Incentivizing Innovation and a Role for For-Profits in Education

Opinion | Market Trends

Incentivizing Innovation and a Role for For-Profits in Education

Rethink Education's Tom Segal responds to critics of edtech's 'profit motive'

By Tom Segal     Oct 9, 2012

Incentivizing Innovation and a Role for For-Profits in Education

This article is part of the guide: Education Technology 101: From Assessments to Zombies.

Editor's note: The debate over the for-profit motives of entrepreneurs in education has heard some heated rhetoric from folks who suggest that profits and kids don't mix. Blogger Anthony Cody wrote a thought-provoking series of posts here. We asked Tom Segal of Rethink Education, a venture fund focused exclusively on edtech, to defend the role of profits in his work.

A previous headline on this piece, which was intended to add a playful note to this serious subject, was out of bounds. Our apologies.

As a venture capitalist in the education space, I am quite obviously in favor of private enterprise’s involvement in K-12. I believe that the new band of startups and entrepreneurs entering the space possesses the creativity and technological acumen to radically transform the learning experience for the better (and that VCs need to provide the capital, operational structure and partnership opportunities to help scale this creativity).

I have also come to realize that others do not share my opinion.

Some bloggers are quick to point to the evils of the “profit motive” and the dangers of politics pushing technology for technology’s sake; but those same bloggers are often quick to praise new apps that they find particularly creative and helpful. I say, you can’t have one without the other. You can’t have high-quality digital tools without the profit motive. Heck, you certainly can’t have that computer without the profit motive, and I imagine even the most ardent haters of private sector in the classroom would agree that a computer is a useful educational tool.

Instead, what you need is the profit motive coupled with a truly transparent market filled with a multitude of options. Does this market exist yet in today’s educational landscape? Nope. But the way to get there is to promote the symbiotic relationship of schools and entrepreneurs, not to detract from it.

The voices in the education community questioning the purpose or ethics of startups in the K-12 arena are selling the marketplace drastically short. I am by no means the first to make this case, but schools deal with for-profit institutions at every level, from the food students eat in the cafeteria, to the jerseys they wear on the practice field, to the paper, pencils, chalkboards, whiteboards and smartboards they use in the classroom. When it comes to these familiar commodities, schools know how to shop, and more importantly know how to price.

When it comes to technology, these same schools buy products that they may not fully understand, or know how to properly implement, for a host of well-intentioned reasons. Because these products are new and unique, and because the people ultimately making the purchases often lack real familiarity with these technologies, schools and districts may not be able to evaluate “who has the best adaptive math software” as easily as they can “who has the best eraser.”

This is the problem of a burgeoning market, one whose purchaser has a vastly different skill set than its ultimate user. It (the problem) will fizzle out. Transparency will only increase, and the cream will rise to the top (accelerated by the multitude of websites currently being constructed to shine a light on this very issue, as well as the development of outcomes and proof that come with trial periods). No company will, long-term, be able to sell a product that is overpriced and under-delivers.

In an effective marketplace, every good company that lasts provides a product that satisfies the consumer. There is no difference in education. If you look at other sources of innovation, you will not attract best and brightest and encourage risk taking and lofty goals without the dreaded “profit motive.”

The nonprofit world, well-intentioned and all, is funded almost exclusively by foundations like those run by the Gates family. No doubt these foundations do some great work for the education landscape. However, in practice, foundations and philanthropies often aggressively fund some companies over others (well beyond the risk point that a profit-driven VC would), consequently crowding out other products in the market and potentially restricting development. If Bill and Melinda have anointed the chosen one (ahem, Sal Khan) and distributed capital accordingly, the infusion of cash and attention may help in the short-term, but it is not a way to assure that the best products get to market. It is only a way of making sure that a few products designated by a few philanthropies will have an edge.

I don’t mean to pick on Khan Academy, because I think Sal has brought phenomenal exposure to the idea of blended learning, but others have begun questioning the efficacy behind the product. I am no expert on efficacy in educational content, but I do understand that in a purely competitive marketplace, one where buyers are deeply educated on the products at their disposal, those products with true efficacy will win out.

Foundations and philanthropic efforts do plenty of good for the education world, but if we are looking to them to support innovation through not-for-profit funding, this proposition will ultimately restrict innovation by boxing out the competition, as they are generally more sluggish to bail on or pivot from a flawed concept than their profit-driven brethren: the VC. If the goal is to have only nonprofits fund education, it will kill innovation—plain and simple.

