Class Clowns: How The Smartest Investors Lost Billions in Education

THE ALLURE OF the digital dream in education has been persistent and pervasive in the face of serial disappointment. For frustrated politicians and administrators, the absence of actual evidence of effectiveness has proven no match for the burning desire to deliver a dramatic new solution to the seemingly intractable problems in education.¹ For managers and shareholders, the bodies of those who came before have not dissuaded them from seeking the next magic elixir offered to cure the sector of its slow growth and propensity for missed earnings.²

In K–12, policy makers who still dare to dream must confront not only the lack of demonstrated results to date but also the substantial opportunity costs of diverting resources to pursue digital solutions. For instance, a recent influential analysis concluded that once the network, content, training, management, and needed devices are accounted for, the cost of using an iPad textbook is more than five times that of using a traditional print textbook.³ The prospect of being able to ultimately deliver a “personalized” electronic solution to every child’s problems is so compelling, however, that few pause to consider fully what this really means or whether it is either practical or desirable.

Investors are also hungry for dramatic change in primary and secondary education and seem all too ready to believe in the latest catalyst for upending the historic financial trajectory of the industry. A long line of small digital businesses—with names like Plato Learning (IPO in 1992), Riverdeep (IPO in 2000), K12 Inc. (IPO in 2007), and Archipelago Learning (IPO in 2009)4—has convinced the public markets that they really represent a very big idea. Some have crashed and burned more spectacularly than others. What they all have in common is the vast gulf between their originally articulated aspirations and their ultimate results.

Even outside of education, the conceptual appeal of the disruptive paradigm has not been matched with results. Historian Jill Lepore has shown that the handpicked examples used in the bible of disruption—that is, Clayton M. Christensen’s The Innovator’s Dilemma⁵—were actually more often than not the result of “incremental improvements” rather than transformative technologies.⁶ The more fundamental problem, from a financial perspective, is that the ability to digitally disrupt an established marketplace is unlikely to lead to a particularly good business. Whatever kink in the armor of the established order that allowed the introduction of a new competitor is very likely to attract many more and make the new order much less profitable than the old one was.

Two leaders who have nonetheless managed to demonstrate an ability to successfully disrupt an entrenched incumbent regime are Rupert Murdoch and Joel Klein. Murdoch has created multiple profitable and resilient franchises in established domains, often by fundamentally changing the rules of the game. Many others had tried and failed to become credible competitors to the BBC, the three U.S. broadcast networks, and CNN, but only Murdoch found ways to do so. In an entirely different realm, Joel Klein used his perch as chancellor of the New York City public schools to discard a wide range of stultifying institutional orthodoxies that previous heads had found immovable. Although controversial, it is hard to argue that Klein did not succeed in changing the landscape of the possible in public education—not just in New York but nationally as well.⁷

These kindred spirits found in each other the perfect partner through which to apply their unique abilities and track records to fundamentally disrupt the K–12 educational marketplace. They did this by simultaneously taking on the global multibillion-dollar leaders in educational hardware, software, and curriculum. But after five years and more than $1 billion spent, with no serious prospect of ever turning a profit, their venture, called Amplify, would be sold for scrap value. In the interim, Amplify played a role in the break-up of Murdoch’s overall media empire. It is worth taking a closer look at how this promising partnership came to be and how it then unraveled, having made no significant ripple in an increasingly crowded field of more focused early-stage educational ventures bent on leading their own education revolution.

The tension between these diametrically opposed perspectives invariably results in lively internal, but decidedly lopsided, negotiations. The ultimate decision makers are almost always the senior management team and board members who will stay behind. As a result, spun-off companies are often larded with debt, other unwanted balance sheet obligations, and various random troubled businesses that don’t fit anywhere. That is not to say there aren’t exceptions to this rule. IAC/InterActiveCorp’s core business model, for instance, is to nurture new digital businesses and “perpetually spin them out to the benefit of shareholders.”8 Yet, the fundamental incentives make these exceedingly rare nonetheless.

The complexities around all the details of a separation frequently require a year or more to execute. Financial, legal, and accounting advisors are hired, corporate project teams established, and code names given for “SpinCo” and “RemainCo.” Given the predictable political dynamics described, however, one informal name for the to-be-spun entity often emerges as an internal company favorite: “ShitCo.”

Viacom’s 2006 spin-off of CBS was typical in this regard. Viacom kept the sexy businesses, like the movie studio, and its faster-growing segments, like the cable channels. CBS, by contrast, got the slow-growth businesses like book publishing; a disproportionate amount of the company’s debt; and, for good measure, legacy liabilities, such as asbestos exposure litigation dating back to predecessor companies. Tensions between the companies from the treatment of CBS as “ShitCo” linger to this day. But CBS had the last laugh by outperforming Viacom in the ensuing decade and recently even executing a spinoff of its own of the company’s billboard assets. More often than not, however, “ShitCo” remains “ShitCo,” floundering as an orphan stock, sold, or broken up.

The decision by Murdoch to split up his media empire into two separate companies had particular resonance with public investors. Historically, Murdoch had made daring unconventional bets that, over the decades, had accrued to the benefit of all shareholders, even as, at times, they risked the company’s very survival: the launch of the Fox Broadcasting Network in 1986, the creation of BSkyB in 1990, and the establishment of the FX Network in 1994 and Fox News in 1996. By most key operating metrics, News Corp. appeared to be the best run major media company through most of this era. The net result was that, with the exception of the first five years of Michael Eisner’s tenure at Disney, News Corp. had consistently been the best performing media conglomerate for decades.

Murdoch had always made his share of mistakes and always pursued personal interests that had questionable strategic and financial benefits to the company. But one of Murdoch’s great strengths as a CEO was his ability to reverse course quickly—some might say ruthlessly—when found to be in error. And his well-documented affinity for the newspaper business seemed harmless enough while newspapers continued to be a relatively profitable enterprise. Even his insistence on retaining a perpetually money-losing property like the New York Post—reported to cost the company upward of $50 million annually to maintain—were on such a relatively modest scale, that it was largely deemed well worth the value of keeping the visionary Murdoch engaged on all fronts.

Over the first years of the new century, however, the mix of visionary and value-destructive decisions shifted sharply to the negative. The speed with which mistakes were corrected slowed. The scale of the seemingly personal pursuits expanded as the results deteriorated. It wasn’t just misguided digital acquisitions and investments anymore, but projects as unlikely as a chicken farm in Australia.9 Many of the most respected senior operating and corporate executives departed, sometimes in direct reaction to the company’s new ethos.

