is probably the most significant demographic phenomenon of the
20th Century, shaping all aspects of our economic lives. This generation of 76
million people born between 1946 and 1964 in many ways built the dynamic
economy we have today, although increasingly that torch is being passed to the
much smaller Generation X.
Increasingly Acute Labor Shortage
The Baby Boomer generation, like a pig in a python, is gradually making its way
through its generational cycle. The early Boomers, now in their mid-50s, are
rapidly approaching retirement, while the later Boomers, now in their late-30s, are
planning for theirs. This enormous group of workers is just now beginning to exit
the workforce, and the labor pool they leave behind is shrinking.
Tight Labor Markets Make Human Capital Management Critical
U.S. Unemployment Rate
8.0%
7.0%
6.0%
5.0%
3.9%
4.0%
3.0%
2.0%
1.0%
0.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
April
2000
Source: U.S. Department of Labor
The pool of available talent
from which companies will
choose is an increasingly scarce
resource.
306
The workers having just recently entered the job market – Generations X & Y –
are tomorrow’s leaders. They are fewer in number than the previous generation
and, some argue, insufficiently educated by our schools and universities to meet
the challenges awaiting them. As such, the pool of available talent from which
companies will choose is an increasingly scarce resource.
The Knowledge Web – 23 May 2000 (Reprint)
U.S. Population in 2000, Millions
25,000
20,000
15,000
Echo Boomers
Generation “Y”
Boomers
Generation “X”
10,000
5,000
Under 5-9
5
1014
1519
2024
2529
3034
3539
4044
4549
5054
5559
6064
6569
7074
7579
8084
85+
Source: U.S. Bureau of the Census
In just four years, for the first
time ever, there will be more
workers over 40 than there are
workers under 40.
The fundamental drivers of
economic growth are growth in
the labor force and productivity
gains. Given that the labor
force is not going to grow in the
near-term, Generations X and Y
will need to be as productive as
possible, meaning lifelong
learning and fluid skills
markets must thrive.
The aging of the Baby Boomers will become a significant economic issue, not
only for them but also for following generations.
Competition for jobs at the top of the hierarchy from older baby boomers and,
for the rest, competing with up and coming Generation Xers. In just four years,
for the first time ever there will be more workers over 40 than there are workers
under 40. As Fortune Magazine notes, “At some point after 2010, as babyboomers start to retire, companies will get desperate for workers—even older
workers. But until then, there will be too many highly paid boomers competing
for too few top jobs.”
Competing with young and hungry Generation Xers isn’t much easier—“The
harder Gen Xers work, the more they tend to resent all those 44-year olds who put
in half as many hours and earn more money. . . ‘You have to do more for young
people because they are likely to turn over more quickly than older workers.
Consequently, a lot of companies are putting young people on the fast track, so
you have 28-year-olds running entire departments that 20 years ago were run by
55-year-olds,’ explains Joe Gibbons, an H.R. consultant at William M. Mercer.
‘That’s a big change—it’s a sea change.’ ”(Fortune Magazine, Feb. 1, 1999).
Making Generations X and Y Hyper-Productive: Generation X may find itself
stuck between a demographic rock and hard place—in their peak earning years
they have to provide not only for themselves and their children, but also for the
retired Boomers. The fundamental drivers of economic growth are growth in the
labor force and productivity gains. Given that the labor force is not going to grow
in the near-term, Generations X and Y will need to be as productive as possible,
meaning lifelong learning and fluid skills markets must thrive.
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More Workers Exiting the Labor Force Than Entering
20%
Working Population Growth, 5-Yr % Change
15%
10%
1998
5%
1962
2005
0%
A demand/supply imbalance
has evolved that is particularly
acute in certain knowledge
services professions, such as in
the technology sector.
-5%
-10%
2020
-15%
1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026
Source: U.S. Census Bureau, ML Growth Stock Research
A demand/supply imbalance has evolved that is particularly acute in certain
knowledge services professions, such as in the technology sector. As a result,
companies must focus on managing this scarce labor resource. They are no longer be
able to choose from a ready pool of candidates. To manage this resource more
effectively, companies are focusing more time and money on recruiting, training and
retaining the best employees. Companies providing employee-related services to
businesses have a tremendous opportunity to grow along with this increasing need.
“For companies on the cusp of the Internet Age, the resource in shortest
supply is neither raw material nor capital, neither powerful technology nor
new markets. What keeps managers up nights at these companies is the
scarcity of brainpower, the talent to give wings to visions of a future that
becomes the present at the speed of light.”
– John Byrne, Author
n Urgency to Reduce Time to Hire and Increase Retention
Unemployment among
knowledge workers is believed to
be less than 1%, with some
fields actually having negative
unemployment rates (i.e., more
job openings exist than qualified
candidates to fill them).
308
As human capital continues to increase in importance as a strategic asset, the
urgency applied to obtaining it will increase, as well. A booming economy,
coupled with the other factors discussed above, has driven the recent
unemployment rate to 4%, a 30-year low. Unemployment among knowledge
workers is believed to be less than 1%, with some fields actually having negative
unemployment rates (i.e., more job openings exist than qualified candidates to fill
them). Due to the shortage in highly skilled job seekers, companies must hire
qualified candidates quickly or risk losing them to competitors. The ability to hire
qualified employees quickly and successfully will have a significant influence on
the future success of any company, as does the ability to effectively manage and
retain those employees.
The Knowledge Web – 23 May 2000 (Reprint)
It is proven that companies can generate an immediate and significant ROI from
retaining their MVE’s (Most Valuable Employees) through the use of human
capital solutions that include lifelong learning, effective deployment and constant
feedback and assessment of the employment experience. Human Capital
Solutions providers offering these types of services are benefiting from this trend.
n Free Agents Proliferate
Even satisfied employees are
increasingly investigating job
opportunities and moving on to
greener pastures with greater
frequency.
Even satisfied employees are increasingly investigating job opportunities and
moving on to greener pastures with greater frequency. Ease of information
exchange on the Net is creating a slew of new passive job seekers. A strong
economy is boosting workforce confidence, prodding workers to take greater
career risks than ever before.
Loyalty to one’s company no longer applies. Workers are more prepared than ever
to jump ship for a better opportunity. Part of this newfound independence may be
cultural, as the individual has superceded the institution in importance. A
significant part, however, is due to the wave of corporate restructuring during the
last two decades. Companies themselves made the first move in severing the ties
of loyalty during the mass corporate shakeups that displaced millions of workers –
even the “loyal” ones.
The average person entering the workforce today will work for between eight and ten
different employers, according to the U.S. Bureau of Labor Statistics, up from four to
six employers just two decades ago. This makes it more difficult for employers to
retain qualified, experienced individuals and increases the number of hirings that must
occur each year in order to maintain or grow an employer's workforce.
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47. The Net Shakes Up Human Capital
Management
The booming economy and tight labor market have made recruiting, training and
managing a workforce more essential than ever to a company’s success. At the
same time, these factors are opening up tremendous opportunities to job-seekers
and other participants in the labor supply chain.
In its most basic form, the Internet is already having a significant impact on
Human Capital Management. Knowledge workers and the companies that need
them have embraced the Internet as a preferred means of investigating career
opportunities and sourcing candidates, respectively. Businesses catering to this
clientele can drive revenue by providing content, community and commerce.
Advertising dollars will also be a significant revenue source for successful sites.
Online Recruiting Activity Expected to Explode
140,000
$18,000
$2,000
$16,000
$1,800
124,315
120,000
$1,600
$14,000
$12,000
80,000
$10,000
$8,000
55,780
60,000
$6,000
37,500
40,000
$4,000
23,865
20,000
20.0%
$1,340
$1,400
89,250
Recruiters
Advertising
Online
Online
Spending
per
Recruiter
($ millions)
# of Recruiters
100,000
25.0%
$1,740
$1,200
15.0%
$1,000
$800
10.0%
$400
$0
1998
1999
2000
2001
2002
2003
$200
% of Print
Classifieds
$525
$600
5.0%
$265
15,000
$2,000
Online
Spending for
Classifieds
$895
$105
0.0%
$0
1998
1999
2000
2001
2002
2003
Source: Forrester Research
n The Net Offers a Better, Faster and Cheaper Solution
Numerous sites have evolved that enable job-seekers to scour the job market
independent of headhunters and with much greater access to information. On the
other side of the coin, businesses can deal directly with job seekers without having
to go through an expensive and sometimes cumbersome middleman. Both
constituencies can leverage the power of technology to increase the efficiency of
the process while significantly reducing the amount of time involved.
The Internet slashes the costs
associated with recruiting.
310
The Internet slashes the costs associated with recruiting. The average cost per hire
with the Internet as the recruiting medium is $1,000, a tremendous cost savings
over more traditional mediums. On-campus recruiting, for example, typically
costs about $2,000 per hire. Hiring through job fairs costs about $3,000.
Newspaper classified advertising will typically run $5,000 per hire. Most costly
of all is the headhunter, who costs a whopping $12,000 per hire on average.
The Knowledge Web – 23 May 2000 (Reprint)
e-Recruiting Substantially Cuts Costs for Recruiters
Average Cost per Hire
$12,000
$12,000
$10,000
$8,000
$5,000
$6,000
$3,000
$4,000
$2,000
$1,000
$2,000
$0
Head Hunter
Newspaper
Job Fair
Campus
Internet
Source: iLogos
Why the Internet Is a Better Recruiting Media
In the Old Economy, companies looking for full-time employees usually relied on
a combination of five recruiting methods:
Online Classified Advertising Exploding
Online Recruiting Market
$1.7 Billion
$1,800
$1,600
1.
Print ads, particularly newspaper classifieds
2.
Headhunters
3.
On-campus recruiting
4.
Job fairs
5.
Internal sources, such as referral programs
($ millions)
$1,400
$1,200
$1,000
$800
$600
$105 Million
$400
$200
$1998
Source: Forrester Research
2003E
These five methods, while useful, can also be expensive and slow and have limited
richness and reach vis-a-vis the Internet. In the new economy, the Internet will
complement these traditional methods as a valuable resource for recruiters. The
Internet is the opposite of expensive, slow and limited in reach. It’s real-time,
anytime and everywhere and enables heretofore unrealized customization and
personalization.
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e-Cruiting Delivers Richness and Reach Driving Tremendous Value
Network
Effect
e-Cruiting
Richness
In-House
Referral
=
Optimal
Monetization &
Price-to-Value
Relationship
Headhunter
On-Campus Recruiting
Job Fair
Classified Ads
Reach
Source: Merrill Lynch Global Growth Group
The following are weaknesses associated with the traditional offline recruiting
methods and a brief description of how the Internet will improve upon them.
n Print Ads
Print ads suffer from the same drawbacks as do other print media when compared
to electronic media accessible on the Net.
312
1.
First, its marginal cost to the recruiter can be high, as advertisers are often
charged by the number of words or size of the ad. Thus, it may be expensive
for advertisers to post comprehensive job listings or company descriptions.
•
The Net Benefit: The marginal cost of posting data on the Internet is
essentially zero. Complete job and company descriptions can be posted at
virually no cost. In addition, these postings can be highly graphical and
descriptive and “live” forever (or as long as the posting fees are paid). They
can also be highly customized and personalized to target different users and
offer interactivity.
2.
Second, print ads suffer from time and distance constraints. Days or weeks
may pass from the time a want ad is created, sent to a publication, printed,
received and read by the job seeker, responded to and then acted upon. If
intermediaries, such as headhunters, media buyers or placement agencies are
involved, this time span is lengthened. In addition, print ads are only
accessible to readers of the publication in which they appear, which limits
their geographic and demographic reach.
•
The Net Benefit: Online want ads can be posted instantly on the Net and are
accessible to anyone with Net access. They can reach a boundless geographic
area and an essentially limitless demographic group. Dialogue and data
exchange between recruiters and job seekers take place at the speed of light.
Additionally, recruiters and job seekers have vastly improved search and
analysis capabilities of available opportunities and potential candidates.
Postings can also be updated instantaneously to reflect changes in job
requirements, responsibilities, benefits, availability, etc.
The Knowledge Web – 23 May 2000 (Reprint)
n Headhunters
Headhunters act as the gatekeepers of the recruiting process. They receive
numerous resumes from interested job-seekers and funnel them toward those
opportunities that appear to best suit them.
This gatekeeping function can serve as a valuable tool for recruiting companies by
winnowing down the list of candidates to a select few, thereby streamlining the
recruiting process for companies.
The average cost per hire
brokered by a headhunter is
$12,000, or more than twice the
cost of a newspaper want ad
and 12x the average cost of an
Internet-facilitated hire.
Headhunters can also be expensive, however. According to iLogos, the average
cost per hire brokered by a headhunter is $12,000, or more than twice the cost of a
newspaper want ad and 12x the average cost of an Internet-facilitated hire.
Headhunters are typically paid based on a percentage of the compensation package
offered to the job seeker and, in many cases, on the condition that the new hire
remains at the company for a specified minimum period of time. This
compensation arrangement could lead to skewed incentives for headhunters who
may tend to guide more job seekers toward those companies with higher
compensation packages and/or more lenient terms of tenure.
•
The Net Benefit: At an average cost of $1,000 per hire, recruiting on the
Internet is exponentially less expensive than through a headhunter. By
eliminating the gatekeeper, companies and job seekers can contact one
another directly, facilitating a frictionless data exchange. Of particular
importance, the low marginal costs associated with technology and the
Internet mean that companies can advertise and recruit for many more jobs at
lower pay scales than before, which significantly expands the addressable
market size for companies competing in the space.
n On-Campus Recruiting
On-campus recruiting offers the valuable face-to-face interaction that is currently
unavailable on the Internet due to bandwidth constraints. However, on-campus
recruiting resources are limited, and the process is time-consuming and expensive
for employers. Recruiters must visit multiple campuses. Once there, they have
only a limited amount of time to meet with prospective candidates. In addition,
the demand for interviews typically far outstrips the supply, which limits
opportunities for job-seekers and may omit attractive candidates from
consideration by companies.
The Internet enables
frictionless data exchange
between companies and job
seekers that streamlines the
recruiting process and opens up
more opportunities to both
parties.
•
The Net Benefit: The Internet enables frictionless data exchange between
companies and job seekers that streamlines the recruiting process and opens
up more opportunities to both parties. Online recruiting is also far less costly
than on-campus recruiting. Once broadband accessibility becomes more
widely available, companies and candidates will be able to conduct interviews
via online teleconferencing that will be far less costly to companies and
enable far more candidates to meet “face-to-face” with companies.
n Traditional Job Fairs
As with on-campus recruiting, traditional job fairs allow only limited time for
face-to-face interaction and also are relatively expensive and time-consuming.
Employers face the additional problem of not being able to pre-screen candidates,
meaning they could waste valuable time talking with unqualified job seekers while
qualified candidates go unattended. Job seekers also face the task of usually
having to find and visit an interesting company’s booth and only then being able
to determine what jobs are available and how attractive they are. This process is
time-consuming and potentially wasteful from a job seeker’s viewpoint.
•
The Net Benefit: As discussed in the on-campus recruiting section above, the
Internet enables frictionless data exchange between companies and job
seekers that streamlines the recruiting process and opens up more
opportunities to both parties. Online recruiting is also far less costly, and once
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broadband accessibility becomes more widely available, companies and
candidates will be able to conduct interviews via online teleconferencing.
The Internet can complement job fairs by advertising them in advance and
laying out company and job descriptions for prospective candidates to help
them focus their visits at the fair. Companies could also invite prospective
candidates to their booth via email and direct them toward a particular
representative to help ensure that the best candidates receive the attention they
deserve.
n Internal Sources
Many companies have internal referral programs that incent employees to refer
outside job seekers to the company for available positions. Overall such programs
tend to be a cost-effective source of candidates, but internal programs lack the
reach of the Internet.
The Internet can complement
promotion efforts by enabling
internal job boards and easily
accessible, continuously
updated worker profiles.
314
•
The Net Benefit: Referrals from existing employees are a valuable resource,
but the Internet can complement the channel by providing an efficient way for
referrals and recruiters to interact, at least in the preliminary stages of the
recruiting process. Job boards and recruiting sites, of course, also provide an
additional medium for recruiter-job seeker communication so that companies
can avoid relying too heavily on internal referrals. Often the best candidate
for an open position is already working at the company, and all companies
hire from within. The Internet can complement these promotion efforts by
enabling internal job boards and easily accessible, continuously updated
worker profiles. Employees interested in new opportunities at their company
can search the job postings for ideas. Managers and recruiters can scan their
company’s employee skills database to find qualified and interested
candidates to approach about a particular position.
The Knowledge Web – 23 May 2000 (Reprint)
Online Recruiting Complements Traditional Offline Methods for Sourcing Candidates
Media
Problems/Limitations of the Traditional Media How New Media "Fixes" the Problem
Outcome
Print Ads/Classifieds
•
Space is scarce, so the medium is priced by
word/size
•
Space is infinite
•
•
Marginal cost of distribution exists
•
Marginal cost of distribution is essentially •
zero
•
Time-consuming
•
Instantaneous
•
•
Limited distribution (e.g., geographically,
subscribers)
Difficult to pre-screen candidates
•
Ubiquitous to anyone with Internet
access
Online testing & sorting can whittle down
list
Job descriptions from numerous
companies posted
Electronic data exchange via email can
help
•
Job Fairs
•
•
•
•
•
On-Campus Recruiting
•
•
In-House Recruiting/Referrals •
Headhunters
•
•
•
•
Difficult for job seekers to "pre-search"
available jobs
Limited time available for interaction and
information-sharing
Marginal costs high / Requires physical
presence
Limits available pool of candidates
Demand for position exceeds supply of timeslots
Same issues as job fairs above
Limited talent pool/Doesn’t allow for bringing in
outsiders
Expensive
Lack of control (Headhunter manages
available pool)
Recruiters & job seekers are not in direct
contact
Job seekers often have limited information
about the opportunity
•
•
•
•
More detailed job
descriptions, Greater number
of job postings
Greater number of people
can be exposed to the
postings
Recruiting cycle times cut
drastically/Less friction in the
system
Greater exposure for and to
job opportunities
Better focus to the process
•
Better focus to the process
•
•
•
Interaction possible with many
candidates
Same as above
Large talent pool/Infusion of outside
talent
Vastly lower costs
Complete control
•
Directly links recruiters with job seekers •
Greater information flow
enables better decisionmaking
Greater efficiency at lower
cost
More candidates means
greater selection
More candidates means
greater selection
Same as above
More candidates means
greater selection
Tremendous cost savings
Greater comfort level with
available talent
Potentially greater efficiency
•
Greater information availability &
exchange
•
Potentially greater efficiency
•
•
•
•
•
Low/Zero marginal costs / Online
interactivity
"Geography is dead"
•
•
•
•
•
•
•
Source: Merrill Lynch Global Growth Group
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48. The Human Capital Management
Landscape
Improved sourcing through the use of job boards and other online media represent
the first breakers in a tsunami of change. In our view, we are only beginning to
witness the impact of the Internet, which we believe could significantly alter the
Human Capital Management landscape over time. Below is a diagram of our
market segmentation comparing the business models (Media, Service, Software)
we see and their solution to human capital management requirements.
Human Capital Management Activities Are Moving Online in Phases
Completeness of Solution
Phase II:
Applicant Tracking, Assessment,
Testing, Certifying, Training
Media
Phase I:
Sourcing
Phase III:
Managing, Deploying,
Retaining
Job Boards
Related Services Suppliers
Service
Business Model
Vortals
Web Based Staffing and Search
Exchanges - Connect Corporations, Staffing Vendors &
Independent Professionals
Software
ASP: Job Board Hosting, Applicant Tracking
Enterprise/ASP: Workforce Management Systems (Professional Services Automation)
Source: Merrill Lynch Global Growth Group
Phase I: Sourcing Candidates
The Internet is already having a profound effect on recruiting and employee
services. As demonstrated above, first and foremost, the Internet is a spectacular
information tool, placing more information about candidates and jobs than ever
imagined at the fingertips of job seekers, corporations and recruiting firms alike.
e-Recruiting’s most “mature” business, the job board, connects job seekers and
employers online. Typically, services such as resume-building, resume-posting
and job search agents are provided for free to job seekers, while recruiters pay to
post job opportunities and search resume databases. Revenues are also derived
from advertising, content, commerce and data services. Other business models
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include job posting aggregators (e.g. FlipDog.com) and sites that offer free job
posting (e.g. Jobsonline.com), which earn their revenue solely from advertising,
marketing and data services. The attractive economics (5:1 cost advantage vs.
classified advertising), convenience to the job seeker (24/7, global access and
automatic searches) and reduced time-to-hire are driving the market’s growth.
The job board market is highly
competitive, with over 3,000
career job boards currently
operating on national,
international, or local
platforms.
The job board market is highly competitive, with over 3,000 career job boards
currently operating on national, international, or local platforms. There are a
number of clear leaders – currently 10 companies consistently rank in Media
Metrix ratings; the lowest gets 275,000 visitors/month and the highest,
Monster.com, attracts 3.5+ million visitors/month. While we project significant
growth for the job boards, the growth should disproportionately benefit the market
leaders, as the mid-tier and smaller general job boards will likely be consolidated
into the larger players over time, or disappear altogether.
Despite the obvious attractiveness of using job boards to source candidates, there
are drawbacks. Employers and job seekers report limited success using online
sites in large part due to a lack of quality information. In an industry where
sometimes more is less, finding a quality employee on the Internet is like finding a
needle in a haystack, requiring that employers sift through mountains of applicants
in order to find a reasonable list of candidates. Although taxonomy, parsing and
other software technologies are constantly improving, these requirements heighten
the need for data management, bringing new software, ASP and data management
providers into the marketplace. In addition, the job boards are adding services
such as tracking and prescreening to improve and refine their offerings, and niche
sites (vortals) claim an inherently more targeted approach that yields better results.
In an industry where sometimes
more is less, finding a quality
employee on the Internet is like
finding a needle in a haystack,
requiring that employers sift
through mountains of
applicants in order to find a
reasonable list of candidates.
Phase II: Vortals, Service extensions and ASPs
n Vortals (Vertical Portals)
Vortals, or “Vertical Portals” are similar to job boards; however, they typically
focus on a single career segment or demographic, such as technology
professionals, salespeople, college students or executives. As a result, vortals
offer more specific industry content and services, such as assessment and training,
and they derive a greater percentage of revenue from advertising, content,
commerce and the sale of data than general job boards. Although audience size is
more limited, vortals do have a significant opportunity to “monetize” their user
base by continuing to expand with value-added services.
