Education Industry Showing Healthy Growth, Report Says

The for-profit education industry is quickly adding clicks to bricks.

According to a report by Eduventures.com, the industry had revenues of $96 billion last year, an 11 percent increase over 1998.

The Boston market-research firm found that the traditional industry sectors—for-profit schools, learning products, and educational services—had healthy revenue-growth rates in 1999, ranging from 8 percent to 12.3 percent.

But a new industry category—electronic services—is attracting the highest percentage of private investment, despite accounting for only a small fraction of the industry’s revenues, the report released this month says. E-services companies received some $981 million in private investment last year, while generating about $500 million in revenues.

“The ability of e-services companies to capture venture capital inflows of this magnitude demonstrates investors’ highly optimistic expectations of the role of Web-based businesses vis-à-vis the education industry,” the report says.

Among the relatively young companies in the e-services category are FamilyEducation Network, a World Wide Web portal aimed at parents; Lightspan Partnership, a Web-based education software provider; and ZapMe! Corp., which provides advertising-sponsored computers and Web connections to schools.

Eduventures.com counts 83 companies that consider themselves Internet education portals, or sites that aggregate both internal and external content and provide search capabilities, such as FamilyEducation Network.

Other e-services include electronic retailers such as SmarterKids.com, a Web site that sells educational toys and games; VarsityBooks.com, one of several textbook-sales sites on the Web; and companies such as Blackboard.com that help colleges put their courses online.

Eduventures.com distinguishes between electronic services and an older educational services category, which includes corporate training, tutoring, test preparation, and language instruction. That category had $37.9 billion in revenue last year, an increase of 10.7 percent over 1998.

But even many companies in that category are shifting more of their business to the Web, the report says, citing efforts by such firms as Princeton Review Inc., Kaplan Inc., and Sylvan Learning Systems Inc. to create online-tutoring, test-preparation, and college-admissions services.

Web Models

The school-products sector, which includes textbook publishing, educational software, and school supplies, had revenues last year of $11.7 billion, an increase of 9.5 percent from 1998. The report says publishers face major economic challenges from the growing digital distribution of education content.

“Publishers will need to repackage the majority of their content for distribution and use over the Internet,” it says.

Meanwhile, the schools segment had the highest growth rate, at 12.3 percent, for total revenues of $31.5 billion last year. The category includes child-care companies and for-profit K-12 and postsecondary schools.

Revenues for for-profit managers of charter schools totaled $250 million last year, the report says, but could grow quickly if companies meet their targets of rapidly expanding their number of such schools over the next several years.

The report concludes that every segment of the for-profit education industry will increasingly be affected by electronic-commerce models.

“Web-based education businesses will lay the foundation for a more robust public market for education stocks,” it predicts.

There could be as many as 30 initial public offerings of stock for education companies in 2000, it adds.

“Companies in the schools, products, and services sectors that understand how to leverage the Web most effectively will gain a distinct advantage over their less astute competitors.”