$15 billion wipeout rocks school software giant

Cendant Corp., one of two massive parent companies now controlling the development and sales of most curriculum software, announced on April 15 a nearly $15 billion drop in stock value resulting from bookkeeping irregularities. News of the accounting problem set off a selling frenzy that sent Cendant stock plummeting.

Investors watched Cendant stock lose nearly 50 percent of its value in one afternoon, and employees held their breath as corporate officers struggled to find ways to absorb the $15 billion shortfall.

Cendant’s setback reminded educators yet again of the steady consolidation that has gripped school software vendors for months. Although most analysts were saying Cendant remains fundamentally robust, its financial jolt accentuates one of the risks of having so much school software production concentrated in so few corporations.

Cendant is a $22 billion company whose subsidiaries include Sierra Online, the publisher of more than 200 games and simulation software; Knowledge Adventure, the maker of Jumpstart software for children in grades pre-K through 2; and Davidson & Associates, once a leading independent curriculum software company, that specializes in critically acclaimed interactive science and math programs.

The setback is likely to hamper the battle of Cendant’s school division to depose the nation’s No. 1 curriculum software maker, The Learning Company (TLC).

TLC had just added to its own powerful lineup. In March, TLC bought rival software maker Mindscape for $150 million from its British parent, Pearson Plc.

TLC added Mindscape to its rapidly growing list of acquisitions, which in the past year alone has swelled to include SkillsBank, Creative Wonders, Learning Services, and Microsystems Software, the maker of CyberPatrol internet filtering software. Best known for its ChessMaster software, Mindscape publishes such education titles as GeoBee Challenge, a geography quiz game from National Geographic.

Two days before the Cendant debacle, the electronic newsletter HotWired reported TLC and Cendant together now control 60 percent of the education software market‹up from 50 percent just five months ago.

“It’s incredible consolidation,” said Jeanne Hayes, president of the market research firm Quality Education Data (QED). “Everything is becoming more centralized.”

But the buildup of TLC and Cendant has some people fearing the consequences for schools, HotWired reported.

“These companies, due to consolidation, are offering less choice than before,” said Peter Kelman, an industry consultant and former education instructor at Dartmouth College. “They are not doing the kind of new development that is good for schools.”

The Microsoft effect

The reason for the consolidation is simple: as companies merge, their development and distribution costs decrease. The good news is that cheaper production costs should, in turn, create savings for schools.

But Kelman and others told HotWired that developments in the education software market parallel Microsoft’s achievement of a near-monopoly state in the operating systems market. They fear that larger companies soon will squeeze smaller software makers out of existence. Then, as fewer companies control the market, they will have less incentive to design innovative products.

Valerie Chernek, corporate communications manager for SkillsBank‹now owned by The Learning Company‹disputes such claims.

“[Our merger with TLC] allows us to do a lot of in-depth development that we couldn’t do before,” Chernek said. “We look at it as creating more efficiency.”

The money it has saved in distribution costs, said Chernek, has allowed SkillsBank to focus its resources on developing new products. The company is expanding its Cornerstone line of language arts and math programs for students in grades 3-8, for example. SkillsBank also will debut audio versions of Cornerstone products next month.

Chernek pointed to another benefit from the merger as well: “We never were able to offer pre-school programs to schools before, but now we’re able to take advantage of The Learning Company’s expertise in this area.”

Cendant Corporation

The Learning Company


SkillsBank Corporation


Quality Education Data

eSchool News Staff

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