Tales of Disruption - 1/2

"Pearson warns on profit and plans 4,000 job cuts"

Pearson, the world's largest education company is trying to respond to the wave of change that has hit the company in last 5-8 years. This apparently is not the first time a company of a stature of Pearson has to resort to job cuts to "make the company more competitive". Pearson cut 5000 odd jobs between 2012 and 2014 and closed many of its warehouses, and in some cases completely pulled out from some markets.

What is troubling Pearson?

The very fact that less and less students are buying books, and selling books is the biggest chunk of Pearson's revenue. Pearson believes that the number of students going to college in US will stabilize and hence will alleviate some of its problems, though the bigger question to be asked is

What is causing students to buy less and less books in the first place?

Yes, the answer is simple - it comes in many forms such as digital, tech, software etc. People are learning online and the huge cost of textbooks is, in most cases, a negative net value. To that end, it will not be farfetched to say that we have inherently changed our learning habits. We learn in bit sized packets these days, our average attention span has decreased, and buying books doesn't sound exciting. I am attending school these days, and I know despite the professor recommending to buy a particular textbook, which for some weird reasons is not in enough numbers in the school library, most of my classmates prefer to either just work through slides or go through some free-but-low-quality material online.

What are Pearson's options?

In standard business language - Organic or Inorganic? Pearson has made quite a few investment in edTech companies such as:

  • Inkling
  • Knewton
  • TutorVista

Prominent investments made through Pearson's venture arm Learn Capital are

  • EdSurge
  • Coursera
  • Edmodo
  • Udemy

Given that Pearson has made investments in handsome number of current age e-learning platforms doesn't do much to Pearson's plans of "making company more competitive". The odds that any of these businesses will go on to add big chunk to Pearson's top line are low. In this case the writing on the wall is very clear - the old method of learning is dying, and it is not as if the books have become useless or unneeded - it is just that old method of "ownership of books" is dying. Should Pearson start renting books with monthly subscriptions?