Educators are likely to have fewer technology products to choose from as the sagging economy thins the ranks of technology vendors, a new report predicts. But on a brighter note, the report says those companies that do survive will be tougher, more stable, and less likely to leave educators in the lurch.

According to “Trends Report 2001: Trends Shaping the Digital Economy,” from the Software and Information Industry Association (SIIA), schools continue to spend more on educational software than they have in the past.

“Per-pupil expenditures for software [are] projected at $10.08 in 2000-2001, continuing the general upward trend from $6.51 in 1997-1998,” the report said.

Software makers have responded to educator’s needs by offering products that enable personalized learning and enhance instructional management, communication, and distance learning.

But now that the “internet boom” is over, educational-technology companies must return to proven business practices, the report said. Investors are no longer willing to take chances.

“While private investment in eLearning increased from $220 million in 1996 to $2.68 billion in 2000, it declined to just $400 million by the last quarter of 2000,” the report said. “Similarly, while a record-setting 10 education companies went public in 2000, only two were able to make the IPO [initial public offering] jump after April.”

Analysts aren’t shocked that educational technology is taking a hit from the tanking economy.

“It’s not at all surprising. It’s much more of a reflection of what’s going on in the market as a whole than in educational technology,” said Peter Grunwald, president of Grunwald Associates, an educational technology research and consulting firm.

During the height of the internet economy, the pendulum swung too far, Grunwald said. Now, the pendulum has swung too far in the other direction.

“There are some added complications due to the events that occurred Sept. 11,” he said.

Educators won’t see many new educational technology companies for a while. They’ll also see a slowdown in new products coming to the market.

“Raising venture capital right now is next to impossible for a young startup,” said Jim McVety, an analyst at Eduventures.com and a source quoted in the SIIA’s Trends Report.

“Two years ago, it would have taken a few months to raise a significant amount [such as $20 million],” McVety said. “Now it takes 12 months to raise $1 [million] to $2 million.”

Grunwald agrees. “Clearly, there is going to be a more detailed screening applied to new concepts and products,” he said. However, a more detailed screening process will eliminate efforts that were not well thought out or researched.

In the last few years, the education technology market has been flooded with new products and tools to help educators do their jobs better.

“On the face, less choice for schools is not a good thing, but it means certain products and services will become stronger,” Grunwald said.

In addition to a reduction in venture capital funding, an increasing number of educational technology companies are consolidating and collaborating as a result of economic conditions, the report said.

“Between the second quarters of 2000 and 2001, the number of private investment transactions in the education industry decreased from 51 to three, while the number of merger and acquisition deals increased from 27 to 35,” the report said. “This trend will likely continue and accelerate in the coming year.”

Consolidation is intended to help both struggling companies and industry leaders. For example, when Sun Microsystems acquired Isopia, Sun gained a learning management system.

“Pearson’s acquisition of Family Education Network and NCS provides one example of the effort to leverage traditional dominance of the textbook market into the emerging online environment,” the report said.

“There certainly is some consolidation going on,” Grunwald said. “For a while, that will reduce the number of choices educators will have in terms of products and services.”

Collaboration also is increasing.

“Companies that once would have been fierce competitors are now finding ways to partner and profit together. This trend comes in reaction to various market forces,” the report said.

For example, Classroom Connect has collaborated with Compaq Computer Corp. and EDmin to provide educators with a comprehensive educational-technology solution. Textbook publishers Houghton-Mifflin and Sylvan have teamed up to form Classwell Learning to make sure their content is web-enabled.

SIIA’s Schools Interoperability Framework (SIF) initiative has brought together more than 100 businesses in a collaboration to ensure that different software products can interact and share data.

“In education, you have a targeted audience making decisions over a large number of offerings,” McVety said. “In K-12, you have such a diverse range of offerings it makes sense to bring them together for the buyer. I think that’s what superintendents want.”

Despite the overall weakening of the technology sector, the educational technology market is among the most stable sectors of the economy. According to the SIIA’s report, it is more stable primarily because its revenue comes from public funds, not general or business consumers.

“Federal K-12 educational technology funding alone amounts to about $4 billion annually, including the eRate discount program,” the report said. Local and state funds contribute an additional $5 billion or $6 billion.

Grunwald agreed that the education market is more stable than the consumer market. “As many people know, education and educational technology expenditures are not going to go away overnight,” he said.

Links:

Software and Information Industry Association http://www.siia.net

Grunwald Associates http://www.grunwald.com

Eduventures.com http://www.eduventures.com