MBA School

Over the past couple of decades education publishing has been characterized by waves of consolidation into a handful of giant conglomerates. This is a typical pattern in an industry as products commoditize.

If products are effectively interchangeable (commodities) competitors gain competitive advantage through industrial scale cost management (economies of scale). Bigger warehouses, off-shoring production, distribution networks built on fleets of professional salespeople, and access to capital drove smaller players into the arms of Pearson, McGraw-Hill, Houghton Mifflin (Harcourt), and Scholastic.

We can see that they became huge – but what were the market forces that drove them to do this?

To understand how things are changing we first need to see how the current structure came to be. I believe standards and accountability were the primary causes.

Impact of Standards – Commoditization

As publishers all wrote to the standards for the same 3 states (CA, FL, TX) the books became interchangeable. I’ve worked for two of them – but take the logo off and I couldn’t tell you a Harcourt book from a Pearson tome. Since prices are relatively inelastic (states after all set the budget in advance) companies competed via the “free with order” (FWO) giveaways rather than through the core products.

This meant that the company with the lowest cost basis could afford to give the most away and increase their odds of winning the race. It also meant they needed a lot of stuff to give away. They got big to reduce costs and bought a lot of supplemental print and tech to differentiate themselves around the edges.

Impact of Accountability – Distribution Footprint

At the same time NCLB brought a new level of accountability across the chain of command in school districts. The result was a move to district level decision making. With their job on the line an Assistant Superintendent for Instruction is going to want control over the purchases that Teachers and Principals used to make.

Selling at the district level is a completely different game than going classroom to classroom. Reps who used to swing by a school and stuff mailboxes with catalogs were being asked to sit down with Superintendents and engage in solution selling. Companies that relied on teacher networks or direct mail found themselves losing share to companies that could sell at the high end.

This also played to the scale the larger publishers operated under. They already had national sales infrastructures with a broad pool of talent to insure coverage anywhere opportunity beckoned. Because they were already playing the adoption game at the state and district level they were able to leverage this presence into other segments (technology, supplemental materials, etc.).

As long as a relatively stable basal textbook business was the heart of the industry this model perpetuated itself.

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