Rupert Murdoch’s $1 billion education failure

tablet

The Financial Review – http://bit.ly/1bp8pYb

Laura Colby, The Washington Post, 4 April 2015

Year 7 student Kevin Warren hunched over his desk, struggling to log on to a new tablet computer that News Corp leased to his school. It replaced an earlier gadget, which had overheated, generating a red warning bar across the screen.

A few desks away at their North Carolina school, Krista Sturdivant wasn’t impressed with the tablet. “Sometimes it works, sometimes it doesn’t,” she says as her desk mate, Ayana Munoz, wearing sky-blue lipstick, nodded in agreement. “Sometimes it doesn’t connect to the Wi-Fi, and I can’t get my work done,” Ayana says.

The tablets were supposed to help revolutionise schools and upend a sector that News Corp’s executive chairman Rupert Murdoch said in 2010 was “waiting desperately to be transformed”. That hasn’t happened.

By the end of June, Murdoch’s News Corp will have invested more than $US1 billion in Amplify, its division that makes the tablets, sells an online curriculum and offers testing services. Amplify, which never set a timetable for turning a profit, has yet to do so. It reported a $US193 million loss last year, and its annual revenue represented only about 1 per cent of News Corp’s sales of $US8.6 billion.

The education effort has been riddled with technology failures, fragile equipment, a disconnect between tablet marketers and content developers, and an underestimation of how difficult it would be to win market share from entrenched rivals such as Houghton Mifflin Harcourt in the kindergarten to high school education market.

“After all of these years of investment, it would really behoove them to show some wins,” said Tim Nollen, an analyst at Macquarie Capital USA in New York, who has a “neutral” rating on News Corp shares. “So far, I haven’t seen any.”

Joel Klein, Amplify’s chief executive officer, said he always considered the company a long-term bet. “I wish that things would move more quickly,” says Klein, the former New York City schools chancellor under Mayor Michael Bloomberg. “But when these things move quickly, sometimes you wind up creating a lot more problems.” (Bloomberg is the founder and majority owner of Bloomberg LP, which competes with News Corp in delivering financial news.)

TAILOR LESSONS

In what is by far Amplify’s largest contract to date, schools in Greensboro, North Carolina, will pay the company $US14.6 million over four years for about 19,000 tablets. Math teacher Leah Hampton says the tablet helps her tailor lessons to each child in her seventh grade class. “It shows me what each kid is working on, and allows me to identify what apps they are working on,” Hampton says.

Yet, even though teachers like Hampton find the technology useful, Amplify had such a rocky rollout in Greensboro in the autumn of 2013 that the district scrapped the devices and went back to pencil and paper. The system started again this past autumn with a redesigned tablet – though only after Amplify offered financial incentives.

Amplify’s experience shows how even the most deep-pocketed new players find it challenging to change the way children are taught. Billionaires such as Microsoft Corp founder Bill Gates and real estate and insurance investor Eli Broad have expressed frustration their philanthropy hasn’t done more to improve student achievement. Murdoch is discovering his own challenges as he seeks to make a profit from overhauling education – as have other education entrepreneurs before him.

In February, News Corp chief executive Robert Thomson said the company would “review the situation at Amplify” after school districts had decided whether to buy its products for the next school year.

Amplify faces plenty of competition. It is taking on a host of textbook publishers, such as Houghton Mifflin. Millions of US students use Houghton Mifflin’s curriculum – and more than half of its sales are in digital format.

As of early 2015, about 30,000 students in 20 schools used Amplify. While Amplify views its all-online offerings as an advantage, textbook publishers can achieve economies of scale by adapting printed material to the web, Linda Zecher, chief executive of Boston-based Houghton, says.

“There’s a pretty big moat around what you need to be competitive in this business,” Zecher says.

Murdoch began moving into education with the November 2010 purchase of Wireless Generation, a Brooklyn-based maker of testing software that originally let teachers track students on Palm Pilots. Much of Amplify’s revenue still comes from that company’s line of business.

ENGINE FOR GROWTH

Though education is a small part of the company, News Corp’s biggest business – newspapers such as the Wall Street Journal and New York Post – is shrinking as publications shift to digital delivery, and the company has promoted education as an engine for growth. Since the company was split in two in 2013, News Corp shares are up about 8 per cent, while the Standard & Poor’s 500 stock index surged 24 per cent.

The fruits of Amplify’s expensive investments are most apparent at the company’s loft-like offices on a cobbled street in the hip Brooklyn neighbourhood called Dumbo. Software designers there, across the East River from News Corp’s headquarters in Manhattan, work hard to make the online curriculum appealing.

In an English unit, Edgar Allan Poe is murdered by one of his characters, and students have to solve the whodunit, using clues from the author’s works as they navigate a cartoon-like virtual world. A game called Lexica sends children through a virtual world based on a library, where they meet characters, write stories and read books.

The company hired actor Chadwick Boseman, star of 42, a film about the life of baseball player Jackie Robinson, to read the autobiographical works of escaped slave and abolitionist leader Frederick Douglass. Walter Isaacson, best-selling biographer of Apple founder Steve Jobs, was hired to help write a unit about the Declaration of Independence.

The curriculum can also be used on Amplify’s tablets, which teachers use to track class performance and tests, send and grade homework and gauge whether students have understood a day’s lesson. Amplify sells each tablet for $US359, including some already-loaded software.