Vortals exhibit significantly higher page views on average than their general job
board counterparts. Two vortals currently register in Media Metrix ratings,
dice.com and computerjobs.com. Average pages viewed are double that of the
general job board average. We expect strong growth from the vortals, especially
as leaders emerge in various industry/demographic segments. Highly specialized
vortals that do not have the critical mass for sustainable growth will likely be
consolidated into the larger general job boards over time. We believe that
ultimately even the larger job boards will look to acquire or develop vertically
focused career-related sites in a race to capture the best content and a critical mass
of users while simultaneously eliminating competition in the space.
We expect strong growth from
the vortals, especially as leaders
emerge in various
industry/demographic
segments.
n Service Extensions
Both vortals and general job boards are adding services in order to provide a
robust online recruiting solution to corporate clients. Niche service providers such
as Brainbench (skills testing), Pre-employ.com (background checks) and Avert
(screening) are helping them. Services such as applicant tracking, assessment of
skills and fit, reference checks and training & certification services are being
provided in unbundled and bundled service offerings. Although most of the
service extensions by vortals and job boards come from developing alliances or
partnerships, some have acquired related service providers and staffing companies
to provide an end-to-end recruiting solution.
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n Private Label Job Board Application Service Providers (ASPs)
Traditional staff and search
firms are increasingly
unbundling their services and
partnering with online
providers to offer end-to-end
online human capital solutions.
Private label job board outsourcers typically manage the career websites of their
corporate clients and are responsible for maintaining the candidate applications
and resumes that come in through the websites and from other sources, such as job
boards or career fairs. These services are increasingly being provided through an
ASP model, with an initial set-up fee and recurring monthly charge in exchange
for access to the services and software. ASP applicant tracking services almost
always include resume scanning, resume/skills indexing and company-wide access
to a candidate’s status throughout the recruiting process. Recruiters can
communicate with one another through the system and when used in conjunction
with a company’s internal Human Resource Management System (such as
PeopleSoft). e-Recruiters can also evaluate both internal and external candidates
and thus improve hiring and deployment decisions. In addition, ASPs allow
buying, tracking and assessment of ads directly through the recruiter’s desktop,
allowing companies to monitor the ROI from its various forms of recruitment.
Phase III: Temporary staffing increasingly moves
online and other unique models
n Internet-Based Staffing and Search
Traditional staff and search firms are increasingly unbundling their services and
partnering with online providers to offer end-to-end online human capital
solutions. The result is myriad human capital ecosystems that include providers of
sourcing, tracking, assessing, training and deployment services. Kforce.com,
LeadersOnline, Interim Services and Robert Half are all excellent examples of
temporary staffing and search firms participating in online recruiting, although
each differs in its approach.
Given the severity of the labor
shortage in the IT area, it is not
surprising that another online
human capital management
model has emerged that we
liken to a FreeMarkets or Ariba
for employment services.
Kforce.com has taken a “no holds barred” approach in moving its entire business
model to the Internet. With a heavy spend on developing its proprietary job board
as well as unique online assessment tools such as SkillMercials (candidate video
clips), kforce.com wants to provide every component of the human capital value
chain online – either bundled or unbundled. Similarly, Interim Services is
bundling and unbundling its services, such as its Interim Assessment Services. In
contrast, Robert Half is more conservative in its approach, using Internet tools
such as “bots” and job boards, offering personalized job search agents, developing
partnerships with related service providers, such as SmartForce (training), and
deploying PeopleMover’s software solution to enhance its existing end-to-end
business model. FutureStep is executive recruiter parent Korn/Ferry’s effort at
targeting the mid-markets, using the internet to source candidates that may suit
one of the company’s current candidate searches.
n Independent Professional (IP) Exchange
According to Department of Labor statistics, one in 16 workers is self-employed.
The bureau estimates the demand for outsourced labor will rocket to 50 million
projects by 2002 - up from 20 million this year. Similarly, according to
GartnerGroup, consultants will represent 50% of a typical large IT department by
2002, up from 7% in 1993.
Given the severity of the labor shortage in the IT area, it is not surprising that
another online human capital management model has emerged that we liken to a
FreeMarkets or Ariba for employment services. Skills marketplaces connect
today’s independent professionals with companies in need of specific skills for a
certain period of time. Generally, the sites allow companies to post projects and
search from large pools of independent professionals. The sites also give IPs
access to a variety of corporate-style benefits including insurance, billing and
receivables assistance, tax management, etc.
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The model is particularly well-suited for the IT world and other project-focused
jobs. Companies like Guru.com, Monster.com (Monster TalentMarket), Aquent,
FreeAgent.com (Opus 360), SkillsVillage and Niku are actively participating in
skills marketplaces. To date, the skills marketplace activity has been very onesided, lots of independent professionals are signing up with limited response from
corporate recruiters. For example, as of April 2000, Monster Talent Market had
144,000 registered professionals, 44,000 registered auctions and yet only 100
auctions completed to date. Why the disconnect?
Necessity is the mother of
invention, however, and we
believe the need for skilled
workers will ultimately drive
greater adoption of talent
exchanges by recruiters.
In our view, skills marketplaces present a fundamental shift in the employer/
employee relationship, one that corporate recruiters are still skeptical of.
Necessity is the mother of invention, however, and we believe the need for skilled
workers will ultimately drive greater adoption of talent exchanges by recruiters.
We think skills marketplaces will follow the S-curve typical of new technology –
slow at first, but ramping much more quickly than investors expect. We expect
that value-added services, such as assessment and certification, will be included to
boost employer acceptance of independent professional services. In addition, we
think that staffing companies could serve as intermediaries to lessen the corporate
administrative burden of deploying and managing numerous free agents.
Market Forces Drive Firms to Change
From…
In-house skills
Strategic, single source
Largely employees
Internally focused
Bounded, qualified, fixed
Source of technical talent
Partnerships with professional services firms
Population of skilled professionals
Technology project orientation
Required project skills
To…
Reliance on outsourcing
Tactical, multiple sources
Growing population of independents
e-Business, inter-enterprise
Fragmented, numerous, variable
Source: Forrester Research, “Skills Marketplaces Emerge,” October 1999
n Vendor Exchanges (B2B)
We estimate that the average Fortune 1000 corporation uses in excess of 500
staffing vendors from large global staffing firms to local mom & pops. The new
virtual organization is placing an extreme burden on the current corporate
outsourcing infrastructure. Today’s outsourcing process is characterized by a lack
of information on vendor efficiency, project efficiency, contractor efficiency and
overall costs and relies heavily on an inefficient, outdated, paper-based procurement
process. As a result, corporations are stuck in a web of contractor confusion – Who
is on what project? At what rate? For how long? Are they performing well? At the
same time, staffing firms lack quality information on client’s ongoing human
resource needs. The result: delayed projects and increased costs.
Today’s outsourcing process is
characterized by a lack of
information on vendor
efficiency, project efficiency,
contractor efficiency and
overall costs and relies heavily
on an inefficient, outdated,
paper-based procurement
process.
Vendor Exchange/Facilitators help corporations manage their relationships with
staffing suppliers, which, to some extent, include independent professionals.
Vendor online exchanges are primarily concerned with the sourcing of outside
talent and allow corporations to communicate project needs to an open network of
staffing suppliers. Through B2B exchanges, staffing firms receive access to
opportunities from a host of hiring companies, updates on the status of requests
and submissions, and the ability to negotiate terms and finalize contracts with the
hiring companies directly. Exchanges streamline the processes of procuring and
managing labor resources across the entire labor supply chain.
Enterprise or ASP-based contractor tracking technologies help ensure that
corporations have the right people working on the right projects at the right time
and at the correct billing rate. With the technology, users can manage project and
resource schedules in real time, with constant collaboration from staffing
suppliers. The background, skills and training of outsourced labor are centralized,
tracked and updated on a real-time basis, enabling optimization of human capital
management. The systems also reduce the administrative burden of dealing with
numerous vendors by allowing individual users to capture, manage and report time
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spent on projects, as well as ongoing expenses. Related capabilities include project
and practice accounting such as automatic capture of Time & Expense information
and real-time input and tracking of Time & Expense by client projects. Examples of
B2B labor exchanges/contractor tracking technologies include Opus 360 xChange,
Bridgepath’s Recruiter Network, Nitorum and Vivant!.
n Workforce Management Systems Software (PSAs)
While supply chain automation tools are widely used for the procurement of raw
materials and hard goods, that is not yet the case for service businesses. The easily
tangible impacts of better inventory management and pricing have only recently
been translated into historically murky, but related, human capital concepts like
project timelines, employee satisfaction, skills utilization, etc. At last, technology
providers and corporations are beginning to understand the impact that software
tools can have on getting the most out of a corporation’s human capital. According
to IDC, the service industries supply chain automation packaged application market
is expected to reach $11.7 billion in 2003, at a 108% CAGR.
Expectations of a Booming Application Market
$11,723
$12,000
The easily tangible impacts of
better inventory management
and pricing have only recently
been translated into historically
murky, but related, human
capital concepts like project
timelines, employee
satisfaction, skills utilization,
etc.
$10,000
CAGR = 108%
$8,000
$6,707
$6,000
$3,478
$4,000
$1,757
$2,000
$254
$621
$0
1998
1999
2000E
2001E
2002E
2003E
Source: IDC
Workforce Management Systems are software/services that help service
businesses procure, manage and deliver knowledge workers. A must for any
professional services organizations and an increasingly important tool for every
organization, Workforce Management Systems (or Professional Service
Automation systems) provide instant access to the skills, experience and
availability of every workforce member, enabling strategic deployment of people
globally in real-time. Teams share project specifications, timelines, background
and statistics through a virtual community that enables service organizations to
efficiently deploy and manage their professional resources. As a result, customers
obtain more accurate project cost estimates and timelines, which enhances
customer satisfaction and increases long term profitability. Other byproducts
include improved utilization of people, skills and time and ultimately improved
employee satisfaction and retention.
Workforce management systems are typically tailored for staffing firms,
professional service organizations or corporate internal professional service
departments, such as IT. Most Workforce Management Systems are partnering
with various skills marketplaces and job boards to improve access to knowledge
workers. Change Point and SkillsVillage provide an example of such a
partnership. Other examples of workforce management systems include Icarian,
Niku, Nitorum, Opus and Personic.
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The following is a partial list of companies in the Online Human Capital
Management Sector, as categorized into one of seven groups:
Job Boards
Vortals
Related Services
Internet Based Staffing & Search
Vendor and Independent Professional Exchanges
ASP Job Board/Applicant Tracking Services
Workforce Management Systems
Despite our effort to conveniently confine each company to a single category, we
recognize that service lines are constantly blurring, especially given the recent
spate of partnerships and alliances in the sector.
Venture Capital Pours Into the Sector
As the Internet continues to
expand the employee services
industry and facilitate its
growth, there are an increasing
number of compelling
investment opportunities
developing in the sector.
As the Internet continues to expand the employee services industry and facilitate
its growth, there are an increasing number of compelling investment opportunities
developing in the sector. The attraction of private capital to the space is a leading
indicator of the public investment opportunity to come. Venture capital
investment in the sector is increasing, particularly in businesses that are
developing a blend of value-added services.
The industry is sourcing venture capital from a host of high profile technology
investors, such as Kleiner Perkins and Accel Partners, as well as numerous
“related parties” looking to protect their legacy franchises and participate in new
growth outlets. Many newspaper and new media companies have invested in job
boards and vortals (e.g. the Washington Post and Tribune Company/BrassRing
and CNET/Techies.com), while professional service firms such as Cambridge
Technology Ventures and Tata Consulting have actively invested in services
automation technology and skills marketplaces such as Opus 360 and Niku,
respectively.
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E-cruiting/Human Capital Management (1999)
Amount
($millions) Investor(s)
$2.4 Lombard Investments, Inc.
$47.7 New Enterprise Associates, 21st Century Internet Venture Partners, TTC Ventures, ADP, FBR Technology
Venture Partners L.P., GE Capital, GE Pension Fund, and Microsoft
Careerstaff Unlimited
$0.9 RS&Co., Bayview Fund c/o Robertson Stephens
CRUEL WORLD (FKA: Career Central)
$35.0 Softbank Technology Ventures, Individual Investors, IDG Ventures, Allen & Company Incorporated,
Arthur Rock & Co., Technology Crossover Ventures, QuestMark Partners, Sycamore Ventures
ELance.com
$12.0 Kleiner, Perkins, Caufield & Byers
Expertcity.com
$32.0 Wit SoundView Ventures-Dawntreader Funds, Bertelsmann Ventures, Ziff-Davis Publishing, Sun
Microsystems
Guru.com
$19.0 Greylock Capital, August Capital, Charter Capital
HotJobs.com
$16.0 Generation Partners, Bessemer Venture Partners and Boston Millennia Partners
Jobs.com
$68.0 idealab Capital Partners, CBS Corporation, Individual Investors
HireSystems (BrassRing)
$79.0 Accel Partners, Washington Post Company, Tribune Company, Kaplan Education
Hire.com
$21.0 Austin Ventures, Murphree Venture Partners, Eos Ventures, G51, Crosspoint Venture Partners, Kleiner
Perkins Caufield & Byers, TL Ventures, Dell Computer, Hearst Corp, Pulitzer, Essex Investment Mgmt
ICPlanet
$8.7 Polaris Ventures, Spectrum Equity, Texas Pacific Group
Icarian
$18.0 Wheatley Partners, H&Q Technology Fund, Fidelity Ventures, Kleiner Perkins, Presidio Venture Partners
JobDirect.com
$5.5 Canaan Partners, Scripps Ventures, Soros Fund Management
Niku Corp.
$40.0 Amerindo Investment Advisors, Charter Growth Capital, Essex Investment Management Company, LLC,
Soros Private Equity Partners LLC, CNET, Inc. and TATA Consulting
Niku Corp. (Second Round)
$20.0 J.H. Whitney, Venrock Associates, Comdisco Ventures, Hambrecht & Quist/Access Technology Fund,
The Phoenix Partners and Trust Company of the West.
Nitorum
$3.0 Pequot Capital
Opus360
$40.0 Safeguard Scientifics, CrossPoint Ventures, Odeon Capital, Cambridge Technology Ventures
PENgroup.com
$3.0 Pequot Capital, Softbank Technology Ventures, Net Investments
Peopleclick.com
$7.0 North Carolina Enterprise Fund, Primus Venture Partners, Lovett Miller & Company
Quick Arrow
$4.0 Austin Ventures, Access Venture Partners, Individual Investors, Hook Partners, PM Operating
SkillsVillage
$8.8 Atlas Venture, Individual Investors
Techies.com
$46.0 Omega Venture Partners , Norwest Venture Partners, Dain Rauscher Wessels Investors, Winton
Partners, CNET, Red Hat, East Peak Partners LP, SI Investors, ZDNet, Norwest Venture Partners and
Crosslink Capital, and Individual Investors
University ProNet
$10.0 Draper Richards, TDF Capital, Warburg Pincus Ventures
Vault.com
$9.0 Hollinger Ventures, American Lawyer Media, Ingram, DB Alex Brown
Vivant!
$11.6 Internet Capital Group, Associated Venture Investors, Imperial Ventures
WebHire.com
$20.0 Softbank Capital Partners, Yahoo!
WorkExchange
$1.5 Draper Fisher Jurvetson
Total
$589.1
Company
Career Choices, Inc.
CareerBuilder.com
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E-cruiting/Human Capital Management (YTD 2000)
Amount
($millions) Investor(s)
$4.0 HIG Capital Management
$11.0 GE Capital Equity Capital Group, GE Pension Trust, New Enterprise Associates, 21st Century Venture
Partners, Automatic Data Processing (ADP), TTC Ventures, and FBR Ventures
ComputerJobs.com
$15.0 Internet Capital Group and other strategic investors
EmployeeService.com
$15.6 First Analysis Venture Capital, eCompanies, DC Ventures (New York, NY), Wilson Sonsini Goodrich,
Mindful Partners
Evolve Software
$25.0 Goldman, Sachs & Co., Deutsche Banc Alex Brown, SunAmerica Ventures, Whitman Capital, CitiCorp
Icarian
$55.0 Van Wagoner Capital Management, Fidelity Ventures, Kleiner Perkins, H&Q Technology Fund, Patricof,
Sun Microsystems, Inc., Oracle and Blackfin Capital
Jobs.com
$8.2 Adecco SA
Nitorum
$10.0 Pequot Capital, Archery Capital, LLC, J. & W. Seligman, C. Blair Asset Management, LP
Novient
$25.0 Noro-Moseley Partners, Hummer Winblad Venture Partners, NetWorth Partners, Lovett-Miller Ventures,
R-H Capital Partners, First Union Capital Partners
Opus 360
$14.0 Crosspoint Venture Partners, Wheatley Partners, Odeon Capital Partners, Safeguard Scientifics,
Cambridge Technology Capital Fund I, L.P,CompuCom, MSD Capital, Gartner Group, Bain Capital, Arista
Capital Partners, BancBoston Ventures, Wit SoundView Ventures-Dawntreader Funds
Personic
$18.0 AIG Developed Markets Private Equity Fund, L.P, BancBoston, Battery Ventures, Technology Crossover
Ventures
Portera.com
$33.0 Van Wagoner Capital Mgmt, Kleiner Perkins Caufield & Byers, Institutional Venture Partners, RRE
Ventures, Oracle, Weiss, Peck & Greer Ventures, H&Q Venture Associates, Integral Capital Partners
SkillsVillage.com
$16.7 Atlas Ventures, Technology Partners, Dominion Dominion Ventures, PeopleSoft, SAP America
Techies.com
$22.0 J. & W. Seligman & Co., Winton Partners, Crosslink Capital, Norwest Venture Partners, Individual
Investors, Ziff-Davis Publishing, CNET, Red Hat, SI Capital, Dain Rauscher Wessels Investors
VirtualEmploy.com
$6.5 Book Group, DB Alex Brown
Wetfeet.com
$9.0 Mohr Davidow
WorkExchange (FKA Conduit)
NA Draper Fisher Jurvetson
Total
$288.0
Source: Securities Data Corp., Venture Source, EduVentures.com, Company Press Releases
Company
Brainpower.com
CareerBuilder.com
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49. Investable Themes
n End-to-End Human Capital Solutions
Companies providing end-to-end online solutions that are attracting critical mass
to their sites, developing long-term relationships with the job seeker to keep them
coming back and providing value-added services (either independently or through
strategic partnerships) that will ultimately convert a pool of applicants into
placements.
n Related Service Specialists
e-Recruiting-related service providers that can dominate their specialty service
areas and create scale through partnerships with job boards, portals, staffing
companies, etc. Services include private label job board design and maintenance,
applicant tracking, assessment of skills and fit, background checks, skills
certification, training companies, etc. In addition, HR Consulting firms that help
corporations design, manage and measure their human capital initiatives could
present a sizeable future investment opportunity.
n Traditional Staffing Companies
Traditional staffing companies that are effectively “webifying” their businesses to
include all/some components of online recruiting to streamline existing processes
and provide a “cafeteria plan” approach that broadens their market reach.
n Software and Services Automation
Software and service providers that are streamlining core human capital processes
including recruiting, hiring, deployment, tracking, project management and
managing intellectual capital.
n Online Market-Maker Models
New, speculative, transaction-based exchange models could radically alter the way
businesses obtain human capital. These include independent professional
marketplaces, client/vendor based exchanges and recruiter network exchanges.
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50. Select Company Profiles
Following are profiles of selected companies actively participating in the online
Human Capital Management market.
Select Company Profiles in this Section
Company Name
BrassRing
BridgePath.com
CareerBuilder (Nasdaq: CBDR)
ComputerJobs.com
EarthWeb/Dice.com (Nasdaq: EWBX)
Futurestep/Korn/Ferry (NYSE:KFY)
Guru.com
Headhunter.net, Inc. (Nasdaq:HHNT)
Hire.com
HotJobs.com (Nasdaq:HOTJ)
Icarian
Jobs.com
Kforce.com (Nasdaq:KFRC)
Leaders Online/Heidrick & Struggles (Nasdaq:HSII)
Monster.com/TMP Worldwide (Nasdaq:TMPW)
Niku (Nasdaq:NIKU)
Nitorum
Opus360 (Nasdaq:OPUS)
Personic
SkillsVillage
Techies.com
TopJobs.net PLC (Nasdaq:TJOB)
Vault.com
Vivant!
WebHire.com (Nasdaq:HIRE)
Page Number
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328
330
331
332
333
334
335
336
337
338
339
340
341
342
343
344
345
346
347
348
349
350
351
352
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BrassRing, Inc.
BrassRing Inc. combines recruiting, career development
and hiring management services to serve employers and
employees at every step. With strategic assets and $72
million in funding from Kaplan Educational Centers/The
Washington Post Company, Tribune Company and Accel
Partners, BrassRing operates as an independent company.
Kaplan is the majority shareholder.
Joboo: Joboo provides employers a best-of-breed solution
for managing their company’s own job sites. Clients retain
control of content posted on the job site, while BrassRing
assumes responsibility for the architecture and ongoing
maintenance of the site. Joboo enables employers to build
private databases of candidates visiting corporate job sites
and market to those candidates.
BrassRing's market segments include both corporate
recruitment services and the online training market, both of
which are large and growing. By leveraging the strengths of
its parent companies and combining strategic assets,
BrassRing will effectively attract both companies and
professionals, creating a synergistic networking environment.
BrassRing’s web-sites and career fairs support an
integrated online/offline strategy that help companies
quickly identify and gain access to high quality candidates.
The company is focused on two segments of the
marketplace where the shortage of labor is most acute:
technology and the college market where the
constituencies are particularly Internet savvy.
Through its units BrassRing.com and HireSystems,
BrassRing provides an array of online and offline
resources that helps employers simplify and accelerate the
hiring process, and helps individuals to build skills and
find a better job. BrassRing’s HireSystems® is a fast
growing application service provider (ASP) in the hiring
management field. The product provides web-based
resume management and applicant tracking services to
over 120 clients as well as corporate job site hosting.
