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Published in Print: March 22, 2000, as Reporter's Notebook

Reporter's Notebook

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Investors Feeling Bullish About 'E-Learning'

Investors in education industry have discovered the Internet.

Online education—or "E-learning," as it's often described these days—has been around for years, of course. But last week's Education Industry Investment Conference here, organized by the Institute for International Research, was the first such gathering dominated by interest in World Wide Web-based education businesses.

From Wall Street's perspective, the for-profit education industry traditionally has been divided into distinct sectors, such as corporate training, postsecondary trade schools, education services such as after-school tutoring and test preparation, and public-school-management companies. Recent investment conferences have been heavily flavored with interest in companies such as Edison Schools Inc. and Advantage Schools Inc. that manage K-12 charter and other public schools.

But last week's conference, which drew entrepreneurs, venture capitalists, investment analysts, and others to South Florida during the heart of the spring-break season, was more about Web clicks than schoolhouse bricks. "Education and the Internet is the next area for real investment potential," said R. Keith Gay, an analyst who follows the education industry for Thomas Weisel Partners, a San Francisco-based merchant bank. "There are going to be some big dot-com companies in education."

Mr. Gay said there could be as many as 30 Internet education companies with initial public offerings of stock this year. Among those that are already publicly traded, he cited Lightspan Partnership Inc. as a promising company.

Lightspan, based in San Diego, sells curriculum products to schools and families that are used on Sony Playstation devices and the Web. After a slow start for its stock after its initial public offering last month, Lightspan was trading around $22 per share last week, or close to double its IPO price.

"We think it is a very big idea to connect teachers and parents and students together," Mr. Gay said. "In the last few weeks, we're seeing Wall Street pay up for Internet education companies."


Executives of a number of Internet education companies made presentations at the March 13-15 conference. Most predicted that their respective Web sites would become "the education portal" for students, parents, and educators.

Tutor.com is a Web site that allows people to find courses or academic help online, "for any age, with any instructor, in any subject," said George Cigale, the chief executive officer of the company.

The site is backed by test-preparation company Princeton Review Inc., among other investors.

Another company, Skoodles, will be aimed at children ages 3 to 12 once it launches this spring.

The company, founded by Vivian Horner, a creator of the Nickelodeon cable-television channel for children and a former director of research for the Children's Television Workshop, will provide links to the best Web sites for children, as well as original content. The model will be safer than using software designed to filter out inappropriate Web content, since such filters aren't foolproof, said Julie Horowitz, Skoodles' vice president for business development.

"We're going to be the safe Internet just for kids," Ms. Horowitz said. "This is a very big idea."

Highwired.com, meanwhile, targets the secondary school market. The company helps high schools build Web sites in such activities as sports, clubs, and school newspapers.

"We've built a very credible brand," said Highwired.com co-founder Mark D. Johnson. "We're approaching 50 percent market penetration of all U.S. high schools."


Peter J. Stokes, the executive vice president of Eduventures.com, a Boston consulting firm that tracks the education industry, said $630 million has been invested in for-profit education companies so far this year, with 60 percent going to Internet-related concerns.

"E-services is the fastest-growing sector of the education industry," he said. Companies such as Tutor.com and Highwired.com represent a new breed of Internet education businesses that "leverage the Web to distribute content, aggregate consumers, and build e-commerce channels," Mr. Stokes said.

"They promise to bring new levels of efficiency and innovation to a range of lifelong-learning marketplaces," he added.

But several critical questions about Internet-based education remain, Mr. Stokes said. One concerns which business models will prevail. Already, the practice of relying on advertising is giving way to electronic commerce, in which companies get a percentage of the revenue from products that are sold via links from their Web sites.

Most participants here agreed that E-learning is still in its formative stage.

"We're in the 'Pong' stage in online learning," said Robert Helmick, the chief executive officer of eCollege.com, a Denver company that helps universities put courses online. He was referring, of course, to the simple video game that was popular long before the current generation of spring-breakers was even born.

—Mark Walsh

Vol. 19, Issue 28, Page 11

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