After the first year, schools pay an additional $US60 a pupil a year for services and software upgrades, its website says. An Asian manufacturer whose name Amplify won’t disclose makes the custom 11-by-7-inch tablets, which use Google’s Android operating system. The company also leases tablets for $160 a year, which is the option Greensboro chose.

The Jersey City, New Jersey school district considered buying the Amplify tablets and thought better of it. “We thought it was very expensive,” Thomas Purwin, who oversees technology systems for the district, says. It uses netbooks, laptops and tablets for its students and loads them with classroom management tools and curriculum materials, many of which are available free on the Internet.

WITHOUT TABLET

Amplify also markets its curriculum without its custom tablet. One of its customers is Greenwood Lakes Middle School near Orlando, Florida, which is using Amplify digital material on Apple iPads. The school chose iPads over tablets because it liked Amplify’s educational computer games, which are compatible only with iPads, principal Deborah Abbott says. Amplify is developing versions of the games that will work with other operating systems, including the one used by its tablets.

Unfortunately, Greenwood Lakes’ internet connections weren’t powerful enough to support the curriculum running on the iPads. The school needed to install 10 MacIntosh AirServers in its 30-year-old building, which houses about 1000 students in grades six through eight, teacher Jhamilia Smith says, adding students have increased their reading with the curriculum.

A middle school in Cambridge, Massachusetts, tested the Amplify curriculum last year for seventh grade English students and decided to pass. Betsy Preval, an English teacher at Cambridge Street Upper School, says she had mixed feelings about the company’s material and also ran into difficulties because the school’s internet connection wasn’t strong enough. “The wireless connections would kick the bucket, so to speak,” she says.

Justin Hamilton, Amplify’s chief of staff, says the company supplies all of its customers with a paper back-up curriculum for such eventualities. He cites a study by non-profit Education Superhighway that found that only 37 per cent of children in grades K-12 are in schools that have enough bandwidth to support digital education.

Nowhere have the difficulties of the digital education market been more apparent than in Guilford County, North Carolina. Out of Amplify’s tablet contracts with 17 districts and 28,000 users, it is by far the biggest. The district, where almost 60 per cent of the 72,000 students qualify for the federal free or reduced-price lunch program, is home to Greensboro, as well as High Point.

For the 2013-14 school year, the district paid about $US3 million to lease about 15,000 tablets and related services for all of its middle-school students and teachers. The district used federal grant money.

“It was like an adrenaline rush,”Keisha Brown, principal of Greensboro’s Aycock Middle School, says. “The kids were excited, the parents were excited – everybody.”

KEPT BREAKING

It didn’t last long. The school handed out all of the tablets on the same day and found out that it didn’t have enough internet capability. The tablets kept breaking. Their screens were so fragile that they could shatter if they tipped over screen side-down on a desktop.

By October 4, 2013, more than 13 per cent of the tablets had been lost, stolen or damaged, including one whose charger melted and dozens more whose screens cracked or shattered. The district pulled the plug.

Amplify redesigned the tablet with help from chipmaker Intel and switched manufacturers. The new ones can survive being dropped from a desk, Lande Brady, who oversees the tablet program for Aycock, says.

Still, Greensboro isn’t using Amplify’s curriculum. It wasn’t ready when the tablets arrived in 2013. Amplify never tried to sell it there for this school year, Robin Britt, the district’s director of instructional technology, says.

“The left hand doesn’t necessarily talk to the right hand,” Jocelyn Becoats, the district’s chief of curriculum, says. Becoats’ team has created its own curriculum, which teachers can download to their Amplify tablets and then assign to students, she says. Hamilton says the district never made a request for bids for a new curriculum.

To address last autumn’s failure, Amplify supplied the district with the newly designed tablet and extended the four-year lease for a year. Greensboro increased the number of tablets it leased to 19,240 and will pay Amplify $US4 million for the current school year. The company also agreed to provide up to $US856,750 worth of training and other services free of charge.

Brown says her school handed out the tablets to different classes on different days this year, so that they wouldn’t overwhelm the school’s technical support staff – who needed to troubleshoot – as well as its internet capacity. The introduction was smoother this time.

REDUCED FAILURE RATE

With stronger “Gorilla glass”, the tablets reduced their failure rate. Out of about 17,000 in circulation by late November 659 tablets – less than 4 per cent – were returned for defects or breakage, Britt says. Problems ranged from cracked cases to unresponsive Wi-Fi.

“We’ve had a lot of feedback from Greensboro this year in terms of satisfaction with the program,” Klein, the Amplify chief executive, says. “There will always be glitches as long as there’s technology.”

In a science class at Southwest Guilford Middle School in High Point, a group of four children huddled around a tablet propped up on a chair in the hallway, watching an episode of Bill Nye the Science Guy. In a social studies class, students tapped on the tablets to look up information about the economies of countries while they played the political-strategy board game Risk.

Teachers say they like how the devices can be used to call on children randomly, eliminating the need for shy students to raise their hands. The tap of a teacher’s screen can freeze all students’ tablets with the message: “Eyes on Teacher!”

Still, many children aren’t sold. “I think they’re evil,” seventh-grader George Cross, who prefers to do his homework on paper, says. Makayla Key, 13, a straight-A student at Aycock, likes working on the tablet for her math and science homework but shuns it for presentations and bigger projects. “Sometimes it’ll glitch,” she says. “I’m afraid my assignment might be deleted.”

Her mother, substitute teacher Myra Key, shook her head as Makayla recounted how the tablet froze one night. When Makayla restarted it, her English homework was gone. “She cried bad,” Myra says.

Bloomberg The Washington Post

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