Kaplan, Inc. Business Information, Profile, and History

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History of Kaplan, Inc.

Kaplan, Inc. is the leading provider of test preparation services in the United States. The company offers preparatory classes for a wide range of standardized examinations including the Scholastic Assessment Test (SAT) and the Graduate Record Exam (GRE), as well as a number of professional licensing examinations. Kaplan also publishes books and software to assist with test preparation, and it offers many services online. Other areas of activity include after-school learning programs for kindergarten through 12th grade students, college admissions counseling, corporate recruitment services, and college-level education offered through a system of more than 30 bricks-and-mortar schools and several Internet sites. A subsidiary of The Washington Post Company since 1984, Kaplan, Inc. has been growing rapidly since the mid-1990s under CEO Jonathan Grayer.

Early Years

The corporation known as Kaplan, Inc. traces its roots to a Brooklyn, New York basement in 1938, where company founder Stanley Kaplan first began tutoring students for a living. Kaplan, born in 1919 to Jewish immigrant parents, got his first experience as a tutor while in elementary school, where he paid friends a nickel apiece to let him help them with their math. Later, in high school, he earned 25 cents an hour preparing his classmates for the New York State Regents exam. After graduating from New York's City College, Kaplan expected to attend medical school, but he was not accepted. Returning to his love of teaching, he started a business in his basement tutoring elementary and high school students, as well as new immigrants seeking to learn English.

Kaplan was first introduced to the Scholastic Aptitude Test, as it was then known, by a high school student he was tutoring in algebra, and he quickly saw its potential to boost his business. In 1946 he began to offer a 16-session preparatory class, charging $135. Kaplan reportedly would hold a party for each one of his classes after the test was taken, where he would ask every student to tell him one question from it. These were then used to assemble a rough version of the exam for future classes to study. This practice helped earn him the enmity of the Educational Testing Service (ETS), administrators of the exam, who considered having the New York state legislature make Kaplan's tutoring illegal. Although it ultimately did not go that far, the ETS took a public stance that the SAT was uncoachable, and tried to discourage test-takers from using preparatory courses.

The creation of Kaplan's SAT prep course was fortuitously timed, as it coincided with the return from World War II of large numbers of college-bound ex-servicemen. Business was soon booming, and Kaplan later moved from his basement into a larger office space. During the 1950s and 1960s courses for other tests such as the Medical College Admissions Test (MCAT), Law School Admissions Test (LSAT), and Graduate Record Exam (GRE) were added to the growing company's offerings. Word of the preparatory courses spread, and students began coming from around the country to take Kaplan's classes.

In 1970, still operating solely in the New York metropolitan area, Kaplan opened his first branch out of town, in Philadelphia, and the company soon added other locations around the country. By 1975 Kaplan was operating a total of 75 educational centers and reaching 70,000 students per year. During the decade the firm (now known as Stanley H. Kaplan Educational Centers) also broadened its scope, adding courses for the Test of English as a Foreign Language (TOEFL) and English as a Second Language (ESL), among others.

Despite their popularity, test preparation courses continued to be looked at by some as offering little of value, and in the late 1970s the Federal Trade Commission (FTC) investigated Kaplan and several of its competitors. The published report confirmed Kaplan's contention that the courses worked, however, stating that those who took them scored an average of 50 points higher on the 1,600-point SAT than those who did not. Kaplan claimed vindication, while at the same time insisting that the number of points each student's score was raised was actually higher than what the FTC had found.

1984 Sale to The Washington Post Company

In 1984, with nearly half a century of teaching under his belt, Stanley Kaplan sold his business for a reported $33 million to The Washington Post Company, staying on as chief executive. Much of the proceeds from the sale went to the Rita J. and Stanley H. Kaplan Family Foundation, a charitable organization that supported cultural, educational, and health programs, which Stanley Kaplan also ran.

The company's business had grown a great deal during its first half-century, but in many respects the methods for tutoring students had not significantly changed. Having a virtual monopoly on the field of test preparation, Kaplan's firm was reportedly becoming complacent in its middle age. Sensing an opportunity, a competitor emerged in 1981 that directly targeted the company's weaknesses. The Princeton Review, founded by John Katzman in a New York apartment (and having no connection to Princeton University, though Katzman was a graduate of that institution), grew quickly and offered an irreverent, offbeat image compared with the more studious Kaplan. Princeton Review's classes reportedly were smaller and more dynamic than the industry leader's, and the company charged a premium price for its services. In the mid-1980s Princeton began to publish study materials for tests, something that Kaplan had never done and continued to avoid, fearing they might take people away from its courses. By the early 1990s Princeton had grown into a strong contender for Kaplan's position as industry leader, and in fact claimed more SAT prep course students than Kaplan, which still had larger revenues due to its wider range of activities. Princeton's advertising campaigns took direct aim at Kaplan, using such sarcastic tag lines as, "First he lost his students ... then he lost his mind." With the upstart now gaining on it, Kaplan was forced to respond, and it issued its first test preparation books in 1993. The company also began to expand its services abroad, opening centers in Europe, Asia, and South America.