Write-offs had been piling up since 2001, totaling almost $25 billion,¹⁰ and the share price lagged both the market and its peers. Indeed, where once there had been a Murdoch “premium” in the stock, the growing perception of unreliability among investors had created a Murdoch “discount.” So when rumors first surfaced in 2012 that News Corp. would establish a “ShitCo” of its own to house Murdoch’s various “enthusiasms,” it surprised no one that the shares of the company jumped almost 10 percent.¹¹

The devil, as with all such plans, was in the details. As first reported, News Corp.’s “ShitCo” was characterized as encompassing Murdoch’s various publishing interests. These included not just the New York Post and a coupon-distribution business in the United States, newspapers in the UK and Australia, and HarperCollins, the global English-language book publisher, but also the entirety of Dow Jones (owner of the Wall Street Journal), which Murdoch had purchased for $5.6 billion in 2007. The fact that the company had been forced to write down fully half the value of the Dow Jones acquisition only a year after closing the transaction may have represented a turning point in investor attitudes toward Murdoch.¹²

Together, this pure publishing company would generate around $1 billion in profit in 2012 on more than $8 billion in revenues.13 Surely that would represent adequate scale to establish a credible independent company and even provide room to put billions of debt on the business. But several significant countervailing factors made this an unlikely scenario.

First, unlike most spinoffs, Murdoch would remain executive chair of both companies. This was also true of Sumner Redstone’s relationship to Viacom and CBS, though at the time, he had been clearly more focused on the long-term value creation from a high-growth Viacom. By contrast, Murdoch actually had a stronger personal emotional attachment to “ShitCo” than to “RemainCo.” Although he was nominally CEO only of “RemainCo,” the day-to-day management reality reflected his primary preoccupation with “ShitCo.” Executives back at what would soon be called 21st Century Fox had never had any interest in the publishing assets and viewed the Dow Jones acquisition as a costly distraction. That said, they knew that any attempt to pull cash out before the spin and encumber “ShitCo” (which would retain the News Corp. name) with debt would be angrily dismissed by Murdoch. So rather than the typical situation, there was a genuine commitment to ensuring that the company had all the resources it needed to survive independently, indefinitely. Given Murdoch’s perspective, management at Fox was thrilled to see these businesses jettisoned at all.

Second, absolute size notwithstanding, the operating trajectory of the publishing assets was troubling. In 2012, the profit of the news and information business fell almost 20 percent and was anticipated to continue to experience double-digit percentage declines for years to come. Although the low-margin Harper Collins book business had managed to keep profits relatively stable, in 2012 it represented less than 10 percent of the profits of the other publishing businesses.

Third, and maybe most important, in 2010 Murdoch had decided to go into the education sector through the acquisition of a small business called Wireless Generation. Since then, the company had broadened its educational sector ambitions into areas far beyond those in which Wireless had originally operated. By 2012, Murdoch’s collective educational endeavors were losing close to $200 million annually, with no near-term prospect of profitability. In the context of a company the size of the combined News Corp., losses like this or that of the New York Post could be managed without bringing undue attention to them. In the context of a far smaller News Corp., however, with fast-shrinking profits in its core businesses, these numbers mattered.

The net result was that to be rid of these publishing assets and cash-devouring educational ventures, 21st Century Fox would need to do more than simply forgo the cash dividend that “RemainCos” traditionally exact from their departing siblings on the way out the door. In this case, just to ensure that there would be no risk to the long-term solvency of News Corp., Fox would need to actually contribute more than $2.5 billion in cash, along with valuable Australian cable and digital assets worth maybe even more.

Newspapers had always been Murdoch’s acknowledged first love—his long-time desire for ownership of the Wall Street Journal was well known. The price and the value destruction of the Dow Jones deal were infuriating but not ultimately surprising. The good news was that there really wasn’t much else he could buy in this vein, as the other national papers were unavailable and likely to spark regulatory review. Most local papers would have triggered cross-ownership restrictions that applied to the Fox TV stations in those markets. In addition, although Murdoch could be criticized on any number of grounds, no one knew the newspaper business better than he. Finally, given the huge success of Fox News—and affiliated news organizations such as Sky in the United Kingdom and local U.S. station news operations—an argument could be made that there were some positive spillover effects from owning the Wall Street Journal brand.

That had been almost twenty years earlier.14 Since then, Murdoch had gotten a taste of just how much money could be quickly lost trying to “transform” education when his friend Michael Milken asked him to invest in his Knowledge Universe venture. It was never completely clear to Murdoch precisely how the money had disappeared so fast, but he certainly knew that education had not been transformed and that he had gotten a small fraction of his investment back. Although buried in the footnotes, Murdoch wrote off $92 million of his $100 million investment in a subsidiary of Milken’s Knowledge Universe.¹⁵ The losses envisioned for this new educational initiative dwarfed anything he had given Milken and even a decade of losses at the New York Post. Education, it could be said, is what gave “ShitCo” its stink.

Murdoch’s announcement at the time of the Wireless Generation acquisition did nothing to temper concerns about the scale of future investment being contemplated. “We see a $500 billion sector in the U.S. alone that is waiting desperately to be transformed,” Murdoch gushed. In his view, the business he was buying was “at the forefront” of technology that was “poised to revolutionize public education.”¹⁶

The announcement of the acquisition of Wireless Generation came only weeks after the announcement that Joel Klein would be joining News Corp. in the ambiguous role of “executive vice president, office of the chairman.” At the time that News Corp. bought the company at a $400 million valuation, Wireless Generation had around $60 million of revenues and was cash flow negative. It is true that many digital or software companies that lost money as they invested to achieve high growth had sold at multiples of revenue as high as or higher than this transaction. But Wireless Generation revenues had actually declined in the most recent year, making the price completely irrational from an economic perspective.

News Corp. went to great pains to provide public assurances that Klein, who would remain at the Department of Education through year-end, had no involvement in the purchase.17 What was clear, nonetheless, was the extent to which Klein had influenced Murdoch’s thinking on the subject of education in the months leading up to the transaction and his hiring. Although a long-time charter school advocate and supporter of Teach for America, Murdoch had begun speaking out on education reform and making high-profile donations.¹⁸ Also evident was the regard with which Murdoch now held Klein. In response to a New York Magazine survey, Murdoch identified Klein as “the most important living New Yorker.”¹⁹

Regardless of whether Klein played a direct role in Murdoch’s acquisition of Wireless Generation, it is incontrovertible that Klein’s tenure as chancellor fundamentally shaped that company’s development. That history is central to understanding both the otherwise inexplicable acquisition and the apparent belief that this modest educational business could serve as a platform from which to fundamentally transform K–12 education as we know it.

