( Cover Story )
Mike Lorion, president, LeapFrog SchoolHouse
Boosting Sales Is No Game Behind LeapFrog SchoolHouse’s strategy to revive sales after a two-year slump.
n the first half of this decade, sales were skyrocketing for LeapFrog SchoolHouse—a division of LeapFrog Enterprises Inc. and publisher of interactive, research-based assessment and curriculum content for the PreK-8 education market.The Emeryville, Calif.-based company saw a boom in net sales from $8.8 million in 2001 to $55.2 million in 2004. In 2005, however, the company faced some hard (and controversial) times, and its sales began to drop. Last winter, LeapFrog SchoolHouse made a number of changes to get the company back on a growth track, including restructuring the organi-
By Jim Calder
zation, hiring a new president and focusing on its strongest segment within the division—PreK-5 literacy. While it’s still early in the transition, the company’s plans for 2008, new partnerships and its recent receipt of a major industry award for quality and innovation suggest that it’s headed in the right direction. The Growth Years Mike Wood and Bob Lally founded educational toy company LeapFrog Enterprises Inc. in 1995. Four years later, they launched the LeapFrog SchoolHouse division, after requests from eduBook Business | SEPTEMBER 2007
cators to customize LeapFrog’s award-winning technology and products for the classroom. A new, school-oriented line was developed, called “Leap Into Literacy,” with its core LeapPad platform—a toy that could hold various electronic, interactive books. The device enabled children to use an electronic pen to point at words or letters, and the LeapPad audio system would produce the corresponding sounds. When LeapPad was launched, there were just a few books, but by the turn of the century, there were more than 30 titles in the line. LeapPad made LeapFrog Enterprises a force to be reckoned with, as its sales jumped from $160 million in 2001 to $680 million in 2003. In 2003, the LeapFrog SchoolHouse division experienced an 86-percent net-sales increase compared to the previous year, which helped establish it as the fastest-growing K–12 instructional software publisher, according to Simba Information’s “Electronic Media for the School Market 2003–2004” report. The division’s net sales of $37.4 million that year were a result of the growing success of its core products, including the Ready, Set, Leap! program, the English Language Development program, the LeapTrack Assessment & Instruction System, The Literacy Center and a growing library of LeapPad books. The growth continued in 2004 with $55.2 million in net sales, a 47-percent increase over 2003. The Decline Then, in late 2004, the company’s growth spurt came to a halt. The decline started when, according to The Washington Post, “The president of SchoolHouse, LeapFrog’s education division, [Bob Lally] resigned in December after the California company found that he had broken [undisclosed] ethical rules.” The Post reported that Lally’s resignation was related to a company investigation that was launched into the sale of nearly $1 million in educational software to a Prince George’s County (Maryland) school official, whom another LeapFrog employee (who also resigned) was living with at the time. In early 2005, news of the COO’s resignation, a “string of high-level management changes at the firm” (SFGate.com, Feb. 15, 2005), and what some considered an abrupt resignation by a board member added to the company’s woes. That year, net sales for LeapFrog SchoolHouse fell to $40.3 million, down 27 percent from 2004. In 2006, net sales dropped another 8.4 percent to $36.9 million. Marketing guru and best-selling author Seth Godin believes that LeapFrog SchoolHouse hit what he calls “ ‘a dip’—a temporary setback that will get better if you keep pushing.” “Breaking through that difficult spot isn’t easy, and the only way to do it is to stop most of what you’re working on and focus obsessively on being the best in the world at one thing,” Godin says. “They have to dominate a niche, not be mediocre at many things.” In late 2006, LeapFrog Enterprises President and CEO Jeffrey G. Katz announced major changes to the LeapFrog SchoolHouse division, with a plan to focus on its strengths. “Going forward, SEPTEMBER 2007 | BookBusinessMag.com
The LeapPad is the original interactive platform at the core of LeapFrog SchoolHouse’s success.
