The Education Giant Adapts

Pearson should be among the walking dead of global media conglomerates, fatally wounded by the shift to digital media. Pearson is the world’s largest book publisher and dominates the market for textbooks, which are facing a competitive attack from inexpensive or even free course material online.

But education has been one of the last holdouts against the onslaught of computing and communications advances, and that’s given this 168-year-old company time to adapt. It grew sales in its education division by nearly 70 percent to $7 billion over the last four years, as profit margins also increased. That alone has lifted the company’s overall results as its other two main divisions—Penguin, a publisher founded in 1935, and the group that publishes the Financial Times—have grown more slowly.

Pearson pulled this off with a decade-long string of acquisitions that helped it shift its emphasis from selling books to selling education services. The London-based company styles itself as the “world’s leading learning company,” even if that learning isn’t delivered through traditional books. These days, Pearson is more like an IT department for classrooms and schools. It sells technology infrastructure, software, and consulting services to schools—services that in turn help deliver the vast stock of textbook content Pearson owns. The company says its revenue from online content and services will surpass those of the traditional publishing business this year.

The company says it thinks that nearly half of U.S. K-12 schools use at least some Pearson software, ranging from its student information systems that let schools track kids’ schedules to “learning management systems” that help teachers construct lessons.

Universities are also expanding their online course materials, offering courses over the Internet both for enrolled students and through free “massive open online courses” for anyone around the world. But setting up and running the required infrastructure isn’t a job colleges want to do themselves. So this fall, Pearson spent $650 million to buy EmbanetCompass, a startup with technology that helps universities launch online courses.

California State University, the nation’s largest four-year university system, with 427,000 students, hired Pearson to launch some distance-learning course options in 2013. Professors will use Pearson’s system to post class material for students who can’t make it to the lecture. The company, not the university, will field technical questions from students. The Cal State system, which has seen budgets cut by 40 percent in the past few years, is betting that technology will let it stretch its resources. Mike Uhlenkamp, a spokesman for the chancellor’s office, says that by putting courses online, the California schools might reduce dropout rates and eventually admit more students.

Pearson can also make money from online education even when it doesn’t have anything to do with the underlying technical infrastructure. For example, students in MOOCs offered by Udacity and MIT’s edX will be able to affirm their mastery of a subject by taking proctored exams in physical testing centers run by a Pearson unit known as Pearson VUE. Pearson oversees more than 4,000 such centers around the world.

The company’s size could be especially important in emerging markets where the demand for education technology is “insatiable,” says Deborah Quazzo, president of GSV Advisors, a consulting firm to education technology startups. In fact, in October Pearson said that its next CEO would be John Fallon, the executive who currently leads the company’s international expansion in education. Pearson has more than 6,000 employees in Brazil and China, out of 41,000 total. It operates English training centers in China; in Brazil, Pearson has a business of sistemas, or “school systems.” It designs the curriculum, trains teachers, and provides instructional technology—everything short of actually running the school and hiring staff.

Then there’s the Pearson content itself—the musty textbooks, the Penguin classics, the dictionaries that used to sit on classrooms shelves but now are just as frequently available on Kindles or iPads. As part of its digital strategy, Pearson recently launched a program that lets software developers pay a standard fee to have their online applications access content in Pearson’s stable. In the past, the developers may have been required to wade through months of negotiations. “This is like business development 2.0,” says Juan Lopez-Valcarcel, chief digital officer of Pearson’s international programs. “It’s nothing revolutionary for any technology company, but it is when you’re coming from an education background.”