The large educational publishers he approached, however, expressed little interest in partnering with him to help achieve this vision. As it turned out, the main practical application of the wireless technology was for DIBELS (Dynamic Indicators of Basic Early Literacy Skills), a formative reading assessment product serving the K–3 market. Particularly in the early grades, allowing a teacher to observe individual student performance and enter it into a handheld device was an extremely efficient way to administer assessments and collect data. The DIBELS assessment was owned by the original developers, not Wireless, and its validity was a subject of heated controversy among academics and school administrators.²¹ But, wisely or not, it had been adopted broadly, and Wireless Generation’s application—called mCLASS—became very popular, driving the company’s growth.

The entire K–3 formative assessment market, however, was not very large. Although DIBELS-related activities still represented a majority of Wireless Generation’s revenue, by the time of the Murdoch acquisition, that market had already been saturated, and overall revenue in 2010 was actually down from the prior year.

An opportunity for Wireless to expand beyond its niche came in the form of Chancellor Klein’s belief in the potential for technology to accelerate his efforts to transform New York City’s public schools. Although much of the focus of his tenure after being appointed in 2002 had been on organizational and school design issues, Klein had early on signaled that technology would play a central role in his overall Children First reform strategies.²² Technology, Klein asserted, “is one of the most underused assets in terms of the future of educating our children.”²³

By 2006, Klein was ready to put his money where his mouth was. The first order of business was to develop a request for proposal (RFP), typically used in major government procurement decisions, with specifications for the largest outside contract of any kind the department had ever undertaken. Klein had in mind building an $80 million instructional improvement system (IIS) that would not only track student performance in real time online but also perform certain administrative and reporting functions associated with what are known as student information systems (SIS). As conceived, the product would facilitate both the design of individualized instructional plans for students and the management of resources and personnel systemwide.

Although the initiative reflected laudable aspirations, there were no successful systems currently in place that did everything sought by New York. In addition, a number of similar but less ambitious efforts had ended badly—and expensively—with angry recriminations all around.24 In North Carolina, the first year rollout of an accountability system had taken ten years. Chicago had fired its first vendor, only to have to shut down the system installed by a second vendor due to massive data errors and lost student information. Large districts in Florida and Texas both faced system meltdowns, resulting in lost data, millions in cost overruns, ad ultimately more rather than less work for existing staff. Thus, any procurement process of this magnitude would need to be carefully managed. In this case, given the lack of favorable precedents, additional care would be required to establish sensible and achievable technological and operational requirements.

Klein hired a chief accountability officer to spearhead technology initiatives. This new chief accountability officer would report directly to the chancellor and be responsible for developing standards, selecting contractors, and managing implementation. Selected for this role, however, was not an expert in technology, education, or procurement, but James Liebman, a professor at Columbia Law School with an impressive record as a public interest lawyer and a leading expert on the death penalty.²⁵ The incumbent chief information officer (CIO) of the department, Irwin Kroot, who had been a senior consultant at IBM and Price Waterhouse Coopers, would quickly depart within months. The next CIO, Ted Brodheim, would not be appointed until the following year, after the contract had already been awarded.²⁶

Not very much was publicly disclosed about the procurement process Liebman led. And the thirteen-member oversight board that had been put in place when the mayor took control of the public schools did not review the process.²⁷ A number of the nineteen competitors for the massive contract thought its scope was overly broad and that the proposed timelines for project implementation were simply impractical. Some suspected that onerous technical specifications had been included at the behest of IBM, which was ultimately awarded the contract.²⁸

Whatever the truth about the selection process, even IBM ultimately needed to align with a half-dozen subcontractors to credibly claim it could fulfill the contract requirements. Serving as an IBM subcontractor created the opportunity for Wireless Generation to develop revenues and establish credentials beyond early-grade formative assessment work. Although a highly respected company, IBM’s previous large-scale public education projects—notably, in North Carolina and Chicago—were characterized by delays, cost overruns, and, ultimately, termination. Wireless Generation would initially represent a small percentage of the overall contract,29 but it would provide an important platform from which to expand its role when IBM faltered again later.

Another competitor for the New York City Department of Education contract was a consortium that included a business called SchoolNet. Although a relatively small business, SchoolNet had focused exclusively on developing scalable, data-driven IIS since it was founded in 1998. By 2006, it was on the fifth version of its core software. The company was by far the market leader in large school districts and had been operating successfully in neighboring Philadelphia since 2002. Indeed, it had also been operating its IIS successfully in Chicago, even as IBM was in the process of losing its SIS contract there.

SchoolNet did not have the capabilities to perform all the functions required by the RFP and had partnered with Deloitte. Jonathan Harber, the CEO of SchoolNet, had met with Liebman to argue that the proposed timelines—three months to have a pilot up and running and an initial full release four months later—were not achievable. Only SchoolNet, he argued, had an existing IIS product that could be up and running that quickly, allowing the additional functionality to be built on top later. Liebman was not convinced and remained committed to launching a system that would represent the first of its kind.

The IBM system, ARIS, would not be fully implemented for years. By late 2008, after almost $50 million had been spent, principals, teachers, and parents still did not have access to ARIS.30 Liebman would resign in July 2009.³¹Fortunately for Wireless Generation, the company would be given more and more of the contract to execute for IBM as ARIS’s deficiencies became more apparent. Ultimately, Wireless was assigned the entire project (without a new RFP). Liebman still considers ARIS a success and believes that it performed more effectively than any other comparable system even today, almost a decade after IBM’s initial selection. The only aspect of the decision making that Liebman questions in retrospect was their “instinct” that the school system needed to use a “big established and well-known firm” in the first place to minimize the risks associated with taking on a project of such scope and novelty.³²

The other potential piece of good news for Wireless Generation was the establishment in 2009 of the $4.35 billion Race to the Top Fund for which states would compete.³³ Race to the Top (RTT) was a boon to IIS providers because each winner was required to set aside part of the funds for a statewide IIS. Although Wireless Generation’s experience with ARIS could, make it a contender for these funds, the reality was that being asked to “fix” a troubled project that was already “well under way”³⁴ was a far cry from having a commercializable product to market—but it definitely represented a new opportunity.

