What's the Future of the Ed-Tech Business (Model)?

Last month, after spending the weekend at DC Startup Weekend EDU, I spent a couple of hours at the Rosetta Stone HQ in Arlington, Virginia. I made the visit as an education technology journalist. But it was also a bit of a personal visit too. I graduated from high school with the company's CEO Tom Adams, and when he showed up at DC Startup Weekend EDU to judge the pitches, it was the first time I'd seen him in 20 some-odd years.

While sure, you might think that that personal relationship mars my ability to write anything "objective" about Rosetta Stone. Actually, what it gave me was the ability to ask some really pointed questions to an educational company that finds itself at a very interesting crossroads. What I wanted to know from Tom:

  • How is Rosetta Stone going to compete in a world that's moved away from boxed software?
  • How is Rosetta Stone going to compete in a world that's moving from hundred of dollars for language-learning software to the 99 cents app model, or perhaps to a subscription-based economy?
  • Can a company like Rosetta Stone -- one that spends a lot of money on R&D -- sustain its quality content if the price folks are willing to pay caps out at around five bucks?

It's easy, I think, to dismiss Rosetta Stone as a dinosaur, snicker at the airport kiosks, frown at its high-end pricing, question its silly lawsuit against Google. It's easy to argue that new, more agile startups will outpace big companies like Rosetta Stone and that a lower-priced, subscription-based app market will force them to re-evaluate their business models (at a loss to their profit margins and their stock prices).

But let's not overlook, I should add, that Rosetta Stone realized a while ago that it would be better served making a consumer play than focusing on direct-to-district, "enterprise"/school sales. The company has adapted before, and it realizes that it must adapt again. It's worth pointing out here too: Rosetta Stone offers some of the best language-learning software. And Tom Adams, who's actually stepping down as CEO to be Chairman, has always been wicked smart. (I've never used any Rosetta Stone software, but I will vouch for that.)

Rosetta Stone is far from the only education company facing these sorts of questions about its current business model, its future business. Textbook publishers, app developers, hardware companies, software makers, search engines, heck even schools themselves are all wondering how they're going to gain/maintain a piece of the multi-billion-dollar education market. We've seen this year a new batch of ed-tech tools and ed-tech startups come on the scene, but despite all their promises of "disruption" and "revolution," there's been a substantial amount of hand-wringing about why ed-tech startups fail. Again, say what you want about Rosetta Stone and other older, more established education technology companies, but they do have deeper coffers. They can afford to experiment and even to stutter.

Of course, education has long had a reputation as a market that's difficult to crack, something that Rosetta Stone realized when it made the switch years ago from selling solely to schools to selling directly to students (rather, to language-learning consumers). It's hard to sell to schools (unless you spend millions wooing them, so the stories go). It's hard to sell to teachers -- it's hard to expect teachers to pay. And if you're selling to parents or students, it's also hard to balance affordability, access, and quality.

That's something that gets to the heart of the Children's App Manifesto (which I wrote about here and here). How can we foster this new environment for educational apps? Now that we have technology like touch screens and mobile devices, how can we make sure these tools (and apps for them) are both high quality and affordable?

When it comes to affordability, nothing will beat "free." Education writer Kirsten Winkler argues in a post on Big Think today that this may be the biggest impact that Khan Academy will have on education: offering thousands of videos, hours and hours of educational content, for free -- thanks to underwriting from numerous benefactors, including the Gates Foundation and Google. (Bill Fitzgerald writes about Khan Academy today too, pointing not just to "free" but to "open" as one of the non-profit's strengths.)

Rosetta Stone has thrived for years at the other end of the scale from "free." Investing in language-learning through Rosetta Stone is just that -- an investment. Spendy but worthwhile, satisfied customers are likely to tell you. For its part, Rosetta Stone will likely soon move from the high price-tag on a single box of software to a subscription-based model. The Children's App Manifesto seems to agree that subscriptions, along with content expansion packs, are probably the best way to balance those factors of affordability and quality.

But a lot of questions remain unanswered for ed-tech companies: Sell to schools? Sell to teachers? Sell to students? And in any of those education markets, how do you compete with "free" -- even when what's offered that way is actually of inferior quality? Will learners demand high quality ed-tech? Will they (be able to) pay for it?

Photo credits: Flickr user ginza-line


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