Is Rupert Murdoch's Bid to Fix Education With a Tablet Failing?

NEW YORK ( TheStreet) -- Three years and nearly $1 billion into a bet on a digital education, News Corp's (NWSA) Amplify still wants to make its own mobile device, called the Tablet. This is even as costs mount and school districts reluctantly incorporate the technology into their classrooms.

Amplify's Tablet, a mobile device designed by Intel (INTC), is a key part of News Corp's digital education program for K-12th graders. By selling its own hardware, Amplify has sought to differentiate itself from rivals at McGraw-Hill Education, Houghton Mifflin Harcourt (HMHC), Discovery Education, a unit of Discovery Communications (DISCA) and Pearson (PSO) Those companies don't manufacture their own education-technology devices, but instead work with computer makers such as Apple (AAPL), Microsoft (MSFT), HP  (HPQ) and others to produce software that runs on Apple and Microsoft devices.

Amplify's salespeople are shopping a remodeled Tablet this year; the earlier 2013 model introduced to about 20,000 students in Guilford, N.C. suffered from cracked screens and instances in which computer batteries partially melted. That device was recalled and replaced by a "ruggedized" Tablet, a 10.1 inch unit uses Google's (GOOG) Android operating system.

"The goal here is adoption, so if you can get your device into a school district, you have a strong grip on content -- that becomes a very interesting strategy," Shapiro said in a phone interview. "It doesn't seem to have had the kind of momentum they imagined yet, but then again, nothing has."

That could be because most schools have insufficient Internet broadband connections to make Amplify's digital learning tools useful. Some 63% of schools don't have enough bandwidth to meet the current needs for digital learning, according to Education SuperHighway, an ed-tech advocacy group.

And the wireless units aren't cheap. Late last year, the FCC increased its funding for wireless infrastructure for schools and libraries to $3.9 billion though a federal tax of telephone customers. Yet many school districts aren't clear on how they can access that money, Hamilton said. Many districts, Shapiro said, are making their way into education technology piecemeal, using a variety of software publishers and often partnering with foundations for the hardware.

In 2013, Apple partnered with Pearson Education in a $1.3 billion project to supply 650,000 students in the sprawling Los Angeles Unified School District with iPads loaded with the company's digital teaching tools. But the program has been grounded in lawsuits and finger-pointing with the school district demanding a refund.

Houghton Mifflin CEO Linda Zecher said her company is making digital learning tools that can be used on a variety of devices. She said Houghton Mifflin chose not to make its own device because it could divert executive attention away from curriculum development, and it would place a publisher in head-to-head competition with very large technology companies.


"The hardware vendors are the Apples, Lenovos and the Samsung - why would I try to make hardware?" Zecher said in a phone interview. "I make content, and I want to be the content player that can work with them. Plus, I want to leverage their salesforce. I want those guys selling for me. Part of their differentiator is having great content that can sit on their devices."

To reach into more school districts, Houghton-Mifflin last month acquired Scholastic's education technology business for $575 million, a deal that further consolidates the industry.

McGraw-Hill Education, which is controlled by investment funds affiliated with Apollo Global Management (APO), never considered creating a proprietary device and instead is building an open platform that acts as a host for third-parties, such as teachers or other digital learning developers, said Christine Willig, president of the company's K-12 business.

"[Amplify] made a choice about a pathway to pursue, and they decided that hardware would be part of their path," Willig said. "We're about driving the learning through the learning science as opposed to be focused on devices."

In a January letter to employees, Amplify CEO Joel Klein announced a major reorganization aimed at getting its units to work better together. The restructuring, he wrote, would encourage the company's divisions -- assessments, games, curricula, professional development, the Tablet -- to "embrace open architectures," adding that "key resources and support services common to our business needs will be shared across the company."

Amplify's Hamilton further explained that even as the Tablet remains an essential part of Amplify, the company is developing software that can run on devices from all major hardware vendors.

"We have both a Tablet offering, and are working on a software version of the platform that could run on multiple devices and operating systems," Hamilton said in an April 28 e-mail.

Amplify appears to be doing better with its digital content. Over 100,000 students in 44 states are using Amplify's digital curriculum, a majority being early grade students, K-5. Its literacy and math assessments, designed to identify a student's strengths and weaknesses, have won statewide contracts in Colorado and North Carolina. Software curriculum accounted for the bulk of Amplify's 2014 revenue of $88 million.

Accelerating those sales could hasten the adoption of the Tablet, which sells for $359 for the first year and $60 for years two and three for software, content and support, according to the company's web site. Amplify says its full Tablet offering is less expensive than similar programs that feature the iPad or Chromebook. Accelerating sales could go a long way to easing the concerns of investors wary that Amplify is becoming a financial black hole.

"They're now in a position where they really have to demonstrate some sales," said Tim Nollen, media analyst at Macquarie, in a phone interview from New York. "They do have some bits and pieces of revenue but the only school district was Guilford, and that was a while ago. That went terribly at first but give Amplify credit for sticking with it. But we haven't heard of any other wins since then."

One nagging problem for Amplify is erasing the negative publicity caused by the Guilford recall. 

New clients, Hamilton said, could emerge after schools across the country begin to receive the results of Common Core testing that began in more than half the country in March. Results are expected by the end of the school year, or sooner.

"When those scores come back, and come back perhaps in a place where people weren't expecting them to be, they're gonna look for help and we stand ready to partner with them," he said.

That partnership could mean the Tablet or software curriculum, or both, Hamilton added

"We're always thoughtfully evaluating our strategy," he said. "And we'll continue to do so, and do so in a way that is responsive to the market."

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