The other key asset that Wireless Generation had was its CEO, Larry Berger. At a time when education funds were frequently directed or influenced by philanthropies and think tanks, having a leader who played well to that constituency was crucial. Despite the relatively narrow domain in which his company operated, Berger had become a popular evangelist for both the potential of technology to transform education in general and—reflecting his own bitter experience trying to get them to adopt Wireless Generation’s technology—the “challenges to breaking the monopolies held by the educational publishing companies.”³⁵ In fact, it was through a widely delivered PowerPoint presentation on these and other “barriers to innovation in the education sector” that Berger established himself in the community. He served on boards of influential educational philanthropies and thought leaders like the Carnegie Foundation for the Advancement of Teaching, the Annenberg Institute for School Reform at Brown University, and even the nonprofit corporation that owned the leading industry trade publication, Education Week.

This work proved particularly valuable in securing a contract to create the algorithm for something called the School of One. This program was the brainchild of New York City Department of Education employee Joel Rose, who conceived of developing a daily individual learning plan for students based on their specific needs—identified after collecting data and applying predictive algorithms. So compelling was this concept that it ultimately attracted funding from thirty different private entities—notably, the Bill and Melinda Gates Foundation and the Carnegie Corporation, a sister organization to the one on whose board Berger at. Again, there was no RFP for the project.

An initial design charrette was organized in 2009 and a pilot program established in a school in 2010. Wireless Generation secured the contract to develop the software for that program in June 2010. Like the ARIS contract, however, School of One had far broader ambitions. If ARIS provided hopes of Race to the Top largesse, School of One promised even greater riches if its dream of individualizing instruction for every public school kid in America was ultimately achieved. And there was no shortage of believers in the School of One. Philanthropies aside, Time magazine cited the program as one of the “100 Best Innovations of 2009” and the former head of Columbia University’s Teachers College called it the “future of education.”36

So, after a decade of struggle, as Wireless Generation started 2010, it had a great deal to feel good about. Although its core business had slowed, Berger had cultivated a couple of promising new avenues through which to reaccelerate its growth. The company faced one existential problem, however, that it urgently needed to address. It was running out of money.

Wireless Generation had raised just under $20 million over five funding rounds between 2001 and 2005. The last of these, at more than $6 million, had been the largest; it valued the business at $58 million, or just over three times revenues at the time. By the beginning of 2010, the company still had close to $8 million in the bank, but it had eaten through more than $6 million just in the previous year. These amounts understate the peak cash needs of the business. In K–12 education, cash flows fluctuate dramatically over the year. Even the largest and most profitable businesses have quarters—when product is being developed and customers are being solicited in anticipation of the fall enrollment—that are a significant drain on cash.

What’s more, Wireless Generation would need to spend more than $10 million in the coming year on software development and other capital expenses to support its hoped-for growth. This amount would ramp up in future years as the new initiatives developed. To deal with these cash needs, the company arranged to borrow $5 million during the year from the Kellogg Foundation. It was clear, however, that a more permanent liquidity solution needed to be found.

The only practical options were two—find a new, deep-pocketed equity investor or sell the company. Given recent trends, neither was certain, and time was not on their side. Wireless Generation and its investors realized that even if the company were offered the same revenue multiple obtained in 2005, when the company was actually growing, they would barely get $200 million. Although a straight sale would provide immediate cash and more certainty, the only likely buyer that might offer a “strategic” value at or through this level would have been one of the large K–12 publishers. These businesses could reap significant cost and potential revenue benefits from combining operations, but they were precisely the “monopolists” that Berger had railed against in his well-publicized PowerPoint presentation. K–12 publishers not only had national sales forces with relationships with all the key districts, but they also had invested hundreds of millions on their own software development efforts.

In contrast to the questionable appetite of the other two publishers, Doug Kubach, the senior executive who had contacted Berger, emphasized that Pearson would be divesting much of its noneducational portfolio in order to aggressively pursue digital education properties. When Pearson announced the multibillion-dollar sale of its financial information business in May, Kubach’s assertion was confirmed. Rather than return any of the proceeds to shareholders, Pearson stated that it would instead “look for bolt on acquisitions with a particular focus on technology and services.”37

As distasteful as the idea of becoming a division of a publishing “monopolist” may have been to Berger, Pearson expressed a willingness to potentially pay a staggering $300 million for the business. Given the company’s precarious situation, conversations began in earnest. Then, out of the blue, News Corp. reached out to express an interest in buying Wireless Generation.

The call from News Corp. was unexpected and came from an unlikely source. Rupert Murdoch, they learned, had apparently hired Kristen Kane, the former COO of the New York Department of Education under Joel Klein, to “educate” him about the sector. The call was actually about another company—a digital education company called Time To Know, funded entirely by successful Israeli entrepreneur Shmuel Meitar.38 But when Berger told Kane that Wireless was having sale discussions, she immediately expressed interest. Given the obvious lack of strategic fit, Wireless was skeptical about News Corp.’s commitment to transact at a value that would be of interest to them, but Kane assured them that Murdoch’s interest in the sector was genuine. The good news was that this was true. The bad news was that absolutely no one else of importance at News Corp. had any interest in the sector and, indeed, they would all try to kill the deal at every opportunity.

True to her word, Kane called back quickly, and within days Berger found himself in a four-hour meeting with Murdoch himself. Murdoch did not blanch at the valuations that Wireless had been discussing with Pearson. To ensure that it wouldn’t leave any money on the table, Wireless had reached out to investment bankers to manage the process of selling the company or, if that failed, raising a sixth round of funding. Goldman Sachs had been hired in the summer of 2010 and was as surprised as anyone that News Corp. had expressed interest. The bankers were thrilled that they had been handed a horse race that was starting at the incredible price of at least $300 million.

Goldman knew both Pearson and News Corp. as well as anyone. The financial company had just managed the $3.4 billion sale of Pearson’s financial information business, and a former Goldman partner sat on the News Corp. board. Pearson, which owned the Financial Times, and News Corp., had a long history of animosity, arising not only from their competition in the newspaper market and ancient disputes stemming from their once-shared ownership of BSkyB but also from deep cultural differences.

Pearson’s interest in Wireless Generation was completely different from that of News Corp. Murdoch saw ARIS and the School of One as the key to transforming education and had modest interest in the legacy K–3 assessment business. Pearson, by contrast, saw significant cost savings and upside from eliminating duplicative K–3 assessment products and planned to use Wireless Generation development resources to build new products in the later grades. Indeed, the internal pro forma model built by Pearson showed that $300 million was very affordable once the cost and revenue synergies were taken into account. Pearson was highly skeptical of both ARIS, which was not obviously marketable beyond New York City, and School of One, which was a nascent venture. Pearson did, however, see value in Berger’s relationships with the foundation community that had become an increasing source of funding in education and that had been historically as hostile to the publishing “monopolists” as Berger had been.

