Macmillan Knows Publishing Is Doomed, So It's Funding the Future

By Erin Griffith , written on July 5, 2012

From The News Desk

Even if the dominant players in a staid, legacy industry see the writing on the wall -- that the Internet will eventually kill them -- it's not easy for them to do much about it.

Some publishers are merely waiting for Amazon to put them out of business. (See "We're in Amazon's sights and they're going to kill us.") Others have taken to suing startups which threaten their business model. (See: Publishers accuse textbook replacement service Boundless of copyright infringement.)

Macmillan Publishing has taken an entirely different route altogether. It's one that, until now, has remained relatively under the radar. The company hired Troy Williams, former CEO of early e-book company Questia Media, which sold to Cengage. Macmillan gave him a chunk of money and incredibly unusual mandate:

Build a business that will undermine our own.

The publishing giant has given Williams a sum greater than $100 million (he won't say exactly how much) to acquire ed-tech startups that will eventually be the future of Macmillan. The plan is to let them exist autonomously like startups within the organization, as Macmillan transitions out of the content business and into educational software and services. Through the entity, called Macmillan New Ventures, Williams plans to do five deals this year and 10 to 15 over the course of the next five years.

He's buying companies that will help Macmillan survive as a business once textbooks go away completely.

This includes Prep-U, a quizzing engine for classrooms, i-Clicker, a mobile classroom polling company, and most recently EBI, a data and evaluation startup.

When Williams sold his ed-tech company Questia to Cengage in 2010, he told himself he'd never go back to ed-tech. He'd learned the hard way how entrenched the industry's institutions were. The "Big Five" had massive sales forces and deep pockets -- they could sell circles around any startup. Further, the faculties at colleges and universities had entrenched relationships with the "Big Five," and that was the way they preferred to buy their books. But this situation is different, he says, because he can turbo-charge promising startups with the Macmillan brand, CRM, and sales force.

But what do those inside Macmillan think about his plan to kill their business?

Long pause. "I don't know."

"At the highest levels, everybody thinks it's where we need to go. But they think it's 15 to 20 years off," Williams says. "I think it's seven to ten. The people at the very top plan to be retired in 20 years so they think they have enough runway."

There are a few macro-trends that Williams expects to affect education. Data and analytics will big the biggest. Content is becoming commoditized (as evidenced by the existence of companies like Boundless, which create textbook equivalents using open source materials). Real value will happen when companies can measure success of content through software and learning tools.

Further, the way higher education institutions make decisions is changing. Where long-running relationships with faculty used to drive buying decisions, universities are increasingly being run by the administration. College boards are now made up of former CEOs and run like corporations. Software decisions are made at the administration level, so Williams will seek startups that can be sold to both administrators and to faculty. Along that line, students increasingly act like customers who demand good service. (How else can you explain the way schools get blamed for recent grads not finding jobs out of college?)

Lastly, the line between online and offline classrooms is blurring. Where previously, startups would offer one but not the other, they now need to allow a seamless switch between the two.

Williams said his deal pipeline is realtively healthy, but many of the early stage ed-tech companies are fundamentally flawed because they focus on the consumer. "Most people would rather spend their money on beer or movies or apps than on anything that is going to help them learn faster," he says, "so you end up having to sell to the institutions."

[Illustration by Hallie Bateman]