Bill Hughes Interview Notes - October 7, 2009

Conducted with Erhardt Graeff and Carolina Rossini in person at the Berkman Center on October 7, 2009, concerning Pearson Education's future business strategies.

Interviewee

• Bill Hughes
  • Director, New Ventures and Business Development, Pearson Education
  • Email: bill [dot] hughes [at] pearson [dot] com

Questions

In re:

• Pearson's Partnerships w/ OER.
• Pearson MyLab - textbook connection, future utilization?
• Coursesmart
• Pearson Copyleft

Notes

Our Introduction

• Discussing Pearson Copyleft in Brazil: South American Pearson Exec. - Fred Lito (sp?)
• Explain Commons-based Cooperation → peer production
  • Commons in Telecommunications infrastracture
  • How are industries adopting these (commons-based) models
• Elsevier is using open content and offering services on top of the free platform
  • They are closing the open content through services
  • Tell story about what's happening and build a taxonomy of strategies (axes)
  • How is business evolving?
  • OER is happening in parallel to what is happening in traditional publishing industry?

Pearson's Perspective on Future of EM

• Publishers recognize that our business is at the end of the S-curve for the past 200 years, though in the same space of education
• Two Problems:
  1. In the US, Education is in crisis: K-12 is not preparing students for college or for work.
  2. Arms race of endowments and other resources that are building lunch rooms and other facilities have jacked up the cost of putting people through school

     Loan system is where capitalism goes wrong: There is no cap on all of the forces that are feeding; US is still top of thw world in Higher Education but 82 out of 100 aren't ready for college here (influx of foreign students to fill seats).

• I don't know if non-profit educational entities that are current buyers of Pearson products are still going to be as reliable in the future
  • For-profit educational institutions—DeVry, Kaplan, Corinthian, University of Phoenix—are breaking the traditional models
  • We (Pearson, industry) are an outsource function of Higher Education establishments for creating EM—productizing EM and focus on places where scale is a benefit—intro courses, math, economics, scale of expertise (MIT's Oppenheim on DSP)
  • Research Universities are not primary audience (but do look there for rock star authors), focused on teaching faculties

Product Model for Textbooks

• 20 years ago a textbook was everything you could have
• 20 years later...
  • Internet, Personalized Learning Systems, Use computers without training
  • These advances threaten the textbook model, inevitably
• Textbook Model is a durable good that people use for typically 3-4 months
  • Broken product design: creates after-market (used), prices are jacked up by this used book market
  • IP and package design is messed up
    • Can be resold (Pearson is not in rental / used book markets)
    • AMAZON broke market (disintermediated bookstore and publisher agreements)
    • No licensing for ongoing used book sales (IP of publishers/authors are sold at profit with no remuneration)
    • Rental Companies are setting price for value of book over a semester
      • $150 book is sold for $50
    • If price were set more efficiently in the market: would be a $50 textbook

Innovation and Disruption

• Disruption = Dissatisfaction + DIY
  • OER Problem: Disruptive goods are often perceived as inferior products
  • SIDE NOTE: Pearson holds meetings with authors about why they wrote the book so that educators, students get appreciate for reasons behind writing the book (shows how well designed the educational material is)
• RECOMMENDATION: Clayton Christensen's Innovator's Dilemma

  Disrupting Class (how it applies to education)

• Bill's 2x2 model
  • Existing Offer, New Offer
  • Existing Market, New Market

Music Industry Analogy for Publishing

• Publishing World Divide
  • Journal Publishing - Music, Song (discrete works with intrinsic value w/o context)
  • Textbook Publishing - Musicals (journey through music)
    • Learning Pathway (Lecture 4 is not divorceable from full course / book)
    • Includes assessments and activities along the way
    • Has a transcendent goal: mastery of material

      Has personal and economic value (TA opportunity)

    • Individual chapters don't accomplish the same goal

(Faulty?) Argument for Self-publishing

• Brad Wheeler, CIO, Indiana University - IT Strategic Plan (on the board of Connexions)
  • Spoke at Sakai Conference last year (Bill saw him there)
  • MC Hammer - self-promotion similar to journal article situation
  • Why don't universities just buy a big server since they Author, Peer Review, and then Buy journal articles
• Rock Star Authors might be able to achieve this
  • Philip Kotler, Marketing
  • Mankiw, Economics author w/ Thomson
  • Campbell, Biology

Pearson's Core Strategy: TESTING (a.k.a the New S-Curve)

• Connected to For-profit Model of Education

  All curriculum is prescribed, scale is possible

• Journey is not as valid if you can't validate the learning
• Pearson has spent almost all of its money on assessment systems
  • My Math Lab (killer app)
  • End of chapter homework is out of the textbook, all practice is online
  • Homework and everything assigned starts at the technology
  • If assignment is required, then every student pays for the service
  • When they buy a used book, they still need to go to Pearson and buy the access code (still get the money)
    • More willing to drop price of overall package: textbook, online service because everyone is paying
    • Textbooks become just a commodity component
• Question: Is the copyright value of the textbook decreasing?