The competition continued to heat up, however, with the decidedly irreverent Princeton tweaking Kaplan's nose in 1994 when it registered the Internet domain name of Kaplan.com. Computer users who reached the deceptively named site were immediately informed that they were at the Princeton Review and were asked to add to a list of negative comments about Kaplan. Kaplan sued within four days of the site's launch. The case was later resolved through arbitration, though the legal fees cost Kaplan a reported $30,000. The two antagonists had some months earlier signed a 23-page agreement in which they pledged not to misrepresent themselves or each other in their ads, with rules provided for resolving any disputes that might arise.

Turnaround: 1994–95

Since the early 1990s Kaplan had been operating in the red, with annual losses reportedly reaching the millions. Princeton was continuing to gain ground, and Kaplan needed a strong leader to get it back on track. In June 1994 the company promoted a relative newcomer, 29-year-old Jonathan Grayer, to the posts of president and CEO. Grayer, a Harvard graduate, had worked for Post unit Newsweek magazine's marketing department before starting at Kaplan in 1991 as a regional operations director. He quickly drew notice for his creativity and business savvy, and his rise through the ranks was swift. After being placed in charge, Grayer began to hire executives from a wide range of different corporations, and they soon began investing millions to improve the firm's courses and launch lines of books, software, and instructional videos. By this time Kaplan had 155 permanent test preparation centers and 600 satellite sites and was earning an estimated $80 million in annual revenues.

In early 1995 Kaplan was again the focus of controversy when the Educational Testing Service accused the firm of sending trained test-takers to the new computerized version of the GRE for purposes of helping its students cheat. Kaplan had in fact sparked the furor by sending a list of 150 questions its staffers had memorized from the test to the ETS, claiming it wanted to make the testing service aware that it was frequently repeating the same ones. The embarrassed ETS immediately filed suit on grounds of copyright infringement, breach of contract, and fraud. Kaplan agreed to stop sending its staffers to memorize the questions, and later settled the suit out of court for $150,000, though it admitted no guilt. The ETS, for its part, had suspended the test a week after Kaplan made its claim and later reissued it with a larger pool of questions.

The year 1995 also saw the launch of Kaplan's first web site, www.kaplan.com. The company had initiated its online presence the preceding summer on America Online, but waited until its case against Princeton Review was settled to go forward with its own independent site. The web site and the company's increasing array of software offerings were the work of a new division, Kaplan Interactive.

In the spring of 1995 the company also introduced a student loan information program, which was offered in conjunction with UBL Educational Loan Center. Kaplan would offer counseling, seminars, printed and online materials, and a toll-free telephone number to assist students in finding loans, and UBL would gain access to Kaplan's extensive database of loan prospects. In the fall of 1995 Kaplan also acquired Crimson & Brown Associates, a career counseling firm that helped companies find minority recruits and published Career Access magazine and the Minority Resume Book.

Launching Kaplan Books Imprint and Moving into K-12 Education: 1996–97

Mid-1996 saw Kaplan's publishing arm link with Simon & Schuster to publish its test preparation guides under the Kaplan Books imprint. Kaplan Books planned to issue 20 titles per year, including such items as "You Can Afford College" and a series of "All in One" test prep guides to the SAT and ACT (American College Test). The year also saw Kaplan acquire Score! Learning, Inc. of San Francisco. Score! provided after-school tutoring programs for K-12 students in a variety of locations.

In 1997 Kaplan and Princeton skirmished again, this time after Kaplan sued the latter over misleading claims on the covers of some of its software boxes. Princeton settled out of court, agreeing to send corrective stickers to stores to cover the incorrect information and to amend future printings. Also during the year, Kaplan acquired the Lendman Group, a 33-year-old Virginia firm that produced job fairs for technology, sales, and marketing companies. Lendman had developed software that could manage large numbers of resumes, as well. Kaplan created a new unit, Kaplan Career Services, to organize the combined operations of Lendman and Crimson & Brown.

The next year Kaplan broadened its ESL offerings by purchasing LCP International Institute, which provided intensive English language training services in California and Washington. Expansion to the East Coast was soon planned. A few months later Kaplan acquired Perfect Access, Inc., a computer consulting firm, and Dearborn Publishing Group of Chicago. Dearborn's offerings included titles on real estate, business, and finance. Kaplan also opened its largest branch office to date in Greenwich Village, New York. The 34,500-square-foot site offered preparation courses for the New York high school admissions test, as well as various college and graduate school admissions tests and professional licensing examinations. The facility included an auditorium that seated 155 and a computer training room that could handle 100 students. Kaplan's headquarters remained uptown on 56th Street, at which location English language classes, admissions counseling, and a range of test preparation services were offered. The company now had more than 160 permanent centers and 1,200 satellite sites in the United States and abroad.

Founding Concord University School of Law in 1998

The fall of 1998 saw Kaplan take one of its boldest steps ever when it created the first online law school, Concord University School of Law. Concord, initially accredited only in California, operated out of Kaplan's Los Angeles office and offered a four-year degree program at a substantial cost savings over traditional schools. Tuition was estimated at a total of $17,000 for four years. A total of 80 students enrolled for the first class, which started in December. Several months later Kaplan acquired the National Institute for Paralegal Arts and Sciences, which also offered legal training online.

