In short, over the next decade they will become recognized for what they now are: the behemoth of education with every growth option at their disposal. As a company that early recognized that the enterprise systems of schools were one of the keys to digital education they can be systems and solution suppliers of turnkey environments with the content in place. They can get to grips with the assessment engines of the world, using their experience of owning the major US solution supplier as well as a major UK examination board to drive national systems globally. While we have been saying for 20 years that education is different because of national and cultural distinctions, they have got on with identifying the things that education has in common – from sorting out timetabling, communicating with parents, marking exams and providing administrators with performance reporting – and have made a business of this alongside schoolbook supply. Does any other player in their competitive sector have a strategic alliance with Oracle?

Pearson has always been able to change. A nineteenth century builders merchant from Yorkshire, UK, became, in the hands of Weedon Pearson, a successful oil wildcatter in Venezuela and finally the collector of great tradeable brands in mid-twentieth century Britain. Some of those brands remain in terms of Penguin and the Financial Times, but as we saw with IDC, having a few brands around to toss into the investment fire is a great way of fueling the next stages of growth, just as the last realization from the last sale is now lighting acquisition fires in China, Brazil and India. So we should be asking what next at this point. And we should be interested in the parts of the education scene where Pearson currently has little scale or penetration.

I once had the enjoyable consultancy task of introducing a major hardware player to “the largest educational publisher in the world”. Dreams of strategic alliance were in the air. My hardware client was frankly disappointed: “we get more revenue from printer cartridges sold to education than they do from textbooks”. Now the roles are reversed. My hardware friends are buying search software to stay alive and Pearson are powering on, following a strategy which will undoubtedly see them emerge as a major owner of schools and universities in a number of countries, the owner of distance learning institutions with global outreach (including degree awarding and exam setting bodies in countries like the UK), a partner of governments in delivering national solutions and a leadership role in the flight from content into an individualized learning environment. And they are the only player in the sector big enough to do the whole education value chain.

They have invested and played around experimentally in some sectors for years, however, without coming up with a real strategy. Learning management is one. Working with Blackboard was one phase, buying Fronter was another. Yet their latest announcement, last week, that they will now enter a partnership with Google to develop OpenClass as a free generic LMS available globally on the Web is something else again. Here is a well-tenanted marketplace, with Blackboard and open source Moodle occupying some 80 per cent between them. Pearson seemingly have no real axe to grind here – except pure disruption (and they have teamed up with the arch-disruptor to do that). At the moment huge amounts of Pearson content must sit on Moodle or Blackboard installations. But I suspect that Pearson think this is a temporary world, that the future of learning management may have mobile and Cloud attached to them, and that they need to be somewhere fairly unique, where even larger competitors like Cengage could not follow. OpenClass could be a place like that.

Finally, as Pearson puts further distance between itself and its rivals, it is interesting to see how it now feels that it is important to build viewpoints and concensus in education as well as develop systems and solutions. The work of the Pearson Foundation was highlighted recently in Media Taylor (www.mediataylor.com) I am not sure that I take such a sinister view as this blogger, but, especially in countries like India, it will be important to prepare the ground and widen the options. Major players like Pearson have an interest in this – but also a duty of care. Since there are such plentiful national educational interests that Pearson will not face competition issues in most of its markets for some years. In the meanwhile informing and educating educational buyers could be a critical part of that.

As a result we have two vessels now heading in opposite directions. McGraw Markets (everything which is not education), including all the B2B and credit rating assets, is in one, and everything education is in the other. But Pat English, a shareholder and CEO of Fiduciary Management Inc, told Reuters that this was only the start: “It doesn’t make sense to have S&P ratings, S&P indices, Capital IQ, Platts, and other companies under one roof”. So what happens in October? Do we see Chairman McGraw skip down the gangplank and set sail in the SS S&P, leaving the waste barge B2B to sink in the Hudson? Anything is possible of course: we are watching one of the largest corporate deconstructions in the sector since D&B sold all of their global subsidiaries to franchise holders.

And why? The answer is a not inconsequential $3 billion. This is the difference between the valuations expected for Markets and Education apart, compared to the current, or pre-announcement, values. Education is seen to be in the slow lane and holding back an advanced valuation of S&P. No one has ever explained cogently to me why companies, however large, cannot have valuations which reflect the intrinsic worth of their parts, and why “true” valuations cannot be exhibited without break out, but clearly I am in the nursery class in these matters. And my eye also caught the Chairman’s statement that $1 billion in overheads would be saved. That I really appreciate. I can see that the corporate office of a chairman, for example, would need less aides, fewer executive jets and less travel in a global $4.5 billion company than in a $6.5 billion global company, but since Chairman Terry is going to Markets, there will have to be another Chairman at Education, also aided and abetted and privately flying around a $2 billion company. So where does the saving come in?

