How did Pearson succeed in the U.S. higher-education publishing market?
Share Now on:
How did Pearson succeed in the U.S. higher-education publishing market?
This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands? Check out more from the series here.
Listener Genji Fujimori-Smith asked:
Why has Peason, a London company, dominated the U.S. higher education market for textbook and course material?
If you’ve so much as stepped foot in a U.S. classroom, chances are you’ve used a Pearson product.
Maybe it was a textbook you sifted through for your math class. Or maybe you took one of its standardized tests.
The London-based conglomerate, which started off as a construction firm, has expanded into an educational powerhouse in the nearly 180 years since it was founded, creating a suite of products used from kindergarten all the way up to college.
Its success is the culmination of a series of acquisitions, opportune timing, deal-making and investment in education technology.
“The best way to think of Pearson is as a buyout firm operating in the public market,” said Joe Esposito, senior partner at Clarke & Esposito, a management consulting firm.
Two key deals helped establish the company’s place in higher education: first, the 1988 acquisition of American textbook publisher Addison-Wesley, “the sixth-largest U.S. publisher of college textbooks” at the time, according to the Los Angeles Times.
Then in 1998, it acquired Prentice Hall — the educational publishing arm of Simon & Schuster and the largest higher education publisher in the world.
Pearson Education officially launched that year.
Pearson’s rise
Pearson’s “first-mover advantage” in learning applications helped increase the company’s market share in the industry, said Tim Bozik, president of higher education at the company.
Bozik explained that in the 2000s, first-generation learning software emerged. Then in 2008, during the Great Recession, Bozik said college enrollment started spiking, especially at community colleges, and online learning in the for-profit sector gained popularity.
“You have more students for which the software aspects become more valuable to educators and institutions. So you have a real acceleration of demand,” Bozik said.
Some of Pearson Education’s earlier products included MyLab Math, which launched in 2001 and provided online homework and testing, and gave students the ability to individualize their study plans.
America’s shift away from educational publishing
Esposito said Pearson’s prominence isn’t unusual, since many, if not most, American publishers are owned by foreign entities.
He said in academic publishing, for example, you have Elsevier, a Netherlands-based company, along with the German-owned Macmillan and U.K.-based Taylor & Francis.
“American capital has mostly abandoned publishing for bigger growth industries (e.g. Silicon Valley, medical technology, commercialized space travel),” Esposito said. “To put this crudely, the American market outsourced college publishing and other categories of publishing to lower-cost economies, just as it outsourced manufacturing to Asia.”
In contrast, he said, Europe welcomes “the modest returns to be had in publishing in part because they have not been successful in the higher-growth categories.”
Expanding reach and criticism
In the mid-2010s, five textbooks companies controlled 80% of the U.S. textbook marketplace, said Cailyn Nagle, open educational resources manager at Michelson 20MM Foundation, a nonprofit that aims to make education more accessible and affordable, Now, it’s down to three: Pearson, Cengage and McGraw Hill, with Pearson controlling the largest share of the market.
Michael Field, a senior equity analyst with Morningstar, said Pearson has a couple of competitive advantages: its intangible assets — the ability to generate the content for its learning material and standardized testing — and the fact that it would be costly for schools to switch to non-Pearson programs.
For example, he said, Pearson is advising universities and helping them build their online degree programs. Some of those institutions include schools such as George Washington University and Arizona State.
Field said this highlights “the embedded nature of Pearson in these education systems.”
And that outsize influence has elicited criticism. In an investigative piece for Politico published in 2015, journalist Stephanie Simon wrote that a review of Pearson’s “public contracts and public subsidies, including at least $98.5 million in tax credits from six states, flowed to Pearson even when the company can’t show its products and services are producing academic gains.”
“We’ve gone through a whole bunch of things — online education, the Common Core. And at every step of the way, big companies like Pearson have been there and been able to create products and services that address those needs and sell them very effectively,” Simon told Marketplace host Kai Ryssdal in an interview.
Pearson executives said “they always work toward deals that benefit not just the company but its public-sector partners — and above all, the millions of students who use Pearson products daily,” Simon wrote.
As we’ve shifted into the digital age, companies have also received criticism for the data they’ve accumulated on its users, including Pearson.
“Students should be able to know how their information is being used, what it’s being used for, and I think they should be able to opt out of it,” said Nagle of Michelson 20MM.
In response to concerns about data privacy, Bozik said: “Pearson has both a high regard and high standard for data privacy. The application of data that we take is in the context of learning. Data can help us shape products that benefit more people, but with full respect for PII [personal identifiable information] along the way.”
Student affordability
Alan Spearot, the chair of the economics department at the University of California, Santa Cruz, conducted an informal survey with other professors on which materials they used, finding that about half who responded use Pearson products.
“Pearson has very good connections with economists who write textbooks that are attractive to our instructors,” Spearot said. He added that the company also provides pre-prepared lecture slides, which professors in the department said are helpful for planning their own lecture slides.
However, Spearot said some don’t even use textbooks for a variety of reasons, which include helping students save money. Spearot said he uses a mix of research papers and published case studies instead.
Another criticism textbook companies have received is the cost of these materials. Textbook costs increased 88% between 2006 and 2016, according to a report from the Bureau of Labor Statistics.
To tackle the issue of accessibility and affordability, Nagle said she’s hoping that open educational resources will expand.
“There is a growing movement of educators, institutions and authors who have since the early 2000s started writing and releasing their educational materials under an open copyright license,” she said, adding that faculty members can adapt them to suit their classrooms.
Pearson’s Bozik said the company is addressing the high cost of books with “an affordable access model,” its recently launched subscription service called Pearson+, with monthly options of $9.99 and $14.99. (There’s also a minimum four-month commitment.)
The average price of a new textbook was $84 in 2020, according to EducationData.org.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
