EdTech Software Rises and Falls – Can it Rise Again?

At the end of this post are some quotes from a very interesting article by MATT RICHTEL called “Once a Booming Market, Educational Software for the PC Takes a Nose Dive”. It was published by the NYTimes on August 22, 2005 – the original is here.

In summary, the article shows that the retail sales of educational software for home computers had dropped from $498 million in 2000 to $152 million in 2004. Similarly, overall spending on software by K-12 schools was $2.3 billion in 2004, up 2 percent from a year earlier but down from $3.4 billion in 2001. So it may be understandable that companies do not want to get involved in a contracting market. But the article also proposes some reasons why this market is contracting. Below is a list mixed with our own observations:

• A lot of educational software was ‘bucketware’ – focusing on quantity vs. quality which discouraged buyers, and created unfortunate stigmas. “People used to buy educational technology for technology’s sake…now there needs to be returns, or results for the purchase”.
• Many websites began offering free reference, educational and entertainment content that ‘bucketware’ could not compete with.
• Increase of broadband which increased convenient access to these free online alternatives.
• Online alternatives are even more attractive to parents who can show “frustration at installing new programs”.
• A move in preschools and elementary schools towards portable electronic gadgets vs. educational software.
• Increase in computer availability in schools leading to less computer use at home and less educational software purchases at home. “Kids come home and they don’t want to get on the computer.”
• The statistics support this somewhat – companies making educational software for schools have experienced a less drastic drop of about 33% since 2001, but that is still a significant drop, so some of the other factors in this list are likely to be impacting the school market too.
• The pass-along effect – one purchase being handed down to siblings, which is possible because “titles and curriculums do not change much over the years”.
• Children are having more of a say on buying decisions, and choosing entertainment over education, especially given the stigma of education being not fun, only reinforced by unappealing ‘buckware’.
• Retailers reducing shelf space available for educational software, perpetuating a downward spiral.

However, it does note that overall spending on teaching tools and toys had increased (up to $4 billion on tutors alone). Therefore there is an opportunity for educational software to make a comeback if it adapts to market needs (e.g. points of difference over free internet content and parent’s interest in measuring their children’s academic progress) and perceptions (e.g. making it engaging and entertaining) and takes advantage of new technological opportunities (e.g. using the internet to streamline content delivery and permit the delivery of richer content). “It’s like a forest fire has burned through, making the scorched earth ready for future growth.

Below are a few quotes from the article:

Edward Vazquez Jr., 6, has numerous educational tools at his disposal. He learns math from flashcards and the alphabet from a popular electronic gadget called the LeapPad. But when it comes to instruction, the family’s personal computer sits dormant.

“He has a lot of toys for learning – not the computer,” said his father, Edward Vazquez, 28, a waiter in San Francisco. One reason, Mr. Vazquez said, is “you don’t see a lot of that software.”

That statement would have been unthinkable a few years ago. In 2000, sales of educational software for home computers reached $498 million, and it was conventional wisdom among investors and educators that learning programs for PC’s would be a booming growth market.

Yet in less than five years, that entire market has come undone. By 2004, sales of educational software – a category that includes programs teaching math, reading and other subjects as well as reference works like encyclopedias – had plummeted to $152 million, according to the NPD Group, a market research concern.

“Nobody would have thought those were the golden days,” Warren Buckleitner, editor of Children’s Technology Review, said of the late 1990’s. “Now we’re looking back and we’re saying, ‘Wow, what happened?’ ”

…

The result in business terms has been a downward spiral. Only 222 educational programs for PC’s sold more than 10,000 copies in 2004, down from 447 in 2001, according to NPD. As sales began to decrease, retailers devoted less and less shelf space to these titles, making recovery for the industry more difficult.

To regain their footing, some companies are starting to create programs that can connect to the Internet and cater to parents’ interest in measuring their children’s academic progress.

One reason for hope is that parents are spending more on educational tools and services than ever. Kirsten Edwards, an education software industry analyst with ThinkEquity Partners, a research firm, noted that overall spending on teaching tools and toys had increased. Spending on tutors, she said, rose to $4 billion in 2004, from $3.4 billion a year earlier.

Yet educational software is getting an ever smaller share of that consumer dollar. It is among the lowest-priced of any software category; in 2004 the average price for an educational program was $18, compared with $23 for the average computer game, according to NPD.

…

Educational software makers in the consumer market are not alone in their struggles. Those making software for schools have suffered too, executives and analysts said, from cutbacks in school budgets. Overall spending on software by K-12 schools was $2.3 billion in 2004, up 2 percent from a year earlier but down from $3.4 billion in 2001, according to ThinkEquity Partners.

Nonetheless, some say that children’s software can make a comeback. Mr. Buckleitner, an occasional contributor to the Circuits section of The New York Times, says there is still a future for teaching tools for the PC, especially as high-speed Internet access permits the delivery of richer content.

As for the drop in sales, he said, “it’s like a forest fire has burned through,” making the scorched earth ready for future growth.