Express: Express is a turnkey, Web based-solution
delivered through an ASP model that processes candidate
resumes, tracks applicants, provides secure database
hosting and also provides recruiting software. The system
accepts candidate submissions via various media, such as
paper, email and online. The data is then compiled in a
relational database with searching and reporting functions.
BrassRing.com: BrassRing.com, including incpad.com by
Westech, is a leading portal and destination site for highquality IT candidates. The site offers relevant content, such
as the latest news and articles on technology, career
management tools and resources, an extensive database of
technology jobs and resumes, as well as free e-mail service
and tools for personalization.
thepavement.com: Focused on young adults with zero to
five years of work experience, thepavement.com, provides
access to a national database of entry-level and earlycareer jobs and relevant general content to help recent
graduates make the transition from college to the
workplace, including information on apartment finding,
buying a car, student loans and managing finances.
The BrassRing Network Effect
College and MBA
Demographic
Corporate Clients
thepavement.com
• 200,000 + resumes p.a.
• 350 Colleges
Nationwide
B2B ASP Model
HireSystems Express
Joboo.com
Academic
Software
•
•
120 Clients
10 New per month
Vortals
IT Vortal*
BrassRing.com
• Relevant IT
information
• 1.9 million unique
users per month
• Superior database
• Education,
Assessment, and
Certification
Health Care Vortal*
ResLink
•MBA resumes
Source: Merrill Lynch Global Growth Group.
326
Sales and Marketing
Vortal*
The Knowledge Web – 23 May 2000 (Reprint)
Virtual Career Events: Enables candidates and recruiters to
research and meet online before meeting at a physical career
event.
Physical Career Events: BrassRing provides physical
career events in North America and Europe in the
technology, healthcare, sales/marketing and
general/professional sectors. With the acquisition of
Westech, BrassRing is the world's largest provider of
career events for technology professionals. Westech’s 18
year history of matching IT professionals and employers
through its career events has created brand recognition
among its constituency as a leader in high tech recruiting.
BrassRing is executing a strategy that responds to the
demands of its target markets. It has established “relevant”
online communities for IT professionals, college students
and corporations alike. Its unique combination of online
and offline services and information have a global reach,
but are fundamentally focused on local communities,
which is supported by its leadership in the career events
marketplace. The company also publishes a bimonthly
magazine called High Technology Careers. From its websites to career events to print media, BrassRing takes a
holistic approach to providing career management services
to IT professionals and the college market.
Founded: September 1999
1999 Revenues: Not Available
Headquartered: New York, NY, and San Mateo, CA
2000E Revenues: Not Available
Public/Private: Private
Revenue Components:
URL: BrassRing.com / incpad.com
Content:
Claim to Fame: BrassRing’s network combines
recruiting, career development and hiring management
services to serve employers and employees at every step.
Commerce: X
Key Investors: Kaplan Educational Centers, The Washington Post
Company, Tribune Company, Accel Partners
Key Partners: Kaplan Educational Centers, The Washington Post
Company, Tribune Company
Key Customers: 3Com, Nokia, Ariba, Inktomi, SAP, Bose, Data
General, Alcoa, Quaker Oats, Kimberly-Clark, Dun & Bradstreet
X
Advertising: X
Service:
X
Other:
X
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics: (at launch)
Number of Clients: 3,500
Number of Users: 200,000 (job candidates), 425,000 resumes
Number of Content Partners: Not Available
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BridgePath
BridgePath is creating a B2B online marketplace for
recruiting and staffing firms. BridgePath’s recruiter-torecruiter exchange is designed to enable recruiting firms to
share candidate contacts and job leads and split fees upon
placement, thus successfully outsourcing placement
opportunities that would otherwise go unfilled. Today, it is
not uncommon for cooperating recruiting firms to share
candidates and job openings and split the resulting
placement fee. At present, 5%-7% of all placements are
accomplished through splits. The process, however, is very
inefficient, with illiquid information flow, a highly
perishable “inventory” of jobs and candidates and no
independent marketplace to provide volume and liquidity.
We think an independent exchange – a “Nasdaq” for the
recruiting and staffing industry – could significantly
increase the number of split transactions. We also believe
that the exchange market is winner-take-all, providing
enormous opportunity to the company that can get there
first and create liquidity that will seed the exchange and
BridgePath’s “Nasdaq” for the Recruiting and Staffing Exchange
Source: BridgePath
328
drive real switching costs.
The BridgePath Exchange addresses a major problem that
large and small staffing firms face – the inability to fill
their job orders or candidates. According to the company,
more than 60% of job orders and over 80% of incoming
candidates at staffing firms go unfilled by that firm. The
perishability of inventory is the main driver behind an
exchange for this industry. Procurement exchanges (like
Ventro and others) are powerful because of the declining
value of inventory. In this case, we are dealing with an
even more pronounced perishability of inventory, making
an exchange all the more appealing.
BridgePath recently made some major additions to its
management team including Adrian Blakey, the former
Director of Engineering at Amazon, as Vice President of
Technology, and Andrew Boer, the founder of Accept.com
and former Vice President of Strategy at Brodia, as Vice
President of Sales.
The Knowledge Web – 23 May 2000 (Reprint)
Founded: 1996
Revenue Components:
Headquartered: San Francisco, CA
Subscriptions: X
Public/Private: Private
Commerce:
URL: bridgepath.com
Advertising:
Claim to Fame: BridgePath has an important advantage in being
an early-mover providing an independent exchange for recruiting
and staffing firms. In a winner-take-all environment, this advantage
shouldbe critical in driving BridgePath’s long-term success.
Services:
X
X
Other:
Network Effect: Yes
Coolest Feature on the Website: The BridgePath Exchange
includes a a sophisticated ratings system that builds trust among
staffing firms to encourage transactions. BridgePath has built a
system that has both objective and subjective trust metrics.
Hub/Portal Strategy: No
Key Investors: NA
Metrics:
Number of staffing/recruiting firms on the exchange
Number of transactions on the exchange
Key Strategic Partners: Kennedy Information, eCal, WetFeet.com,
Guidance Solutions, AIRS (Advanced Internet Recruitment
Strategies), GetRelevant, Recruiters Online Network, Dephi Forums,
PeopleLink Ticketmaster Online-CitySearch
Key Customers: NA
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CareerBuilder, Inc.
Through its website, CareerBuilder.com, and the world’s
largest network of career sites, Career Network, the
company is potentially able to reach 86 million viewers
with a base of about 3 million job postings.
CareerBuilder has been noted for its consistency of growth
by Media Metrix. The company has demonstrated
consistent month-over-month growth in unique visitors.
Founded: 1996
Headquartered: Reston, Virginia
Public/Private: Public (Nasdaq: CBDR, Not Rated)
URL: careerbuilder.com
Claim to Fame: Demonstrated consistent growth in attracting job
seekers through its network of 27 prominent career sites.
Coolest Feature on the Website:
Key Investors: Microsoft, GE Capital Equity Capital Group,
GE Pension Trust, New Enterprise Associates, 21st Century Venture
Partners, Automatic Data Processing (ADP), TTC Ventures and FBR
Ventures
Key Partners: Business Week, USA Today, NBC Interactive,
Bloomberg, TicketMaster Online Citysearch, NBC and MSN.com
Key Customers: 1,300 customers include GTE, AOL, Merrill Lynch
and EDS
330
Features on the CareerBuilder.com website include:
• Personal search agent service automatically notifies
job seekers by e-mail when jobs match their criteria.
• Career advisors standing by to answer job seekingrelated career questions.
• Career News provided by USA TODAY.com
• A career e-zine, ACHIEVE, that provides monthly
career articles and tips for professionals.
• A Web guide link directory of over 500 links to other
useful career information from around the web.
1999 Revenues: 14.9 million
2000E Revenues: Not Available
2001E Revenues: Not Available
Market Cap: $55.5 million (5/15/00)
Revenue Components:
Content:
Commerce: X
Advertising: X
Service:
X
Other:
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics:
Number of Clients: 1,500+/2 million+ postings
(including network affiliates)
Number of Users: 600,000 unique visitors (March 2000)
Number of Content Partners: 28
The Knowledge Web – 23 May 2000 (Reprint)
Computerjobs.com
ComputerJobs.com is a vortal that connects computer and
information technology professionals with the companies
who need them. The company’s 50,000+ jobs database is
searchable by region or skillset and attracts one of the
Internet’s largest communities of IT Professionals. One of
the Top 10 trafficked career websites as ranked by Media
Metrix, ComputerJobs.com provides corporate recruiters
with access to resumes of the hottest IT professionals on
the Web. ComputerJobs.com prequalifies all of the
contractors in their system, which helps assure higherquality talent to the recruiters. Corporate recruiters and
staffing companies can purchase single job postings or
packages offering posting and resume database access.
Access to each of the company’s 19 regionally organized
databases is sold separately.
All services are free to the job seeker. Job seekers can post
resumes, create job search agents on personalized “My
ComputerJobs” sites, set up free-agent profiles or access
information on industry trends and a host of other industryspecific information. ComputerJobs.com provides its
visitors with a wealth of resources, including interactive
message boards, training resources, user group listings,
access to IT-related discussion groups, technical
publication links and its own dynamic salary survey. The
site consistently receives high marks from both job seekers
and recruiters for its ease of use and quality of results.
ComputerJobs.com is valued by IT professionals for its
focus on the job seeker as well as its regionalized services.
The company is constantly expanding its portfolio of
services to the job seeker, recently striking alliances with
Brainbench to provide skills certification services.
ComputerJobs qualifies the skills of technical job
applicants using Brainbench tests. Job seekers can take an
online certification test on their core computer
programming skills, and link their test scores to their
online resume. As a result, employers can review a
candidate's test scores when they are reviewing the
resumes online, speeding the hiring process.
In March 2000, the company significantly enhanced its
business model with the announcement of its new Virtual
Recruiting Service. ComputerJobs.com will provide an
end-to-end online hiring solution that includes the
sourcing, assessment and matching of candidates to
available jobs. With a vision of “recruiting without
recruiters,” instead using a job board, proprietary
assessment tools and a teleservice-based force to narrow
the search for ideal candidates, ComputerJobs plans to
shorten the time-to-hire, significantly reduce costs and
provide a higher quality candidate. The virtual recruiting
model could redefine the pricing and cost structure of the
online recruiting process, with movement toward a
performance-based pricing model and away from an
advertising/sourcing model. The company will target its
virtual recruiting services at corporate recruiters and
regional Mom & Pop staffing firms.
Founded: May 1995
1999 Revenues: $9.2 million
Headquartered: Atlanta, Georgia
2000E Revenues: Not Available
Public/Private: Private
2001E Revenues: Not Available
URL: ComputerJobs.com
Revenue Components:
Claim to Fame: A leading IT recruiting website listing over 50,000
jobs categorized by region and skill requirements
Coolest Feature on the Website: Challenging online tests written by
freelance team that technology professionals take “just for fun” and
attach to resume; regional and skills based databases
Key Investors: Internet Capital Group, Mellon Ventures
$15mm second round completed in April 00 led by ICG; first round
$10mm in Dec 1998 by ICG and Mellon
Key Partners: Deja News, Brainbench, Vivant!
Key Customers: Alltel, KPMG Consulting, iXL, Sapient, IBM, Lucent,
CompUSA and Kaiser-Permanente
Content:
Commerce:
Advertising: X
Service:
X
Other:
X
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics:
Number of Clients: 4,000/50,000+ postings
Number of Users: 180,000 professionals; 100,000 active resumes
Number of Content Partners: 5+
331
The Knowledge Web – 23 May 2000 (Reprint)
EarthWeb / Dice.com
EarthWeb is a leading B2B portal to the global IT industry.
Its integrated solutions include flagship services:
earthweb.com, developer.com, datamation.com, dice.com,
Supportsource.com and ITKnowledge.com. EarthWeb
connects buyers to sellers, employers to employees,
vendors to customers, and technical professionals to a
wealth of expert knowledge. The company has a global
presence, with sites targeted at different countries in
Europe, Japan and Latin America. Approximately onethird of its total traffic is internationally based.
Dice.com provides online career management and
recruiting services to the global IT industry. The site
offers value-added services, such as JobSeeker, which
notifies candidates via email of posted jobs that match
their customized profiles, ResumeOnline, which posts
resumes online, and links to additional career search
resources on the Internet. Currently, more than 200,000
jobs are posted on the site by more than 5,400 employers
and recruiters.
SupportSource is a premier knowledge-based reference
library for IT professionals that provides instant answers to
technical questions. It is used by leading IT and helpdesk
professionals worldwide for multi-vendor service and
support information by searching over 200,000 multivendor reference documents. ZDNet awarded
SupportSource a Five Star Rating.
ITKnowledge is a rapidly growing and up-to-date online
collection of technical books, tutorials and source code –
all cross-indexed and fully searchable. It provides books
on the latest technical topics, including certification,
components, content management, databases, enterprise
management, hardware, network services, operating
systems, programming languages, security, web services
and more. Subscribers have the additional advantage of
being able to cut and paste source code directly into their
applications for increased productivity and faster
development.
Founded: October 1996
1999A Revenues: $31 million
Headquartered: New York, NY
2000E Revenues: $66 million
Public/Private: Public (Nasdaq: EWBX, D-2-1-9)
2001E Revenues: $102 million
Market Cap: $145 million (5/15/00)
URL: www.earthweb.com; www.dice.com
Claim to Fame: Focuses on the needs of 15 million IT professionals
worldwide who spend more than $750 billion per year on hardware,
software and services.
Coolest Feature on the Website: Tremendous volume of vendorindependent knowledge on numerous areas of IT. Indexed and
archived all computer-related discussion groups on Usenet and EW.
Revenue Components:
Content:
X
Commerce: X
Advertising: X
Service:
X
Other:
Network Effect: Yes
Key Investors: NA
Hub/Portal Strategy: Yes
Key Partners: 3Com, Macmillan, Ziff-Davis, Netscape Press,
Coriolis, Barnes & Noble, Beyond.com, Computer Literacy
Key Customers: Intel, HP, Gap, Wells Fargo, Bank of America, GM,
IBM, Charles Schwab, Apple, Bear Stearns, Cisco, 3Com, Amazon,
MCI, Nasdaq, PeopleSoft, Staples, Yahoo!, Excite, Disney, Ricoh,
Cincinnati Bell, Inacom, Tenneco, AT&T, Boeing, CBS News,
John Deere, Lucent, McKinsey, Merrill Lynch Asset Management
Metrics:
Number of Job Listings: > 200,000
Number of Employers Listing Jobs: > 5,400
Number of Clients: > 17,000 premium subscribers
Number of Users: > 550,000 email subscribers
Number of Content Partners: > 300 advertisers
332
The Knowledge Web – 23 May 2000 (Reprint)
Futurestep.com (Korn/Ferry)
Futurestep combines the speed and reach of the Internet
with Korn/Ferry’s executive search expertise to provide
full service recruitment services for mid-level (typically
$75,000 to $150,000 in compensation levels) positions.
Futurestep.com does not list jobs, but offers potential
candidates an opportunity to be considered for exclusive
Korn/Ferry career opportunities by answering an online
questionnaire designed to determine qualifications,
experience, career interests and preferred organizational
culture. Futurestep uses exclusive candidate assessment
tools, a sophisticated filtering process and an interactive
process between candidates and clients to handle the entire
hiring process.
When Futurestep receives a search assignment from a
client, a preliminary list of candidates is selected from the
Futurestep database and the most qualified are called by a
Futurestep search consultant for further evaluation. The
consultant schedules a 45-minute to one-hour video
interview with selected candidates. The consultant then
identifies the top candidates and provides the client with
excerpts of the video-taped interviews and other
background information for comparison. Notably, all
candidate records are kept confidential until consent is
provided for release. The Futurestep consultant typically
organizes the client/candidate interviews, and advises and
consults throughout the negotiation process to structure the
final offer package and position responsibilities.
Futurestep's goal is to produce three candidates and one
quality hire for the client within thirty days. As with most
retained searches, the company charges 30% of first year’s
salary – regardless of the outcome of the search.
Korn/Ferry International is a leading global executive
search firm with more than 70 offices in 40 countries.
KFY specializes in senior-level searches for clients
throughout North America, Europe, Asia/Pacific and Latin
America and has unparalleled client connections, from
international blue-chip corporations to smaller niche firms.
For potential candidates, for whom all services are free,
registration on Futurestep initiates a long-term career
management relationship. Futurestep provides articles on
industry and hiring trends, salary and corporate statistics
relating to various professions, career management advice
and interviews with recruiters. Futurestep also offers the
"Email a Recruiter" service for personal career questions
as well as live discussion events involving recruiters, other
guest speakers and peers. Through a link to iOwn.com, a
leading Internet mortgage company, consumers can search
for homes, get neighborhood information, such as school
district rankings and average commute times, shop for the
best rates, prequalify, preapprove and apply online for
their mortgage.
The Wall Street Journal/Futurestep Alliance
Linking to careers.wsj.com, the free career web site from
The Wall Street Journal Interactive Edition, Futurestep is
used by recruitment advertisers to help fill management
jobs advertised in The Journal. Recruitment advertisers in
The Wall Street Journal and careers.wsj.com can choose
from a range of Futurestep services to help them manage
candidates' responses to their job openings, from resume
evaluation to complete management of the entire
recruitment process.
Founded: May 1998
1999A Revenues: $4.4 million (FYE April 30)
Headquartered: Los Angeles, CA
CY2000E Revenues: $50-$55 million
Public/Private: Subsidiary (NYSE: KFY, Not Rated)
CY2001E Revenues: $80-$85 million
URL: www.futurestep.com
Revenue Components:
Market Cap: $838 million (5/15/00)
Claim to Fame: Not a job board; An end to end recruitment solution
for mid level candidates with access to exclusive Korn/Ferry
Opportunities
Coolest Feature on the Website: Life and Career page gives candidates access to career related info, relocation services, lists of relevant
books and CDs. Email a recruiter service gives personalized advice.
Content:
Commerce: X
Advertising: X
Service:
X
Other:
X
Network Effect: Yes
Key Investors: Korn Ferry/The Wall Street Journal (93%/7% split)
Hub/Portal Strategy: Yes
Key Partners: The Wall Street Journal, Excite, The Standard, AOL,
IdeaLab
Metrics:
Number of Clients: 2,500+ / 3,000+ job opportunities
Number of Users: 486,000+ resumes
Number of Content Partners: 20+
Key Customers: Global Multinational Corporations
333
The Knowledge Web – 23 May 2000 (Reprint)
Guru.com
Guru.com provides the 25 million freelancers and
consultants from all disciplines with project opportunities,
career advice and other essential services. Guru.com was
developed as a response to the challenges that independent
professionals face. To make finding work easier, the
company built a powerful system that allows gurus to post
online resumes and browse a database of freelance
projects. To lessen the pain of running a solo business, it
made it easier to access the services gurus want most. And
to offer the support and guidance everyone can use, it set
up community discussion areas where gurus can find
answers to their most vexing career questions.
To find a freelance designer, programmer or other
professional, most people rely on word of mouth, mailing
lists or occasionally, high-priced headhunters who specialize
in freelance projects. Rather than a classifieds site or a temp
service, the site is meant to foster an online professional
culture. The site already offers tips on billing clients,
insurance, home office supplies and more. Through the
online culture, the company is able to establish brand
loyalty, leaving the door open for making recommendations
of products to the users down the road, which translates
into many more lucrative partnerships for guru.com.
Founded: 1999
1999A Revenues: Not Available
Headquartered: San Francisco, CA
2000E Revenues: Not Available
Public/Private: Private
2001E Revenues: Not Available
URL: guru.com
Revenue Components:
Claim to Fame: Offers independent professionals a venue for
finding project opportunities, career advice and other essential
services
Content:
Coolest Feature on the Website: Run Your Biz column with
interesting content for the guru or wanna be guru
Other:
Advertising:
Service:
Key Investors: August Capital, Greylock Capital
and a slew of individual investors who hail from many leading
Internet/technology companies ranging from Yahoo! to Microsoft.
Some of the investors also serve as advisors to guru.com
Key Partners: Webhire.com, eHealthInsurance.com, National Credit
Systems, Inc.
Key Customers: The Industry Standard, Fast Company
334
X
Commerce: X
X
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics:
Number of clients: 16,000 companies
Number of users: 150,000 professionals
Number of content partners
Number of unique visitors
The Knowledge Web – 23 May 2000 (Reprint)
Headhunter.net
Headhunter.net is one of the largest, high-traffic sources of
information on the Internet for job seekers, employers, and
recruiters. Because it offers a $20 basic posting,
Headhunter.net is a popular job site among companies of
all sizes that place value on what they spend to attract
high-quality candidates. Jobs on Headhunter.net are all
directly posted by registered users. (Registration is free.)
Jobs and résumés are drawn from all areas of the United
States and from many foreign countries. Approximately
95% of jobs are based in the U.S., although some positions
are for prospective employees who will be working
abroad. The top five industries represented are Information
Technology, Engineering, Accounting, Sales and
Marketing. The most common salary ranges among
Headhunter.net jobs are from $51,000 to $75,000 and from
$76,000 to $100,000.
According to users, features that differentiate
Headhunter.net from other mega-sites are: Ease of use;
largest job database of positions under 30 days old; largest
databases of résumés under 90 days old; variable pricing to
control visibility of jobs and résumés; company profiles
for Corporate Account holders; more powerful search
capabilities, including search by geography, salary, travel
requirements, profession, experience and key words;
seeker and recruiter communications aids, such as
confidential resume posting and powerful targeted crossposting capabilities.
Headhunter.net has a powerful geographical search
capability, based on a proprietary database of latitudinal and
longitudinal data for 250,000 cities and towns anywhere in
the world. A job-seeker can request specific positions within
30 miles of, say, Derry, NH, and Headhunter.net lists all
suitable jobs in the order of proximity to that location.
Headhunter.net also enables recruiters and job candidates to
search by any key word, such as "marketing research" or
"JAVA programmer," as well as by occupation, travel
requirements and many other criteria.
