Pearson’s acquisition of on-line school infrastructure provider eCollege, described by eSchool News Online, offers this “old” education industry leader much of the platform required to provide schools with the fully integrated suite of services envisioned by the “new” industry.

In a move that could strengthen competition in the market for online course management systems, educational publishing giant Pearson PLC said its Pearson Education unit is buying eCollege.com, which sells eLearning systems to K-12 and higher-education institutions, in a deal worth approximately $538 million…. eCollege, founded in 1996… provides a full range of on-demand software services, including course management, virtual campuses, and assessment, reporting, and retention monitoring tools. The company also provides a suite of support services, including hosting, help desk, course development, technical consulting, instructional design, and faculty training…..

Analysts say the deal is expected to boost competition in the eLearning systems market, which has been dominated by Blackboard Inc., especially after Blackboard acquired WebCT in late 2005…. Blackboard has angered many schools with its aggressive competitive stance, suing smaller rival Desire2Learn for infringement of a patent that many industry watchers contend is overly broad…. Pearson's acquisition of eCollege makes the company "a formidable competitor," Peter Stokes, executive vice president of Eduventures Inc., told Inside Higher Ed. "You now have an 800-pound gorilla at the table"…

Pearson is an industry leader in the use of technology to improve learning, with a strong presence in the markets for digital learning materials, student information systems, online testing, test scoring, and homework and formative assessment. Last year, Pearson generated more than $1 billion in sales from these digital learning products and services.

Consider the list of new industry purchases the multinational publisher has made in the last 24 months.

• May, 2007: Harcourt Assessment and Education International
• June, 2006: Ellis Inc.
• May, 2006: Chancery Software
• June, 2006: PowerSchool
• April, 2006: EET
• November, 2005: Co-nect
• June, 2005: AGS Publishers
• June, 2005: SIOP Institute

The implications for the new education industry are straightforward.

First, if Pearson can acquire, hold and build the top providers in every segment of the emerging school improvement market, the sellers and their investors may be reasonably happy. On the other hand, the competitors of those sellers will “feel a world of hurt.”  The day before the buy, the smaller players were probably marginally smaller and less well resourced than the firms bought by Pearson. They might conceivable have plans for overtaking that competitor. The day after, they are competing against the resources of a giant multinational with an established customer base, a brand and overwhelming marketing resources. Let’s just say that the day after the acquisition, these competitors are only worth more if they can make themselves attractive to another multinational publisher. Otherwise they are worth a lot less, and probably have some unhappy investors on their boards.

Second, the operative phrase in the first paragraph is “if Pearson can acquire, hold and build.”  There is little doubt that the firm has the cash to “acquire” the top providers. Every board has its price and it's not exactly a sellers market right now.

The real issues are whether it can “hold and build” on the capacity and relationships it acquires.  On the one hand, publishers seem to have a lot of experience buying brands and then continuing to provide consumers with the imprints they expecxt. But services are not books, and indeed most of the publishers “bad press” revolves around customer dissatisfaction with the firms’ testing services. Similarly, publishers have been comfortable with overlapping sales offerings from in-firm imprints. Whether they can manage competition between, say, PowerSchool and Chancery is an entirely different question. And finally, the jury is still out on whether and how the parts – from assessment, to infrastructure, to professional development, to textbooks – can or should be integrated, and whether the whole will be more or less than the sum of its parts.

More on these strategic issues below:

 Old v. New Industry

Pearson's Strategy

A New Industry Response

Risks Facing Firms v. Publishers