There’s no way around it; education is expensive. As many as 50% of college students don’t finish their degrees due to the high cost of college. But we’re on the cusp of an academic revolution, and schools need to find new ways to streamline their processes and save money. Rafter offers just that with an education content management platform designed to help students and schools alike save millions. During our Q&A with Rafter, we spoke to CEO Mehdi Maghosoodnia about the benefits that Rafter is bringing to universities across the country, and where the education industry is headed in the future.
LOCATION: San Mateo, CA
Education is obviously a very hot segment in the U.S. economy. It is one of the largest, probably the third largest, in terms of spending, after energy and health care. About three and a half years ago we identified an interesting trend, in terms of content spending in higher education. Universities charge for two things, tuition and content. Both are expensive, and students are having a hard time paying for them. We decided to address the second problem, course material spending, and started writing a sophisticated software platform that allowed schools to better manage their content needs and how they deliver that content to their students.
The market has grown rapidly, and the demand is there for schools to better manage the cost of content. There’s an increasing demand for our product, which essentially tries to give the institutions what they need to better manage all aspects of course material management, including questions around what they should adopt, how they should adopt that content when the professor decides to teach a class, and requirements on supply purchasing, pricing and commerce.
To make it more tangible, let’s say you’re a very large university with 30,000 students. You start the year and you decide that on average your students will take about ten classes, each one of which has unique requirement in terms of content. You need to manage the process of how your professors decide on what to use. They need to figure out who provides that content, and in what format. It could be physical or digital, new or used. You need to figure out how much you’re paying for it, and then determine the price of that product for your students on multiple channels. You might be buying it on mobile devices, on an ecommerce site. You might come into the store and try to buy it. Schools need sophisticated systems for transaction handling, returns, pricing, reporting and if you decide to do rental, that adds a whole new level of complexity where you have to rent or take it back, check it back in, make sure the students returned it, didn’t damage it. Rafter manages all of those complexities.
Rafter is now being used by over 200 universities in the U.S. and course material management is a rapidly growing category. It speaks to the complexity of content options, supply, distribution, pricing and commerce. That’s the space we play in. And on top of that, there are all of the complexities within the whole conversation around digital rights.
First, our competition in this market is not another software platform, but it’s doing things the way it was done 10, 20, 30 years ago. You ask the professor, “What do you want to teach?” and they write it out on a piece of paper, fax it to the department saying, “Hey, I want to use this book and I’m going to have 30 students in my class.” If you don’t use Rafter, it falls back into a lot of manual processes and it sort of patches together internal conversations. The other alternative would be to completely outsource it to a third party. Two companies in this space do that, Follett and Barnes and Noble. Schools either don’t have a software platform and have to manually handle everything, or they just outsource it to one of those partners who themselves don’t have a lot of sophisticated software, so they just take over the manual process from you. They’re not software companies, they’re really book companies who come in and take over the complexity of the process for you.
We are focused on the biggest segment of the higher education market, which is made up of large two and four year public institutions and community colleges. Our sweet spot is working with schools that have at least 5,000 full time enrollments (FTEs). Additionally, we do not focus on for-profit segments or large, private institutions, like Stanford, Princeton, and Yale.
The segment we are in is by far the largest portion of the market. About 70% of enrollment in the U.S. is in the two-to-four year public and community college segment. That’s a pretty big part of the market. I think for the foreseeable future we have a large market to go after where we already are. That does not exclude us from partnering with others, but we don’t actively go after them today because just servicing our current segment is pretty complex.
Mobile is increasing significantly on our platform, driven by student end-users who want to make transactions and access their information on mobile devices. It is less a factor for the professors. We are very much invested in making sure that the user experience works on mobile devices, as it pertains to discovery, commerce, and access to content. That’s where the mobile demand tends to be today in the market.
The biggest friction to growth for us is just reach — the ability for us to reach more and more schools out there. When we do sign up a school, bringing them onboard is actually a fairly quick process. It doesn’t take more than a couple of weeks for them to get up and active and running. But these are large institutions, so deploying the solution fully, and to the extent that it services everyone, takes certain steps. It’s not easy to deploy a software platform that touches all aspects of this process overnight. Similar to enterprise institutions, you deploy software in pieces and slowly across different departments. So for us, we might enter the institution and help them first with their in-store pricing. We might enter the institution through adoption on the professor’s side. We might enter the institution from an ecommerce standpoint. So the point of entry could be very different, and the propagation of our solution across institutions takes place in many pieces.
Well I think education, as a segment of the economy, is so large that at any given point there are probably a thousand different experiments running. I look at the online open courses as an interesting trend. It is an experiment worth running to see what the impact is, but it is serves such a small of a percentage of the students that it’s not crossing into our space. Online trends have not yet had any sort of impact on the spending side for institutions.
Frankly, they’re not providing the experiences we see on different campuses. Some departments are experimenting with software applications. Some professors are relying on course structure. So there are lots of these experiments going on. But again, as the education market is so massive, the bulk of the market, the pain that they have, is really centered around cost. We already see about 4 million students on an annual basis and service about 1 million of them. We’re trying to have a much larger footprint in this space. And a lot of these experiments reach maybe a couple hundred thousand people, even in the biggest of these experiments. Overall, it’s not having that large of an impact on the market.
The continued exciting part for the team is that we have had a very practical and measurable effect on the cost of content for students. The schools that we have partnered with are saving their students a significant amount of money. I think it’s now over $250 million in total savings. It has a real impact on those students and that’s what really drives and excites the team. The net effect on the students is very measurable and not only are they saving money, they’re happier. The institution is happier. The process works and flows easier. That’s what really drives our excitement. Higher education is a $10 billion market alone, not counting K-12, so if you can shave off a billion dollars of cost out of that market, it’s exciting.
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