Learning in the Internet Era

One of the most exciting areas where the impact of technology and the Internet will be felt is in education.  In a world where many students will leverage the Web for content consumption, where textbooks will become rich interactive experiences, and where the iPad or Kindle will become a standard part of the learning platform, education will begin its inevitable march from being an imprecise art optimized for the “averages” to a highly measured science designed for the individual.  Concepts such as “Assessment for Learning” are advancing the notion of regular feedback as a critical element of curriculum for both teachers and students.  There is no better platform than the Web to transform the student experience.  And many would suggest it couldn’t come at a better time.

Today, on the heels of that notion, I am excited to announce our investment in Knewton.  On the surface, Knewton is the leading online provider of test preparation services such as the GMAT, SAT, and LSAT.  Underneath the hood, the Company’s service is powered by a groundbreaking adaptive learning engine that takes the myriad of data a Web-based platform generates and optimizes curricula down to the concept level for an individual.  It allows the Company to make performance improvement guarantees no one else is willing to offer, and leads to its customers giving as high a net promoter score as respected brands such as Apple and Google receive. 

To accomplish their ambition is very technically complex, which is why the team at Knewton includes some of the foremost researchers and creators of computer adaptive testing.  Knewton has taken this engine powering their own direct to consumer service and is now opening it up for third parties to instantly bring adaptivity to their content.  “Just add Knewton”.  Over the coming twelve months, Knewton will begin partnering with leading content providers in the market to supercharge their offerings. 

While test prep alone is a multi-billion market, education is a multi-trillion dollar market.  At FirstMark Capital, we look for ideas that can transform large marketplaces and there are few as gigantic and meaningful as this.  NYC is the home of the largest school system in the US and the base of the education industry’s leading content providers.  As we have seen across other vertical industries being disrupted, it’s no surprise that this startup was born here.  We are delighted to partner with the founder, visionary, and CEO Jose Ferreira and the rest of the NYC-based Knewton team as they seek to change the world!

The Group Buying “Craze”?

Been listening to a lot of the chatter about the group buying bonanza that is going on these days.  The latest news is a rumored large round for Groupon at a reported $1.2B valuation, close on the heels of a $25MM round announced by LivingSocial, which was shortly after Buywithme.com completed their $5.5MM round.  The count is now more than 70+ group buying companies that have launched, with more coming each day.  In addition, many content publishers are now beginning to think about entering the space.  Is this insanity?

My simple answer:  No. 

I think the dynamics of group buying are very different than people think.  In fact, I don’t like to call it group buying.  I also think it has very little to do with retail merchandising.  Instead, I put it in the category of perfected local performance advertising.

People have talked for many years that the local market is the holy grail for the next stage of online ad spend.  The problem is how to convince the corner pizza shop or spa to value a “click” and spend money on this thing called “Google”.  These merchants are way too busy in their day to day and have none of the time we have to study TechCrunch or Read/Write/Web to follow all the twisted ways we have come up with to advertise online.  The companies that have become successful in local advertising have had to solve that problem in some form or fashion.  ReachLocal kicked this off by creating a large overlay sales force to go in, talk to these local merchants, and deliver “in person” translation.  Companies like Yext have skyrocketed by translating online advertising into the currency of the local merchant.  “Have a gym?  We’ll book you appointments.”  Monetization at Yelp and OpenTable are related to things restaurants have done for decades – reviews & reservations.  One clear takeaway – make something simple and transaction oriented, and local merchants will pay attention.

Coming back to “group buying”.  What is group buying?  Well, it’s a way for a merchant to give up some margin (aka, advertising dollars) to secure a purchase and hopefully build some incidental brand goodwill.  In this case, activation by sufficient buyers and selling out are simply the game mechanic.  If you’ve used any one of these sites, the offer almost always gets activated and many times sells out.  The group buying craze is really a merchant paying some money for the best possible performance advertising you can have – A CLOSED SALE!  (Not to mention some “in person CPM” thrown in for side benefit).

And now back to Groupon, et al?  Well, their model is optimized around a tight, high volume operation versus a costly field sales approach.  Over time, Groupon is building a database of every local merchant out there, and also a database of who has bought what in a local area.  They’ve proven their ability to execute in 30+ markets and now will just manufacture the same city widgets 100 times over.  As they are more successful, they can automate greater pieces of the system.  Word of mouth begins to kick in.  Data synergies such as re-marketing and recommendations become possible.  Is that worth $1.2B today?  I have no idea.  But I do know local is big.  Hundreds of billions of dollars big.

What happens to all the other companies out there? The big venture outcome game is probably over with the leaders already staking out their position.  Other large local content players will get into the mix.  But local has a few dynamics other segments don’t have.  First, scale is less relevant than in other industries – a merchant can only service so many of the offers, and the offers are inherently relevant to the people in a neighborhood.  Particularly since most offers are services like a massage or spa.  Second, to create good ‘rotation’, the Groupons of the world limit how many times a merchant can run a deal and the number of deals shown.  If this perfected local performance advertising works for a merchant, they will gladly go to the next guy and see if it works on LivingSocial‘s members, and after them, to the next person, and so on.  Most scale businesses invite more of an activity, not restrict it.  Third, relationships can matter.  Small players can get to their local merchants and use charm to rope them in.  So while many are highly skeptical, I believe there will be a slew of companies that exist in this market and can grow profitably for the next few years.  Many should never take venture capital.  But there is a long way to go to activate this market!

[Update:  Space is really moving.  BuyWithMe Inc. announced that Cheryl Rosner, former president and chief executive of Ticketmaster company TicketsNow, is its new CEO.]