Since switching from a free, ad-sponsored business model to a paid subscription model last fall, Seattle-based N2H2 Inc.—the nation’s top filtering provider to K-12 schools—says it has retained 62 percent of its school customers who used the Bess Partners Program.

But with new legislation forcing schools to filter their web access or lose federal funding, the company’s announcement begs a question: Where have the other 38 percent of N2H2’s customers gone?

School administrators contacted by eSchool News for this story cited cost as the key factor in their decision whether to stay with N2H2’s service or look elsewhere. But at least one school official questioned whether N2H2’s recent change of direction signals a shift in focus away from its core market—education.

On June 13, N2H2 issued an announcement saying it had reached a company milestone of 14.5 million students now using its filtering services in schools worldwide.

The release said that the company’s 62 percent conversion of its education-based Bess Partner Program customers to a fee-for-service model resulted in more than $2.5 million in new contracts, enabling the company to reach a “cash positive” position by fourth quarter 2001.

The announcement came as the Federal Communications Commission (FCC) is set to implement the Children’s Internet Protection Act (CIPA), which requires filtering in federally funded schools.

Under the rules set forth by the FCC, schools and libraries must certify that they have an internet safety policy and are using filtering technology—or are “undertaking action” to do so—to be eligible for eRate discounts in Program Year Four, which begins July 1.

N2H2’s announcement also followed on the heels of recent internal changes within the company, most notably the addition of Philip Welt—formerly of Microsoft—as its new president and chief executive. Welt’s addition will boost N2H2’s expansion into the business and enterprise filtering markets, a company statement said May 24.

Does this mean N2H2 is abandoning its roots in K-12 education? Some current and former N2H2 employees have said that is exactly what is happening. But those comments came before the announcement of the high free-to-paid conversion rate.

Craig Blessing, the company’s director of sales, denies such reports categorically.

“We remain absolutely committed to education. Quality of filtering and the ability to fit the needs of schools better will always be foremost in our minds,” he said. “We were founded by educators, and we have invested huge efforts in creating an education product—but we do intend to branch out and move into the corporate and government space.”

Blessing attributed the company’s less-than-perfect conversion rate to the pricing concerns of schools.

“We are not the [most] inexpensive product on the market,” he said. “We spend a lot of time making sure useful items are not inappropriately blocked. … Anyone could start a low-entry product, like many of our competitors. If we decide we do not need a large technical support staff like the one at N2H2, you or I could start a filtering company from our home computer.”

Blessing says many of the lower-tier—and cheaper—filtering products on the market charge as little as $100 per month to filter unlimited users on the server. In contrast, N2H2 typically charges $5 or more per workstation, per month, depending on what type of server users are running.

Heather Cook, a spokeswoman for rival company SurfControl, which makes the Cyber Patrol filtering system, said the average cost of Cyber Patrol for 100 users is $1,595 per year. Cook said she could not say how many of N2H2’s former school customers might have switched over to Cyber Patrol, but she did say the company has added 1,600 new education customers in the last nine months.

“Overall, we have seen an increase in sales, but we do not attribute that to [the looming deadline for CIPA compliance]. We attribute that increase to our own marketing efforts and the time of year of the procurement cycle,” Cook said.

User comments

According to Ann Malven, technology coordinator at Nevada Community Schools in Nevada, Iowa, her district had received N2H2’s free Bess Partners Program service when it was offered.

“Most of the schools participating in the free program did not renew their contracts, because the price quoted was much more than N2H2 originally promised,” she said. Her district is now looking for another alternative, though she said many educators in the district believe they should not filter at all.

Price is a key consideration for schools, agreed Eileen Palsgrove, director of technology for Crystal Lake School District 47 in Illinois—but it might not be the only factor. “N2H2 is more expensive than some other companies, and I think some school people are angry at the ‘bait and switch’ idea of being free first and then charging for the same service,” she said.

Crystal Lake has always used N2H2’s service, Palsgrove said, but the district opted not to take part in the Bess Partners Program because it contained advertising, a violation of school board policy.

Palsgrove said she didn’t think the company’s new leadership or its expansion into the enterprise market were significant factors for schools. But Rob Miller, director of technology for the Magnolia Independent School District in Texas, said he questioned whether N2H2’s focus remains on the school market.

Miller said his district is part of Region VI, an education service center encompassing more than 50 Texas districts. Region VI is getting ready to switch to another filtering solution, and Miller chaired the committee that studied filtering solutions. “We had asked representatives of N2H2 to come talk to us, and they didn’t,” he said. “We looked at several solutions, and I believe the region is going with Websense.”

On the other side of the issue, officials at Westbrook High School in Westbrook, Conn., decided to switch over to N2H2’s fee-based service because they already had invested $4,000 in the Bess server they purchased back when the service was free.

“The investment in the server was certainly a consideration in moving to [the fee-based] service,” said Principal Robert Hale.

Linda Humphrey, technology director for Lane School District in Lane, Okla., explained that her district switched to the fee-based model because it had been satisfied with N2H2’s service in the past and wanted to continue to receive eRate funding under the new law.

“As the only person in our small district maintaining 90 computers and a small video production studio, my main concern was the time involved in whatever product we chose,” she said. “I have found there is little to no administration time involved in the N2H2 service.”

Accolades like that have made N2H2 confident that it will continue to be the leader in school internet filtering, though it may be more costly than the competition.

“I don’t think we’ll ever get to 100 percent [conversion from free to paid customers]. A portion of people will always be upset when there is change,” Blessing conceded.

But with CIPA set to take effect soon and with some high-level partnerships in the works, Blessing says N2H2 expects to have a busy summer.

As of March, N2H2 has expanded from its proprietary server model to become a certified partner with Microsoft’s ISA platform.

“We are really trying to give schools more platform options,” said Blessing, explaining that the company thought Microsoft was a good place to start because so many schools already have those servers in place.

“We’re going to expand to a variety of platforms, and we’ll expand beyond Microsoft,” he said.

Links:

N2H2 Inc.
http://www.n2h2.com

SurfControl
http://www.surfcontrol.com

CIPA regulations
http://www.fcc.gov/Bureaus/Common_Carrier/Orders/2 001/fcc01120.doc