So to own it, News Corp., which had no synergies, had no choice but to pay more than the price extracted from Pearson reflecting their full synergies. Just as he had done in buying MySpace out from under Viacom, within a matter of days and with very little incremental due diligence, Rupert Murdoch bought Wireless Generation. He paid the same $360 million in cash offered by Pearson, but for only 90 percent of the business. The 10 percent equity “kiss” above the cash paid would be retained by Berger, the COO and chief product officer.

When the least strategic buyer agrees to more than the most strategic buyer, it is a sure sign that the new owner will not make a return on its investment. As another CEO of a venture-backed digital education venture wrote in Fortune at the time, “[The] News Corp. deal for Wireless Generation is great, but it doesn’t make sense.”39

As little sense as the initial acquisition made, it was genius compared to the strategy undertaken once the asset was owned by News Corp. The subsequent losses incurred would dwarf the price paid.

Joel Klein is a very impressive person. After clerking for the Supreme Court and a few years at a well-regarded litigation boutique, he founded a firm with two colleagues that was widely viewed as developing the premier Supreme Court and federal appellate advocacy practice in Washington, D.C.⁴⁰ What followed was a distinguished career in the Clinton White House and Justice Department, culminating in a stint as antitrust chief, where he successfully prosecuted Microsoft.

To appoint Klein as New York City schools chancellor, Mayor Michael Bloomberg was obliged to seek a waiver from the state education commissioner because of Klein’s limited background in the education sector.41 Notwithstanding his lack of experience, even the usually skeptical journalist Steven Brill, while not ignoring his failures, concluded that Klein made substantial progress in that role.⁴² Where Brill did err, however, was in suggesting that Klein had a track record in running any kind of business.

Brill described Klein’s eighteen-month tenure at the German media conglomerate Bertelsmann after leaving the Justice Department as “a daring jump out of law and government” into a corporate operating job.⁴³ According to Brill, Klein “was responsible for business ranging from Random House books to Sony BMG Music to Gruner + Jahr Magazines.” This statement is not accurate. Each of the businesses mentioned by Brill (only one of which was wholly owned by Bertelsmann) had its own management teams, none of whom thought that Klein had much of anything to do with them.

Although Klein had the title of chairman and CEO of Bertelsmann Inc., this was merely a holding company for the U.S. assets of a number of the company’s divisions. Indeed, “Bertelsmann’s most prominent feature is its decentralization,” with generations of leaders leaving all key strategic and operating decisions to the divisions.⁴⁴ Bertelsmann CEO Thomas Middelhoff brought in Klein for a staff role to “advise on legal and strategic governmental issues, working closely with the heads of Bertelsmann’s U.S.-based operations.”⁴⁵ Klein had limited staff of his own and never had any authority over any of the company’s business units. The Wall Street Journal referred to Klein as “a roving executive-without-portfolio.”⁴⁶

Klein’s weakness in operational management was also viewed as an Achilles heel during his eight years at the New York City Department of Education. The New York Times speculated that Klein had been pushed out due, in part, to his resistance to accepting a new chief operating officer imposed by the mayor’s office.⁴⁷ None of this dissuaded Murdoch from agreeing to employ Klein when he called over a weekend to say that his tenure as chancellor would be ending imminently.⁴⁸ The sudden decision to hire Klein was not as surprising to News Corp. executives as was the agreement to put him on the News Corp. board of directors. A hastily arranged board call effectively ratifying this promise could solve the short-term awkwardness caused by Murdoch’s decision. And yet, the longer-term awkwardness created by having the architect of what would become a costly mistake serve as part of the supposed oversight body could not be as easily resolved.

Murdoch had always had a favorable impression of Klein. Their earliest interaction may have been when Klein, as Bill Clinton’s antitrust chief, reversed his staff’s decision to sue to block News America Marketing’s acquisition of ActMedia in 1997.49 As an advocate of charter schools and a detester of unions of all kinds, Murdoch had been a fan of Klein’s chancellorship from early on, and the two had crossed paths on multiple occasions. It was only in the last year of Klein’s tenure as chancellor, as tensions with Mayor Bloomberg grew, that Klein and Murdoch had begun to compare notes more regularly.

To be fair, in addition to being the leading advocate for the school reform initiatives in which Murdoch deeply believed, Klein had other important skills that could prove useful to Murdoch. Klein had not only shown himself to be a singularly effective advocate both in and outside a courtroom, but he was also a highly respected Democrat at a time when Murdoch had recently lost his most important conduits to the other side of the aisle. Both Peter Chernin, the highly respected president and COO of News Corp. for over a dozen years, and Gary Ginsberg, an executive vice president “who often served as a liaison between the conservative Mr. Murdoch and the Democratic Party,” had left the previous year.⁵⁰ More broadly, Klein had a remarkable ability to not just network but also connect individuals of diverse interests and backgrounds with unexpected and sometimes truly spectacular results. For instance, Klein’s introduction of real estate and media mogul Mort Zuckerman to neuroscientist Eric Kandel resulted in the establishment of the $200 million Zuckerman Mind Brain Behavior Institute at Columbia University.

But that still left the question of what precisely Klein would do at News Corp. It was initially suggested that he would “advise…on opportunities to invest in digital initiatives in the educational market.”⁵¹ Although the company said Klein would advise Murdoch on a “wide range of initiatives,” sources emphasized the focus would be specifically on “seed investments” in “entrepreneurial ventures.”⁵² When the Wireless Generation deal was announced soon thereafter, Klein’s role became even more unclear. Wireless Generation was not a seed investment and had a complete management team under Larry Berger, all of whom would be joining News Corp. Indeed, the Wireless senior management had been explicitly assured that they would be operating independently and not reporting to Klein.

As Klein and Wireless Generation joined the News Corp. fold at the beginning of 2011, many questions remained about the assets that had just been purchased and the company’s broader ambitions in education. It would be a few years before the company formally unveiled its vision for the educational division. By that time, it would be clear that Klein was firmly in charge, Wireless Generation was far smaller than anticipated, and the scope of educational activities being undertaken by News Corp. was far more expansive.

