Bennett's Online Education Venture Opens for Business

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K12 Inc., William J. Bennett's for-profit company that promises to use the Internet to deliver a "classical" education to American children, launched its learning program for kindergarten through grade 2 last month. But it made the splash amid much skepticism from education industry analysts.

And so, the outspoken commentator and former U.S. secretary of education is talking up the company whenever and wherever he has an opportunity.

"What we've achieved is we have a product," Mr. Bennett, K12's chairman, said last week. "We're selling it, and people are buying it, using it, and enjoying it— that's the most important thing. We're getting lots of suggestions on how it can be improved."

K12 Inc.

Headquarters: McLean, Va.
Founded: 1999
Employees: 175
Principal Business: Delivers an online-learning program for children in grades K- 2. Plans to offer other online learning programs for grades 3-12.

So far, the company has enrolled several thousand students, a majority of whom are home schoolers, in 46 states, officials said. Several hundred students are using the K12 curriculum at three publicly chartered online schools in Colorado, Pennsylvania, and Texas. And the curriculum is a choice offered at two online charter schools in Alaska and six in California. But analysts say it's hard to predict how much enrollment will grow and whether the company will find new sources of income to sustain itself.

"It's clear they have successfully amassed political and intellectual brainpower," said Todd Kern, a vice president of KnowledgeQuest Ventures, a New York City investment bank and strategy-consulting firm that specializes in the education industry. "My one concern I have is enrollments," he said, "and the amount of capital that will be required to fully deploy the idea in all its grandeur."

William J. Bennett

When it was founded in late 1999, K12 Inc. initially received a $10 million investment from Knowledge Universe Learning Group, a Los Angeles- based company that owns numerous education, technology, and training companies. K12 officials said more investments have come in since then but won't disclose the amounts.

But Mr. Kern believes the company "cannot get to cash-flow positive on this initial investment of $10 million," adding that many investors have grown leery of putting money into companies entering the precollegiate market in the current uncertain economic climate.

$100 Per Course

Home-schooled students who enroll directly in K12 pay about $100 per half-year course, or $1,000 for an entire school year's program, which they access on the company's Web site.

The content and approach of the K12 program is based on the Core Knowledge curriculum, developed by University of Virginia English professor E.D. Hirsch Jr. It emphasizes phonics-based reading instruction at the K-2 levels, a "Great Books" approach to literature, and a general commitment to understanding Western culture and history.

The online resources consist of learning activities, daily assessments, planning tools, and instructions for parents on how to guide their children's learning. Shipments to students of other materials—including books, tambourines, music CDs, and videotapes—augment the online resources.

Students who enroll through an online public charter school receive the same materials. The students in an online charter school also are assigned a teacher by the charter school, who communicates with them regularly.

In the Pennsylvania Virtual Charter School, based in Norristown, Pa., for example, the 15 teachers telephone or e-mail the 650 students around the state or their parents at least once every two weeks. Many have been in contact almost daily, said Michael Maslayak, the chief academic officer of the charter school.

Still, the home schooling market continues to be K12's most promising revenue stream.

Indeed, Mr. Bennett, who commands great respect among home schoolers, has been traveling around the country publicizing the program to such parents by giving interviews through sympathetic media venues such as the "Focus on the Family" radio program.

Home-schooled students number about 2 million, said Jim McVetty, an analyst who tracks K12 for Boston-based EduVentures, an education industry research firm. But that's not a big enough pool, he argued. "Even if they're looking at a quarter of that market share, that's not a huge market," he said.

'What They Need to Do'

Charter schools add another pool of roughly 500,000 potential enrollees. "By going after charter schools, and if they include after-school programs [at charter schools], they're diversifying their entry into the market—I think that's what they need to do," Mr. McVetty said.

The big prize, of course, would be to sign up sizable chunks of the 53 million students who attend public and private schools. In fact, K12 Inc. is working on that in different ways, such as trying to persuade districts to allow the company to supply curricula for after-school and summer programs.

But several national and state education groups are resisting those efforts. For instance, Sandra Feldman, the president of the American Federation of Teachers—which strongly opposes any moves to "privatize" education—has been critical of K12's reliance on parents, rather than certified teachers, to supervise learning.

Supplying its program to after-school and summer programs at public schools is something Mr. Bennett says he has discussed with administrators of two large urban school systems. Company officials identified the two districts as the Philadelphia and Pittsburgh schools.

Company officials say they are also developing online tools to diagnose students' strengths and weaknesses—scheduled for pilot testing next year—that will be added to the program and sold as a separate product.

The Ultimate Test

Analysts are still questioning whether K12 made a mistake in choosing to serve the youngest students first. The company plans to add grades 3-5 next fall, grades 6-8 in 2003, and grades 9-12 the year after.

The strategy appears to have been a "calculated risk, [because] it's a crowded space at the high school level," Mr. Kern of KnowledgeQuest Ventures said, referring to the many online-learning programs that have cropped up for grades 9-12.

The risk is that the company will run into trouble because "younger kids are not as sophisticated about technology as older students," Mr. Kern said.

On the other hand, winning the youngest children could yield a long- term advantage. "In terms of seeding their own pipeline, it's a wise strategy," Mr. Kern said. "If they can [get them] in kindergarten, [they] have them for their school careers."

But the ultimate test is whether the company successfully fills a need, analysts say.

Company officials say, inevitably, that the quality of their product will be measured by the customer satisfaction of both the parents of home schoolers and the districts that grant K12 the right to run online charter schools.

Mr. Bennett insists: "We can guarantee quality as well as anybody else... by virtue of looking at results."

Vol. 21, Issue 7, Page 8

Published in Print: October 17, 2001, as Bennett's Online Education Venture Opens for Business
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