the SchoolHouse division will focus on what we do well and what we are known for—innovative, technology-based approaches to early literacy and reading,” said Katz. “As a result, we are reducing the size of our SchoolHouse organization, and focusing our sales and product-development resources on reading curriculum for core grade levels.” The Turnaround To lead the LeapFrog SchoolHouse division’s transition, the company brought on Mike Lorion as president. In the weeks and months that followed, the division cut its operating expenses in half, primarily through a head-count reduction of approximately 60 people. “Our strategy to ‘right size’ our expense relative to our business was key for LeapFrog SchoolHouse,” says Lorion. “The result to date has been better-served customers by having a clear focus on our strength, PreK-5 literacy solutions, which serve not only schools who have students in need (to improve their basic reading skills), but have also served the needs of English language learners and special education students.” Lorion has a strong digital and educational background, including a former position as vice president of the education division at Apple Computer Inc., which LeapFrog found particularly relevant to the position. “LeapFrog SchoolHouse, along with traditional publishers, is committed to creating lifelong readers; but to reach them in today’s digital age, you have to add technology to the curriculum to provide an engaging learning experience, while providing the teacher with methodologies to better understand their students’ learning needs and provide them with the individualized instruction so all students can unlock their learning potential,” Lorion says. One of the major changes under SchoolHouse’s restructuring plan is the development of successor products to the LeapPad Learning System, which will be introduced in 2008 and sold in the school market. According to Lorion, connectivity and mobility are critical to being able to deliver and individualize an instructional experience that can be used in both the classroom and the home. “The LeapPad continues to be the best mobile ‘personal learning tool’ that delivers a multisensory learning experience,” he says. “So, as we evolve our ‘Touch and Talk’ technology > 17
( Cover Story ) beyond the LeapPad, connectivity to the Internet is a key to move our solutions from a contained classroom situation to a connected classroom solution.” The division will continue to market and support its core products, such as: the LeapTrack system, The Literacy Center, Language First!, the Interactive Library and key pre-kindergarten programs, as well as other new product lines. The LeapTrack system, a tool for standards-based assessment and instruction, will be converted to an online tool and will also be launched in 2008. In addition, the division will strengthen its catalog and Web sales efforts under the new plan. Back on Course Despite LeapFrog SchoolHouse’s dip in sales, the division has remained an innovator in educational publishing. Today, the company’s multisensory products reach students in more than 100,000 classrooms across the country, with more than 200 interactive-book products and 500 skill cards representing more than 6,500 pages of educational content. LeapFrog’s proprietary Learning Tools are designed to enable teachers to personalize student instruction, assess and monitor student progress relative to state and national standards, and integrate technology into classroom learning. This summer, LeapFrog SchoolHouse won the Association of Educational Publishers’ (AEP) 2007 Golden Lamp Award for Books for its “English Picture Dictionary for Spanish Speakers.” According to Charlene Gaynor, executive director of the AEP, the Golden Lamp Awards are judged by highly experienced publishing and educational professionals. “It is a rigorous process that requires their unanimous consensus,” she says. “We think of the Golden Lamp as the industry equivalent of the ‘Best Picture’ Oscar.Winning it means the product has set the industry bar for quality and innovation.” Gaynor says that the “English Picture Dictionary for Spanish Speakers” spurred a bit of discussion among the judges about just what constitutes a book these days. 18
“Their consensus was that the winner really redefined the traditional meaning of a reference book by marrying the intrinsic value of print with the interactivity of digital media,” she says. “LeapFrog SchoolHouse has produced successful products for the school market because they’ve focused on solid instructional and learning methods first, and cool technology second. There is a lesson in that for publishers of other consumer products and publications with ‘cross-over’ potential.” This is actually the second time LeapFrog SchoolHouse has won the Golden Lamp award. “Winning our second Golden Lamp award gives our team a huge motivational lift, considering that only around 80 products have earned this award in the last 40 years, and LeapFrog SchoolHouse has won it twice,” Lorion says. Lorion and other executives, such as Jim Mills, senior director of marketing, believe the division is back on course for success. “The [SchoolHouse] division’s earnings contribution for fullyear 2006 was a loss of $5 million, compared to income of $9 million in 2005. With the restructuring late in 2006, we expect to be profitable in 2007,” Mills says. Net sales from the SchoolHouse division totaled $5 million for the first quarter of 2007. While these numbers are down compared to the first quarter of 2006 ($7.7 million), Bill Chiasson, LeapFrog Enterprises CFO, says it’s all part of the rebuilding process. “Our first-quarter-sales decrease primarily reflects continued declines in LeapPad product sales as a part of our planned transition to a new reading platform in 2008 as well as the impact of our SchoolHouse restructuring strategy,” he says. It is still too early to tell whether LeapFrog SchoolHouse’s transition will be a success in terms of boosting sales. However, the company, with its history of interactive products, seems to have a leg up in the increasingly multimedia world of publishing. In fact, it has started working with several print-based publishers to help them evolve in the digital world. “We’ve worked with several traditional publishers, and together have produced interactive, multisensory books that are designed to help teach children and adults to read,” Lorion says. “We intend to expand our ability to provide platforms that will allow content publishers to move their content to the digital world in an easy-to-use, easy-to-develop and easy-to-support manner.” BB Book Business | SEPTEMBER 2007