Online Education Looking Like a Hot IPO Sector

Corporate training could prove a lucrative market for small B2B-type plays.
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It doesn't have the sexy ring of "infrastructure," but education may be a sector to watch in 2000.

All it takes is a look at the IPO pipeline and venture capital rounds to see that education on the Internet has arrived. Several education-related companies are already in registration, including educational-software company

Lightspan Partnership

, online textbook-seller

VarsityBooks.com

, educational-services site

Embark.com

and Internet corporate-training company

SkillSoft

.

Industry watchers expect more IPOs by the end of the year, judging from the millions of dollars being poured into private companies catering to the K-12, undergraduate and corporate-training segments.

Birds of Fire

"Education online is going to be the convergence of education and dot-coms," says John McLaughlin, head of the

Education Industry Group

in Sioux Falls, S.D. "Start-ups are bringing education online in every capacity from creating opportunities for preschoolers to get smarter online to using Web-based educational materials for graduate education."

In a sense, the Internet is an ideal medium for education: What could be a better way to spread knowledge than the Web? Yet it's been slow to reach critical mass.

"The Internet has affected all of the other areas of the U.S. economy," says Keith Gay, an education analyst with

Thomas Weisel Partners

who six months ago predicted this year's flow of e-learning companies. "Education is the second-largest sector of the economy, but the Internet hasn't really penetrated it. It's going to come from the private sector."

Seeking Alternatives

That said, the e-education plays coming to the market thus far have produced only tepid reaction. Shares of

eCollege.com

(ECLG)

, a company that provides authoring tools for professors to bring courses online, remain where they went public on Dec. 5, at 11. E-commerce site

SmarterKids.com

(SKDS)

, which is branching out to educational services, has slipped more than 50% since going public Nov. 23 at 14.

But analysts expect Internet education stocks to take off, in part because of the growth in home schooling. "There's been an explosive growth in the home-schooling market," says Gerald Odening, education analyst with

Hambrecht & Quist

. "It's not just religious fanatics looking for an alternative; parents are seeking alternatives to what they consider to be harsh environments in schools. They can achieve the same level of self-paced growth and curriculum for a child using both the Internet and a physical onsite tutor." H&Q has a buy rating on SmarterKids.com and was a lead manager for its IPO.

But the real money may be in the corporate market, the B2B angle in a sector that is arguably bogged down by the bureaucracy of state-run institutions. "B2B is where a lot of the smart money will go," says McLaughlin.

Long-Distance Runaround

The corporate market consists of "distance-learning" companies that bridge the gap between corporations in need of programs for their employees, and private institutions.

Pensare

,

WebCT

and

University Access

are three privately held distance-learning companies that are busy closing venture capital rounds and will likely line up at the IPO well later this year.

It may be worth the wait for investors. Ellen Julian, director of training industry research at

International Data

, says the corporate e-learning market is growing exponentially, from $1.1 billion in revenues in 1999 to a projected $4 billion in 2001.

Pensare, whose backers include

Media Technology Ventures

, creates programs ranging from accredited MBA programs that it delivers to corporations to customized training packages for companies such as card giant

Hallmark

. "Education has been elevated to a much more strategic part of companies, and that's why we're seeing more money coming into this space," says Julian.

Corporate distance-learning companies are also busy extending the brands of major universities, some of which have taken years to develop. Pensare has partnerships with

Duke University's

Fuqua School of Business

,

Harvard Business School

and the

University of Pennsylvania's

Wharton School

. University Access has alliances with the

University of Southern California

and the

University of North Carolina

.

When they hit the IPO gates, it's sure to be a learning experience.

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