Corrected: A table in a story that appeared in the Aug. 5 issue of Education Week included the wrong number for the classroom assessment testing in the 2007-08 year. It is $821.9 million.
Many assumed—rightly or wrongly—that the common-core era would bring a windfall for companies in the state testing business. But one of the biggest shifts in the landscape so far has been the decision by a hugely recognizable provider to steer in the opposite direction, abandoning its work in high-stakes assessments entirely.
McGraw-Hill Education/CTB announced this summer that it is selling off its assets in summative testing—tests that typically carry high stakes, and are given at the end of a course or year—to focus instead on developing classroom resources and tools for teachers and students.
Many industry observers say the decision by McGraw-Hill Education, which has been linked to CTB for a half-century, is not especially surprising, given recent changes in the former company’s business focus and ownership.
Yet the move also underscores broader forces at work in the assessment market, which as states decide whether or not to use common-core-aligned exams, and vendors fight to secure that work, is still a long way from shaking out.
The size of the annual market for the states’ summative tests stands at an estimated $1.1 billion, and vendors of all sizes have landed multiyear state deals worth anywhere between $44 million and $240 million in recent months.
But the market has also proved volatile, fraught with legal protests, mounting opposition from parents and politicians to testing, and major disruptions in online assessments for which vendors, including McGraw-Hill Education/CTB, have been blamed.
“Let’s be clear—people in the assessment industry are not living in poverty,” said Scott Marion, the associate director of the National Center for the Improvement of Educational Assessment, which consults with states and districts on testing. Yet the profit margins, he said, are “thinner than a lot of people want to believe.”
The Biggest Shift
The adoption of the No Child Left Behind Act, which mandated yearly, high-stakes reading and math exams, ushered in a massive wave of state and local spending on testing.
At the time the act was signed into law in 2002, total U.S. spending on state-level exams was just $447 million, according to Simba Information, a market-research company. Within six years, it had nearly tripled, to $1.2 billion.
Despite a series of waivers granted to states in recent years by the Obama administration, the NCLB law’s core testing mandates remain in place.
Spending on state assessments jumped after the passage of the No Child Left Behind Act, but it has recently leveled off. The market for classroom-based assessment, meanwhile, has trended upward, recently overtaking the state-based testing market.
Source: Simba Information
Congress is debating proposals that also would leave the current yearly state testing requirements largely intact, though states could be granted more flexibility to create their own accountability systems.
The biggest shift in assessment policy in recent years came through states’ decision to band together to create exams based on the Common Core State Standards. Those standards have been adopted by 43 states and the District of Columbia. This past academic year, 28 states and the District gave exams created by a pair of consortia. Vendors have competed to help states with that work.
Yet as the common-core tests have rolled out, the overall market for state assessments has largely flatlined, Simba’s data show. Spending on state testing was $1.1 billion in 2013-14, nearly unchanged from six years earlier, when it stood at $1.2 billion. (Those numbers would include roughly $360 million in federal funding that supported two state consortia’s development of common-core tests, Simba said. The bulk of that money flowed to vendors hired to work on those exams.)
In fact, the state testing market has recently been overtaken by spending in another area: classroom-based assessment. In 2001-02, the market for classroom-based testing stood at $434 million. By 2007-08, it had jumped to $822 million, and by 2013-14 it topped $1.3 billion, Simba found. Classroom assessment now makes up the majority, 55 percent, of the testing market.
Among the most widely used forms of classroom-based assessments are “formative assessments,” an instructional approach in which teachers use various means—increasingly featuring digital tools—to evaluate students’ academic progress on the fly and recast lessons to shore up weaknesses.
McGraw-Hill Education says it intends to continue to focus on the burgeoning formative market while leaving other, major segments of its testing portfolio behind. It said in June that it will sell “key assets” of its assessment business, operated by its CTB division, to Data Recognition Corp., a Minneapolis-based company that has worked in the testing field since 1978. The sale will include all of McGraw-Hill Education’s summative tests and “shelf” tests, products typically sold across states and districts.
