The Evolution of Education – Kaplan acquires Manhattan GMAT
Several weeks ago,Kaplan- a huge force in online standardized test preparation – acquired a smaller player named Manhattan GMAT, which is 100% focused on GMAT test prep (Graduate Management Admissions Test aka ‘Business School’). Manhattan GMAT also ran a division called Atlas LSAT, which developed the same level of tailored test prep curriculum for law school.
As a former teacher for Kaplan with a thorough knowledge of the Manhattan GMAT curriculum, this acquisition got me thinking about both the implications of this consolidation play by Kaplan, and the future of education, a sector which I am extremely passionate about.
- The acquisition was unannounced. Kaplan knows they must continue to operate Manhattan GMAT separately as a subsidiary. MGMAT currently pays their teachers $100 per hour, while Kaplan pays them a mere $20! it’s no secret that MGMAT has attained much more credibility for test-takers looking for the best score improvements. But it will be interesting to see how Kaplan can sustain this pay discrepancy. The companies will surely be integrated behind the scenes (scoring algorithm, curriculum development etc).
- I have met the top executives at Manhattan GMAT and they are excellent people. I have no clue whether they received venture funding, but I am sure this was a great exit for them, and they clearly disrupted Kaplan (and Princeton Review) at their own game.
- Test prep company Knewton also brings an extremely disruptive force to test preparation when they launched a couple years ago. Funded by some well respected angels (Chris Dixon) and VCs (First Round Capital), Knewton basically dropped the price point for a full length GMAT course to $650. MGMAT charges $1,490, over 100% more. The Knewton course is conducted entirely online, and they save significant money on infrastructure costs, which they pass on to the students.
- For-profit education has hits its stride. In the previous decade, the term ‘private education’ sometimes brought with it a negative connotation, and was often associated with bogus ‘degree peddling’ agencies. This is now history. Today people understand that private education can provide a better experience than public education, because it puts students at the center of the teaching experience. Online collaborative learning tools can revolutionize how students and teachers interact. Knewton has done an incredible job here. It’s becoming clear that the internet will revolutionize education, as it has done with many other industries.
- Several companies having recently gone pubic in the education sector, including Bridgepoint Education in 2009, and Capella Education Company in 2006. Also, The University of Phoenix is considered the gem of private equity firm Apollo Group’s portfolio. The leaders in their respective education verticals are bringing in healthy profits.
- The macro trend toward ‘retraining’ in the economy will be an extraordinarily important trend for both education and for the American economy over the next decade and beyond. People simply must have access to the educational tools and learning elements which will enable them to adapt. The sheer number of unemployed and underemployed will make this a necessity.
- The investor community also sees this theme. The VC firm Maveron Capital recently shared their views on how this $400B sector will evolve. Smart firms like Maveron are making investments because they see an opportunity, and they know that for capital to flow efficiently through the economy, labor must also be able to flow efficiently. This is a basic assumption of efficient market theory, but it cannot occur absent a completely revamped approach to education and retraining.
- I am currently working on a venture which capitalizes on the macro theme toward education and retraining and it proves to be pretty exciting in the years ahead…
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