The first round winners of the RTT competition among states had been announced in 2010, and late in 2011, statewide IIS contracts were being awarded with those funds. The results were foreshadowed, as some of the states that had been unsuccessful RTT finalists, such as Kentucky, had already begun to contract for these systems with their own money. The winner of the Kentucky contract, and ultimately of a majority of the competitive RTT contracts, was SchoolNet, the company New York City had earlier rejected in favor of IBM and Wireless Generation for the implementation of ARIS. By 2011, SchoolNet’s system had already been adopted by a third of the large urban school districts. Pearson purchased SchoolNet in April 2011 for about half of what News Corp. paid for Wireless Generation.⁵⁴

News Corp. did get good news when New York State, an RTT winner, sought to award Wireless Generation its IIS contract. State education officials sought approval from the state comptroller to grant the $27 million deal on a no-bid basis to News Corp.55 Although the comptroller initially granted this request, it was later rescinded in reaction to the controversy surrounding News Corp.’s phone-hacking scandal involving its UK tabloid newspapers.⁵⁶ The result was that the state would put the contract out for competitive bid, just as all of the other RTT winners that sought an IIS vendor already had done.

Although Wireless Generation did take over the original ARIS contract from IBM in its entirety in 2012, New York City announced soon thereafter that the ARIS system would be phased out entirely. The problem, it seemed, was that very few people—principals, teachers, or parents—actually bothered to use the system, which had been subject to continual complaints once it was finally fully installed.⁵⁷

In the aftermath of the collapse of News Corp.’s educational foray, some would point to the hacking scandal—and the loss of the New York contract, in particular—as an unforeseeable external event that doomed what would have been an otherwise successful venture. But such claims do not hold up to scrutiny. First, New York didn’t bar the company from doing business with the state or city. Indeed, it would continue to work with Wireless Generation as part of a $44 million foundation grant the company had received in 2011 to build the Shared Learning Collaborative, as well as in connection with the city’s School of One contract. Second, Wireless Generation ultimately did not win any of the competitive bids for state IIS contracts, some of which were awarded before the scandal broke. Finally, the legacy Wireless Generation business represented a tiny fraction of the overwhelming losses that would eventually force the termination of the venture.

A related argument is that Murdoch’s decision to tap Klein’s legal and regulatory expertise to help deal with the hacking scandal for the company was what doomed the educational initiative. But the truth is that although he provided Murdoch with counsel on the topic, Klein never had primary responsibility for managing it and always spent the majority of his time on the education division. Furthermore, Klein had never actually run the business on a day-to-day basis. In addition to the operating teams, Klein had filled the corporate staff with senior executives, including Kristen Kane, who joined as COO of the division, along with a raft of “some of the biggest names in education.”⁵⁸ Klein was responsible for the overall strategy, and there is little evidence that his temporary corporate distractions either changed these or slowed their implementation.

The Shared Learning Collaborative mentioned above was initially an unexpected boon to Wireless Generation. The idea was to create a national student data warehouse that would facilitate personalized learning in public schools. The project was primarily funded by the Carnegie Corporation and the Bill and Melinda Gates Foundation, under the direction of former Wireless Generation board member Stacey Childress. Within three years, however, the entire effort—after briefly changing its name to the friendlier-sounding InBloom—would be shut down in the face of student data privacy concerns.59

Wireless Generation’s association with the School of One initiative that some saw as a potentially revolutionary initiative proved similarly disappointing. Although School of One continues, it has failed to gain much traction in the half-dozen years since it launched. In 2011, Joel Rose established a nonprofit called New Classrooms Innovation Partners to further scale his personalized instructional initiative, now branded as Teach to One. By 2015, the model had attracted only fifteen schools in the entire country. Although some studies showed improvements in student performance from the program, others yielded more mixed results. Potentially more troubling was that even those who believed in the positive impact of Teach to One were not convinced it was worth the cost and disruption of implementation.⁶⁰ From a financial perspective, the challenges were heightened by the fact that the program’s biggest customer—New York City public schools, representing six of the fifteen active sites—did not have to pay a license for the software because it had been developed when Rose was an employee of the system.

The net result was that after the first full year of ownership, Wireless Generation was far behind the projections that management had provided during the sale process. In addition, the effective purchase price had risen dramatically. Not included in the original $400 million were a variety of additional payments (on top of the $360 million and the 10 percent retained equity stake) related to certain specific performance targets. With Klein brought in as the leader of the overall effort, he wanted Wireless management focused on his various other new initiatives. Although Berger and the team agreed to redirect their energies, the quid pro quo was for News Corp. to simply pay out these substantial bonuses, regardless of the achievement of the targets. Whereas at the time of the purchase, Wireless Generation looked like it might be on the brink of breaking even, in 2011 the business had hemorrhaged cash. Results for 2012 looked even more dire.

In June 2012, the formal announcement of the spinoff of ClownCo was made. Although News Corp. stock reacted well, little of detail had been shared publicly about how the educational division was doing—and certainly nothing about the magnitude of the losses. Although it would be a full year before the spin was complete, it would be necessary before then to familiarize investors with the collection of assets that would be included—in particular, the education division, about which little had been said.

A month after that announcement came the first hint regarding the extent of the expanding ambitions of the division. The company unveiled a new brand—Amplify—which would be broadly “dedicated to reimagining K–12 [e]ducation.”61 Although the Wireless Generation brand appeared late in the press release, its legacy activities were consigned to one of three divisions—now called Amplify Insight. The two other divisions were Amplify Learning, aiming to “reinvent teaching and learning” through new digital reading, math, and science curricula, and Amplify Access, which promised to introduce a new tablet-based platform with AT&T that bundled content and analytics for schools. No financial details were provided, and it did not appear that the two newer divisions had any sales or even products. It was clear, however, that Amplify had not been idle. Links in the release provided “early glimpses” of the “game-changing” products being developed. Amplify’s “next phase,” according to Klein, would be “ushering in a new age of teaching and learning.”⁶²

Any specifics had to wait until the education division and Klein’s strategic vision had their coming-out party, of sorts, at the UBS Global Media and Communications Conference in December 2012. This long-established annual event attracted investors from around the world and featured presentations from almost 100 companies in the sector.⁶³ There Klein and chief product officer Laurence Holt took the group through almost sixty slides outlining their full ambitions for Amplify. It was only then that investors learned how much money was being lost and where it was going.

In the two substantive slides on the Access division, Klein essentially informed the assembled guests that News Corp. would be taking on Apple and all the other computer hardware manufacturers by introducing a dedicated device for sale to schools. And the Amplify Tablet was entering a segment of the market that had recently become increasingly crowded. The previous year, Samsung and Acer had begun shipping Google Chromebooks. By the time of Klein’s presentation, schools had already become the largest category of customer for such devices. Klein nonetheless argued that existing consumer market devices were not “optimized” as “learning tools.” Product chief Holt provided a “sneak peek” of their “complete reskinning and reworking of an Android tablet…so that it works in K–12 classrooms.”64 Klein characterized the market positioning of their late entrant to the category incongruously as an “affordable, high-end” tablet.

