Is There a K-12 Online Learning ‘Bubble’?

By 04/07/2011

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For several years now I have been an unabashed promoter of online learning as a disruptive innovation with the potential to transform our education system from a monolithic one to a student-centric one that personalizes for different student needs.

I still believe that.

But in the short term, there does appear to be a bit of a “bubble” developing around innovation in education—be it in online learning products and services, blended-learning schools, and the like.

This bubble might not fit the technical definition of the term—“trade in high volumes at prices that are considerably at variance with intrinsic values”—but it has some elements of that, as well as a few others that should give all of us at least some pause.

First, investment is heating up in the space. According to Michael Moe, there has been at least $225 million in financing deals over the past year as well as $367 million in merger and acquisition activity. There are a lot of positives here of course, as a critical reason for this is because there have been some valuable businesses created in the past 15 years in education, and there are many more disruptive opportunities now. That said, too often the investment of money in a company is treated as a success in and of itself rather than the creation of true intrinsic value in solid and sustainable models. And more than a few investors in the space have noted that the deals that they are seeing in the space have valuations that don’t square with the underlying value often.

Some of this “frothiness” is good. We just have to understand what it does and does not mean. For example, just because something is “online learning” or “blended learning” or “innovative,” doesn’t mean it’s necessarily good—that it increases learning outcomes or saves costs—or will be around in a few years. There will be shakeouts where some investors’ bets fail. And some bets of course will become spectacular successes, which is the beauty of the market.

Second, to this very point of creating real value, the quality of much of the online learning products and services (from content to learning management systems and on and on) is frankly all over the place. In some cases this is because many continue to create home-grown products that reinvent the wheel and miss the benefit of the talent and investment that companies can bring to the table. But another critical reason for this is that education policies all too often encourage a race to the bottom—a purchasing of the cheapest product regardless of quality—rather than one that pays for student outcomes. In addition, the consumer—often local school districts—is pitched constantly on different products or blended-learning solutions, all of which promise to get great results, but in reality often have thin or misleading track records, and the consumers don’t push the selling organizations enough in smart ways to get what they in fact need.

Third, reminiscent of the dot-com bubble where strange nonsense words became company names, there are all sorts of weird names popping up in education companies these days for products that are far less differentiated than their founders like to believe.

Finally, in a more general indictment in education, everything these days hails under the moniker of “innovation” and “transformation.” No longer is education reform the popular way to describe what one is doing, but instead one is “reinventing” the system. All too often, however, if one were being intellectually honest, they would note that nothing of the sort is occurring.

Where this will all end up is anything but certain. And as I’ve said, I remain bullish on this field in general and excited about the investment in education companies, but there does need to be some caution in the days ahead because all too often quality—as measured in actual student results and a lasting and real business model—is not there.

– Michael Horn

Comment on this article
  • Sal Pellettieri says:

    Great points Michael. I suppose valuations are based on the creativity of the idea flow and the size of the market. There can be some massive improvements in education if more technology is integrated. However there are serious obstacles; a lack of spending dollars from schools, slow or no adoption.
    I have launched an educational site called which is free tool for student group work and virtual classrooms and it’s still hard to get some educators to listen. Some people are very eager for new ideas, but they’re in the minority.

  • Jim says:

    And “bubbles” are bad? Sure, some investors will get hurt. And if the bubble is pervasive enough (e.g. “housing boom”), it can create all sorts of collateral damage. But any bubble in education is unlikely to have very far-reaching impacts on the financial system as a whole. As you note, bubbles do attract attention and investment, and given the current state of education in the U.S., that is not a bad thing. Amazon and eBay were part of the bubble, but unlike all of the examples, they prospered and changed our world. Juniper Networks was definitely a bubble phenom that crashed, but they are now a formidable competitor to Cisco. Would I be an investor in these new online ed ventures? No. Am I glad that other investors are willing to take the leap? Yes. Yes I am.

  • […] Is there a K-12 Online Learning Bubble? – Written by Michael Horn of the Innosight Institute, this article outlines a number of the issues with low-quality digital learning and the need for policy that rewards student performance outcomes. Share this:TwitterFacebookLike this:LikeBe the first to like this post. by edcrunch on October 17, 2011  •  Permalink Posted in Blended Learning, Conferences/Events Tagged Blended learning, Flex Academy, khan academy, Rocketship […]

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