And where does the future come in? The US education market is grossly over-published. Margins are too low to attract investment (hence this deal). The nation hovers on the brink of radical IT solutions to address a national standards deficit, present across the developed world, which can only be tackled through individualized digital learning: everything else has failed. McGraw Education have a decent record of innovation, good assessment assets like the California Bureau, and 20 years of struggle, from Primis onwards, to show in justification. But they sit on the edge of the same decreasingly relevant mountain of textbook assets that also contains Harcourt Houghton Mifflin. They have a junior position in non-US markets, compared with their major competitor. But no one can currently compete with Pearson. Cengage have learnt to go global and diversify. McGraw could go with Harcourt, but the resulting debt pile would be bigger than the Greek economy, so this is unlikely. Maybe the “we now have the message” boys at IBM, or Intel, or Cisco, will buy them. But why? There are some good assets in medical education (Harrisons) but are we looking here at a slow death from asset sales until only the unsaleable are left? Eventually Pearsons’ major competitor in global markets will be a borne digital platform company, but these assets will not help them substantively to reach that position. On the other hand, my telescope, scanning the horizon desperately for a rescue vessel, sees the sleek global liner HP, just refuelling on high octane Autonomy. Vast interests in education there, and the potential to be the platform player to fight Pearson?

Back at Markets there are problems of a different kind. Platts, aviation and construction all have heavy data capable of real impact in workflow orientated networking. Although serious attempts have been made to leverage this, there is no evidence of much stomach for the fight, some critical people left, and the failing magazine/advertising/subscription businesses are, well, still failing. Pity that the “very best thinking” of the management team, which the Chairman quoted as the reason for the split, was not applied here some years ago. Alongside these are really good, but unrelated, businesses like JD Powers. And then this high grade financial services stuff, with high growth Capital IQ and of course the S&P play most valuable of all. I am forced to repeat the question of Mr English in other words: unless these businesses are radically changed in strategic direction, this company looks as much like a portfolio conglomerate as ever its now deceased parent did. Will this management make those changes? Or will they sell the most marginal assets next year and use the cash to buy back more shares? And is this portfolio nature a real poison pill against a purchase by another mega corp? So eventual break-up is eventually inevitable?

More questions than answers, but as we all search for value on the ocean bed of this recession, there can be no doubt that this will become a common path for beleaguered corporates in years to come. Until, in fact markets recover and growth seriously returns.

About ten years ago I first saw prototypes of automated essay marking systems, then produced as research projects by that wonderful combination of research and assessment development, the Educational Testing Service (http://www.ets.org). This research has now blossomed into written assignment marking tools which are as widespread in the US examination system as they are rare in Europe and the rest of the world. But, and perhaps more importantly, they are starting to go mainstream in learning processes themselves, and this was clearly signified this week by the announcement of Write Experience by Cengage (http://www.cengagesites.com/academic/?site=4994&secid=3882). In a world where teachers cannot set written assignments in the quantities that they would like because they do not have sufficient time to mark them, this seems to plug into needs in the system at several different levels.

So what is Write Experience and what does it do? Using technologies rather broadly described as “artificial intelligence” (in fact eWrite IntelimetricWithin) it gives a real time guidance system to the essay writing process. The system makes suggestions (if it works like autotext then it could be seriously trying as well) and provides pointers and support. So far it is available in the US in Basic Writing, whatever that may be, and in a range of higher education business education contexts -accountancy, organizational behaviour, small business studies, strategic business management etc. Cengage promise a widening range of coverage: if they get the next elements right then a significant part of the future is here.

The next elements are the next three tools out of the box. Students who are hooked into MyTutor then move on through MyEditor, which explains mistakes, suggests other strategies and helps develop strategies for learning from them. Then comes the Performance Report element, which will be the piece which gives constant feedback and helps the student to appreciate where she is in the learning process, and then the Revision Plan, which re-integrates the learning activity for the user. Bear in mind that this is a first commercial launch, and clearly there is a great deal of progress to be made. The partnership of Cengage with McCann Associates is an interesting one, since the latter’s long association with GMAT testing has included the development of automated writing assignment marking systems and it is clearly their technology which is doing the heavy lifting here.

