Online K-12 Education IPO In The Great Recession: Archipelago Learning Co-founders Cameron Chalmers, Dave Muzzo, And CEO Tim McEwen (Part 6)

SM: After you became CEO, did you have a different content strategy?

TM: We introduced reading and math first, and then we followed with science and social studies. We also focused first on elementary schools and then on high schools. Two years ago we started addressing kindergarten, first, and second grade programs.

SM: So now you have full K-12 curricula for all 50 states?

TM: Only for the larger states. We are still developing content for the smaller states that we have recently entered. We have 21,700 schools that are clients, which represents about 19% of the schools in the United States.

SM: When a school is trying to decide whether to buy your solution versus other products, who do you run into?

TM: We use an outside market research firm that surveys all of our customers once a year. We asked them what product they considered before purchasing Study Island. For the past four years, we have found that 50% to 60% of our customers are not aware of any other product like Study Island. Fewer than 10% of our customers will actually name a competitor.

There are a lot of products to compete against. Pearson, McGraw-Hill, and other publishers have offerings, but they tend to be much more expensive than we are. Their instructional aspect is not as customizable as ours is. Having spent time at those companies, I know they have issues. So much of their revenue comes from printed textbooks, and if they were doing a disruptive model it would cannibalize their existing base.

Structurally and culturally they are challenged to compete as they have different divisions with separate P&Ls. Trying to get those divisions to work with each other to create something like we offer would be very difficult in terms of how to pay the sales professionals and share revenue. We have one integrated package offered completely online through the browser that is low cost and easy to use. That has allowed us to be very successful.

SM: Are you coming out of the supplemental educational services budgets?

TM: We come out a lot of different budgets for schools. Dave and Cam set the price point so low that we can take advantage of discretionary spending by principals. They don’t have to do an RFP or go through boards. That makes for a quick sales cycle. Schools can use federal Title 1 funds, which are meant to close the gap in performance for schools that do not have as much money coming into them as do schools that are in well-to-do communities. We can also see special education funds. They can also use technology innovation grants or school recovery grants. As the money makes its way to districts and schools, as long as we meet the criteria for the federal program schools can use those funds. They can also use local discretionary funds. We also get some discretionary purchases from Parent–Teacher Association (PTA) funds.

CC: We rarely get into chasing money or different funds. We offer the product and consider it the responsibility of the principle to figure out how to pay for it.

SM: If I am a school principal and I want to buy the entire K-12 Study Island suite, what would it cost me?

TM: Our pricing varies on the number of students in the school as well as the number of subjects and grade levels are purchased. On average, we have four core subject areas: reading, language arts, math, and social studies. If they buy one of those subjects for one student, it averages $3 per student per year. If they buy them all, it averages $10 per student per year. Our average purchase order is usually in the range of $2,500–$5,500. That does not mean that we do not have district contracts in the hundreds of thousands of dollars.

This segment is part 6 in the series : Online K-12 Education IPO In The Great Recession: Archipelago Learning Co-founders Cameron Chalmers, Dave Muzzo, And CEO Tim McEwen
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