Headhunter.net allows recruiters to write and post detailed
job listings directly online and then instantly modify them
to correct job criteria, such as "salary." An automatic
update feature ensures that Headhunter.net’s database is
always current by purging listings that have not been
updated within 30 days. It also protects recruiters and the
confidentiality of companies by restricting access to
critical private information. (source: company website)
Founded: October 1995 (as HNET, Inc.), site launched October 1996
1999A Revenues: $9.3 million
Headquartered: Atlanta, GA
2000E Revenues: $25 million
Public/Private: Public (NASDAQ: HHNT, Not Rated)
2001E Revenues: $55 million
Market Cap: $124 million (5/15/00)
URL: www.headhunter.net
Claim to Fame: By offering cost-effective posting, Headhunter.net is a
popular job site among companies of all sizes that place value on what
they spend to attract high-quality candidates.
Revenue Components:
Content:
X
Commerce: X
Advertising: X
Coolest Feature on the Website: The Reach Hire Program, which
variable pricing options to control visibility of jobs and résumés
Service:
X
Other:
Key Investors: Public Company
Key Partners: NBC Internet, Inc./Snap, The Computer Psychologist,
SmallBizManager.com, SO-HO.com, dbusiness.com, TelekomNet,
SuccessCenter, HOTBIZ.COM, Moving.com, ShopItAll.com,
ISP Alliance, Inc./URAH.com, DogPile.com, MindSpring.com
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics: > 160,000 job listings, > 330,000 resumes
Number of Clients: > 8,000 recruiters/companies posting jobs
Key Customers: Warner Brothers Online
Number of Users: > 4 million each month, 140,000+ per day
Number of Content Partners: NA
335
The Knowledge Web – 23 May 2000 (Reprint)
Hire.com
Hire.com is a leading Internet e-cruiting application
service provider (ASP). With its e-Recruiter service and
software, Hire.com transforms their clients’ websites into
powerful, branded, state-of-the-art e-cruiting magnets. eRecruiter is a web-hosted application service designed
specifically to automate the entire recruiting process,
reducing the time spent on recruiting by as much as 80%.
There are no systems or software to buy, install and
maintain and no IT resources need to be committed.
e-Recruiter is completely hosted by Hire.com and is
completely transparent to the user. The appearance of eRecruiter can be modeled directly after the look and feel of
the client’s website for a seamless user experience.
Hire.com also provides orientation and training services
and ongoing support.
Founded: 1996
1999A Revenues: Not Available
Headquartered: Austin, TX
2000E Revenues: Not Available
Public/Private: Private
2001E Revenues: Not Available
URL: www.hire.com
Revenue Components:
Claim to Fame: Provides clients a turn-key solution to their online
Recruiting needs that builds on the clients’ brand equity.
Content:
Coolest Feature: Customization capability of e-Recruiter that masks
The Hire.com infrastructure to provide a seamless experience to users.
Advertising:
Key Investors: Kleiner Perkins Caufield & Byers, TL Ventures,
Crosspoint Ventures
Other:
Key Partners: Benchmark Consulting, TMP Worldwide, The
Tiburon Group, US Creative, Recruiter Resources, Recruitment
Enhancement Services, PeopleMover, Strategic Partnerships, Inc.
Commerce:
Service:
X
Network Effect: Not Applicable
Hub/Portal Strategy: Not Applicable
Metrics:
Key Customers: EDS, Electronic Arts, IBM, Silicon Valley Bank,
Sprint, Microsoft, Tellabs, The U.S. Mint, Ingersoll-Rand, MCI
WorldCom, General Instrument
336
Number of Clients
The Knowledge Web – 23 May 2000 (Reprint)
HotJobs.com
HotJobs is a leading Internet-based recruiting solutions
company. Its suite of services leverages the Internet to
provide a direct exchange of information between job
seekers and employers. By solving many of the problems
associated with traditional recruiting methods, HotJobs
allows employers to more effectively manage their
recruiting processes to save time and money.
The majority of its revenues are recurring and are
primarily derived from employer memberships to its online
employment exchange, www.hotjobs.com. This annuitylike revenue stream differentiates it from nearly all of its
online competitors. Headhunters are prohibited from using
its employment exchange, ensuring direct contact between
job seekers and member employers. It also provides
employers with additional recruiting solutions such as its
proprietary, browser-based Softshoe recruiting software,
its WorkWorld job fairs and online advertising and
consulting services.
HotJobs empowers job seekers to find employment
opportunities posted directly by employers at no cost to the
job seeker. Key features of its solution include direct
access to a large and growing list of employers, privacy,
personalization, detailed, current information, job search
tools and career resources.
HotJobs provides employers with a comprehensive,
Internet-based recruiting solution focused on reducing the
cost and time to hire a new employee. Key features of the
solution include a flexible pricing model, direct access to a
large number of job seekers, real-time job posting, tracking
and management tools, a reduction in unwanted resumes,
value-added recruiting management software and wide
distribution of job postings on partner sites.
Founded: February 1997
1999A Revenues: $21 million
Headquartered: New York, NY
2000E Revenues: $65-$70 million
Public/Private: Public (NASDAQ: HOTJ, Not Rated)
2001E Revenues: $110-$115 million
Market Cap: $238 million (5/15/00)
URL: www.hotjobs.com
Claim to Fame: “Born on the web,” comprehensive, multi-industry
solution for job seekers and recruiters looking to leverage the Internet
and streamline the career management and recruiting processes.
Revenue Components:
Content:
Commerce: X
Advertising: X
Coolest Feature on the Website: Headhunters are prohibited from
using the site, putting employers in direct contact with job seekers.
Service:
X
Other:
X
Key Investors: Generation Partners, Bessemer Venture Partners,
Boston Millennia Partners, FSA Capital
Network Effect: Yes
Key Partners: theglobe.com, E*Trade, About.com, Tech Republic,
DoubleClick, Juno Online
Key Metrics:
Key Customers: AOL, Amazon.com, CIA, Coors, Nike, Disney,
Microsoft, Intel, Ford, Pepsi, Sabre, Merck, Merrill Lynch, Lucent
Hub/Portal Strategy: Yes
Number of Clients: 5,000+ corporate members / 50,000+ jobs
Number of Users: 2.2 million+ / 540,000+ resumes
Number of Softshoe clients: 15 at March 31, 2000
Number of Content Partners: Not available
Revenue per Client
337
The Knowledge Web – 23 May 2000 (Reprint)
Icarian
Icarian's Workforce eServices are a blend of software and
services designed to streamline and integrate the process of
workforce management, which has traditionally relied on a
scatter of paperwork and fragmented communication.
Internet based Icarian Workforce is a central station that
connects businesses, people and suppliers so everyone can
make smarter people-decisions faster and more easily.
Icarian’s product automates talent acquisition and retention
across the entire organization, including full-time hiring,
resume processing, contingent hiring, employee status
change management and internal sourcing. In addition, it
enables the entire organization – managers, HR, finance,
staffing and suppliers – to collaborate and communicate in
real-time with a single data source, while allowing
executives to proactively monitor the organization with a
view of staffing and deployment at all times.
Icarian Full Time – Provides headcount tracking,
requisition creation and routing, candidate searches and
offer processing. The system allows recruiters to better
track the costs of hiring by source.
•
Icarian Resume – Manages resumes regardless of
submission format, with automation of scanning,
parsing and importing.
•
Icarian Internal Sourcing – Acts as a retention tool
that provides an inventory of employee skills and
career goals. The system matches job openings to
internal candidates.
Icarian Workforce is sold as an ASP model, delivered
directly over the Internet on a hosted, subscription basis,
alleviating the burden of cumbersome enterprise
installations and management. The product receives kudos
from HR personnel, most recently chosen as one of Human
Resource Executive’s 1999 Top HR Product Content
Winners.
Founded: 1998
1999A Revenues: NA
Headquartered: Sunnyvale, CA
2000E Revenues: NA
Public/Private: Private
2001E Revenues: NA
URL: www.icarian.com
Revenue Components:
Claim to Fame: “Reinventing” workforce management with an
organization wide tool for planning and managing hiring and retention;
expected savings of at least $2,000 per hire, delivered as ASP model
Content:
X
Commerce: X
Advertising:
Key Investors: Patricof & Co. Ventures, Inc., Kleiner, Perkins, Caufield
and Byers, Wheatley Partners, Hambrecht & Quist/Access, Van Wagoner
Capital Management, Fidelity Ventures, Sun Microsystems, Inc., Oracle
and Blackfin Capital
Service:
X
Other:
X
Network Effect: Yes
Hub/Portal Strategy: No
Key Partners: PeopleScape, BrassRing, SkillsVillage, eWork, eQuest,
Decisis, Invisic, Niku, AnswerThink, MoveSite.com, Monster.com
Number of Clients: 20+
Key Customers: E*Trade, Kaiser Permanente, Extensity, Advanced
Micro Devices, Ventro, Netscape/AOL, Excite@Home
Number of Content Partners: Not available
338
Metrics:
Number of Users: 2,000+
The Knowledge Web – 23 May 2000 (Reprint)
jobs.com
jobs.com, with its easily recognized URL, is the largest
locally focused employment web-site. The company has
local career hubs in 25 major cities and 100 other
metropolitan areas attracting prospects from the proven
starting point of most passive and active job searches —
the prospect's own hometown.
Through its many affiliations, jobs.com is able to attract
client companies and job seekers, therefore enhancing its
network power for employers and professional job seekers
as well as college graduates. For instance, CBS recently
acquired a 31% stake in jobs.com and made available its
radio, television and out of home media over the next five
years. Another significant media partner is Yahoo!
Broadcast Services, with an audience of 1.1 million unique
users every day and enables employers to use audio/video
segments to attract job seekers. In the college market
arena, jobs.com signed an exclusive partnership agreement
with collegeclub.com, the world’s largest college
community, to bring entry-level job postings to hundreds
of thousands of college students at top universities coast to
coast. jobs.com recently launched
www.jobsuniversity.com. This site will offer free
educational courses helping to further extend the rich array
of jobs.com resources job seekers can utilize to take
control of their career. Rounding jobs.com partnerships,
are deals with authors Tom Peters and Martin Yate to
provide cool content and advice for jobs seekers.
Founded: 1992
Among its many products to ease the job posting and
seeking process, jobs.com features Resumail Resume,
which offers job seekers a system for standardizing and
formatting resumes. For employers, it’s a way to be sure
what’s sent can be read. Resumail Resume is a free
software application available to job seekers and
employers. It enables the job seeker to build a digital
resume and delivers it to the employer’s desktop in a
standardized format. Once the resume has been submitted,
Resumail Recruiter, which is also free, organizes resumes
by position for easy access and manages communications
with job seekers letting them know when employers have
received their resumes. This timesaving feature keeps
candidates informed without tying employers to the phone.
Free online software tutorial courses will be available on
their recently launched website, jobsuniversity.com .
Furthermore, jobsuniveristy, features classes on a variety
of subjects such as Introduction to Word, Windows
98/2000, and How To Manage Your Personal Finances.
Other features of job.com include: ResumeBank which lets
employers search and build their own resume database of
potential candidates; QuikPost, which is a self-service,
web-based posting application allowing employers to post
openings anytime, anywhere; job search agents, live online
chat sessions and live interactive career fairs.
Revenue Components:
Headquartered: Dallas, TX
Content:
Public/Private: Private
Commerce:
URL: jobs.com
Advertising: X
Service:
Key Investors: Idealab Capital Partners, CBS, Adecco
X
X
Other:
Key Partners: collegeclub.com, Adecco, SA, RealNames, Yahoo! Broadcast
Services, CBS Infinity, Tom Peters, Martin Yates
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics:
Number of clients: 7,500 companies
Number of users
Number of content partners
Number of unique visitors: 2 million
339
The Knowledge Web – 23 May 2000 (Reprint)
kforce.com (formerly Romac International Inc.)
kforce.com, formerly known as Romac International, is an
interactive, online career management and recruitment
resource for professionals and employers. The company is
an industry leader in combining traditional personalized
career management expertise and customer service
capability with the distribution power of the Internet.
The company has over 37 years of experience in flexible
and permanent staffing and career management, with over
200,000 positions filled. It operates out of over 90 offices
in 45 markets and serves organizations that range from
Fortune 500 companies to fast-growing entrepreneurial
firms. kforce.com offers over 100 staffing centers
nationwide with more than 2,300 recruiting specialists on
staff.
Founded: kforce.com was founded in June 1999; Romac was founded
in 1962; name change to kforce.com approved in November 1999
Headquartered: Tampa, FL
Romac International’s board approved a name change to
kforce.com in November 1999. The name change is
designed to better convey the company’s complete
transformation to a web-based staffing company. The
KnowledgeForce Network, kforce.com’s newest strategic
initiative, applies technology to the staffing business in an
online, interactive environment, matching people with
opportunities and organizations with candidates on a realtime basis over the Internet. It offers options from
interviewing techniques in the People Network to
employee retention strategies in the Organization Network.
kforce.com provides three membership levels for job
seekers and organizations.
1999A Revenues: $746 million
2000E Revenues: Not Available
2001E Revenues: Not Available
Market Cap: $578 million (5/15/00)
Public/Private: Public (Nasdaq: KFRC, Not Rated)
Revenue Components:
URL: http://www.kforce.com/; http://www.romac.com/
Content:
Claim to Fame: Brick-and-mortar strategy with long-standing client
relationships.
Advertising: X
Coolest Feature on the Website: Tiered service levels for job seekers
based on the amount of information they supply. The top tier, “Premier
Club,” allows users to record a multimedia (audio/visual) online clip of
themselves, called a “SkillMercial,” describing their skills and interests.
Companies can post similar “OrgMercials” and “JobMercials” advertising
opportunities to Premier Club users.
X
Commerce: X
Service:
X
Other:
X
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics:
Number of Clients
Key Investors: Not applicable
Number of Users
Key Partners: IBM, MCI WorldCom, PeopleSoft, Perot Systems
Number of Content Partners
340
The Knowledge Web – 23 May 2000 (Reprint)
Leaders Online (Heidrick & Struggles)
LeadersOnline is a comprehensive, Internet-based recruiting
solution targeted at mid-level executives. The company was
founded by Heidrick & Struggles International, Inc., a
leading worldwide executive search firm focused on senior
level executive recruitment. LeadersOnline brings together
mid-level management and emerging executives with the
corporations who need them. Leaders! blends the
experience of traditional executive search with the speed,
efficiency and ease of online job searches, offering a
comprehensive Internet recruiting solution backed by
Heidrick & Struggles, which has a worldwide network of
nearly 900 professionals in 70 locations, and its vast
network of high quality employers. LeadersOnline currently
has operations located in Heidrick & Struggles' offices in the
US, London, Frankfurt and Paris.
Candidates use the LeadersOnline.com web site to access
career opportunities and to manage available opportunities
to which they have been matched. The web site also offers
a series of integrated tools, community resources,
recruiting industry experts and editorial content from
various partners. For example, Leaders! has a five-year
agreement to establish a co-branded online career center
and magazine with Business Week, providing even greater
access to quality candidates and brand recognition.
In order to become a member of the Leaders! Candidate
Community, a prospective candidate completes a
registration application that includes background
information on the candidate's education, experience and
career objectives. A matching engine sets candidates up
with appropriate career opportunities. Candidates are
notified by e-mail and invited to view the companyspecific "Opportunity Page" for the position. The
Opportunity Page allows prospective candidates to review
the detailed position description and decide whether they
are interested in proceeding with the recruitment process.
If the candidate indicates that he or she is interested in the
position, the candidate's identity and specific background
information will be released to the prospective employer.
For employers, Leaders Online provides both retained and
contingency searches. Clients are charged a fee for
recruiting employees which is generally based on a
percentage (around 30%) of first year compensation of a
successfully placed candidate. In addition, the company
provides consulting services regarding needs assessment,
position evaluation, qualifications/skills assessment and
development of recruiting web content. For the year ended
December 31, 1999, E*Trade, accounted for more than 10%
of revenue.
A highly skilled team of search professionals works with
clients from the beginning to the end, including sourcing,
applicant tracking, skills assessment and interviewing. The
marketplace services available through LeadersOnline.com
enable employers to access and monitor the updated status
of their online recruiting projects, at any time of the day and
from anywhere in the world.
Founded: 1998 (as division of Heidrick & Struggles)
1999A Revenues (of Leaders Online): $2.6 million
Headquartered: Irvine, CA
2000E Revenues (of Leaders Online): $14-15 million
Public/Private: Subsidiary of Heidrick & Struggles (NASDAQ:HSII,
Not Rated); IPO pending
2001E Revenues (of Leaders Online): $25 million
Market Cap of Heidrick & Struggles: $818 million (5/15/00)
URL: www.leadersonline.com
Revenue Components:
Claim to Fame: End to end middle market recruiting solution with
access to the extensive network of Heidrick & Struggles Resources
and opportunities
Content:
Commerce: X
Advertising: X
Coolest Feature on the Website:
Service:
X
Other:
X
Key Investors: Heidrick & Struggles
Key Partners: IDG’s IT World, Business Week, Vertical Net
Network Effect: Yes
Hub/Portal Strategy: No
Key Customers: E*Trade, Hartford Computing Group, GartnerGroup,
Andersen Consulting and CollegeClub.com
Metrics:
Number of Clients & Job Listings: 80 customers (53% internet-related)
Number of Users: 40,000 candidates (access to 700,000 through partner
databases)
Number of Content Partners: 5+
341
The Knowledge Web – 23 May 2000 (Reprint)
Monster.com (TMP Worldwide)
Monster.com, the flagship product of the Interactive
Division of TMP Worldwide, is the leading, global on-line
network for careers, connecting the most progressive
companies with the most qualified career-minded
individuals. Monster.com is committed to leading the
market by offering innovative technology and superior
services that give consumers and businesses more control
over the recruiting process. The Monster.com network
currently consists of web-sites in the United States, Canada,
the United Kingdom, the Netherlands, Australia, Belgium,
France, Hong Kong, Singapore and New Zealand.
For Job Seekers: Monster.com is a lifelong career network
job seekers can use to expand their careers, providing
continuous access to the most progressive companies, as
well as interactive, personalized tools to make the process
effective and convenient. Features include: My Monster,
resume management, a personal job search agent, a careers
network, chats and message boards, privacy options,
expert advice on job-seeking and career management and
free newsletters.
For Employers: Monster.com offers employers costeffective and efficient recruiting solutions, including realtime job postings, complete company profiles and resume
screening, routing and searching. Features for members
include resume skills screening, real-time recruiting, a
comprehensive resume database with more than one
million resumes, resume routing and private label
functionality. TMP’s headhunter services are also part of
the product mix.
Founded in 1967, TMP Worldwide, now with more than
7,200 employees in 26 countries, is the on-line recruitment
leader, the world's largest recruitment advertising agency
network and one of the world's largest search and selection
agencies. TMP Worldwide is also the world's largest
yellow page advertising agency and a provider of direct
marketing services. The company's clients include more
than 90 of the Fortune 100 and more than 450 of the
Fortune 500 companies.
Founded: Monster.com was launched in January 1999 following the
merger of The Monster Board and Online Career Center, founded in
1994 and 1993, respectively. TMP Worldwide was founded in 1967.
1999 Revenues: $133.5 million from online sources / $766 million for
TMP Worldwide
Headquartered: Monster.com is based in Maynard, MA, and
Indianapolis, IN. TMP Worldwide is headquartered in New York, NY.
2000E Revenues: $327.0 million online / $1,052.6 million TMP from
TMP Worldwide
Public/Private: Public (NASDAQ: TMPW, D-2-1-9)
2001E Revenues: $490.7 million online / $1,245.2 million TMP from
TMP Worldwide
URL: http://www.monster.com/; http://www.tmpw.com/
Market Cap: $5.3 billion (5/15/00)
Revenue Components:
Content:
Claim to Fame: Monster.com, TMP’s flagship interactive product, is
the first mover and benchmark among online career solutions providers.
Monster has far more employers, users, job opportunities, resumes and
revenue than its competitors.
Commerce:
X
Advertising:
X
Service:
X
Other:
X
Coolest Feature on the Website: Tremendous “searchability” of the
largest, most comprehensive listings of job opportunities and resumes
Network Effect: Yes
Key Investors: Not applicable
Hub/Portal Strategy: Yes
Key Partners: AOL, Ecorp, NineMSN
Key Customers: Blockbuster Entertainment, McDonald’s, Adecco,
Proctor & Gamble, Dell Computer, Fidelity Investments
Metrics:
Number of Clients: 31,000+ / 380,000+ job opportunities
Number of Users: 7+ million reg. Users / 3.5+ million resumes
Number of Content Partners: Not available
342
The Knowledge Web – 23 May 2000 (Reprint)
Niku Corporation
Niku Corporation (“Niku” means “do-gooder” in CEO
Dibachi’s native Farsi) provides Internet-based software
products and an online marketplace for the sourcing,
management and delivery of professional services. Niku’s
Internet software products are designed to automate the core
business processes of professional services organizations,
professional services providers within enterprises and small
businesses and individual professionals. Core business
processes include marketing and sales, project management,
financial management and billing, storing and sharing
intellectual capital, etc. Although Niku has competitors for
each function, none offers such a robust combination,
tailored for service organizations. Companies are typically
forced to choose between a mix of small point solutions
such as contact managers, spreadsheets, accounting
packages and Lotus Notes, or the cost and burden of a big
ERP suite with irrelevant modules. Neither approach is
good at handling unstructured data.
Niku currently focuses on vertical industry groups including
advertising & PR, IT consulting, internal IT departments
and the legal industry. Niku helps services organization
leverage the Internet to make themselves more effective and
competitive. Niku solutions provide a single platform for
innovation and collaboration that brings information,
services and professionals together. Niku can provide a
backbone for forging business relationships, building
communities and getting work done on the Internet. Niku is
actively seeking and forging strong relationships with
partners. These partners offer and deliver value-added
content and services that extend the value of Niku solutions
and meet customer demands. The Niku Partner Program
serves both enterprise customers and the large network of
independent professional members of iNiku.com.
eNiku helps an organization’s professionals share
information within the organization. eNiku provides
instant access to the skills, experience and availability of
every workforce member, enabling the real time, strategic
deployment of personnel globally. Organizational teams
can share project specifications, timelines, background and
statistics through a virtual community. Intellectual capital
from projects can be captured, maintained and shared
using eNiku. eNiku is licensed for a per seat charge of
$2,500 or can be obtained through an ASP model for a
monthly service charge.
xNiku helps an organization’s professionals share
information with external partners, customers and suppliers
through a secure, turnkey extranet. Through xNiku, online
communities are built and virtual project teams created.
xNiku helps its clients drive new business opportunities and
deliver project results on-time and on-budget.
iNiku helps independent professionals and small
professional service organizations market, manage and
deliver their services more effectively using the Internet.
iNiku.com is a world class business center that combines
integrated applications, specialized content, relevant
business services and access to project opportunities for
the independent contractor or business professional.