According to Klein and Holt, the Amplify Tablet would be sold as a subscription product bundled with content. Holt demonstrated a variety of uses of the tablet, such as creating lesson plans and taking attendance. However, it remained unclear why these functions required entirely new hardware rather than just software. Of course, if there was compelling proprietary content included with the tablet, schools might be willing to spring for the device. Yet Holt emphasized instead open-source content that Amplify had simply curated. When it came to proprietary content, the offerings were the antithesis of cutting edge—deals with Encyclopædia Britannica and associated News Corp. trade publisher HarperCollins were highlighted. It quickly became obvious that Klein was having no more luck than Berger had had years before in negotiating distribution agreements with the major educational publishers that held long-term curriculum contracts with the major school districts. Undeterred, Klein’s answer for that hole in the bundle lay in what would end up being the biggest loss leader of the group—Amplify Learning.

A former investment banker who had gone to work for Michael Milken’s Knowledge Universe education venture, Ron Packard had founded K12 with Milken’s backing.65 K12 was the first to identify this market, and as such, it grew quickly, executing a successful IPO in 2007. But Packard, along with Milken, wanted to do more than run a profitable business; he wanted to “transform” education. Inspired by the writings of former U.S. Secretary of Education Bill Bennett, part of the core K12 proposition was delivering an entirely new, all-digital curriculum.

The trouble was that the cost of delivering the curriculum was so overwhelming that the business failed to deliver any cash flow. A competing business, Connections Academy, started years later but decided to focus exclusively on perfecting its technology solution and simply adapting the best of existing curricular solutions to its digital environment. Even at a fraction of the size of K12, Connections was far more profitable—which should not have been the case in a scale business. It also attracted fewer operational problems and less regulatory scrutiny.⁶⁶ In addition, there was no evidence that the new digital curriculum performed any better. Pearson ultimately purchased Connections Academy, and almost ten years later, K12 still trades below its original IPO price.

As disturbing as the ballooning of Amplify Insight’s losses were, these were far smaller than those being generated by each of the two newer divisions. Amplify Access was slated to lose more than $61 million in the first year, and Amplify Learning would lose $85 million. The total projected operating losses of $180 million for the year were included on a slide headed “Amplify Disciplined Investment.”

If the general assurance that the investments were to be disciplined was not comforting to investors, the slide dedicated to the overarching investment thesis would provide little additional solace. In addition to not providing much of a thesis, it suggested that whatever software they had developed to improve English-language writing skills still had kinks to work out. “Amplify,” the slide declared in large enough font to fill the page, “is a balanced investment opportunity in the disruptive innovation in education.”

Most of the slides contained only a handful of words, and even the voice-overs contained more hyperbole than detail. The financial section, such as it was, while revealing the scale of the losses for the year, did not provide any specific milestones for when breakeven would be achieved, what rate of return was being targeted, what steady-state profit margin for the businesses investors could eventually expect, or how quickly businesses would grow individually or collectively. Two aspirational targets were provided, though without any time frames. These dealt not with how big the business would become or how profitable it would be. Instead they narrowly discussed the composition of the revenue that would ultimately be generated. Both of these slides were head-scratchers.

That said, some providers of relatively low-cost supplemental educational services have, over time, been able to migrate their businesses to a predominately SaaS subscription model. Renaissance Learning, a formative early-grade-focused assessment business analogous to Amplify’s Insight segment, had succeeded in doing precisely that. The problem for Amplify, however, was that its objective was to move a majority of its business to hardware and core curriculum—areas in which there is little evidence of local willingness to contract on a subscription basis. The largest K–12 basal publishers receive scant revenues as subscriptions. Amplify’s assertion that its business would achieve a 75 percent subscription revenue base suggested a fundamental lack of understanding regarding its core customer base.

As the actual spinoff date approached in the middle of 2013, Klein’s presentation would be refined, and the revenue mix target slides would quietly disappear.67 As more historical financial results were released in advance of the separation, it also became clear that, in addition to the $180 million that Amplify was projected to lose in its current fiscal year ending June 2013, it had previously already lost as much again since News Corp. had purchased the business eighteen months earlier.

Given the magnitude of the cash flow drain, the new News Corp. would do everything it could to direct attention away from Amplify and leave the division’s precise ongoing losses ambiguous. In reporting its financials, News Corp. hoped to emphasize its four other operating segments—News and Information, Cable Network Programming, Digital Real Estate, and Book Publishing—along with its valuable 50 percent stake in the Australian pay-TV company, Foxtel. Amplify would be subsumed under “Other,” which included various general corporate expenses, along with the results of some small, noncore Australian businesses.

The strategy of diverting the focus away from Amplify initially appeared successful. The first Wall Street research reports on the independent company, issued in late 2013, often barely mentioned the educational division. In valuing the business based on the sum of its parts, some analysts gave News Corp. full credit for the $360 million in cash it had paid for Wireless Generation and added this to the values ascribed to the other operating divisions.⁶⁸ Even those who simply valued the education division at zero were implicitly giving the company the benefit of the doubt by making no adjustment for what were anticipated to be hundreds of millions of dollars in losses over an unspecified number of years.⁶⁹

Within a few months, however, some were publicly becoming more skeptical about Amplify. By September, Morgan Stanley had published research under the headline, What if Amplify Was Closed? “Amplify operates in a very competitive industry with entrenched interests on all sides that may be averse to change,” the analyst argued with significant understatement. Faced with the prospect of at least three more years of losses at similar levels, he drew the inescapable conclusion that “[a] path to an attractive return on investment for this business is unclear.”⁷⁰

In fact, for the fiscal year ending June 2014, revenues for Amplify actually declined and losses increased, as did both operating and central sales, general, and administrative (SG&A) expenses. This finding had implications for News Corp.’s regulators and auditors. Regulators wanted to ensure that investors had all they needed to make informed decisions and pushed the company to disclose Amplify’s results separately, rather than subsuming them within the “Other” segment. Auditors would need to be convinced that the value of News Corp.’s Amplify investment did not need to be written down. In the last quarter of the fiscal year, the company agreed to report Amplify as a separate segment. News Corp. somehow succeeded, however, in convincing its accountants, Ernst & Young, that no impairment charge needed to be taken—yet.

