"We don't do ebooks," asserts Sam Loose, just in case anyone out there thinks the company he founded a little over a year ago with Paulo Castro is a simple software play offering nothing more than a digitisation service for publishers.

No, something that straightforward would barely register in a massive global publishing industry with large numbers of players looking to help move print to digital and wouldn't win a three year contract with Harper Collins producing educational apps.

This is the story of Knowledge Transmission, a company that's dragging the educational publishing industry into the mobile age by not only providing great online and mobile content that can engage and teach a young audience, but delivering the clients that want to buy it.

THE PROBLEM

"Publishers are content specialists, not technology specialists," says Loose, Knowledge Transmission's CEO. At the heart of the issue is publishers knowing they need to be online, but lacking the expertise to do it as well as they can and as efficiently.

Even with the straightforward conversion process, publishers generally perform badly. "Currently, most content conversion to digital products (mobile apps in particular) happens through per-product contracts for specific target platforms (Apple iPhone, Google Android, web), with little systematisation.

"This results in limited 'code reuse' across platforms and across ranges of apps or content, which in turn results in higher costs – longer development time and duplicated efforts on specifications, testing and team management.

"Further, software suppliers are given responsibility for content conversion from print, applying costly hourly labour to perform unskilled tasks such as content typing."

THE SOLUTION

Knowledge Transmissions has a proposition that Loose says significantly reduces per-product development time and costs compared to the prevailing status quo. Essentially they provide two products, compelling mobile and web apps and access to a distribution network, both make them revenue increasing partners for the publishers.

Firstly the mechanics: "We provide the expertise to convert content to digital products and sell via B2C Appstores and our own distribution network. Publishers work with suppliers that typically need extensive management, in terms of designing, speccing and managing product development. We remove the need for a large technical team to manage a supplier."

Next the content: "Our innovative app-making platform provides strong separation between content input and software development, allowing different people to simultaneously work on different aspects of the product, and maximises code reuse through web-technology software components embedded into target-specific 'app shells'."

THE INSPIRATION

Sam Loose previously worked for Cambridge University Press where his ideas for Knowledge Transmission began to form. He had begun to grow frustrated at not being able to find the 'ideal' supplier with a knowledge of the publishing business, editorially skilled team members, and product design skills.

But it wasn't obvious to him there was a potential business. Loose knew he wanted to start up on his own and was toying with some import and export ideas while attending events like Enterprise Tuesday at the Judge Business School. Here he spoke with others about his experiences when someone asked, 'why don't you just do what you're doing now?', so he did.

THE BUSINESS MODEL

To say Knowledge Transmission digitises print content on to mobile devices is to woefully underplay the offering, they don't seem themselves as a contractor, but a partner with a distribution network that adds enough value to customers that they operate a revenue share agreement.

This network is built on the back of Loose's years in the publishing industry. He freely admits that other companies could acquire a distribution list, but they lack a further crucial element which they can't buy, his relationship with the distributors.

"Yes we build their apps, but there's more. We can go out and sell them into distribution chains; others just don't have the contacts.

"We work with clients in our distribution chain to source content and deliver to their students as web apps. Our distribution network is made up of global university chains and private language school chains of 50,000 to one million students per client."

With the web apps offering where it sells products to chains on a subscription basis per student, per product, per year, Knowledge Transmission has a $1-8 per student target with the aim of getting five to 10 products per student per client over three years. Taking the middle price and bottom number of products, that would be a $20m opportunity for a larger client over three years.

Here Knowledge Transmission splits revenues with the publishers with the split in its favour as it is selling to its own customers, "a channels business," says Loose. This also allows publishers to get access to customers and markets they have not previously been able to and often in countries they may not even have a sales teams.

For the mobile apps, Knowledge Transmission again shares revenues with publishers, but this time it's the publishers receive a slightly larger cut, which means they get new revenue streams without capital expenditure.

THE OPPORTUNITY

Figures collated by Loose over time show the global education and training market is estimated at $2 trillion. Knowledge Transmission is focusing on the ELT (English Language Teaching) market, which is estimated at £3.8bn. The value of a typical institutional adoption (contract) can be anything from $250,000 to $1m a year, with a lead time of 12 months to reach these levels.

The focus is on ELT because it is the biggest market: "We target ELT because the margins are the best and the chains are the biggest, but there are other opportunities which are profitable that we are working on", says Loose.

For instance Knowledge Transmission has a contract with a publisher to do apps for libraries and chains in the English speaking world. It is also doing GCSE IGCSE (I for International) and International Baccalaureate content for another publisher, the sort of content that is sold both in the English speaking world and in top schools that provide English medium education.

THE COMPETITION

There's three main lines of competition according to Loose: Software houses, mobile app developers and other education platforms that licence content and sell on a B2C model on the open market.

The latter include early stage companies LiveMocha and Busuu as well as Rosetta Stone, which sells B2C CD-Rom and online courses and has a market cap of over $210 million. Loose says they lack a distribution network however, their consumers are all direct consumers, buying directly on the B2C marketplace.

Other software companies who build products for publishers who then sell to their distribution chain are not direct competition according to Loose, as they have no route to market and are a cost for publishing companies. Good job as these (Softwire, Infopro, Integra, Hurix and Techastra to name a few) range in size from around 200 staff to several thousand.

Regarding the app companies, Loose is fairly dismissive: "There are plenty of companies that will build apps for a share of revenue or fixed fee, but they add no value to the publishers offering."

THE TEAM

"He builds, I sell," says Loose of the basic setup, though the company is now hiring to keep pace with rapidly increasing workload and business leads.

Again Enterprise Tuesday was significant here, it was where he met CTO, Paulo Castro. "The speaker told us to to turn the person sat next to us and introduce ourselves. We ended up speaking for hours."

A self-starter in many respects, Loose studied at the Open University before becoming an educational technology specialist, now with 12 years in ELT, e-Learning and the publishing industry in the UK and Latin America. He has previously successfully commercialised digital ELT products.

Castro on the other hand brings on board technology expertise with extensive academic qualifications and "hands-on software development," as the architect of Knowledge Transmission's app-making platform.

His background includes the (inevitable) Cambridge University link, having spent time as a research assistant at the Computer Lab. It adds to internet infrastructure research in Princeton-USA and years of software development and project management in the consumer electronics industry in the UK and Brazil, with projects ranging from portable media players to internet protocol set-top boxes.

THE FUNDING

Following early founder investment, the company is closing an angel investment round from Cambridge Capital Group and private investors. It will then seek to close a second round of between £250k and £500k later this year. With customers already on board, Loose does not envisage the company needing to raise any subsequent venture money.

THE EXIT STRATEGY

Offering top quality content and the ability to sell it through the distribution chain makes Knowledge Transmission a very acquisitive proposition according to Looses who envisages an exit in three to five years in the form of either a trade sale to one of its clients or a public listing.

Posted by cbm_startup on Sat 14/01/12 @ 16:26