Accessible through any Web browser, iNiku.com
eliminates the need to install and manage individual
applications and information resources, providing all in
one access to important services such as insurance,
training, shipping, printing, etc. Access to the iNiku portal
costs $19.95 a month per user.
Founded: 1999
1999 Revenues (FYE Jan 00): $8.2 million ($5.5mm license)
Headquartered: Redwood City, CA
2000E Revenues: $35-40 million
Public/Private: Public (Nasdaq: NIKU, Not Rated)
2001E Revenues: $80-90 million
URL: www.niku.com (eniku.com, xniku.com, iniku.com)
Market Cap: $1.6 billion (05/15/00)
Claim to Fame: Helps professional service organizations and
independent professionals manage their businesses online –
including information management, time & expense, scheduling,
finance, etc.First mover in Professional Services Automation with
end-to-end svcs.
Revenue Components:
Coolest Feature on the Website: Niku Marketplace provides access
to comprehensive list of related content and service providers
Key Investors: Venrock, Amerindo Investment Advisors, Charter Growth
Capital, Essex Investment Management Company, LLC, Soros Private
Equity Partners LLC, CNET, Inc. and TATA Consulting
Content:
X
Commerce: X
Advertising: X
Service:
X
Other:
X
Network Effect: Yes
Key Partners: Netscape, Oracle, Sun, Usi, INSWeb, Learning Tree,
Hub/Portal Strategy: Yes
NextCard, Learn2.com, iShip, iPrint, etc.
Metrics:
Key Customers: Cisco, Affiliated Computer, Tata Consulting, Sybase,
Usinternetworking, Walker Interactive, EMC, Gateway
Number of Clients: 200+ enterprise clients (about 2-3K license users),
21,000+ registered iNiku users
Number of Content Partners: 50+
343
The Knowledge Web – 23 May 2000 (Reprint)
Nitorum
Nitorum’s Intelli-Gage is a web based solution that
streamlines and automates the process of procuring
consultants for large corporations. The product replaces
tedious, paper based procurement systems that are plagued
by approval delays and high transactional costs, with an
intelligent electronic procurement system. Large
corporations rely heavily on contractor/ consultants, which
can often comprise a significant percentage of a
corporation’s human capital. Hiring, managing and paying
these outside professionals is an onerous task that involves
interaction with hundreds, sometimes thousands of vendors
and individuals. Nitorum simplifies these interactions and
ensures that positions are posted and filled in a timely
manner, consultant approvals and payments are effortless,
rates are consistent across the corporation, the best
consultants are retained and the best vendors are rewarded.
The result is significant cost savings to the corporation.
From communicating hiring requirements to preferred
vendors and candidates, providing status updates back to
hiring managers, assembling detailed timecard and
payment data and tracking all vendor activity, Intelli-Gage
manages the entire procurement history between a
corporation and its multiple vendors. Using this
information managers can quantify the performance of
their vendors, retain only the highest performing vendors
and negotiate better pricing using volume discounts.
Using Intelli-Gage hiring managers can: automate
communications with vendors, review candidates online,
automatically renew desirable contracts, access consultant
evaluations to retain the best people, ensure consistent rate
payment. Information is automatically routed between
finance, procurement and hiring professionals to
streamline the approval and payment process.
Intelli-Gage is a web-based application that integrates
easily into existing ERP modules. The product is sold in
both an Enterprise and an ASP version.
Founded: 1999
1999 Revenues: Not Available
Headquartered: Norwalk, CT
2000E Revenues: Not Available
Public/Private: Private
2001E Revenues: Not Available
URL: www.nitorum.com
Revenue Components:
Claim to Fame: web-based solution that streamlines and automates
the process of engaging and paying consultants using a preferred
vendor program
Content:
Commerce:
Advertising:
Key Investors: Merrill Lynch, Pequot Capital, Archery Capital,
Seligman New Technologies Venture Fund
Service:
X
Other:
X
Network Effect: Yes
Key Partners: Merrill Lynch, Verve Inc., penGroup, Usinternetworking,
Ariba, D&T
Key Customers: Merrill Lynch, AIG, D&T, FirstUSA
344
Hub/Portal Strategy: No
Metrics:
Number of Clients: 4 enterprise clients
Number of Content Partners
The Knowledge Web – 23 May 2000 (Reprint)
Opus360
According to the Gartner Group, by 2004, 60% of
enterprises will use externally-sourced workers to fulfill
more than 50% of their information technology-related
needs. Opus 360 provides a business-to-business,
e-commerce platform that enables the 25 million free
agents, such as independent professionals, consultants and
other knowledge workers with technology, creative,
strategic consulting and other expertise, to connect with
buyers of project-based resources. The company's strategy
is to aggregate the largest community of free agents by
providing them with access to multiple project
opportunities, and by offering them corporate-style
benefits and services creating a marketplace through which
buyers of project-based talent can efficiently procure free
agents and other knowledge workers from all sources to
fulfill project-based work
FreeAgent.com is a comprehensive portal site designed to
aggregate a large pool of free agent talent and enable free
agents to more efficiently access project opportunities and
manage their careers. FreeAgent.com offers a broad range
of services to meet the needs of the free agent community,
including back-office administrative services, corporatestyle benefits, project assignments, commercial and
professional products and services, community, content,
information sharing and networking.
Opus360 provides a suite of services across the spectrum
of a project-based workforce. These web-based services
enable organizations to manage their internal resources,
their vendors' resources, as well as the largest virtual
workforce and most diverse group of independent
consultants and freelancers through FreeAgent.com.
Opus Xchange — Extranet electronic procurement and
vendor management system enables corporate managers to
strategically manage and track contractors and staffing
suppliers based on customized performance metrics.
Other services include:
OpusRM — Intranet resource management application
designed to help IT service organizations increase
utilization, improve service delivery and raise retention.
OpusRM gives organizations an enterprise-wide view into
workforce skills and availability.
Founded: 1998
1999A Revenues: $2 million
Headquartered: New York, NY
2000E Revenues: Not Available
Public/Private: Public (Nasdaq: OPUS, Not Rated)
2001E Revenues: Not Available
URL: opus360.com
Market Cap: $252 million (5/15/00)
Revenue Components:
Content:
X
Key Partners: Gartner Institute, AvantGo, Inc. iPrint.com, Ariba
Commerce: X
Key Customers: CompuCom Systems, Inc., Sapient
Service:
Advertising:
X
Other:
Key Investors: Consortium of investors including Safeguard Scientifics
(NYSE: SFE), Crosspoint Ventures, Wheatley L.P., Cambridge
Technology Ventures, RSI (NASDAQ: RSII), SI Ventures, and MSD
Capital
Network Effect:
Yes
Hub/Portal Strategy: Yes
Metrics:
Number of clients: 900 organizations
Number of users: 64,000 free agents
345
The Knowledge Web – 23 May 2000 (Reprint)
Personic Software, Inc.
Personic Software, Inc. is a leading developer of
automated recruitment software for the staffing industry
and corporate human resources departments. It is the
company’s mission to help human resources professionals
match the right candidate with the right position, while
sifting through the mountainous pile of resumes made
available as a result of the widespread use of the Internet.
The Personic software automates time-consuming tasks
such as locating and filtering resumes and posting jobs
listings to appropriate sites. The software is used to place
more than 1.5 million people annually, which represents
about 1.3% of the entire US workforce. Personic’s
products are sold in the US as well as in Europe and Asia
Pacific, with offices maintained in Atlanta, Chicago,
London and Sydney.
The Personic product family includes:
Personic Workflow Product Suite - Designed for buyers
of human capital, Workflow is an integrated product suite
with "role based" applications accessible through a
browser for parties involved in the recruiting and hiring
process, including corporate recruiters, hiring managers,
human resources executives and department managers. It
Founded: 1993
Headquartered: Brisbane, California
enables companies to eliminate redundant paperwork
associated with the hiring process, manage the influx of
resumes in a central database, match skilled candidates to
open job requisitions and facilitate communication among
the parties involved in the recruiting and hiring process.
EZaccess Professional Staffing Suite - Designed for
suppliers of human capital, EZaccess enables the workflow
process of a staffing agency from start to finish. Receiving
resumes and job orders, matching and placing candidates
and generating customized management reports to track
the entire process are all incorporated into the EZ Access
system.
From the outset, Personic has signed on an impressive list
of investors, partners and customers. The company has
received $18 million in its most recent round of venture
capital funding from Battery Ventures, Technology
Crossover Ventures and BancBoston. Its partners include
leaders in their respective fields such as Oracle,
PeopleSoft, JD Edwards and Olsten Corp. The company’s
impressive customer list includes Sun Microsystems,
Autodesk, Time Warner, Coopers & Lybrand and CNET,
Inc. Most recently, Personic also won the business of
Wal-Mart Stores, who is the world’s largest employer with
885,000 employees in the U.S. alone.
Revenue Components:
Content:
Public/Private: Private
Commerce:
URL: personic.com
Advertising:
Claim to Fame: Leading provider of applicant tracking automation
software with largest customer base of users worldwide
Other:
Coolest Feature on the Website: White papers on staffing
issues:Good source of information.
Service: X
Network Effect: Yes
Key Investors: AIG Developed Markets Private Equity Fund, L.P,
BancBoston, Battery Ventures, Technology Crossover Ventures
Hub/Portal Strategy:
Key Partners: CareerWeb, Citrix, Datamatics Management Services,
GovJobs, Haystack Systems, Human Resource Microsystems,
Humanic Design, JD Edwards, Liquid Software, Olsten Corp. (Now part
of Adecco SA), Oracle, PeopleSoft, R.D. Raab & Co., Recruitment
Solutions, Sybase, Inc., Zylab
Metrics:
Key Customers: 500 customers includingWal-Mart Stores, Inc., Sun
Microsystems, CDI Corp., American Staffing Sources, Autodesk, Blue
Cross of California, A.T. Kearney, Time Warner, Coopers & Lybrand,
eToys, Cannon Information Systems, CNET, Inc.
346
X
Number of clients: 500 organizations
Number of users: 15,000 users
Number of partners: 17
The Knowledge Web – 23 May 2000 (Reprint)
SkillsVillage.com – The eMarketplace for the CONTINGENT workforce
SkillsVillage.com is an Internet-based procurement
platform connecting IT contractors, hiring managers and
staffing suppliers to facilitate the efficient business to
business exchange of skills and projects.
SkillsVillage.com provides a universe of opportunities and
a complete range of business tools focused exclusively on
the IT contingent sector. Companies are experiencing the
talent shortage most acutely within the IT sector. The
Gartner Group estimates the worldwide IT outsourcing
market, now worth $78 billion, will grow to $123 billion in
2002. SkillsVillage.com provides an Internet-based
trading community, where both contractors and enterprise
hiring managers can find their optimal match, as well as
handle many of their administrative tasks through on-line
workforce tools and support services. SkillsVillage.com is
also a place where professionals can participate in
discussions with their colleagues to exchange ideas, gather
information and get answers to important questions.
SkillsVillage.com launched their eMarketplace in
November, 1999. Features of the eMarketplace include:
SkillsVillage DIRECT: Assigns a dedicated Account
Advocate to facilitate the search and procurement process
and manage all administrative tasks throughout the
duration of a project. The Account Advocate also provides
custom reporting and resource planning to help plan future
workforce needs.
Founded: 1999
SkillsVillage Xchange: A self-service, online platform
that uses proprietary technology to match the skills and
experience of IT contractors with IT project requirements.
The exchange provides tools for all parties to identify,
inquire, communicate, qualify and negotiate with each
other online.
Digital Portfolio: Allows contractors to post their skills,
career history and project preferences online. The
information captured in the Digital Portfolio enables
contractors to be matched only with projects that are best
suited for their skill set and preferences.
Work Journal: Allows contractors to enter their time
sheets and progress reports and submit them directly to the
project manager for immediate online approval. Project
managers have the ability to rate the contractor’s
performance and their level of satisfaction for the work
completed. Work Journal entries are dynamically captured
in the contractor's Digital Portfolio to continuously update
their work history.
Support Services: Provides links to partners and resources
for business management, financial planning, insurance
and travel and other services to help members run their
business.
When a contract is signed, the site charges the company a
transaction fee of $1,000 per contractor.
Revenue Components:
Headquartered: Santa Clara, CA
Content:
Public/Private: Private
Commerce: X
URL: skillsvillage.com
Advertising: X
Claim to Fame: Procurement platform for IT services
X
Service:
X
Other:
X
Network Effect: X
Key Investors: Atlas Venture, Marc Andreessen
Hub/Portal Strategy: X
Key Partners: Ariba, PeopleSoft, Intraware, Oracle, ITWorld.com,
Techcellence, Icarian
Metrics:
Key Clients: PricewaterhouseCoopers, KPMG, PeopleSoft,
Deloitte & Touche, Arthur Andersen
Number of clients: 3000 clients
Number of users: 24 staffing firms/10,000 registered IT users
Number of content partners: 40+
Number of unique visitors: Average 2000 per day
347
The Knowledge Web – 23 May 2000 (Reprint)
techies.com
techies.com is a leader in the New Economy, establishing
itself as the ultimate infomediary to the most valuable
demographic group in the information age: IT
professionals. The strength and substance behind its
business is the fanatical following it has achieved in the
markets it has entered. The company has seized an
enormous B2B and B2C opportunity by creating a
“Techie-topia” that provides IT professionals with timely,
relevant and comprehensive services, including training,
education and industry knowledge, and then links them
with companies hungry for their technological know-how.
The company is developing long-term relationships with
members, providing rich content that keeps them abreast of
changes in the industry and in-the-know about career
opportunities. Its content is global in its reach, but
fundamentally focused on the local community, enabling
users to reap the best of both worlds. Information is
focused, timely and relevant, creating a one-source
solution for IT professionals looking to expand their
knowledge. In return for these services, techies.com gains
access to extremely valuable psycho-demographic data
about a lucrative and desirable segment of the population.
techies.com was created by and is aimed at IT
professionals, an ideal strategy for a “born on the web”
company. It enables members to effectively capture the
convergence of technology, the Internet and knowledge,
thereby creating the “killer app” for human capital
management in today’s knowledge-based economy.
techies.com also provides a vital service to companies by
linking them with IT professionals more effectively than
do traditional recruiting media. The company offers its
clients – from blue-chip global Fortune 500 companies to
cutting edge, smaller, local companies – an elegant,
effective solution to their IT human capital management
needs. By combining the access of the Internet with “best
as it gets” content and first-class service, techies.com
provides a comprehensive one-source solution enabling
companies to bring their human capital management online
and exploit the power of the Internet.
Founded: 1994
1999E Revenues: $6 million
Headquartered: Minneapolis, MN
2000E Revenues: $25 million
Public/Private: Private
Revenue Components:
URL: www.techies.com
Content:
Claim to Fame: techies.com is the ultimate infomediary to the most
valuable demographic group in the Information Age – IT professionals.
Commerce: X
Coolest Feature on the Website: Localized content enabling recruiters
and job seekers to search on a focused market basis.
Service:
X
Other:
X
Key Investors: CNET, Red Hat, ZDNet, East Peak Partners, Norwest
Venture Partners, SI Investors (Gartner Group), Technology Venture
Partners, Crosslink Capital, Winton Partners, Dain Rauscher Wessels
Investors
Key Partners: CNET, ZDNet, AOL, Oracle, NetGravity, Connors
Communications, Sun Microsystems
348
Advertising: X
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics:
Number of Clients: 1,000 companies in 44 markets
Number of Users: 600,000 IT professionals
Number of Content Partners
The Knowledge Web – 23 May 2000 (Reprint)
TopJobs.net plc
TopJobs.net plc is a leading European branded Internet
recruitment solutions within the Management, Professional
and Technical (MPT) employment arenas, serving a
significant blue chip roster. The Company has a European
focus, with an investment growth strategy through
acquisitions and joint ventures with leading local country
media players, and maintains a revenue model based on
the sale of premium serviced and priced three to twelve
month subscriptions.
The Company has positioned itself as a proxy for Internet
growth in Europe, and currently has offices and operations
in the UK, Ireland, Switzerland, Poland, Sweden, Norway
and The Netherlands, as well as in Australia and Thailand.
It has become the preferred choice of multinationals in
Europe and enjoys significant first-starter advantage
throughout the European landscape. The Company is
independent of any paper-based publisher, recruitment or
advertising agency and as such is completely focused on
harnessing the power of the Internet to deliver results for
its customer base. There are no fees for job seekers and the
Company has no involvement in the selection and
appointment process, and therefore does not generate
revenue on a per placement fee.
In addition to targeting and attracting high quality job
seeking traffic to its web sites, topjobs.net plc sets itself
apart from others within the online recruitment advertising
market through its global branding and local service
delivery. This means that the Company's global brand
attracts multinational corporations which expect uniform
service in all country markets. They provide local service
in each of the country markets they serve by tailoring their
service and range of products to both employers and job
seekers unique to the particular market. A uniform set of
standardized services are offered in each market, in
contrast to a single, centralized web site containing jobs
from all over the world. So, while Top Jobs on the Net is a
global Internet recruitment advertising product and service,
it is delivered in a way that is fully relevant to the countryspecific practices and norms and best suits the respective
career and recruitment needs of job seekers and employers.
Among the features on its site, Top Jobs on the Net offers
a graduate recruiter service which provides customers with
their own branded graduate application form in TopGrads,
an area of the site designed for graduate-level job seekers
featuring employers with either graduate training or
employment opportunities. Also, the International Page
offers customers the opportunity to promote job
advertisements on a web page that is easily accessible from
all country-specific websites for maximum exposure to job
seekers regardless of the country site accessed. In addition,
Top Jobs on the Net offers television advertising to their
clients, and maintains relationships with leading ISP's,
such as AOL Europe where they are the premier jobs
partner and anchor tenant throughout the AOL,
CompuServe and Netscape Online multiple brands.
Founded: 1996
1999E Revenues:
$6 million
Headquartered: Warrington, England
2000E Revenues:
$17 million
Public/Private: Public (Nasdaq: TJOB (ADR), Not Rated)
2001E Revenues: Not Available
URL: topjobs.net
Revenue Components:
Claim to Fame: Global branding with local service. Completely
focused on delivering the very best Internet recruitment solutions
since the company has no ties to any recruitment or advertising
agency or paper-based publisher.
Coolest Feature on the Website: All jobs are live, easy navigation,
Pan-European employment opportunities
Content:
Commerce:
Advertising: X
Service:
X
Other:
X
Key Investors: UK venture capitalist Kevin R. Leech
Network Effect: Yes
Key Online Partners: Leading ISP’s throughout Europe, including
AOL Europe, VirginNet, SwissOnline
Hub/Portal Strategy: Yes
Key Equity Partners: Aftonbladet Hierta AB in Sweden and Verdens
Gang AS in Norway, both are partof Schibsted ASA, a leading
European, Norwegian-based international media group
Metrics:
Number of clients: 750+
Number of registered users: 500,000 in Jan, 2000
Number of unique visitors: 1.5 million in Jan, 2000
Key Customers: 750+ clients including Dell, Proctor and
Gamble, Sony, E-toys.co.UK, Motorola, Intel, Prudential, Cable
and Wireless and Seagate
349
The Knowledge Web – 23 May 2000 (Reprint)
Vault.com – The Corporate Grapevine and Much More
Job seekers, professionals and HR specialists have
discovered Vault.com as a leading destination site for
insider company information and advice, career
management services and successful HR management.
Vault.com reveals what life is like at the nation's top
companies and industries. Previously, job seekers were
relegated to piles of glossy corporate recruitment
brochures. Applying a journalistic "insider" approach,
Vault.com's extensive databases of employer and industry
profiles, reveal information about major corporations and
law firms, including current company activities, work
environments and secrets on curveball interview questions
and tactics. These original insider reports are designed to
give job seekers, professionals and HR specialists the
inside edge on career and HR management.
Vault.com’s unique content and services for job seekers
include:
•
Carefully researched and continually updated "insider"
information on over 3,000 companies and 50
industries. (Called "edgy, fun reads" by Forbes and
"the best data on potential employers" by Yahoo!
Internet Life.)
•
Vault.com Electronic WaterCoolerTM Message
Boards - the Internet's first collection of companyspecific message boards for employees. Every day,
tens of thousands of people visit Vault.com's expertmoderated message boards to share the latest
corporate and career news, network with each other,
ask job advice from each other and learn about trends.
•
(Called a "killer app" by the New York Times and
"vastly popular" by NPR.)
•
Compelling, unique career features such as Am I
WorthyTM, a place where professionals get "rated"
and discover their earning potential. You type in the
job you want, your experience and education. Vault
sends those vitals to a guest recruiter who puts a value
on your head.
Vault.com is also one of the Internet's most popular
destinations for employers. Vault.com offers the human
resources community special targeted content and services
to meet the needs of the New Economy. Top-quality,
engaging content guides professionals through the current
hot topics in the HR field today, from retention to benefits
to recruiting to managing heir own HR career. On Vault’s
WaterCoolerTM Message Boards employers can answer
potential employees' questions and find out what current
employees think about their company. Vault.com's OneClick Job Postings allows the ease of posting on multiple
job boards with one account. Vault.com's Human Capital
e-mailed newsletter is a resource for New Economy HR
professionals and recruiters.
Vault.com’s services are free to the job seeker and
postings are free to recruiters. The company generates
revenue from advertising and commerce as well as resume
database access.
