March 12th, 2001
E-Commerce (A Special Report): The Business --- Expelled! The future of e-commerce will no doubt be littered with failed education companies
By Rob Eure
Wall Street Journal
ZapMe! Corp. appeared headed for a lucrative niche in delivering education over the Internet, with its plan to deliver free computers and satellite links to schools. The San Ramon, Calif., company gave away 25,000 terminals, covering 10% of U.S. primary and secondary schools, and in return the ZapMe network would carry advertising from corporate sponsors.
But that was before Ralph Nader’s Washington-based group Commercial Alert attacked the company for commercializing the classroom. In October, ZapMe abandoned the project, alerting schools that they could buy the computers or return them. In January, ZapMe became rStar Corp. and will concentrate not on e-learning, but on providing satellite broadband connections to businesses, concentrating on the health-care, hospitality and agricultural sectors, says Lance Mortensen, ZapMe’s founder and chief executive.
“In the New Economy, there are a lot of crazy concepts,” Mr. Mortensen says. “E-learning is no exception. Education can be a pretty sensitive area.”
Whether because of political opposition, real-world competition or unrealistic expectations, plenty of online education companies have had to scale back or leave the field altogether. And there are likely to be more striking examples of failing e-learning companies in the coming year, says Brandon Hall, president of San Francisco-based e-learning consulting firm Brandon-hall.com.
“E-learning is going to continue to expand in the next year, but not everybody is going to make it,” Mr. Hall says. “The pie is expanding, but there are too many slices. The smart companies will stay solid, the second-tier ones will merge. The bottom third is going to quietly disappear into the night.”
The lessons of those that have come before should be sobering to those hoping to strike it rich in the e-learning market.
Consider ZapMe. Mr. Mortensen says schools were eager to take ZapMe computers “because we solved the problem of funding that schools face in getting computers. We had great acceptance from educators.” But the plan hinged on the sale of advertising space to corporate sponsors to pay for the computers. “When a handful of groups started branding us child abusers, it was clear that it would be difficult to attract premium sponsors,” he says. “There was just no reason to fight that battle.”
So, in October, the company announced it was abandoning the program. ZapMe notified school districts that they could purchase the computers or the company would take them back. So far, it has not repossessed any equipment, Mr. Mortensen says. The company still operates the labs and maintains their satellite connection “while we look for somebody who might want to take over the business and run it. We’re also working with the schools to help them find grants and backers to purchase the equipment.”
In October, Gilat Satellite Networks Ltd., based in Israel, bought a 51% stake in ZapMe, and the company turned its focus to offering satellite connections to small and midsize businesses. “We are capitalizing on what we know how to do, and that is to build large working networks fast,” Mr. Mortensen says. “We can link fast-food restaurant chains together with the satellite hookup in an afternoon by installing a satellite dish and they have full broadband access.”
Another area where the e-learning industry has stumbled is in companies formed to aggregate online courses, says Mr. Hall, the consultant. The so-called learning portals aim to market a full menu of online courses, taking a slice of the revenue of the courses they sell, much as bookstores do for books. “If someone wanted to know more about wines, for instance, they could go there, buy a course and take it,” Mr. Hall says. “The theory was, `If we build it, they will come.’”
But they didn’t. Hungry Minds Inc., a San Francisco learning portal, was founded in 1999, and has now become a book publisher. Hungry Minds was bought in August by IDG Books Worldwide Inc., of Foster City Calif. Three months later, IDG, which publishes CliffNotes, Frommer’s travel guides and the “For Dummies” series of how-to books, changed its name to Hungry Minds.
“But they are essentially out of the learning-portal business,” says Hemang Dave, chief executive of Thinq Learning Solutions of Billerica, Mass., a company that started in 1998 as an aggregator of online courses. Mr. Dave knows just how tough the business can be: Thinq remains a company with a broad offering of online courses, but is now focusing more on corporate employee training.
When Mr. Dave started Thinq, he found himself in a race against other aggregators to gain the rights to offer the most titles and establish his company as the premier learning portal. He won, signing up rights to offer Thinq customers more than half a million different courses.
But Mr. Hall says Thinq and other learning portals discovered that “people just don’t get on the Internet and use their credit cards to buy classes. We’ve found that if given the choice, people just won’t sit down anytime to learn something.”
Mr. Dave says Thinq needed to expand its focus, “so we adopted an acquisition strategy to move into the corporate learning area.” In October Thinq acquired Baltimore-based TrainingServer Inc., which adds the infrastructure that allows corporate clients to manage Web-based training for employees.
Mr. Dave says his company is concentrating not on the independent learner but on organized corporate training programs, and he aims to offer not just high-tech online classes, but a full range of old-fashioned classroom training with instructors, paper, pencils, the works.
“E-learning has a place, but it is not the only answer,” Mr. Dave says. “It isn’t the Holy Grail.”