CHAPTER 26 - LEARNING AND DEVELOPMENT

Article 2:

A bankrupt idea’s great future

FT.com site; May 29, 2001

BY DELLA BRADSHAW

Pensare, the start-up e-learning company that developed the technology for the Duke MBA Cross-Continent programme, is winding down operations and has filed for protection from creditors under chapter 11 of the US federal bankruptcy laws.

The decision will send a shiver through the rest of the e-learning community, which has seen a squeeze on venture capital funding on the one hand and a decline in paying customers on the other. Pensare’s demise will call into question many of the predictions made for the e-learning market. International Data Corporation, for example, estimates the global market for online learning will grow from $6.3bn (GBP4.5bn) to $23bn (GBP16bn) in 2004.

Pensare launched its latest technology, called P3, in August but then faced a funding squeeze, as did the rest of the dotcom community. Autumn saw a decline in customers, says Katharine Leary, chief executive of Pensare. “It really tightened in January. None of us could have predicted how quickly the corporate market would close down.”

Duke Corporate Education, the for-profit arm of Duke University’s Fuqua business school, is acquiring the assets and intellectual property rights surrounding the P3 platform, to develop it for its own use. Duke’s students have transferred to the platform.

Pensare’s demise is the latest in a series of setbacks for US e-learning companies. Quisic (formerly University Access), the California-based company seen as among the most active in the business school market, has pulled out of education almost entirely because of lack of funding.

Instead of the long-term profits Quisic had hoped to make from the university segment, it is now playing for the quick buck by focusing on the corporate sector, in particular 25 core corporate clients. The plan is to be profitable by the year’s end. “It’s a good discipline, getting to profitability quickly,” says Alec Hudnut, chief executive officer.

Quisic has closed its academic office with the loss of 60 jobs. Among the 60 was Chuck Hickman, long-time supremo at the AACSB, the American business school accreditation body and one of the best-known characters on the US business school scene. After losing his job at Quisic he began talks with Duke Corporate Education about an appointment there but changes of plan at Duke led to that job falling through before it had begun.

Mr Hickman is philosophical: “This is dotcom life. We business schools teach this stuff but it doesn’t mean we are very good at it.”

The implications of the Quisic retrenchment are being felt particularly strongly at London Business School and the Kenan-Flagler school at the University of North Carolina at Chapel Hill. Quisic had a deal with LBS to develop half a dozen courses to be put online. Only one has been completed.

UNC had been planning to run an executive MBA programme for corporate clients supported by Quisic technology. That has now been shelved too and Kenan-Flagler is working on a new model for its EMBA, to be announced soon. The school says the downturn in the US economy also contributed to the withdrawal of the programme, which relied heavily on the corporate sponsorship of students.

The best-known company in the market, UNext, has also laid off staff but its chairman, Andrew Rosenfield, says this is because most of the technical development work is over. Unlike Pensare and Quisic, UNext (which used to be known as UNext.com the .com suffix has been diplomatically dropped) has attracted more funding and some well known clients.

The most notable of these is General Motors, which will offer internet courses to all 88,000 of its employees. The deal will help GM contain costs, says Mr Rosenfield. “They have a puzzle. In periods of pressure how [do they] cut costs without reducing the quality of the product?”

It will also swell UNext’s coffers, as will the deal with Thomson, the media company. Thomson will invest $9m during each of the next four years in UNext, which works with top universities Chicago, Columbia, Stanford, Carnegie Mellon and the London School of Economics.

GM also received warrants as part of the deal that enables them to invest in UNext in due course.

A fourth player in the market is FTKnowledge (part of the Pearson group, owners of the Financial Times). Managing Director Pippa Wickes says FTK has been moving away for some time from the stand alone e-learning products towards “blended” offerings, combining face-to-face teaching and on-line learning. Such is the executive MBA that FTK will launch with the Judge Institute at Cambridge University and the course on on managing people being developed with the Univeristy of Michigan. She predicts FTK will break even in 2002.

Mr Hudnut acknowledges that Quisic’s entrance into the corporate market has increased its competition with UNext. “I do think we are ending up more squarely in the same competitive arena,” says Mr Hudnut. “I think the academic market is still a good market - in the long term.”

Other big losers, in the short term at least, will be the business schools and universities that had the option of converting into equity the royalties from programmes sold. Only 18 months ago both Chicago and Columbia universities, the first to sign with UNext, estimated that they could each own up to 6 per cent of the company by converting royalties in this way. At that time the market valued a 6 per cent stake at anything up to $750m.

As to Pensare, the deal between it and Duke Corporate Learning should be concluded by the second week in June. The important question will be whether Duke, in essence a university and a content supplier, will have the resources to upgrade and to exploit the technology continuously as a commercial product. James Gray, associate dean at the Fuqua school, expresses few doubts. “We think we have the best distributed learning platform in the world.”

Ms Leary is also confident the Pensare technology will be a winner in the long term. “I still think it will revolutionise the way education will be done. But it will be under a different name, not Pensare.”

In spite of his present predicament Mr Hickman also believes e-learning has a strong future. “I look at this market and I still believe the demand for e-learning will continue to grow in certain segments . . . but it is evolving more slowly than many of us could have guessed three years ago.”

Copyright © Financial Times group

Question for discussion:

What issues need to be identified for the successful implementation of e-learning by educational providers?