Founded: 1997 (as Vault Reports)
1999A Revenues: Not Available
Headquartered: New York, NY
2000E Revenues: Not Available
Public/Private: Private
2001E Revenues: Not Available
URL: www.vault.com
Claim to Fame: Edgy, fun reads that profile over 3,000 companies
and 50 industries; rated highly for its unique content
Coolest Feature on the Website: “Am I Worthy” allows job seekers to
get rated with estimated earnings potential
Revenue Components:
Content:
Commerce: X
Advertising: X
Service:
X
Other:
Key Investors: Hollinger Ventures, American Lawyer Media, Ingram
Book Group, DB Alex Brown
Key Partners: Leading internet career sites including Yahoo
Careers, Excite, Hoovers Online, Fortune, Business Week Online
Key Customers: About.com, AT&T, D&T, DLJ, KPMG, Morgan
Stanley, Multex, Oracle, Snap.com, StarMedia
350
Network Effect: Yes
Hub/Portal Strategy: No
Metrics:
Number of clients: 200,000+resumes/ 1 million+ visitors per mo
Number of users: 180,000+ jobs/29,000+ companies
Number of content partners: 20+
The Knowledge Web – 23 May 2000 (Reprint)
Vivant! Corporation
Vivant! provides B2B services for acquiring and managing
the contractor workforce. The Vivant! exchange provides an
open network over which buyers and suppliers can trade
contractor talent and related services, matching the right skills
to the right project — and at the right rate — quickly and
easily. Vivant! unifies what is currently a very fragmented
market by delivering matchmaking, process automation and
information resources that dramatically increase efficiencies
in the way buyers and suppliers interact.
Vivant! addresses the ever-growing needs of companies
augmenting their permanent workforce with project-based
hires. The amount spent by U.S. companies on contingent
labor in 1998 was $147 billion according the U.S. Bureau
of Labor Statistics. The need for skilled contractors is
especially strong in the area of Information Technology,
where spending for contractor talent is greater than $50
billion. GartnerGroup estimates that by 2003, 60% of
large companies will use contract workers to fulfill more
than half their IT activities. While Vivant!’s focus has
been on the IT market, the company is currently expanding
its offering to include support for additional areas such as
administrative temporaries and accounting professionals.
Founded: 1997, service went live in October, 1999
The Vivant! website features analytics and tools to help
companies maximize their investment in contractors
before, during, and after the project is completed. Specific
benefits of the site include the ability to:
•
Access aggregated supply, resulting in delivery of
better qualified candidates to buyers
•
Decrease the time it takes to find and hire a contractor
•
Streamline workflow and eliminate inefficient paper
processes
•
Help companies comply with legal and regulatory
guidelines associated with using contractors
•
Automate time tracking and bill payment to eliminate
costly errors
•
Access events calendar of conferences as well as news
and articles pertaining to the IT market.
Headquartered: Oakland, California
Revenue Components: Primarily transaction based pricing. Also
monthly subscriptions, advertising, implementation services
Public/Private: Private
Content:
URL: vivant.com
Commerce: X
Claim to Fame: Early mover in the quickly growing B2B Internet
commerce arena for acquiring and managing human capital
Advertising: X
Service:
X
Other:
Coolest Feature on the Website: Supplier scorecard performance
ranking. Because the site captures all data pertaining to a transaction, a
hiring manager can view dynamically generated reports that aggregate
the historical performance of suppliers, allowing them to quickly identify
the ones that are most apt to meet their needs.
Key Investors: Internet Capital Group (ICGE), Associated Venture
Investors (AVI)
Network Effect: Yes
Hub/Portal Strategy: Yes
Metrics:
Number of clients: 12 Corporate, Many more individual
Number of users
Number of content partners: 100+ content sources
Number of unique visitors: 4,000 per day and growing daily
Key Partners: 100+ staffing firms and job boards are suppliers.
Key Customers: Deutsche Financial Services, Informix, and Onvia
351
The Knowledge Web – 23 May 2000 (Reprint)
WebHire.com (formerly Restrac)
WebHire's business-to-business Internet recruiting
solutions are designed to help employers use the Web to
quickly and cost-effectively advertise job openings, attract
and evaluate talent and manage the hiring process.
The company’s expanding Internet job-posting service
moves 50,000 jobs to the Internet each week. In one step,
customers can post their jobs and search multiple pools of
candidate resumes through a network of Web recruiting
affiliates.
WebHire has built long-lasting partnerships with leading
Internet, application, and technology companies to provide
recruiting services. Among its many partnerships with
prominent career sites, WebHire entered a joint venture
with Yahoo! in July 1999 to provide Yahoo! with powerful
online recruiting services to be offered through
Yahoo!Careers. The two companies launched the
Yahoo!Resumes service (Resume Shop) in July, and the
newest offering, Yahoo!Recruiter, will help recruiters at
small, fast-growing companies quickly locate candidates in
Yahoo!Resumes. Yahoo is just one of many partnerships
in the network which provides WebHire.com’s clients the
leverage to reach of tens of millions of visitors.
Many benefits of outsourcing to Webhire.com include
enabling client companies to unlock the power of internet
recruiting, providing easy access to Internet and candidate
services, automating candidate managements, accelerating
the time to hire by as much as 50%, integrating with
popular HRMS systems and offering low IT impact
through Internet-based outsourcing.
Founded: 1982
1998A Revenues: $30 million
Headquartered: Lexington, Massachusetts
1999A Revenues: $25.2 million
Public/Private: Public (Nasdaq: HIRE, Not Rated)
2000E Revenues: Not Available
URL: webhire.com
2001E Revenues: Not Available
Market Cap: $87 million (5/15/00)
Revenue Components:
Content:
X
Commerce:
Key Investors: Softbank, Yahoo
Advertising:
Service:
Key Partners: 14 leading internet career sites including Yahoo
Careers, America’s Job Bank, Career Mosaic, Careerpath.com,
Monster.com, Guru.com, Excite.com, Headhunter.net and guru.com
X
Other:
Network Effect: Yes
Hub/Portal Strategy: No
Key Customers: American Express, AT&T, Boeing, British
Telecom, Compaq, Johnson & Johnson, Liz Claiborne, Microsoft,
Millenium Pharmaceuticals, Rational Software, Software Artistry,
Time Inc., and WPI, Inc.
352
Metrics:
Number of clients: 1000 companies/ 2 million+ resumes
Number of users
Number of content partners: 14 leading internet career sites
Number of users
The Knowledge Web – 23 May 2000 (Reprint)
Index of e-Recruiting Companies
Job Boards
America’s Job Bank
CareerBuilder
CareerEngine
CareerMosaic
CareerPath.com
Cruel World
FlipDog
Headhunter.net
HotJobs.com
Jobs.com
Jobsonline.com
Monster.com (TMPW)
NationJob Netw ork
Net-temps
RecruitUSA
TopJobs.net PLC(UK)
Vault.com
Yahoo! Careers
Workseek.com
Vortals, Niche Job Board
6FigureJobs.com
BrassRing.com
CareerShop.com
CollegeHire.com
Computerjobs.com
dice.com (Earthw eb)
ExecUNet.com
Gooey Industries
Healthcarejobstore.com
ITWorld.com & ITCareers.com (IDG)
MarketingJobs.com
MedCareers.com
MedSearch
Minority Job Bank
techies.com
topsalespositions.com
Private
Private
Private
Private
Private
Subsidiary
Private
Private
Private
Private
Private
Private
Private
Private
Filed
Private
Internet Based Staffing & Search
EmployeeService.com
FutureStep (Korn/Ferry)
kforce.com
LeadersOnLine (Heidrick & Struggles)
PeopleScape (Christian & Timbers)
Searchbase.com
Spencer Stuart
VirtualEmploy.com
Traditional Staffing Firms (RHI, Interim)
Ticker
Private
Subsidiary
KFRC
Subsidiary
Subsidiary
Private
Private
Private
Various
ASP: Private Label Job Board, App Tracking
BrassRing (HireSystems)
E-cruiter.com
eQuest
experience Inc
Hire.com (e-Recruiter)
HotJobs (Softshoe)
Jobtrak.com
Pentaw ave (idealHire)
ResourcePartner
Resumix (merger w ith HOTJ pending)
TalentPoint (TalentWorks)
Webhire (formerly Restrac)
Ticker
Private
CBDR
Private
Private
Private
Private
Private
HHNT
HOTJ
Private
Private
TMPW
Private
Private
Private
TJOB
Private
YHOO
Private
Private
ECRU
Private
Private
Private
HOTJ
Private
Private
Private
Private
Private
HIRE
Related Services - screening, skills testing, etc
Avert Inc
Brainbench
Decision Point Systems
Development Dimensions International
FreeSkills
Peoplew ise
Pre-employ.com
Qw iz, Inc
Review Net
SmartForce
Wetfeet.com
zRep
Vendor & Independent Prof Exchanges
Independent Professional Exchange
Aquent.com
Bid4Geeks
Work Exchange
eLance
HelloBrain
ePlaced
eWork Exchange
expertcity.com
FlexMind.com
freeagent.com (sub of Opus 360)
GoodShark.com
Guru.com
ICPlanet
IT-Temp.com (Siren.com)
Monster Talent Market
Niku.com (iNiku)
RecruitDynamics.com
SkillsVillage
Vendor Exchange
b2bpeople.com
BridgePath Recruiters Netw ork
Mirronex
Niku.com (xNiku)
Nitorum
Opus360.com (vendors, suppliers)
SkillsVillage
Vivant
Workforce Managem ent System s (PSAs)
Advanced Personnel Systems (SmartSearch Online)
Changepoint
Deploy Solutions
Evolve Softw are
PeopleClick.com (IRIS)
Icarian (Workforce)
Interactive Search (iSearch)
Main Sequence (PC Recruiter)
Niku (eNiku)
Novient
Optimum Solutions (HR trac)
PeopleMover (PeopleMover)
Personic (EZaccess)
Portera.com
Recruiternet LLC (PC Resume)
Recruiting Solutions (Recruiting Center)
Recruitsof t (Recruitsof t.com)
RezLogic (Rezkeeper)
Skillset Softw are
Ticker
AVRT
Private
Private
Private
Private
Private
Private
Private
Private
SMTF
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Subsidiary
Private
Private
Private
Private
TMPW
NIKU
Private
Private
Private
Private
Private
NIKU
Private
OPUS
Private
Private
Private
Filed
Private
Private
Private
Private
Private
Private
NIKU
Private
Private
Private
Filed
Private
Private
Private
Private
Private
Private
Source: Merrill Lynch Global Growth Group
353
The Knowledge Web – 23 May 2000 (Reprint)
51. Appendix 3
The Addressable Online Market : Calculation of Online Human Capital
Management Spending
Online Recruiting & Deployment
Online staffing/contracting (net of
direct payroll)
Retention, Consulting and Related
Services
Total domestic online human
capital management
Total global online human capital
management
1998E
$2.37
$0.31
1999E
$5.12
$0.62
2000E
$8.20
$1.31
2001E
$12.78
$2.35
2002E
$17.30
$3.48
2003E
$21.69
$5.28
$0.02
$0.05
$0.12
$0.32
$0.55
$0.98
$2.71
$5.79
$9.63
$15.45
$21.33
$27.95
$5.42
$11.58
$19.26
$30.90
$42.66
$55.90
Source: Merrill Lynch estimates using information from BLS, Saratoga Institute, iLogos and Forrester
Calculation Detail:
Online Recruiting & Deployment includes total estimated annual corporate expenditure on recruiting, assessment, hiring
and deploying employees being conducted online (including corporate HR websites). The figures are based upon
estimates of (1) total US Workforce, (2) total US workforce average tenure, (3) average cost per hire and (4) the portion
spent online. (1999E: 129.5 million workers*5 years average tenure(1/5)*$1,976 cost per hire*10% online = $5.12 billion
in 1999)
Online staffing/contracting includes total estimated annual spending by staffing, contracting firms and independent
professionals being conducted online. The figures are based on estimates of (1) total staffing industry revenue (less PEO
and Search revenue), (2) assumed gross margin after deducting direct payroll costs and (3) the portion spent online. (Ex:
$70.9 billion*25% gross margin*3.5% online=$0.89 billion in 1999)
Retention, Consulting and Related Services includes expenditures on ancillary human capital services including
consulting services, employee surveys, etc. and are estimated to be 1% of total online recruiting and deployment
increasing to 4.5% over the next five years. (Ex: $5.12 billion * 1% = $0.05 billion in 1999)
Global market estimates = domestic market estimates * 2
The Outsourced Online Market: Calculation of Outsourced Online Human
Capital Management Spending
Online Recruiting & Deployment
% Outsourced
Online staffing/contracting (net of
direct payroll)
% Outsourced
Retention, Consulting and Related
Services
% Outsourced
Total domestic online human
capital management
Total global online human capital
management
1998E
$0.47
20%
$0.31
1999E
$1.28
25%
$0.62
2000E
$2.46
30%
$1.31
2001E
$5.11
40%
$2.35
2002E
$7.78
45%
$3.48
2003E
$10.84
50%
$5.28
100%
$0.01
100%
$0.02
100%
$0.04
100%
$0.13
100%
$0.25
100%
$0.49
20%
$0.80
30%
$1.92
35%
$3.81
40%
$7.59
45%
$11.51
50%
$16.61
$1.60
$3.84
$7.62
$15.18
$23.02
$33.22
Source: Merrill Lynch estimates using information from BLS, Saratoga Institute, iLogos and Forrester
Calculation Detail:
Outsourced Online activities are calculated using estimated percentages of total addressable market (from above) being
outsourced. These percentages increase from 20-50% over the period 1998-2003.
Global market estimates = domestic market estimates * 2
354
The Knowledge Web – 23 May 2000 (Reprint)
A
A.T. Kearney, 346
Abacus Ventures, 71
AbleMedia.com, 117
AbleSoft, 72
ABN-AMRO Bank NV, 75, 76
About.com, 194, 337, 350
Academic Systems Corporation, 71
Acadio, 72, 229, 257, 260, 291
Accel Partners, 25, 67, 70, 71, 73, 75, 76,
114, 146, 321, 322, 326, 327
Access Venture Partners, 322
Achieva, 71, 79, 130, 145, 147, 165, 207,
252
ActiveEducation, 256
ActiveTouch, 143
ACTV, 132
Adaptive Learning Technology, Inc., 70
Adecco, 73, 323, 339, 342, 346
AdminiQuest, 73
Administaff, 73
Adobe, 198, 248, 265
ADP, 73, 322, 323, 330
Advance Online, 46
Advanced Educational Systems, 283
Advanced Internet Recruitment
Strategies, 329
Advanced Technology, 72, 250
Advantage Learning, 120, 134
Advantage Schools, 70, 115
Advent International Corporation, 70
Affiliated Computer, 343
Affinity Ventures, 70
Agile Software, 76
AIG, 71, 73, 323, 344, 346
Akamai, 76
Alcoa, 327
Alfy.com, 111
AllBusiness, 256
Allen & Co., 63, 71, 222, 280
Allen Communications, 260, 261
Alliance Technology Ventures, 72
Alloy.com, 111, 145, 167
Alltel, 331
Alta Colleges, Inc., 71
Alta Vista, 256
Amazon.com, 18, 23, 24, 27, 39, 55, 80,
88, 126, 145, 146, 153, 167, 188, 259,
328, 332, 337
America Online, 18, 23, 24, 39, 51, 52,
55, 61, 70, 88, 96, 113, 118, 131, 133,
141, 154, 156, 159, 162, 163, 297, 330,
333, 337, 342, 348, 349
American Education Centers, Inc., 70
American Express, 71, 352
American Express Fin’l Corp., 71
American Lawyer Media, 72, 322, 350
American Management Association, 257
American School Directory, 111
American Staffing Sources, 346
Amerindo Investment Advisors, 73, 75,
76, 188, 322, 343
Andersen Consulting, 67, 84, 175, 263,
341
Anheuser Busch, 248
Animalhouse.com, 203, 208
AnswerSmart.com, 46
AnswerThink, 338
Antioch College, 202
APEX Learning, 79, 101, 106, 116, 117,
119, 122, 165
Apex Strategic Partners, 70
Apollo Group, 16, 171, 216, 217, 223,
259
Apollo International, 43, 115, 217
Appalachian State University, 188
Apple Computer, 76, 79, 120, 132, 137,
198, 332
Applied Materials, 251
Apply!, 192, 206, 207
APV Technology Partners, 71, 76
Aquent, 319
Arbor Investors, 76
Arcadia Partners, 46, 67, 70, 71, 72, 137,
221, 250, 252
Archery Capital, 323, 344
Archipelago Productions, 163, 191
Arena Capital, 71, 72
Ares Fund, 153
Argentum Capital Partners, 72
Ariba, 18, 23, 75, 246, 265, 318, 327,
344, 345, 347
Arista, 63, 246
Arista Capital Partners, 323
Arius, 129
Art Technology Group, 76
Arthur Andersen, 347
Arthur Rock & Co., 73, 322
ASD, 111
AsiaTech Ventures, 70
Ask Jeeves, 118, 153, 269
Aspect Telecommunications, 76
Aspen Youth Services, Inc., 70
Associated Venture Investors, 71, 73,
322, 351
AT&T, 75, 96, 114, 163, 179, 198, 217,
219, 285, 332, 350, 352
AT&T Ventures, 75
Athletes & Coaches Choice, Inc., 70
Atlas Venture, 73, 322, 323, 347
Attractor Investment Management, 75
Aubrey Daniels & Associates, 274
Audax Private Equity Fund, 71
August Capital, 73, 322, 334
Aurora Funds, 191
Austin Ventures, 70, 72, 75, 269, 322
Autobytel.com, 23
Autodesk, 346
Automatic Data Processing, 73, 323, 330
Autoweb.com, 23, 145
AvantGo, 345
Avert, 317
AVI Management Partners, 282
Avulet, Inc., 72
355
The Knowledge Web – 23 May 2000 (Reprint)
B
B2Bxchange, 255
Baan, 248
Backweb, 23
Bain, 67, 71, 76, 323
Baker Communications, 76
BancBoston Ventures, 71, 72, 76, 191,
205, 250, 323
Bancshares Capital, 257
Bank of America, 332
Bankers Trust, 72, 265, 285
Baring, 290
Barnes & Noble, 39, 155, 332
Bass Associates, 76
Battery Ventures, 71, 73, 76, 282, 323,
346
Bay Partners, 75, 76
BCE Mobile Communications, 75, 76
BCI Partners, 73
Bear Stearns, 332
Bell & Howell, 92
Bell Atlantic, 75, 76, 251
BellSouth, 251
Benchmark Capital, 25, 74, 75, 76
Benchmark Consulting, 336
BennySmart, 116
Berger New Generation Fund, 71
Berkeley International Capital, 72
Berlitz, 257
Bertelsmann Ventures, 322
Bessemer Venture Partners, 67, 70, 72,
73, 258, 322, 337
BestBookBuys.com, 179
beyond.com, 23, 265
BigChalk, 68, 92, 109, 111, 117
BIGWORDS.com, 195
Biogen, 258
BizQuiz, 263
Black & Decker, 270, 271
BlackBoard, 43, 71, 120, 132, 156, 160,
187, 191, 203, 259
Blackfin Capital, 323, 338
Blackwell Ltd., 71
Blockbuster Entertainment, 259, 286, 342
Bloomberg, 269, 330
Blue Cross of California, 346
Blue Rock Capital, 72, 258
Bluestem Capital Partners, 72
BlueU.com, 265
Bluewater Capital Management, 75
Blumenstein/Thorne, 70, 92
Boeing, 19, 285, 332, 352
Bolt.com, 111, 167
Bonus.com, 84, 117
Book Group, 323, 350
Book Swap, 195, 196
Bose, 327
Boston Capital Ventures, 70, 96
Boston College, 194
Boston Millennia Partners, 71, 73, 191,