Elsewhere in the world we are still desperately convinced that it is content which does the trick and works the magic in terms of what we still, for want of a better expression, call “educational publishing”. But Pearson, and, here, Cengage, are clearly concerned to take bigger strides into unknown territory which concerns strategies for the future of learning and not for the maintenance of publishing formats. And, no, I am not saying that eBooks, resources, reference etc have no future here. Plugged into these learning systems they become mighty again, but unless you are a systems/platform developer then you simply license content for use in the context of workflow. That is a different business from the business publishers have now, with different quality of returns and earnings. Cengage seem to be clearly concerned to hold onto their centrality in the learning process and this must be right. Whether you take the view that the future of education belongs in the infrastructure layer (in which case Pearson and Cengage will be bought by Oracle, or IBM, or new-look HP) or not, some of the current crop of former publishing players must move strategically into the learning systems developer layer. Cengage, with Write Experience, seem to have the right strategy in mind.

When the activists arrive, they always show an immediate profit: this announcement triggered a sharp rise in McGraw’s share price (http://dealbook.nytimes.com/2011/08/02/mcgraw-hill-shares-rise-after-activist-stake/), and a great deal more interest in what many media market investors have long regarded as an unspectacular mid-market performer. Disincentives in large media players have always included unified Chairman/CEO roles, and divided equity classes with limitations on voting shares. Incentives have always included the thought of break-up in conditions where the sum of the parts may be found to be greater than the value of the whole. McGraw now faces this scenario, and has known for at least a year that it was likely. Hence the strategic portfolio review launched last Fall, and the creation of a McGraw-Hill Financial Services division. But now that the real question has been asked by Teachers and Jana, how can management react without appearing to be running the company on the agenda of a powerful but still small shareholder?

Over the last decade the great principle in developing B2B assets has always been Portfolio. Sir Crispin Davies practised this at Reed, building a four legged table in the sure and certain knowledge that not all markets would go bad at once. Problems only arose when the education leg fell off, and the last recession provided his successors with the assurance that all markets can go wrong at once. Thomson Reuters’ reaction was different; move away from Portfolio into Wide Vertical – a huge construction from law and regulation to financial services and transactions where a broad base of clients can be inter-related and cross sold, and where service and content assets can be optimized. Will it work? Well, its work in progress and good progress is being made. And the not wanted on board assets like Healthcare are on the block.

These are options. But what about the McGraw-Hill asset base? What are its strengths and where does it dominate? The first thing to say is that, in comparative terms, great changes have taken place in the past few years which have surprised observers of this often fiercely conservative company. The sale of BusinessWeek and the acquisition of J D Power are cases in point. But in terms of the wholesale creation of the group asset base in digital first terms? Progress is there, but is seen by outsiders as slow and patchy, part of niche and product strategies rather than the platform and standards driven thinking of some of the market leaders. There is no doubting the pre-eminence of Standard and Poor’s, however, and the activists, by attacking at this point, may be more likely to set up a bidding war for this (Hearst are already in Fitch, Bloomberg and Thomson Reuters lead these markets) than create a successful IPO.

What about the other assets? B2B has huge positions of strength, but they are all under pressure. McGraw have long dominated construction, but now finds that while it did all the right things to get Sweets and FW Dodds into workflow networks, recession (and an ill-judged law suit with Reed Construction) has lost it concentration and time to market. Alongside it, Platts rested on its laurels for too long as the leader in oil price indexation (losing market position with Aramco to the tiny British player Argus Media) and is now rushing to catch up in other asset classes (its latest buy was the Steel Index) and broadening a portfolio which should be doing very well at this time. One hopes that Platts is seen as much as anything as a part of financial services (who bought New Energy Finance and Point Carbon? Bloomberg and Reuters), but probably it is seen as the counterbalance to construction and the aerospace/aviation holdings (who lost out to Reed in bidding for Ascend Worldwide), both of whom continue to require careful nursing to bring their brand strengths into full recognition in the digitally networked marketplaces in which they exist.