The single greatest innovation in education in our lifetime has been the opportunity created to leverage computers, tablets, and smartphones as delivery systems with myriad applications—and none of these devices were developed by schools or philanthropies. They were developed by fiercely competitive, ROI-oriented companies. Without these products, there would be no open educational resources. There would be no learning management systems. There would be no Jimmy Wales and Wikipedia. A world of knowledge would still be limited to the elite: those pursuing doctorates at schools where former Presidents once resided.

Undoubtedly, with the rise of the tech product in K-12, there is a bit more of a burden being put on states and districts to make good choices, but it’s always “Buyer Beware” in any market. These purchasers have to make intelligent choices in any market—who is making money on the other side should not be a consideration for schools. As a consumer, it is not your problem to worry about the other side of the purchase equation; it is in your best interest to look at what is the best product and what works best for your students.

If schools are being taken advantage of by the private sector (as many voices would lead you to believe), what that tells me is that administrators and check signers need to educate themselves a bit better on what options they have available to them, what products exist in the marketplace, and what their schools can realistically handle in terms of implementation and engagement at both the teacher- and the student-level.

The prevailing wisdom of detractors of private enterprise in education is this polarization or insinuation that schools are “victims” and corporations are there to prey on them. However, this simply does not hold true if you look at any segment in industry. Does Toyota get stigmatized for preying on its customers? Or Pfizer? Or Apple? Not that I’m aware of (though I admit I have not been actively scouring the message boards of late). Cars that don’t hold up don’t sell, medical products that don’t cure don’t sell, and computers that don’t deliver don’t sell—the free market holds everyone accountable, as long as competition and visibility persist.

If the sector is suffering from any kind of image issue, the only thing the private sector can do is produce better products. Believe me; it is not easy to get a school to part with money, even in small portions. There is no company that starts out in this sector and says, “Boy, we really screwed that school pretty good on this deal!” Schools negotiate every last penny, and then they negotiate again. They are not being victimized by a group of evil geniuses looking to manipulate their administrators into handing over boatloads of money. If anything, there is a problem in K-12 of the private sector under-pricing its goods in an attempt to get a foot in the door.

When I hear people crying foul and pointing fingers at a few bad apples (like, say, K12 Inc.) souring the space, I have an easy answer for them: don’t buy those products. Don’t pay for those services. Find an alternative that better suits your needs. That is the beauty of a free market: once a company has been exposed as a fraud or a problem-child, there goes their business. Choice—it keeps the chosen honest, and it keeps the chooser in control. I would argue that the existence of the private sector is in fact the best way to ensure that bad apples get spotted and cast aside.

Our schools need all the help they can get right now. Our children need all the help they can get. I meet with dozens of new entrepreneurs every month: these people are passionate, incredibly smart, and motivated like no other. They put in more work in a weekend than most of us do in a month. They are bubbling over with ideas to change education for the better and they desperately want to get their product in front of kids. The last thing this group of private businesses seems to want is to prey on schools. What they need is more exposure to real classrooms, something that would certainly benefit all parties involved.

Many make the argument that while edtech professes to be a democratizing force in the learning experience, the reality is something much different—that those benefitting most from technological innovation are those with the most purchasing power who are already ahead of the game.

This argument is 100 percent correct…for now. And this is part of the overall problem in casting off private enterprise and technology as an evil in the classroom: people assume that what is true today is simply what is true. The reality is that we in the edtech community have a long, long way to go; but we have also come quite a way in a short amount of time. Big players still dominate the distribution channels, but partnerships and technology are beginning to even the playing field (even if the rate of adaptation is a bit slow for my palate). We are just getting started, and there are plenty of kinks to iron out—but the ends will surely justify the means.

It’s pretty clear to me that education is trending toward the inclusion of the private sector, and that most of the recent innovations in the learning experience have been generated by this trend. Haters can keep hating, but the train has left the station. You can either get on board and help streamline its direction, or you can stand in its way and incrementally slow it down as it plows right through you.

The sooner we get realistic as a community regarding the use of technology in the classroom (and the private enterprise that inevitably leads it), the sooner we can begin fixing the real problems: increasing transparency in the sales process, educating administrations and teachers on proper use and implementation of new tools, and flooding the marketplace with a multitude of viable options.

No, technology is not the answer to all of our problems. Yes, plenty of good can be accomplished by traditional means of educating. But to look at the tools being produced today by startups, entrepreneurs, and profit seekers of all kind and say they will serve no good in a child’s education is a fool’s errand. It is a simplistic view for a complex world. There is no single answer to all of our individual educational needs, and this is precisely why technology (and its loyal band of private enterprises) must enter the classroom walls.

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