Who’s the next winner in the shifting K-12 curriculum market?

The Bottom Line

Poorly understood shifts in basal textbook spending, particularly in hard-to-track open territory states, have created confusion among large publishers and their investors as the market has become less predictable. And the shift to digital, which was once thought to represent a financial boon to the leading publishers, has instead created openings for supplemental solutions to steal basal share. Put another way, what is considered “core” from the perspective of the school buyer is shifting and creating uncertainty in a market once praised for its stability.

Over the past decade, Tyton Partners has been closely monitoring the more than $5B K-12 curriculum content market, analyzing shifts in the competitive landscape and exploring the forces responsible for painting new lines across this market.  Indeed, the lines serving as boundaries between segments in this market – core (basal) vs. supplemental, print vs. digital – have become increasingly opaque, creating both winners and losers in the process.

The Rise of the K-12 Supplemental Segment

Over the past five years, leading supplemental solutions within the K-12 market have experienced impressive growth. Supplemental players have benefitted as schools and districts fundamentally change the way they use and purchase instructional materials:

• Legislation in numerous states has made it easier to purchase digital resources, and many states have loosened rules for districts to make purchases away from state-approved lists – a boon to supplemental players

• Trends in pedagogical approaches in the classroom (e.g., blended learning, flipped classrooms, differentiated instruction) require – and benefit from – more agile solution models, as well as the flexibility to pick and choose (i.e., supplemental) solutions, rather than rely on one monolithic (i.e., basal) offering

• Emphasis on personalization and student-centered learning has given rise to adaptive technologies and individual pathways and, in some environments, a shift away from teacher-led differentiation

• The rise of free content (e.g., OER, freemium offerings) and models to curate it have shifted dollars away from content towards platforms

• The flexibility of many lower-cost supplemental solutions to be sold at the classroom, school, and/or district level has provided a level of convenience that has aided penetration and overall growth of the category

Although historically perceived as lighter or less robust solutions, the overall depth, value, and perceived quality of supplemental solutions as a category has been increasing. Supplemental players are increasingly moving “up market” – seeking greater share of wallet and increased impact and mindshare within schools and districts – and are striving to position themselves as viable alternatives to more traditional (basal) textbook offerings.

Investor Interest, Company Transformation

Investors are displaying keen interest in the supplemental segment of the K-12 market, even as they have grown disenchanted with the K-12 portfolios of the leading basal providers. Two useful examples of supplemental companies receiving investment in 2017 – each at a different stage of maturity – highlight the enthusiasm in the segment and suppliers’ efforts to take share directly from the basal players:

• Curriculum Associates, which received a $200M investment from Berkshire Partners in September 2017, has grown dramatically over the past five years and is a nearly $200M instructional materials and assessment provider. Its flagship product, i-Ready, has incorporated print companions – i.e., “Ready Common Core” – to its digital offering to deliver a comprehensive substitute to traditional basal programs.

• ThinkCERCA, a growth-stage literacy company that includes personalized lessons to teach argumentative writing and close reading, raised a $10M Series B in September 2017. ThinkCERCA today positions themselves flexibly “from a full textbook replacement for ELA to a supplemental resource for cross-curricular literacy instruction” and with the funding, anticipates expanding into new product offerings.

Notwithstanding these – and other – supplemental players’ efforts, comprehensive curriculum offerings aren’t going away any time soon. However, we do expect many supplemental companies will grow faster than the overall market in 2018 and continue to replace more complete solutions, muddling market segmentation efforts. Increasing consolidation will occur in the supplemental market over the next few years, given recent (e.g., Edgenuity, Discovery Education) and pending M&A and investment activity, as these players expand into new subject areas and enhance or expand their own product offerings to drive increased value.

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Tyton Partners has unparalleled expertise and insights into this dynamic sector – and others – within the Pre-K-12, postsecondary, and corporate / workforce learning markets. We do extensive client-specific market, product and customer analysis across these markets, and are always happy to share our perspective or answer questions to support and catalyze efforts at your organization.