205, 322, 337
Boston.com, 141
Boxer Learning, 117
Brainbench, 72, 229, 256, 277, 278, 291,
317, 331
356
BrainConnection.com, 124, 127
BrainPlay.com (FKA
Thunderbeam.com), 70
Brainpower.com, 323
BrassRing, 43, 207, 215, 295, 321, 325,
326, 327, 338
Braun Consulting, 76
Brentwood Associates, 70, 106
BridgePath.com, 295, 325
Britannia Holdings, 76
British Gas, 285
British Telecom, 75
Broadband Ventures Group, 70
Broadcast.com, 221
Brocade Comm Sys, 75
Brown University, 222, 280
Burr Eagan, 70
Business Week, 30, 194, 219, 258, 330,
341, 350
Buy.com, 146
C
3Com, 75, 271, 327, 332
C. Blair Asset Management, 323
C.E. Unterberg, Towbin, 71, 188
C|Net, 265
Caliber, 218, 222, 263, 280
California Virtual University (CVU), 206
Cambria Group, 70
Cambridge Academies Inc., 70
Cambridge Technology Partners, 72, 73,
76, 265, 321, 322, 323
Cambridge University, 67, 70, 72, 73, 76,
136, 189, 200, 265, 289, 321, 322, 323,
345
Campus Cruiser, 187
Campus Pipeline, 41, 63, 68, 71, 171,
177, 188, 191, 205, 223, 225
Campusbooks, 196
Campustores.com, 192
CampusTours.com, 203, 207
Canaan Partners, 70, 73, 75, 322
Canaccord Capital, 70
Candle Corp., 76
Cannon Information Systems, 346
Capella University, 171, 174, 210, 214,
223, 265, 284
Capital One, 194
Cardean University, 174, 185, 210, 211,
216, 220, 279
Career Choices, Inc., 73, 322
Career Horizons, 73
Career Mosaic, 352
CareerBuilder, 69, 73, 295, 322, 323,
325, 330
Careerpath.com, 352
Careerstaff Unlimited, 73, 322
CareerWeb, 346
Carlyle Venture Partners, 71, 191
Carnegie Communications, Inc., 207
Carnegie Mellon, 185, 210, 211, 213,
216, 220, 222, 279, 280
Carousel Capital, 70
Cartoon Network, 96, 116
The Knowledge Web – 23 May 2000 (Reprint)
CBM Technologies (TEDS), 246, 251
CBS, 332
CCC, 122, 156
CDI Corp., 346
CDNow.com, 23, 145
Celanese, 251
Cenquest, Inc., 71
Center for Creative Leadership, 219
CenterPoint Venture Partners, 71
Centra Software, 16, 262
Central Florida Community College, 202
Centrinity, 70
Century 21, 19, 274
Certilearn, 187
Chancery Software, 79, 132, 134, 137,
165, 252
Change Point, 320
Charles County Community College, 202
Charles River Ventures, 67, 70, 72, 75,
141, 258
Charles Schwab, 332
Charter Capital, 73, 75, 76, 322, 343
Charter Oak State College, 202
Chase, 46, 63, 67, 70, 71, 72, 76, 115,
146, 191, 205
Cheap Tickets, 23
Check Point Software Technologies, 265,
284
Cherry Creek Netschools Investors, 70
Cherry Tree Investments, 214
ChildrenFirst Inc., 70
ChildU, 70, 117
CIA, 337
CINAR, 114
Cincinnati Bell, 332
CIP Capital, 72, 142
Cisco Systems, 13, 19, 41, 67, 75, 76,
132, 146, 160, 174, 221, 230, 235, 248,
265, 271, 283, 284, 305, 332, 343
CitiGroup, 75, 76, 198, 231, 273, 323
Citrix, 346
class.com, 70, 79, 117, 123, 165
Classbook.com, 195
Classroom Connect, 63, 70, 79, 83, 84,
101, 106, 107, 109, 110, 111, 114, 116,
117, 118, 119, 120, 122, 126, 150, 153,
165
click2learn.com, 163, 201, 210, 229, 255,
260, 261, 291
CMGI, 18, 42, 76
CNET, 23, 73, 75, 321, 322, 323, 343,
346, 348
CNN, 39, 106
Cogito Learning Media, 63, 71
Cognitive Arts, 71, 187
Coldwell Banker, 274
College Coach, 79, 148, 165, 203, 207
College Health Hub, 192
College Hire, 203, 208
College Student.com, 179
CollegeBoard, 115, 203, 206, 207
collegeboard.org, 199, 206
CollegeBound.com, 203, 207
Collegecentral.com, 203, 208
CollegeClub.com, 179, 196, 203, 208,
341
CollegeDepot.com, 196
Collegelearning.com, 203
CollegeLink.com, 130, 203, 207
CollegeNet.com, 145
CollegeNews.com, 203
Collegequest.com, 207
Colleges.com, 203, 208
Collegestudent.com, 71
CollegeView.com, 203, 207
Collegexpress.com, 207
Columbia University, 30, 113, 172, 173,
185, 191, 194, 199, 200, 209, 210, 211,
212, 213, 215, 216, 219, 220, 222, 264,
279, 280
Comcast, 63, 70, 75, 114
Comdisco Ventures, 70, 72, 75, 250, 322
Commerce One, 18, 56, 71, 75, 129, 246
Commonwealth Capital Ventures, 70
Community of Science, 46
Compaq, 67, 76, 107, 153, 256, 352
Compass Technology Ventures, 72
CompassLearning, 158
Competence Software, 255
CompuCom Systems, 323, 345
CompUSA, 331
Computer Control Technologies, 143
Computer Literacy, 332
Computer Science Associates, 265, 284
Computer Science Corporation, 278
ComputerJobs.com, 295, 323, 325, 331
Concentric Network, 23
Concentric.com, 256
Connors Communications, 348
Convene.com, 71
Coopers & Lybrand, 346
Coors, 337
Copernicus.net, 111
Core Learning Group, 92
Corio, Inc., 129
Coriolis, 332
Cornell University, 191
Cornerstone Equity Investors, 70, 71
Cornerstone University, 202
Corpedia, 263
Corporate Venture Partners, 73
Counsel Corp., 72
Course Technology (Thomson’s), 263
Cox Communications, 114, 212
Crayon Crawler, 116
Credit Lyonnais, 273, 285
Credit Suisse First Boston, 70, 72, 255
Crescendo Ventures, 76
Crisp Publications, 255
Crosslink Capital, 73, 322, 323, 348
CrossPoint Ventures, 73, 322
CRUEL WORLD, 73, 322
Cyberian Outpost, 23
CyberKids/CyberTeens, 116
Cyberstate University, 72
Cypress Partners, 76
Cyrk, 189
D
DaimlerChrysler, 251
357
The Knowledge Web – 23 May 2000 (Reprint)
Dain Rauscher Wessels, 73, 322, 323,
348
Dartmouth University, 173
Datamatics Management Services, 346
dbusiness.com, 335
DC Ventures, 323
Decisis, 338
Deja News, 331
Deleage and Co., 70
Delias.com, 145
Dell Computer, 63, 67, 71, 132, 146, 153,
188, 265, 271, 283, 284, 322, 342, 349
Deloitte & Touche, 67, 219, 344, 347,
350
Delphi Ventures, 70
Dephi Forums, 329
Deutsche Banc Alex Brown, 322, 323,
350
Deutsche Bank AG, 72, 351
DeVry, 16, 216
Digital Island, 76
DigitalThink, 16, 68, 72, 130, 156, 229,
242, 245, 258, 259, 262, 264, 265, 291
DiscoverWare, 257
Discovery Ventures, 76
DiscoveryKids, 117
Disney, 19, 93, 111, 116, 332, 337
DMG Technology, 75
Docent, 72, 229, 246, 250, 252, 291
DogPile.com, 335
Doll Capital Management, 194
Dominion Ventures, 70, 96, 323
Donaldson, Lufkin & Jenrette, 70, 158,
350
DoubleClick, 337
DoughNet, 86, 144, 145
Dr. Koop, 23
Draper Richards, 76, 322
Draper, Fisher, Jurvetson, 67, 76, 109,
256, 322, 323
DRW Venture Partners, 71
Duke University, 71, 187, 219, 220, 222,
279, 280, 281, 282
Dun & Bradstreet, 258, 327
Dynamics, 265, 284
E
E*trade, 76
E.D.’s Oasis, 111
E.piphany, 76
Early Stage Enterprises, 72
Earthlink, 23, 96, 133
EarthWeb, 16, 61, 265, 283, 284, 295,
325, 332
East Peak Partners, 73, 322, 348
Eastman Chemical, 251
eBay, 39, 88
EBSCO, 71
eCal, 329
ecampus.com, 179, 195, 196
e-chalk, 132
eCollege.com, 16, 132
ecollegebid.com, 196
EDEX International Property Limited, 70
358
Edison Schools, 68, 70, 122
Edison Venture Fund, 72, 76
EdPoint, 130
edu.com, 196, 198, 203, 223
Education Management (Art Institute
Online), 216
Educational Video Conferencing, 187,
262
EducationTalk, 130
edupass.com, 203
EduPoint.com, 71
Eduprise.com, 71, 115
eduTest.com, 70
eduventions, 111
Edventions, Inc., 70, 138
e-education, 71, 203
Effat College-Saudi Arabia, 202
efollet.com, 196
Egenda.com, 71
Egghead.com, 23, 145
eHealthInsurance.com, 334
EHQ, Inc., 72
ELance.com, 322
Electronic Arts, 336
Electronic Data Systems, 24, 278, 285,
330, 336
Eloquent, 16, 262
Embanet, 187, 192
Embark.com, 68, 71, 141, 145, 171, 177,
192, 194, 203, 207, 223, 225
EMC, 343
eMind, 45, 46, 72, 163, 264, 273
EmployeeService.com, 323
Encompass Ventures, 76
EnerTech Capital Partners, 75
Englishtown.com, 229, 289, 291
Ent. Media Ventures, 46
Enterprise Partners, 71, 75
Eos Ventures, 73, 322
Eplay, 117
epylon.com, 126, 128
eQuest, 338
Equistar, 282
Equity Capital Group, 67, 73, 75, 76, 323,
330
e-rate, 100, 101, 129, 152
Ericsson, 75
Ernst & Young, 67, 146, 278, 281
e-school.edu Inc., 70
eSCORE!.com, 79, 146, 165
eScrip, 144
Essex Investment, 73, 322, 343
eToys, 145, 346, 349
ETS, 132, 139, 140
Euclid Partners, 70, 96
European Development Capital, 73
European Technology Holdings, 75
Eve.com, 145
Evolve Software, 323
eWork Exchange, 255, 338
Excelsior Private Equity, 70
Excite@Home, 23, 66, 71, 88, 194, 332,
333, 338, 350, 352
ExecuTrain, 258
Exodus, 269
EXP.com, Inc., 194
The Knowledge Web – 23 May 2000 (Reprint)
Expertcity.com, 322
Extensity, 338
Exxon Mobil, 19, 285
F
F5 Networks, 76
Family Education, 79, 101, 109, 114, 156
Family.com, 117
FamilyEducation Network, 68, 70, 84,
111, 112, 113, 116, 117, 139, 141, 163,
164, 165
FamilyWonder.com, 113, 126
FansOnly (Student Advantage), 192
FAO Schwartz, 97
Fast Company, 270, 334
FastWEB.com, 145, 203, 207
fatbrain.com, 196
Fathom, 171, 200, 223, 263
FBR Ventures, 73, 76, 322, 323, 330
Fidelity, 70, 71, 73, 322, 323, 338, 342
Finaid.org, 145, 203, 207
Financial Executives Institute (FEI), 274
FIREOnlineTraining, 263
First Analysis Management, 70, 72, 323
First Union Capital Partners, 323
FirstNet, 255
Flanders Language Valley Fund, 72, 290
Fleet, 189, 198
Fleet Financial Group, 189
Flextrader, 269
FlipDog.com, 317
Florida Power, 251
Flynn Venture Partners, 72
Fogdog.com, 145
Follett Corp., 71
Ford Motor Company, 54, 219, 243, 248,
337
Formanet, 72
Forstmann Little, 214
Fortune, 3, 12, 56, 99, 212, 218, 220, 229,
239, 248, 249, 251, 252, 265, 274, 279,
285, 286, 307, 319, 340, 342, 348, 350
Foundation Capital, 75
Foundry Networks, 76
Frazier Healthcare, 70
FreeAgent.com, 319, 345
FreeMarkets, 318
Freezone.com, 111
Frontenac Company, 71
Fujitsu, 282
FunBrain.com, 113, 117
FunSchool.com, 117
Futurestep/Korn/Ferry, 325
G
G51, 73, 322
Galaxy Classroom, 107
Games2Learn, 70, 113, 126, 127
Gamma Investors, 71
Gap, 34, 146, 173, 230, 332
garage.com, 70
Gartner Group, 297, 318, 323, 341, 345,
347, 348, 351
Gates Rubber Company, 255
Gateway, 67, 114, 132, 159, 259, 343
GE Capital, 67, 70, 71, 73, 75, 76, 221,
251, 282, 290, 322, 323, 330
Gemini Investors, 76
Gemstar (Rocketbook), 132
General Atlantic Partners, 76
General Electric, 19, 71, 282
General Instrument, 336
General Motors, 19, 154, 332
Generation Partners, 73, 322, 337
Generation21 (Advantage Learning), 261
Genzyme, 258
Geo Learning, 260, 263
Georgetown University, 222, 280
GetRelevant, 329
Gilat Satellite Networks, 70, 153
Gilde Investment Management, 72
GirlTech.com, 84
Gleacher & Co., 71, 213
Global Retail Fund, 71
GlobalEnglish, 229, 288, 291
GlobalTutor.com, 130
Glynn Ventures, 76
GMN Investors, 76
Go2Net, 255
GoCampus, 192
Goldman, Sachs & Co., 70, 73, 75, 76,
92, 323
Goto.com, 23
GovJobs, 346
GradAdvantage, 203, 206, 207
Greenwich Street Capital, 142
Greylock Capital, 72, 73, 75, 76, 322, 334
Group One, 70
Growth Works Capital, 137
Guidance Solutions, 329
Guru.com, 73, 295, 319, 322, 325, 334,
352
H
Haebler Ventures, 70
Hallmark, 281, 282
Hambrecht & Quist, 70, 71, 72, 73, 75,
76, 188, 265, 322, 323, 338
HarbourVest Partners, 72, 198
Harcourt, 16, 70, 79, 113, 117, 156, 163,
164, 165, 191, 205, 255
Harley Davidson, 258
Harron Capital, 71
Hartford Computing Group, 341
Harvard University, 43, 67, 96, 124, 131,
136, 171, 173, 193, 209, 215, 219, 220,
222, 252, 279, 280, 282, 303
Harvest Partners, 73
Haystack Systems, 346
Headbone Interactive, 84, 116
HeadHunter, 16, 295, 325, 335, 352
Headlight.com, 229, 256, 260, 291
Headwater Capital, 70
Healtheon, 23, 88
HealthStream, 72
Hearst Corp, 322
Heidrick & Struggles, 16, 295, 341
359
The Knowledge Web – 23 May 2000 (Reprint)
Hewlett Packard, 54, 70, 71, 219, 235,
248, 251, 265, 270, 271, 284, 285, 332
HIG Capital Management, 323
High Fusion, 132
Highland Capital Partners, 70
HighWired, 70, 132, 134, 141, 194, 252
Hikari Tsushin, 73
Hillman Company, 70
Hire Systems, 69, 73
Hire.com, 73, 269, 295, 322, 325, 336
HireSystems (BrassRing), 322
Hitachi, 285
HLM Management Company, 124
HMI, 72
HMS Investments, 76
Hobsons DMI, 207
Hollinger Ventures, 72, 322, 350
Home Depot, 286
Home2School.com, 118
Homeroom.com (Princeton Review), 127
Homeschool Media, 118
Homeschool World, 118
Homeschoolers Curriculum Swap, 118
Homeschooling Zone, 118
Homestore.com, 274
Homework Central, 92, 119, 130
HomeworkHelp.com, 130
Hook Partners, 322
Hoover’s, 350
Horizon, 72, 262
HOTBIZ.COM, 335
HotJobs.com, 16, 73, 295, 322, 325, 337
Houghton Mifflin, 71, 117, 156, 191, 202
HRHub.com, 260
Hughes Network Systems, 217
Human Resource Microsystems, 346
Humanic Design, 346
Hummer Winblad Venture Partners, 71,
323
Hungry Minds, 6, 72, 203, 221, 227, 229,
259, 260, 265, 291
Hunt Capital Growth Fund, 72
HyCurve, 63, 72
I
3i Group, 71
IBM, 67, 76, 107, 198, 213, 248, 265,
284, 285, 331, 332, 336, 340
IBT Technologies, Inc., 72
iCanBuy, 86, 144, 145
Icarian, 73, 295, 320, 322, 323, 325, 338,
347
ICPlanet, 322
Idealab, 70, 73, 322, 339
IDG Ventures, 73, 76, 322
iMind, 132, 134, 160
Imperial Bank, 70
Imperial Ventures, 75, 282, 322
in2action, 129
In2win, 263
Inacom, 332
Indiana University, 222, 280
Infonautic, 92
Information Partners, 70, 76, 92, 198
360
Informix, 265, 284, 351
InfoSource, 255
Infotec Commercial Systems, 246
Infrastructure & Environmental Fund III,
70
Ingenium (click2learn), 246
Ingersoll-Rand, 336
Ingram, 72, 350
Ingram Micro, Inc., 72, 217, 322, 350
Inktomi, 71, 118, 188, 327
Innovative Community Technology
Services, 72
INSEAD, 194, 219
Institutional Venture Partners, 75, 114,
323
INSWeb, 343
Integral Capital Partners, 76, 323
Intel, 54, 63, 67, 70, 72, 75, 76, 106, 113,
128, 132, 221, 255, 265, 270, 271, 282,
284, 285, 290, 332, 337, 349
Intel Corporation, 63, 70, 72, 75, 76, 265
Interactive Learning International, 63
Interim Services, 318
Internet Assets, Inc., 75
Internet Capital Group, 18, 42, 71, 73, 75,
129, 191, 322, 323, 331, 351
internet.com, 70
Into Networks, 132
Intralearn, 187, 246
Intraware, 23, 265, 347
INVESCO Private Capital, 72
Investor AB, 71, 221
Investor Group of Santa Barbara, 288
Invisic, 338
iPrint.com, 343, 345
IQMind, 70
iShip, 343
iSong.com, 72
ISP Alliance, 335
iStation, 117
ITC Learning, 246, 263
Itochu, 71, 75, 76
ITV/Infinity, 70
ITWorld.com, 347
ivillage.com, 23
IXL Enterprises, 67, 331
J
J. & W. Seligman & Co., 71, 73, 323, 344
J.F. Shea & Co., 75
J.H. Whitney & Co., 76, 322
J.L. Hammett, 106, 126, 127
J.P. Morgan, 278, 285
Jackson National Life, 158
JAFCO America Ventures, 75, 76
Janus Technologies, 72
Japan Associated Finance Company, 76
Jcrew.com, 145
JD Edwards, 346
Jefferies & Company, 76
Jefferson Capital Partners, 72
Jenzabar, 171, 187, 189, 192, 208, 223
Jet Software (AKA Qarbon.com), 72
JGE Capital Management, 75
The Knowledge Web – 23 May 2000 (Reprint)
JK&B Capital, 75, 76
JLC Holdings, 115
JobDirect.com, 73, 322
jobs.com, 339
Jobsonline.com, 317
Jobtrak.com, 179, 203, 208
John Deere, 332
John Wiley & Sons, 274
Johns Hopkins University, 222, 280
Johnson & Johnson, 352
Jones International University, 210
Jostens, Inc., 71, 113, 136, 158
JP Kids, 70
JuniorNet, 63, 70, 79, 96, 101, 116, 150,
151, 165
Juniper Networks, 75
Juno Online, 23, 337
K
Kaiser Permanente, 331, 338
Kana Communications, 76
Kaplan, 42, 43, 44, 67, 70, 71, 117, 122,
129, 130, 131, 132, 156, 159, 171, 179,
207, 208, 210, 215, 223, 322, 326, 327
KB Toys, 126
KeepSmart.com, 229, 274, 291
Kennedy Information, 329
Kensington Value Fund, 71
Kestrel, 71, 191, 205
Key Players, 109, 116, 126, 132, 144
kforce, 16, 318, 340
Kforce.com, 295, 318, 325
Kimberly-Clark, 327
Kinetic Ventures, 76
Kleiner, Perkins, Caufield & Byers, 38,
67, 70, 71, 73, 74, 75, 76, 114, 321,
322, 323, 336
KLM Pension Foundation, 75, 76
Kmart, 286
Knowledge Adventure (EduCast), 117
Knowledge Health, 46
Knowledge Kids Enterprises, 97
Knowledge Learning, 46
Knowledge Navigators, 246
Knowledge Planet, 72
Knowledge Universe, 14, 45, 46, 67, 68,
71, 72, 97, 107, 111, 117, 120, 213,
246, 249, 263, 273
KnowledgeBroadcasting, 46
KnowledgeFirst, 207
KnowledgeKids Network, 46
KnowledgeNet, 72, 263
KnowledgePlanet, 46, 229, 246, 249, 291
KnowledgeSoft, 72, 246, 249
Koch Ventures, 75
KOLA, 116
Korn/Ferry, 16, 295, 333
KPMG Consulting, 265, 331
KPMG Peat Marwick, 67, 74, 76, 191,
265, 331, 347, 350
Kyocera International, Inc., 75, 76
L
La Petite Academy, 115
Lambros LP, 75
Law.com, 215
Lawson Software, 214, 265
Lazard Frere and Co., 70, 124
Leaders Online, 318, 325, 341
LeapFrog, 46, 79, 97, 165
Learn.com, 203
Learn2.com, 16, 203, 255, 256, 259, 260,
343
Learning Action, 263
Learning Express, 71
Learning Insights, 258, 263
Learning Outfitters, 117
Learning Technologies, Inc., 70
Learning Tree, 16, 71, 229, 285, 291, 343
Learning Tree International, 71
Learning.com, 203
LearningLinc, 262
LearningStation.com, 132
LearnNow, Inc., 72
LearnWare, 191
Lehman Brothers, 75
Lepercq Capital Management, 70
Levi Strass & Co., 258
Lexecon, 46, 212
Lexington Investor Group, 76
Liberate Technologies, 76
Liberty Digital, 63, 71, 114
Liberty Media Group, 63, 70
Liberty Partners, 72
Librarian (click2learn), 246
Lighthouse Capital Partners, 75
Lightspan, 16, 63, 68, 70, 79, 101, 109,
110, 111, 113, 114, 117, 126, 127, 150,
156, 165, 167, 252
Liquid Software, 346
Liz Claiborne, 352
Lombard Investments, Inc., 73, 322
London Pacific & Annuity, 248
Longworth Venture Partners, 70
Looksmart, 194
Lotus, 187, 216, 262, 265, 284, 343
Lotus Learning Space, 187
Lovett-Miller Ventures, 322, 323
LSI Logic, 75
Lucent, 75, 250, 331, 332, 337
Lycos, 23, 72, 118, 141, 160, 194, 278
Lycos, Inc., 72, 194, 278
M
3M, 19
M Group, 70, 138
Macmillan, 332
Macromedia, 260, 261, 265, 283, 284
Madrona Investment Group, 72
MainXChange, 117
MaMaMedia, 70, 79, 84, 96, 116, 165
Manpower, 265, 284
Marimba, 23, 265, 284
Marriott International, 251
Marshall Capital Management, 72
361
The Knowledge Web – 23 May 2000 (Reprint)
Mascot Network, 192
Massachusetts Institute of Technology,
96, 173, 209, 215, 222, 252, 280
Mastech, 278
MathForum, 117
Mathsoft, 117
Matrix Partners, 75, 76
Maveron, 70, 122
Maxim Training, 255
Mayfield Fund, 72, 75, 198, 288
MC2 Learning Systems, 70, 132, 134
McDonalds, 19
McGraw Hill, 117, 156
McGraw-Hill, 71, 157, 191, 205
MCI, 54, 75, 222, 280, 332, 336, 340
MCI Worldcom, 54
McKinsey, 34, 67, 71, 188, 300, 332