But you cannot invest in everything at once. McGraw-Hill Education is a case in point. This side of the company created digital firsts 15 years ago (think of Primis) but then was allowed to graze as a cash cow when other priorities in the portfolio became more important. With Pearson now emerging as the unassailably dominant player in North American education, but the whole market suffering a hangover now that school spending cuts from 2009 are hitting spending with full force, McGraw-Hill has nowhere to go. Its overseas holdings are tiny, and mostly in Higher Education: Pearson is now getting considerable and sustaining returns from non-US markets which have taken a decade to create. Meanwhile McGraw seem at last, after constant strategic re-appraisal and constant changes of CEO (to the point where they are now run by the former veteran group CFO) to be heading in a digital first direction, launching really interesting environments like Campus and ensuring that all of their content is digital and licenced from the very beginning. Is this too late? We can only tell when markets recover, but outsiders might well think that US education was over-published. How things will consolidate (the assets are Harcourt Houghton Mifflin, McGraw and Kaplan) may be one of the outcomes of the Jana move.
McGraw’s latest announcements indicate 11% growth in income in the second quarter but a 5% drop in education revenues. Neither of these is in the least surprising, and may indicate some signs of recovery. But now the question has been asked, every piece of emerging evidence will be used to support a break-up theory. And now two points of caution for those prone to jump to conclusions: Teachers is not the same as the Ontario Municipal workers pension fund which co-owns Cengage with Apax, and the David McGraw who is CFO of Teachers is …no relation. Now that the News of the World is closed and hacking has ceased you will just have to take my word for it!

Chris Anderson led off the first waltz, but he was not there to tell us that the web is dead. In some ways I would have preferred him to be in that mode, since I think some challenging arguments about how we use the internet, and may in the future use mobile networks, arise from this. Instead, he wanted to review his own experiences with Wired and its recent device developments. And there is no doubt that Wired has done beautiful things, or that it has a future in the iPad world. Yet I always pause when I hear anyone (even Chris) re-assuring me that the whole design, as it was in paper, goes into the digital world as one. I think that the day is not far hence when Wired will publish by the article, leaving subscribers to pick the articles they want on publication, and allowing each subscription to download a certain number per annum. Build your own Wired around a custom view and then let some advertizers sponsor a free download may yet be the way forward. But you can do nothing without the metadata to allow you to automatically associate content with interests, and the theme of the day was already emerging here: value in terms of content is not now only (or at all) about proprietory content, but it is all about metadata and mark-up, and the ability to make content face many directions at once on the networks.

From a waltz to a crazy polka: Dave Kellogg’s annual storming of the walls of industry ignorance and isolationism is a pure delight. He is as persuasive on a platform as in his blog, but here he was preaching to the converted. There is now a genuine sense of having moved the media industry dial along a notch. Even if the newspaper and magazine businesses still face real problems, and some book publishers don’t get it, a huge proportion of industry revenues now lie in the services and solutions area, and entertainment itself can increasingly be seen in that light. But Dave’s strength as philosopher – in – ordinary to the data using classes were at their best when he emphasized the issues surrounding ambiguity (all Twain lovers rejoice at the quote which rectifies Rumsfeld and points out that the most dangerous knowledge is “what you know that ain’t so”. And above all, Dave takes us back to the central importance of getting our data right – the revenge of the nerds – before we move to higher levels of re-invention. Starting again in a fresh attempt to understand the different needs of a network customer, it seemed to me as I listened to him, is the real therapy media needs.

This session and the others can be accesses on the MarkLogic website. In the afternoon I had the pleasure of speaking to this audience, and then moderating a panel of such quality that moderation was reduced to trying to get a word in edgewise from time to time to ask a slanted question of my own. Maureen McMahon of Kaplan, Ken Brooks of Cengage, Steve Kotrch of Simon and Schuster and David Aldea of McGraw Hill quite splendidly represented progressive publishing in all its many forms, but these were not starry-eyed idealists, but real publishing operators chasing margin improvement and better customer satisfaction.

At one point I found myself re-emphasizing my conviction that learning processes are all about workflow, and moving content from the static and passive usage to active engagement in the networked life of users became somwhat a theme of the session. Since every conference has a “learning moment” too, then I will share one of mine around the theme of education as workflow. I learnt that there are 5 million students using online courses in the US , and that 25% of all US students take a course online at some point. Then connect that with another stated assertion: US students send 6 texts per hour and average 3339 texts per month. By the time drinks arrived in the Plaza’s wonderful Oak Room (no, 4.30 pm is not too early after a day like this!), I was convinced of one more thing: even if students and parents and educators say they want it they are fibbing: the Humpty Dumpty of the educational textbook cannot be put back together again.

If you set up a conference about re-invention in digital marketplces then it never fades – it just re-iterates through processes of transformation! (http://kellblog.com/).

A copy of David’s slides are available on the download page – http://www.davidworlock.com/downloads/