CTB is one of the oldest names in the testing business. Originally known as the California Test Bureau, it was founded in 1926 and was purchased by McGraw-Hill in 1965.
McGraw-Hill officials say leaving the summative and shelf testing markets will allow them to focus on products and services that more directly serve teachers and students in the classroom.
David Levin, McGraw-Hill Education’s president and CEO, said in an interview that the company’s major emphasis will be on “instructional materials, and the tools and software to make the most” of resources for students and teachers.
The company’s shift away from summative testing is rooted in “very serious reflections of what we do, the way in which we do it, and the manner in which we [take part] in the world of education,” he added.
The company workforce today reflects its new priorities, said Mr. Levin. Roughly five years ago, McGraw-Hill Education had only about 90 software engineers. It now has 500, and it spends about $180 million on that technology design work. Three years ago, McGraw-Hill Education had just 40 adaptive-learning courses. It now provides 1,100, he noted.
The company has also made several acquisitions in recent years of technology-based companies, including Engrade, a cloud-based platform for schools to manage academic and other information, and ALEKS, an adaptive-learning system.
A number of industry observers speculated that McGraw-Hill Education’s abandonment of high-stakes testing was influenced by its acquisition three years ago by Apollo Global Management, a private-equity firm, for $2.5 billion.
Mr. Levin said McGraw-Hill Education’s shift away from high-stakes testing should not be attributed to pressure from Apollo, though he described the equity firm as a “catalytic owner,” one that has encouraged the company to reinvigorate its products to make them “richer” and “more engaging.”
In one sense, McGraw-Hill Education’s exit from summative testing reflects the sort of change that has become common in the testing industry, even among its biggest vendors, said Doug McRae, a former vice president for McGraw-Hill Education/CTB who also worked for other major testing companies. Twenty years ago, McGraw-Hill Education, Harcourt, and Riverside Publishing controlled large portions of the summative-testing market, he noted. Today, all of those companies have either largely abandoned that market or been absorbed by other testing entities.
But McGraw-Hill Education’s decision also reflects changes in the financial opportunities for companies working in testing, Mr. McRae argued. Before No Child Left Behind, state testing was much more of a “retail” market, in which companies developed their own assessments, which might get used for several years, and vendors charged states and districts prices the companies largely controlled, he said.
Today, the market and profits are more directly controlled by states, Mr. McRae said. States seek proposals from multiple vendors before choosing a provider, often picking the lowest bid. What’s more, vendors are expected to design tests to meet demands of individual states, which makes it difficult to resell them in the broader market.
All of those factors drive down testing companies’ margins in state assessments, Mr. McRae said. While companies two decades ago might have collected a 10 percent, bottom-line profit, their rewards today might be half that, he speculated.
Technical Demands Grow
The field of vendors states choose from today includes not only big names like Pearson and the Educational Testing Service, but also those that aren’t as well known to the public and policymakers, such as Data Recognition Corp. and Questar.
“It’s a new distribution of companies vying for [state] business,” Mr. McRae said.
States are also expecting that the exams be conducted online. Companies face enormous pressure to make sure those exams are conducted smoothly—and they risk public embarrassment, and shaming from state policymakers when breakdowns occur, as well as financial penalties. (McGraw-Hill Education/CTB was blamed for testing disruptions in Georgia, Indiana, and Oklahoma in recent years.)
Vendors are expected to manage many thousands of online test-taking sessions at once, even though Internet connectivity in many school districts is spotty, at best.
Mr. Levin acknowledged that the technical demands of what states are requiring in large-scale assessments are “getting tougher and tougher,” while K-12 systems’ infrastructure has not kept up.
Ultimately, choosing to devote more resources to the challenges of summative testing would dilute McGraw-Hill Education’s focus on adaptive learning and other strategies, he said.
McGraw-Hill Education’s shift could presage other test vendors jumping more aggressively into non-summative work focused on “personalized” learning and formative assessment, given the appetite in the market, Mr. Marion said.
“That’s the next frontier,” he said, adding that the best vendors are weighing “where does the market go next?”
