November 28th, 2000

ZapMe Kills Computers In The Classroom

By Betsy Schiffman
Forbes.com

You don’t have to listen carefully to hear Lance Mortensen’s
desperate cry for help--he hasn’t been all that quiet.

Mortensen, the founder and chief executive of ZapMe Corp. (nasdaq: IZAP) had
a nifty plan to wire America’s classrooms, but the plan backfired when some
high-profile activists cried foul. Now he’s scrounging for a few generous backers
to support his partially executed plan.

Launched in 1996, ZapMe of San Ramon, Calif., wanted to give away free computer
equipment and access to U.S. schools. The hitch was that the equipment and access
would be supported by banner advertising, a concept frowned upon by educators.
Still, ZapMe launched two successful pilot schools in 1998. By the end of the
third quarter of 2000, ZapMe had wired 2,300 schools in 45 states, providing
approximately 2 million students with Internet access.

But the plan has been plagued by political problems. In October 1998, Commercial
Alert, a Washington, D.C., organization dedicated to "protecting communities
and children from commercialism," issued a statement calling ZapMe a "corporate
predator." Ralph Nader called for parents to "join together to keep
ZapMe and other advertisers out of your children’s schools."

While nobody listened to Nader at the presidential debates, his opinion of
ZapMe was heard loud and clear. Last month, the company announced that it was
"exploring alternatives, including divestiture, for its educational network."
Mortensen says the move wasn’t a result of the advertising drought that has
hurt many Internet companies, but a direct result of the "smear campaign"
run by Nader and others.

"This wasn’t a case of the business model not working. We suffered because
a few individuals went on a smear campaign--they contacted our sponsors and
told lies--they were totally false, but they were successful in that they caused
our sponsors grief just by being associated with us," he says.

Although Mortensen maintains the business model would have worked, ZapMe’s
revenue didn’t look all that promising. The company was depending on dwindling
advertising sales to fund a very expensive undertaking. The fact that commercialization
in the classroom has long been an extraordinarily sensitive venture hasn’t helped.

ZapMe reported revenue of $767,000 for the quarter ended Sept. 30 and $13.4
million in revenue during the nine months ended Sept. 30. ZapMe had four brave
sponsors--Inacom, Toshiba, Gilat, and Sylvan, which accounted for approximately
79% of the company’s total revenue for the nine months ended Sept. 30. But during
the three-month period ended Sept. 30, the company added no new sponsors. It
came as little surprise when the company agreed last month to sell 51% of its
outstanding shares to Gilat Satellite Networks (nasdaq: GILTF) for $2.32 per
share, and announced it would not add new schools to its educational program.
ZapMe shares closed at $1.18 on Nov. 27, down from the 52-week high of $12.50.

ZapMe won’t immediately cut off the 2,300 member schools--the company is still
looking for backers of their cause. If the money doesn’t come in, it will put
the schools on a monthly payment to cover the costs of the computers and access.

"We’re placing a call out to everyone--please help," says Mortensen.

The question is, is anyone willing to pick up such a tab? Although wiring America’s
schools was thought to be a worthy cause in the past, and the Bill and Melinda
Gates Foundation is famous for championing it, educators are showing signs of
increasing disenchantment with technology.

In September, the Alliance for Childhood, a relatively unknown Maryland nonprofit
organization, created a stir when it issued a scathing report called "Fools
Gold: A Critical Look at Computers in Childhood." The thesis of the report
is that technology in the elementary school classroom is expensive, overhyped,
and potentially damaging--possibly a contributing factor to vision impairment,
obesity, and stunted emotional and social development. That runs contrary to
popular beliefs that kids are at a disadvantage if they don’t get online as
young as possible.

While charities such as the Gates Foundation and AOL’s philanthropic AOL@School
program champion the cause of wiring the classroom, now there seem to be more
concerns surrounding young children’s use of the Internet than there are immediate
advantages. The ZapMe example demonstrated educators’ intolerance of advertising
in the classroom, but advertising is just the beginning. There are equally feverish
concerns about protecting kids’ privacy, access to inappropriate materials,
and the few nightmare stories about children landing in chat rooms with pedophiles.
For schools to spend an estimated $27 billion to open so many cans of worms
is striking many educators as unreasonable.

That’s not much consolation to Mortensen. "As the founder, it saddens
me deeply. And I still feel proud of what we accomplished.

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