Late in 1998 the company found itself under attack by the College Board, co-administrators of the SAT, when the Board released the results of yet another study that found only minimal gains on test scores for those taking prep courses. The Board claimed that the expensive courses yielded an average increase of about 50 points, which it contended was statistically insignificant. Kaplan responded by pointing out that the College Board published its own line of test preparation guides, and questioned the organization's motives in trying to stifle its competition.

The company continued to broaden its offerings in 1999, adding counseling services to help college-bound students get into the school of their choice. Kaplan counselors would help them fill out their college applications and assist with other strategic necessities. The cost was $700 for four to six sessions. Kaplan also was becoming increasingly focused on assisting students in grades kindergarten through 12, where the widespread adoption of standardized tests that were required for advancement in school offered the firm, and its competitors, a new opportunity for growth. Kaplan soon created specialized, age-appropriate study guides for the tests, which differed for each state.

In early 2000 Kaplan made another acquisition, that of Schweser Study Program of LaCrosse, Wisconsin, which provided test preparation services for the Chartered Financial Analyst examination. Schweser claimed that a third of the 60,000 who took the CFA exam used its products or services. Kaplan subsequently acquired the Career Services subsidiary of Central Newspapers, Inc., which was merged into the recently created Brass Ring subsidiary. Brass Ring offered recruiting and hiring-management services. Kaplan also formed Kaplan Ventures to make investments in education and career services companies. In the first round of spending, stakes were purchased in Apex Learning, Apollo International, Jobscience, and Blackboard, Inc.

Growing Presence on the Web into the 21st Century

As the world became more and more wired, Kaplan was ramping up its online offerings, introducing a number of new services, including a $300 SAT prep course, which was less than half the price of the standard $800 12-session class. The company also was operating several different web sites, including kaptest.com, from which it sold online courses, books, and other materials; eScore.com, which offered parental guidance for child development and learning; kaplanprofessional.com; kaplan.com; and others. In April 2000 Kaplancollege.com was launched, which offered online courses in nursing, real estate, business, and other subjects.

In the summer of 2000 Kaplan acquired Quest Education Corp. in a stock purchase worth $165 million. Quest, based in Georgia, offered associate and bachelor's degrees in business, healthcare, and information technology at 30 small schools in 11 states. Kaplan subsequently changed the Davenport, Iowa-based Quest College's name to Kaplan College. Soon afterward Quest acquired Denver Paralegal Institute, Ltd., which ran five schools for paralegals. In June Kaplan also reached a pact with Encore Software, Inc. to market Kaplan's test prep products around the United States. By the fall, Kaplan's top SAT and GRE computer programs were ranked first, second, and third in their sales category by research firm PC Data.

More acquisitions took place in the winter of 2000 and the spring of 2001. In December Kaplan purchased Speer Software Training, Inc. of New York, which provided training and consultation services for law firms. The company was combined with Kaplan unit Perfect Access, which was renamed Perfect Access Speer. In March 2001, Kaplan's Canadian division acquired The Study Seminar for Financial Analysts of Windsor, Ontario, which offered test preparation for the CFA exam. Several months later, Kaplan acquired Prosource Educational Services, Inc. of Minnesota, which was a provider of professional education for real estate, insurance, and securities professionals.

Under the guidance of CEO Jonathan Grayer, Kaplan was experiencing explosive growth, as well as diversifying to offer K-12 tutoring, college admissions counseling, professional licensing exam preparation, software and book products, college-level instruction, and more, much of it online. The once moribund company had been transformed into a dynamic, aggressive organization that looked for new opportunities wherever they could be found. It remained the leader in the field that Stanley Kaplan had created in his Brooklyn basement more than 60 years before.

Principal Subsidiaries: Quest Education Corporation; Score! Learning, Inc.; Kaplan (Canada) Ltd.; Dearborn Publishing Group, Inc.; Self Test Software, Inc.

Principal Divisions: Kaplan Test Preparation and Admissions; SCORE! Learning, Inc.; The Kaplan Colleges; Kaplan Professional; Quest Education Corporation.

Principal Competitors: Sylvan Learning Systems, Inc.; The Princeton Review, Inc.; Achieva College Prep Centers; Peterson's; The College Board.

Chronology

• Key Dates:
• 1938: Stanley Kaplan starts a tutoring service in his Brooklyn, New York basement.
• 1946: A 16-session SAT preparatory course is introduced.
• 1970: Kaplan opens first branch outside of New York, in Philadelphia; more follow.
• 1979: FTC investigation proves effectiveness of Kaplan's SAT preparation courses.
• 1984: Stanley Kaplan sells the business to The Washington Post Company for $33 million.
• 1993: Printed test preparation study guides are introduced.
• 1994: Jonathan Grayer is appointed CEO.
• 1996: Kaplan acquires Score! Learning, Inc.; Kaplan Books imprint is created.
• 1999: Concord University of Law is formed to offer classes online.
• 2000: Quest Education Corp.'s system of 30 colleges is bought for $165 million.