UV Letters

May 3, 2013 BACK

Fifty Shades of Distribution

Volume III, #9

Over the years, I’ve had some really bad ideas for things I might write. Lowlights include:

And yet I suspect one important reason I never had the gumption to sally forth with any of these projects is that I knew it would be a waste of time. For how often does a self-published author find success?

On one hand is the greatest publishing success story since Harry Potter: Random House’s Fifty Shades of Grey. Its origin may be as interesting as the work itself. E.L. James began her writing career posting fan fiction on a site dedicated to the Twilight series. She then reimagined her stories with different characters – a 21-year-old female student who feels passionately drawn to Christian Grey, a successful businessman – and posted them on her own site. Fifty Shades of Grey was eventually published in May 2011 as an e-book and print-on-demand paperback by a small Australian publisher. By early 2012, the e-book was being devoured and discussed by working moms in Manhattan. It was then that a publisher at Random House's Vintage imprint decided she had found the next big thing. She and her team traveled to the UK to meet James and won the bidding war for the trilogy. Within days of signing, the books were produced and distributed as trade paperbacks and e-books and backed by a major marketing effort. Reader demand exploded to such an unprecedented extent that it launched a global debate on its subject matter and each week brought a new print run, sometimes in excess of 900,000 copies. At the end of 2012 Random House had sold more than 70 million copies.

On the other hand, surveys of self-published authors find that 50% earn less than $500 from their works, and that the average (skewed heavily by the top earners) is under $10,000. While Random House gets a hand for Fifty Shades, the latter hand is a bigger hand; Fifty Shades is the exception that proves the rule.

***

It’s rare that great product finds distribution. Nowhere is this more true than in education. While the need for great new products in education is higher than any other sector of the economy, selling products to both K-12 and higher educational institutions is incredibly challenging.

I’ve served on the boards of multiple companies with great products that provide tremendous benefits to students. The typical progression is some initial adoption in local markets via pre-existing relationships. But hits are rare and viral/word-of-mouth distribution fairly unheard of. While sales pipelines always look large (investors and entrepreneurs beware: in education, all numbers are large) closings are invariably pushed out 6, 12 and 18 months as it becomes clear that educational institutions – and the many decision-makers involved in any purchase decision – have considerations other than student outcomes.

To have any hope, companies must build (or buy or lease) a sales force. So the products that succeed usually aren’t the best products. They’re the ones represented in each territory by the longest-tenured reps who know the superintendent and perhaps lose money to him at poker every so often.

Sadly and ironically, in education distribution brawn beats product brains. And they don’t teach that in Teach for America training.

***

Distribution in education is no less critical for programs marketed direct to consumers. Online universities and degree programs grew fat feasting on leads from lead aggregators. But it’s slim pickings today. The lead aggregator and pay-per-click markets are in decline as consumers become more focused on ROI and cost and as the market matures. According to a report released by Parthenon last year, 44% of prospective online students have already spoken with an enrollment advisor about a program. As Parthenon says: “The low hanging fruit has been picked.” Leads aren’t being generated and converted as they once were.

In need of proprietary new channels, the online market leaders have invested tens of millions of dollars in branding and advertising in the hope that prospective students will seek them out by name and that quarterly new start trends will inflect from negative to positive. So far no one has turned the corner. It may turn out that adding branding and advertising to the lead aggregator and PPC mix is a sucker’s game.

What’s true online is equally true onground. In today’s market, investing in higher education programs without a clear and convincing distribution plan is tantamount to self-publishing a book. Success is the exception rather than the rule.

The sucker’s game exit strategy is to ensure programs are addressing clear social or economic needs. If an institution or program is doing this, proprietary distribution channels should follow. For example, one of our portfolio companies with a focus on addressing Hispanic attainment in higher education through dual-language programs recently found itself with the opportunity to address prospective Hispanic students from the pulpit at churches – the first HEI ever to be welcomed by the archdiocese. Another portfolio company with market-leading affordable degree programs has found that employers are willing to promote the institution to employees as a means of reducing tuition benefit expenses.

Elite colleges and universities may continue to develop and offer degree programs willy nilly, but for the other 95%, we’d go as far to say that if a program doesn’t have inherent within it some proprietary and moderately defensible distribution channel, it’s probably not a program that addresses a real social or economic need and therefore should be restructured or reconsidered. In other words, if your programs require lead aggregators and branding, you may be in the wrong business.

The good news is that higher education is starting to become a lot more creative about distribution. At University Ventures, we’re just as enthusiastic about innovation in distribution as in product. There should be fifty shades of distribution in higher education. Going forward, college and university leaders will need to find their own shade before putting curricular pen to paper.

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.

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