  Bill: the value (generally) of the textbook is decreasing (not necessarily IP?)

Two-fold Strategy: Example Pearson + Connexions

1. Sid Burris is one of the founders of Connexions
   • Authors new book (fine: publish it yourself on Connexions)
     • Pearson Q: Have you built the homework yet for that?
     • We have a test bank you can mine for good assessment exercises
     • Then Pearson can build more questions based on those development by textbook authors
       • Necessary for any intro book that needs multiple questions that can't be copied from previous courses (i.e. need alt questions)
   • You can be open source for the textbook and then buy the assessment service (the rest of the package) - most authors don't realize that need
2. Pearson can provide distribution through recommendations

   Through their own content and materials, readers are recommended to look at open materials that are relevant and integrable with Pearson's products (open platforms are more desirable to use)

Pearson and Intellectual Property

• Pearson is being custodians of author's IP
  • IP is important because it incentivizes innovation
  • Google has ceded our control of personal content to allow them to make money through ads
• Question: What about Scribd and CourseHERO?

  Educators are worried about having their lecture notes published online even through they are petitioning publishers for making their content open

• On IP: Brewster Kahle has some great, consistent points

  But most people are making inconsistent points

Pearson's General Mission

• Model: Every student pays at affordable price
• Products/Experiences need to be useful for an instructor to assign as required for the course
• Consumer lock-in strategy? - Bill: More about what is the value exchange
• Pearson has a strategic advantage over competitors on technology and ability to deliver 24/7
• When you adopt our product we are giving you something that is really meant to be used in the class
  • Pearson believes that they are saving teacher's valuable time
  • Including essay review feedback (not just multiple choice)

Hypothetical: OER takes over

• Where should Pearson be publishing?

  Community Colleges is one of the biggest markets

• We (Pearson) do support open, collaborative authorship models
  • Teams of authors write most textbooks
  • Pearson facilitates this process
  • Pearson owns copyright on these textbooks
  • Certain disciplines are willing to pay for the IP

    Biology, Math, Economics, etc.

• If long tail of titles is unprofitable...
  • Give OER the authorship of the unprofitable titles (they don't see anyone capable of this yet)
  • Similar to IBM on Linux and Eclipse
  • Pearson is looking for custodians for this content
• ALT MODEL: Flat World Knowledge is looking at content as marketing
  • Open source textbooks are being marketed to sell supplements
  • Pearson has the resources to battle FWK at their own game
    • But if they don't have a solid business model then they only pollute the industry
    • Textbooks aren't better, quality isn't better
  • If the model is good, Pearson will invest, buy them
• KEY: The hype in OER is ahead of the offering
  • Pearson can always adopt good practices here though
    • Could take open source peer-produced content
    • Package and distribute
    • 10% goes back to community foundation
  • Pearson could run seminar on turning out books from cooperation
    • Then they offer tools to do DIY textbooks

Custom Publishing

• Self-publishing alongside our own material
  • If its a 1000 page book: 20 pages

    Only take quarter of book

  • Take another book and 25% of cost
  • $50 book, out of teacher's material + $25 from each $100 textbook
  • PLUS: access codes for any digital resources
  • Pearson prints and distributes books to the school

    Every student pays, because 100% of the students have to pay

  • Used book market doesn't exist because other schools or classes wouldn't adopt this book
    • Avoid Lack of sell-through and cannibalization of used book market
  • Could even add on a custom homework system, course portal
• Pearson is like Lulu for Higher Ed but with value-added supplements
  • WileyPLUS: similar but not as good

Other Notes

• Pearson is watching iTunesU
  • Using content to sell hardware
  • Similar to Google
  • iTunes created an every user pays at a right price ($0.99 per song)
• Pearson is using Coursesmart for Evaluation Copies

  Saves money on printing those copies and them ending up in used book markets

• KEY: Pearson is an Education Solutions company not a vendor
• Check out: ClassTop
  • Startup from Utah
  • LMS extensions to Facebook (Coursefeed)
  • Looking at Opencourseware delivery through their model
• Bill is thinking of one other company
  • GMAT test prep
  • Gives away the content but they then sell leads on good students to schools

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