McKinsey & Co., 34, 67, 188
MeansBusiness, 46
Media Technology, 70, 71, 106
MediaOne Group, 70, 106
MediaSeek, 134
Medschool.com, 71
Mellon Ventures, 331
Menlo Ventures, 76
Merck, 337
Mercury Corporation, 258
Mercury Ventures Ltd., 72
Meritech Capital Partners, 71, 146
Merrill Lynch Asset Management, 332
Merrill Lynch KECALP, 71, 76
Mesirow Capital Partners, 72
Michigan, 122, 159, 219, 222, 280
Michigan State University, 222, 280
Microsoft, 11, 54, 63, 67, 70, 73, 76, 105,
107, 114, 117, 118, 122, 153, 154, 156,
191, 198, 216, 255, 257, 265, 271, 283,
284, 322, 330, 334, 336, 337, 352
Mid-Atlantic Venture Fund, 72
Millenium Pharmaceuticals, 352
Mindbank International, 278
Mindfire.com (Global Knowledge
Network), 263
Mindful Partners, 323
MindLeaders, 72, 263
MindLever.com, 72
MindQ, 249, 263
MindSpring.com, 335
Minerva, 106, 120
Mohr Davidow, 75, 76, 323
Monster.com, 317, 319, 325, 338, 342,
352
Morgan Stanley, 71, 72, 194, 199, 249,
350
Morgan Stanley Ventures, 71, 72, 75,
194, 323
Morgenthaler Partners, 72
Morningside Group, The, 113, 199, 200
Motorola, 229, 269, 282, 286, 349
MoveSite.com, 338
Moving.com, 335
MP3.com, 145
Mshow.com, 46
MSN.com, 330
MTDC, 191, 205
Multex, 350
362
Murphree Venture Partners, 70, 73, 322
Mybytes, 203
MySchoolOnline, 111
N
N2H2, 16, 51, 100, 117, 118, 132, 134
NASDAQ, 124, 153, 162, 217, 222, 248,
255, 265, 280, 284, 285, 286, 325, 328,
330, 332, 340, 343, 345, 349, 352
Nassau Capital, 70
National Computer Systems, 41, 79, 101,
111, 117, 127, 132, 134, 136, 165, 191
National Semiconductor, 76
National Society of Professional
Engineers, 274
National Technological University, 210,
218, 263
NatWest Bank, 285
Naussau Capital, 70
NBC, 113, 163, 330, 335
Needham Asset Management, 76
Nest Entertainment, Inc., 70
Net Investments, 191, 205, 322
Net Library, 63
Net Object, 23
Net Perceptions, 23
Netcenter (KidZone), 111
NetCertification Inc., 72
NETg, 156, 163, 255, 263, 273
NetGravity, 348
netlibrary, 192
NetMeeting, 262
NetNext, 46
NetNoir, 194
Netscape, 24, 55, 76, 160, 265, 284, 332,
338, 343, 349
Netscape/AOL, 76, 332, 338
NetSchools, 63, 132
Network Associates, 265, 284
NetWorth Partners, 323
New Century Education Corporation, 70
New Enterprise Associates, 71, 73, 75,
191, 322, 323, 330
New Horizons Computer Learning
Centers, 258, 264, 265
New World Ventures, 96
New York County Law Association, 274
New York Times (NYT Learning
Network), 117
Newbridge Networks, 75
Newsbank, 117
NewsEdge, 258
Next Generation Fund, 278
NextCard, 343
NextEd, 71, 191
Nextera Enterprises, 46
NextGen Capital, 70
Nexus Group, 75, 76
Nibblebox, 46
Nickelodeon, 96, 116
NIIT, 263
Nike, 337
Niku Corporation, 16, 73, 256, 295, 319,
320, 321, 322, 325, 338, 343
The Knowledge Web – 23 May 2000 (Reprint)
Nintendo, 133
Ninth House Network, 41, 63, 68, 72,
115, 229, 245, 263, 264, 270, 271, 291
Nippon Enterprise Development, 76
Nissan North America, 251
Nitorum, 295, 320, 322, 323, 325, 344
Nobel Learning Communities, 46
Nokia, 327
NoodleKidoodle, 97, 126
Noro-Moseley Partners, 73, 323
Norstar Capital, 70
Nortel, 221, 251
North American Funds, 71, 125
North Bridge Venture Partners, 70, 141
North Carolina Enterprise Fund, 72, 322
Northern Telecom, 75
Northern Virginia Community College,
202
Northwestern Mutual Life Insurance, 158
Northwestern University, 194, 219
Norwest Venture Partners, 71, 72, 73, 75,
194, 250, 322, 323, 348
notHarvard.com, 72, 229, 269
Novak Biddle Partners, 71, 191
Novell Systems, 76, 235, 256, 265, 284
Novient, 323
Novus Ventures, 72
nSchool, 134
NSchools, 111
NYU, 199, 201, 210
NYUonline, 171, 199, 201, 210, 223, 255
O
Oak Investment Partners, 188
Odeon Capital, 73, 322, 323
Office.com, 256
Ohio Partners, 72
Olsten Corp., 346
Olympus Partners, 75
Omega Venture Partners, 73, 322
Omnicom Group, 189
On Line Class, 117
oncampus.com, 196
Oncology.com, 46
One Touch Systems, Inc., 63
Online Learning Network, 72, 264
OnlineLearning.net, 71, 210
Onsale, 23
Ontimetraining.com, 263
Onvia, 351
Opus360 Corporation, 16, 73, 295, 322,
325, 345
Oracle, 67, 76, 191, 213, 251, 256, 258,
265, 277, 284, 323, 338, 343, 346, 347,
348, 350
Outpost.com, 145
Oz New Media, 117
P
PacSun.com, 145
Pallas Learning, 202
Paragon Solutions, Inc., 72
Parent Soup, 116
Parent Time, 116
Parent Watch, 112, 252
ParentPartners.com, 131
Paribas Principal, 75, 76
Parlo, Inc., 73
Partech International, 75, 76
Pathlore Software, 246
Pathware, 246
Patricof & Co, 70, 72, 92, 274, 323, 338
Payback Training Systems, 263
PBS, 117, 141, 221
pcOrder, 23
Pearson, 16, 43, 46, 71, 79, 117, 131, 156,
159, 160, 161, 165, 191, 205, 221, 257
Pegasus Capital Advisors, 189
PENgroup.com, 322
Penn Janney Advisory, 72
Pennsylvania, 72, 173, 219
Pennsylvania Early Stage Partners, 72
Pensare, 41, 71, 187, 210, 218, 220, 222,
229, 252, 263, 264, 278, 279, 280, 281,
282, 291
Peopleclick.com, 322
PeopleLink, 329
PeopleMover, 318, 336
PeopleScape, 338
PeopleSoft, 67, 75, 133, 191, 249, 251,
318, 323, 332, 340, 346, 347
Pepperdine University, 106
Pepsi, 337
Pequot Capital, 322, 323, 344
Performance Improvement, 263
Perot Systems, 340
Personic, 69, 73, 295, 320, 323, 325, 346
Pervasive, 269
Peterson’s, 156, 203, 207
Peugeot Citroen, 285
Philips, 153, 209
Phillip Morris, 19
Phoenix, 217, 246, 257, 322
Phoenix Partners, 257, 322
Pinnacle Multimedia, 246
Piper Jaffray, 71, 73
PlaceWare, 262
Planet Alumni, 71
PlanetLearn.com, 256, 260
planetLingo.com, 286, 287, 290
Podesta Education Investors, 71
Polaris Ventures, 76, 322
Poly Ventures, 76
Pon North America, 71
Portera.com, 323
PowerSchool, 70, 111, 132, 134
Pre-employ.com, 317
Presidio Venture Partners, 73, 322
Preview Travel, 23
Priceline, 18, 19, 23
PriceWaterhouseCoopers, 61, 67, 74,
248, 278
Primedia, 156
PrimeLearning.com, 263
Primus Venture Partners, 322
Princeton Review, 106, 117, 130, 132,
139, 145, 179, 206, 207
Private Equity Holding AG, 71
Proctor & Gamble, 282, 342
363
The Knowledge Web – 23 May 2000 (Reprint)
Prodigy, 23, 55
Productivity Point Int’l, 46
Project ACHIEVE, 95, 134, 136
Prometric, 156, 266, 275
ProPoint.com, 46
ProSoftTraining.com, 16, 263, 265, 283,
284
Provant, 16, 229, 246, 263, 286, 291
Proxicom, 76
Prudential, 70, 349
Pryor Resources, Inc., 72
Pulitzer, 322
Purchasepro.com, 76
Pyramid Ventures, 73
Q
Q Investments, 72
QSP, Inc., 146
Quad Capital Partners, 137
Quaker Oats, 327
Quest, 106, 118, 119, 248
QuestMark Partners, 70, 73, 153, 322
Quick Arrow, 322
Qwest Com., 75
R
R.A.F. Ventures, 75
R.D. Raab & Co., 346
Radar Reinfrank, 72
RankIT College Site, 203, 207
Rational Software, 265, 284, 352
RB Webber & Co., 75
RCN Corporation, 63, 70, 96
RealNames, 339
Recruit Co., 71
Recruiter Resources, 336
Recruiters Online Network, 329
Recruitment Enhancement Services, 336
Recruitment Solutions, 346
Red Hat, 73, 76, 322, 323, 348
Redback Networks, 75
Reel.com, 145, 260
Reuters, 75, 76, 124, 219
Review.com, 203, 207
R-H Capital Partners, 323
RHO Management, 71, 73, 75
Ricoh, 332
Ripplewood Holdings, 158
Rivals.com, 192
River Cities Capital, 70, 72, 138
RiverDeep, 16
Robert Half, 318
Robertson Stephens, 73, 202, 322
RocketCash, 144, 145
Romac International, 278, 340
Rose Glenn Capital, 71
Rothchild, 70
Rowecom, 23
RRE Ventures, 70, 323
RSA Data Security, 265, 284
Runzebra.com, 263
364
S
Saba Software, 16, 41, 68, 72, 229, 246,
248, 291
Sabre, 337
Safeguard Scientifics, 63, 73, 75, 322,
323, 345
Saint Joseph's University, 188
Saint Louis University, 188
Sallie Mae, 194
Salt Lake Community College, 188
Sandia, 251
SAP, 67, 75, 76, 133, 134, 251, 265, 284,
323, 327
Sapient, 331, 345
ScheduleEarth.com, 260
Scholarstuff.com, 203, 207
Scholastic, 16, 79, 95, 117, 155, 156, 162,
165
School City, 111
School Specialty, 95, 126, 127, 132, 151,
153
schoolbell.com, 79, 132, 143, 165
Schoolife.net, 111
SchoolNet, 134
SchoolPop, 144
Scient, 67
Scientific Learning Corp., 16, 41, 79,
111, 117, 124, 127, 165
SCORE!, 43, 131, 159
SCP Private Equity Partners, 72, 73
Scripps Ventures, 72, 73, 322
SCT, 188, 191, 205
Seagate, 265, 349
Sears, 154
Security Dynamics, 265, 284
Sega, 133
Selway Partners, 142
Seminar Finder, 260
Sequel Venture Partners, 70, 73
Sequoia Capital, 67, 72, 75, 76, 248
Service Merchandise, 97
ServiceMaster, 72, 265
Sevin Rosen Management Co., 70, 71, 73
SG Capital Partners, 158
Shopforschool, Inc., 70
ShopItAll.com, 335
SI Ventures, 73, 322, 323, 345, 348
Sibson & Co., 46
Siebel, 265
Siemens AG, 75, 76, 285
Sienna Holdings, 71, 75, 76, 194
Sierra Ventures, 72
SightPath, 72, 221
Sigma Partners, 71, 72, 75
Sihope Communications, 143
Silicon Graphics, 248
Silicon Valley Bank, 72, 96, 269, 336
Silknet Software, 76
Simplexis.com, 71, 79, 126, 127, 129,
151, 165
SINA.com, 194
Skills for You, 265
Skills Online, 255
Skillsoft Corporation, 255, 259, 263, 264,
273
The Knowledge Web – 23 May 2000 (Reprint)
Skillsonline.com, 263
SkillsVillage, 73, 295, 319, 320, 322,
323, 325, 338, 347
SmallBizManager.com, 335
SmarterKids.com, 16, 41, 70, 84, 95, 96,
114, 126, 127, 167
SmartForce, 16, 41, 130, 214, 229, 242,
245, 262, 263, 265, 283, 284, 291, 318
SMARTHINKING, 71, 171, 192, 202,
223
SmartPlanet, 260
Snap.com, 350
Snider Capital, 70
Sofinnova Ventures, 75, 76
Softbank Capital Partners, 73, 322
Software Artistry, 352
SO-HO.com, 335
Solution Central, 260
Sony, 63, 70, 114, 133, 219, 349
Soros Fund Management, 73, 322
Southeastern University, 202
Southern Alberta Institute of Technology,
188
Southrock, 246
Spectrum Equity, 322
SportsLine.com, 61
Spring, 46
Sprint, 336
Sprout Group, 67, 70, 71, 113, 136
St. Paul Venture Capital, 71
Stanford University, 30, 76, 124, 171,
173, 174, 176, 185, 194, 209, 210, 211,
212, 213, 216, 219, 220, 222, 252, 264,
279, 280, 282
Staples, 332
Starbucks, 24
StarMedia, 350
starshipschool.com, 138
Sterling Commerce, 23
Steve Walker Associates, 278
Strategic Interactive, 246
Strategic Management Group (SMGnet),
263
Strategic Partnerships, Inc., 336
Strayer Online, 216
Stuart Skorman, 72, 260
Student Advantage, 177, 179, 196, 198,
203, 208, 225
Student.com, 203, 208
Studentmarket.com, 196
StudyAbroad.com, 203, 207
SuccessCenter, 335
Sun MicroSystems, 67, 90, 188, 191, 234,
242, 250, 262, 265, 284, 322, 323, 338,
343, 346, 348
SunAmerica, 273, 323
SuperTutor, 130
SurfMonkey.com, 111
Sutter Hill Ventures, 70
Sybase, 265, 284, 343, 346
Sycamore Ventures, 73, 322
Sylvan Learning Systems, 70, 137, 153,
191, 268
Symantec Corporation, 255
Synapse, 144
SYSCOM, 246
T
21st Century Venture Partners, 73, 322,
323, 330
T. Rowe Price, 251
TakeAClass.com, 164
Talk City, 269
Tango, 71, 259
Target, 40, 97
Tasteforliving.com, 46
TATA Consulting, 73, 322, 343
Taurus Capital Markets, 70
TDF Capital, 322
Teach.com, Inc., 72
Teacher Universe, 46, 79, 83, 101, 106,
107, 111, 120, 165
Teachers.net, 111
Teamscape Learning Portal, 246
TEC Worldwide, 46
Tech Republic, 337
Techcellence, 347
techies.com, 69, 348
Technology Crossover Ventures, 73, 75,
322, 323, 346
Technology Partners, 188, 323
Technology Ventures, 76, 282, 345, 348
TechOnLine, Inc., 72, 73
TeckChek, 46
Teen.com, 111
Tegrity, 187, 262
Telcordia, 251
TelekomNet, 335
Telemachus, 246
Tellabs, 336
Tenneco, 332
Terminal Marketing, 70
Test University (TestU), 130, 207
Testmaster, 132
TestU, 79, 142, 165
Texaco, 270, 271
Texas Growth Fund, 73
Texas Instruments, 251, 265
Texas Pacific Group, 322
textbooks.com, 195, 196
Textbooksatcost.com, 196
TextTrader.com, 195
Thayer Capital Partners, 72
The College Board, 79, 149, 165
The Industry Standard, 94, 95, 154, 160,
334
The Job Resource, 203, 208
The Learning Company, 107, 117, 134
The Princeton Review, 259
The Tiburon Group, 336
The Washington Post Company, 42, 71,
131, 326
Thedormstore.com, 196
theglobe.com, 23, 337
Thinkwave, 111, 134
Thinkwell Corporation, 71
Thiokol, 251
Thomas Weisel Partners, 71, 72, 146,
188, 194
Thomson Corporation, 16, 41, 137, 156,
157, 191, 205, 206, 229, 263, 266, 267,
268, 275, 291, 357
365
The Knowledge Web – 23 May 2000 (Reprint)
TIBCO Software, 75, 265, 284
TicketMaster Online Citysearch, 23, 330
Tickets.com, 23
Time Warner, 257, 346, 352
TL Ventures, 70, 72, 73, 269, 322, 336
TMP Worldwide, 16, 295, 336, 342
Tommy Hilfiger, 282
TopClass, 130
topjobs.net plc, 16, 349
TopTutor, 130
Torstar, 72, 156, 265
Toshiba, 132, 153
Tower Hill Capital Group, 142
Toys’R’Us, 145, 146
ToySmart, 126
TrainingNet, 68, 72, 73, 215, 229, 258,
259, 260, 265, 291
Trans Cosmos, 72, 257
Transamerica, 70
Tribune, 71, 73, 114, 156, 321, 322, 326,
327
Tribune Company, 71, 73, 321, 322, 326,
327
Trinity Ventures, 72
Tritech Investors, 278
TRO Learning (Plato), 117
Trust Company of the West, 76, 322
TrustE, 194
TTC Ventures, 73, 322, 323, 330
Tudor Investment Corporation, 76
Tutor.com, 70, 130
TutorNet, 84, 130
U
U.S. Army, 285
U.S. Growth Fund, 76
U.S. Trust, 106
U.S. West, 251
uBid, 23
UBS Capital, 70
UNext, 30, 41, 45, 46, 71, 157, 171, 174,
175, 176, 185, 210, 211, 212, 213, 216,
218, 220, 222, 223, 263, 278, 279, 280
Unisys, 265, 281, 282, 284
United Airlines, 194
University Access, 68, 71, 171, 210, 218,
220, 221, 222, 223, 252, 263, 278, 279,
280
University of California, Berkeley, 173,
176, 222, 280
University of California, Los Angeles,
173, 205, 209, 222, 280
University of Central Florida, 205
University of Chicago, 30, 176, 185, 210,
211, 212, 213, 215, 216, 220, 221, 222,
264, 279, 280
University of Georgia, 205
University of Idaho, 188
University of Iowa, 205
University of Memphis, 188
University of Nebraska, 123
University of North Carolina, 194, 221,
222, 280
University of Oregon, 188
366
University of Phoenix, 216, 217, 259, 265
University of Southern California, 209,
220, 221, 222, 279, 280, 282
University of Virginia, 219
University of Wisconsin, 176, 209
University ProNet, 322
Unschooling.com, 118
URAH.com, 335
US Creative, 336
US Information Technologies, 75, 76
US News & World Report, 194
USA Today, 330
Usinternetworking, 343, 344
UUNET Technologies, 75
V
Value America, 23
Van Wagoner Capital Management, 75,
76, 323, 338
Vanderbilt University, 72
Vanguard Venture Partners, 76
VarsityBooks.com, 68, 71, 179, 195, 196,
259
Vault.com, 72, 295, 322, 325, 350
VCampus, 187, 246
Velocity Business Publishing, 255
Venrock Associates, 71, 322, 343
Ventro (Chemdex), 56, 246, 328, 338
Venture Partners, 72, 73, 75, 76, 194,
322, 323
VentureBank@PNC, 72
Ventures West, 137
VeriSign, 265, 284
Versity.com, 71, 203
Vertex Management, 71, 76, 194
VerticalNet, 75, 128, 129, 255, 274
Verve Inc., 344
ViaGrafix (Learn2.com), 263
Viant, 67
Vignette Corp, 75, 269
Villanova University, 188
Virtual Education, 72, 274
Virtual Vineyards, 55
VirtualEmploy.com, 323
VISA International, 75, 76, 194, 285
Vista Associates, 252
Vitria Technology, 76
Vivant!, 73, 295, 320, 322, 325, 331, 351
Viviance, 71
VoiceWeb Corporation, 70
VuePoint, 246
Vulcan Ventures, 63, 67, 70, 72, 122,
150, 255
W
W.R. Hambrecht, 71, 129, 282
W.W. Norton, 191
Wal*Mart, 19, 24, 39, 97, 154, 346
Walden Capital Management
Corporation, 72
Walden Media & Information, 265
Walker Interactive, 343
Waller Sutton Media Partners, 70, 106
The Knowledge Web – 23 May 2000 (Reprint)
Warburg, Pincus, 67, 70, 72, 122, 124,
322
Wasatch Interactive Learning, 71
Washington Post, 42, 43, 73, 76, 131,
210, 215, 321, 322, 327
Washington Post Company, The, 73, 322
WBT Systems, 187, 246, 262
Web CT, 115
WebEd, 120
WebHire.com, 73, 295, 322, 325, 352
WebTV, 96, 132, 133, 150
Webvan Group, Inc., 146
Weekly Reader, 43, 96, 131, 158
Weiss, Peck & Greer Ventures, 71, 75,
76, 323
Wells Fargo, 198, 248, 332
Western Governors University, 210
Wetfeet.com, 323
Wharton School, The, 176, 209, 219, 220,
222, 252, 279, 280, 282
Wheatley Partners, 73, 75, 322, 323, 338,
345
Whitman Capital, 323
Whitman Education Group (Colorado
Tech Online), 216
Whittman-Hart, 265, 284
WI Harper Group, 75
William Simon & Sons, 290
Williams College, 222, 280
Wilson Sonsini Goodrich, 323
WingspanBank.com, 154
Winton Partners, 73, 322, 323, 348
Wit Capital, 71, 146
Wit SoundView Ventures, 322, 323
women.com, 23
WorkExchange, 322, 323
World Wildlife Fund, 145
WPI, Inc., 352
WRC Media, 158
wrcmedia.com, 79, 158, 165
WSI Holding Corp., 70
www.bridges.com, 208
wwwrrr.com, 71, 79, 120, 125, 165
Wyndcrest Partners, 76
X
Xap.com, 203, 207
Xerox, 70, 285
Y
Yahoo!, 3, 18, 19, 23, 24, 27, 61, 73, 88,
96, 106, 114, 118, 153, 193, 221, 259,
297, 322, 332, 334, 339, 350, 352
YourSchoolOnline, 144
YourSchoolShop.com, 144
YouthStream Media Networks, 16
Z
Zany Brainy, 97, 126
ZapMe! Corporation, 16, 41, 68, 70, 79,
83, 84, 101, 106, 109, 110, 111, 117,
126, 127, 132, 144, 150, 152, 153, 165
ZDNet, 73, 322, 332, 348
ZDU, 215
Zeeks.com, 111
Zero Stage Capital, 76, 189
Ziff-Davis Publishing, 73, 256, 263, 322,
323, 332
ZUniversity, 171, 223
Zvia, 164
Zylab, 346
367
The Knowledge Web – 23 May 2000 (Reprint)
[IZAP, SCIL, EDSN, ESI, POVT, SABA] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
[IZAP, SCIL, ALSI, NLCS, BFAM, SLVN, EDSN, APOL, EDMC, LTRE, POVT, SMTF, SABA] The securities of the company are not listed but trade over-the-counter in the United States. In the US, retail sales and/or
distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale. MLPF&S or its affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 Reduce, 5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). All rights reserved. Any unauthorized use or disclosure is prohibited. This report has been prepared and issued by MLPF&S and/or one of its
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we do not guarantee its accuracy or completeness. Additional information available.
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This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific
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368