The education market might be just as vulnerable to the sudden instability of many fledgling dot-com companies as the rest of the web, if the experience of Norcross, Ga.-based nschool.com is any example.

The 2-year-old education portal, which aims to provide a free, one-stop, web-based solution for administrators, teachers, students, and parents, fired half its 70 employees in early June.

The move raised fears that nschool.com was going out of business, having run out of money to continue operations. Not so, according to nschool.com’s chief executive officer, Lindsey Cook, who said the company was downsizing as a result of stock market fluctuations.

“The market changes really impacted our model,” Cook said. “It caught us at exactly the wrong time.” The problem, simply put: “Not enough cash flow,” he said.

Following the layoffs, Cook told eSchool News that he is negotiating to sell the company. “The bottom line is that we have made a deal with another company,” he said, though he declined to name the potential buyer. He said the details are still being worked out, and a formal announcement would be made in the next few weeks.

The sudden move by nschool.com has left many wondering about the future of the company—and educational dot-com start-ups in general.

“I’m really disappointed in the situation. They have really been great people to work with. Nschool really solved our problems, and if the service goes away, we’ve got a big problem again,” said Dave MacDonald, technology mentor for the Fillmore Unified School District near Oxnard, Calif.

A study conducted by New York’s Pegasus Research International and released in the June 19 issue of Barron’s suggests that many dot-com companies are struggling just to keep their heads above water.

“According to our research, 78 percent of internet companies are operating at a loss, and one-fifth of those are in danger of running out of cash in a year, if spending patterns remain constant,” said Greg Kyle, president of Pegasus.

Kyle’s firm surveyed 237 internet companies in the largest study of its kind.

“The numbers clearly show the Darwinian process at work in the internet. The weak falter, while the strong surge ahead. The focus has now shifted from growth-at-any-price to how soon profitability can be achieved,” Kyle told Barron’s.

Well-known internet companies such as CDNow, Prodigy, eToys, Expedia, and Drugstore.com were among the 66 companies Pegasus surveyed that would run out of cash in one year or less if their current spending patterns continued unabated.

The cause of the dramatic instability of many dot-coms is a question hotly debated among investors and consumers, but Barron’s identified the key risk many start-ups face in its June 19 issue: They are often “critically dependent upon a continually receptive stock market to keep funding their furious spending.”

The magazine speculates that the recent sharp decline in the Nasdaq might have shaken venture capitalists out of their frenzy to snap up the plethora of initial public offerings available.

“A year ago, it was all about land-grab, or how much you could spend on marketing,” Cook told eSchool News. “Now [the investors’ dollars] are all based on profitability.”

What this means for nschool.com is that the company has had to overhaul its business model to accommodate the changing market.

“The market forced us to change our model,” Cook said. “And when you change your model, you have to change the type [and number] of employees you need.”

According to nschool.com, the company’s primary goal is to provide schools with “free, secure, and highly customizable web-based systems, which include a suite of services and educational resources that can improve communication and enhance the learning process.”

These resources include a calendar of events and activities, an eMail service that links all members, a managed discussion area for school-wide or group-specific topics, a resource center with research and information tools, and an individual or group home page service. Nschool.com also aims to provide its users with free product training and technical support.

“Our approach is essentially a business-to-community philosophy,” said Daniel Dooley, nschool.com founder, in a January press release. “We provide the school district with a better way to facilitate communications among its key constituents—parents, teachers, and students. Our success is not predicated on selling our service to kids. In fact, we are very cognizant of guarding students against the onslaught of marketing messages.”

According to Cook, however, nschool.com soon might try to increase its revenue by adding “an ASP [applications service provider] subscription-type product” to its current free web product.

“All we can do now that the market has changed is revise our business model, focus more on becoming a sales and technology organization, and try to hang on,” said Cook.

The premium, fee-based service that nschool.com plans to add to its product line will have no effect on schools currently enrolled in the free nschool.com web portal, Cook promised.

But school technologists fear the service might not be enough to pull the company out of its slump.

“One of the reasons we went with nschool is because it was free,” MacDonald said. “To ask schools now if they want to buy a fee-based service, I think, would be a hard sell. I mean, they already offer a tremendous amount of services. What else could they offer to entice people to jump on board and pay a fee?”

Phil Catalano, principal of Fillmore Middle School, agreed: “If the new service was $400 to $500 per year, maybe. But if it was $4,000 or $5,000 per year, no way. Not because the service is not valuable, but because we got along without it before, and we can get along without it again if we have to.”

Nschool.com’s predicament is certainly not unusual for a dot-com, Cook contends. “Dot-coms across the board have grabbed a consumer base, but now we are all faced with how to drive usage,” he said.

nschool.com

http://www.nschool.com

Fillmore Unified School District

http://www.fillmore.k12.ca.us

Pegasus Research International

http://www.intdex.com/research.htm

Barron’s

http://www.barrons.com