By early 2015, it was clear that changes were afoot. During the most recent quarters, Amplify was still not growing, which suggested that any modest incremental sales in the company’s two new divisions receiving the bulk of investment were exactly offset by declines in the Insight business. Although professing a continued commitment to Amplify, in February, News Corp. CEO Robert Thomson ominously noted that he would “review the situation” once the next school selling season was completed.71 Around the same time, Klein issued an internal memo stating that the time had come “to begin the process of fully integrating Amplify” through a major reorganization code named “One Amplify.”⁷²

The potential value of the One Amplify initiative was not just in reducing the duplicative overhead and functions associated with each of the completely independent operations under Amplify—an organization that had ballooned to 1,200 employees. Those separate organizations often used different development tools and project architectures, making collaboration difficult. There were also complaints by former employees that “it was sometimes difficult to know who was in charge.”⁷³ A scathing profile in BloombergBusiness described the uncoordinated sales processes pursued by the various divisions, with one client complaining, “The left hand doesn’t necessarily talk to the right hand.”⁷⁴

In the end, the structural flaw in Amplify was not whether it had an integrated management structure or a decentralized one. It was that the organization was trying to do far too many things at once in the name of transformation. The K–12 educational market is characterized by large integrated players, on the one hand, and focused, product-oriented start-ups, on the other. In between are a variety of established niche players who focus on either a single product or service or a collection of tightly related ones. Amplify sought to be a combination of the two incongruous ends of the spectrum: a large integrated collection of mostly start-up initiatives. Given the inherent difficulty in simultaneously starting up and integrating, Amplify’s ambitions, on their face, presented a highly dubious proposition.

Most large integrated market leaders, whether in education or otherwise, started by dominating a segment and building or buying adjacent businesses along the value chain that leveraged the strength of the core. Amplify started by buying a small business that had a solid but modest position and product in part of what it did (early formative assessment). It followed up by quickly entering many new businesses that were largely unrelated and highly competitive. This approach has the double disadvantage of combining multiple uncertain initiatives with a likely loss of focus on the existing ones.

The decision to enter the hardware business—something even the largest integrated K–12 leaders from both a technology and publishing heritage have absolutely avoided—was only the most extreme manifestation of this inevitably unsatisfying growth strategy. Within the Insight and Learning divisions were multiple independent initiatives, each with its own leadership team tackling areas, such as gaming and professional development, which were themselves the primary focus of numerous early-stage and established companies. These were all significant undertakings—for instance, it was reported that the games team managed contracts with thirteen independent studios and had produced thirty educational games.75

The simplified industry map in Figure 2.1 provides a flavor of the insurmountable fundamental challenges that Klein’s strategy presented. News Corp. would have been far better off if “One Amplify” had signaled a decision to focus on the single business line in which it had gained the most traction rather than a strategy of integrating a series of diverse subscale initiatives.

The great irony is that the only major segment of the K–12 market eschewed by Amplify was the one that was growing the fastest and in which scale seemed to matter the most—that is, learning management systems (LMS). This is not surprising given Klein’s demonstrably false view that “technology in itself has no inherent value in education.”⁷⁶ According to Klein, “a cool tech platform without the content” would be “useless.”

One Amplify felt less like a new organizational strategy than a triage effort to address the building pressure from investors. CEO Thomson publicly promised in June 2015 that investments in the division would be “significantly lower” going forward.⁷⁷ Soon thereafter, the company stopped actively marketing tablets. The CEO of Amplify Access had left the company in February and was not replaced. As the fiscal year came to an end, it was also clear that there would be no way to avoid writing down almost the entire value of the Wireless Generation acquisition. The company hastily began discussions with billionaire Laurene Powell Jobs, the widow of Steve Jobs, who had a long-term interest in the segment and serves as President of Emerson Collective.⁷⁸ News Corp. hoped that when the financial results (and corresponding write-off) were announced in August, a clean exit could be simultaneously announced.

The history of Amplify highlights the huge gulf between admirable aspiration and effective execution in education. This has been replayed over and over again in the sector, with no end in sight. In an internal memo on the decision to sell Amplify, Klein acknowledged the failure of many of the far-flung products to gain market traction. In that memo, Klein diagnosed the problem with respect to all of their businesses, tablets included, was that they were too good: “In my view, Amplify’s work has been so innovative and transformative that we’ve been ahead of the market.”⁷⁹

Klein has since become more forthcoming regarding Amplify’s failures in strategy and execution. For instance, with respect to the Amplify Learning products, he concedes it was a mistake to “serve people a full meal when what they wanted was a few appetizers.” That said, he continues to believe strongly in the product and in the animating proposition that “high quality curriculum coupled with an effective delivery system” is the key to driving improved student outcomes. And while Klein insists he wanted to succeed financially, that was not the primary driving force: “We were trying to change K–12.”⁸⁰

Although initial reports noted that Klein would be an investor in the newly private Amplify, no one was surprised that he departed, once it became clear that its new owners had decided to go in a different, scaled-back, refocused direction. Powell Jobs insisted that News Corp. eliminate 500 jobs before agreeing to take on the business. She also decided to revert to Larry Berger as CEO of the much smaller operation. Berger was not only the original head of Wireless Generation but also a long-time denizen of the education foundation sector in which Powell Jobs had previously been operating.81 Klein remained on the board of the now-private entity, Berger said Klen would continue to provide “critical strategic advice” but have no operational role.⁸²

Jobs and Berger moved quickly after the sale to reorganize and refocus the enterprise. Four business lines, including gaming and professional development, are being spun off. The remaining core activities are now organized in two divisions: the Centre of Early Literacy, which integrates the early English language curriculum with the legacy Amplify insight business, and a significantly narrowed middle-schooled focused version of what was Amplify learning. The business has now around 400 employees. Although the Amplify middle school English curriculum was adopted in California around the time of job purchases, total revenues remain only slightly above what they were when Murdoch bought wireless generation. Losses are expected to continue three more years.

Ironically, it is the effective exit of the two transformational leaders of Amplify—Murdoch and Klein—that creates the opportunity for its future. Well-intentioned revolutionaries can become so singularly focused on where they hope to arrive that they neglect the messy details of how to get there. The inherent complexities and structural aversion to radical change of the educational ecosystem condemn such an approach to certain failure. Jobs’s and Berger’s potential path to success going forward involves a fundamental reorientation of the organization toward the specific incremental needs of the multiple constituencies that drive buying decisions, rather than the general transformational goals of the founders.

The objective of Amplify was to disrupt a wide range of entrenched incumbents operating across the educational value chain. Their failure was a function of a lack of focus and a lack of understanding of the source of the incumbent’s competitive advantage. In the next chapter, a series of investors instead aimed to find hidden value within an entrenched incumbent from a more aggressive operating and acquisitions strategy. The results, unfortunately, were no better.