In the summer of 1994, Kaplan Educational Centers, the nation's largest college and graduate-school test-preparation organization, began making inroads on-line -- using on-line services and the Internet as a direct-marketing tool, as a forum to elicit feedback on test formats and new products, and as a distribution channel for test-prep software and campus guides on CD-ROM. Kaplan, with headquarters in New York City, now has sites on America Online (AOL; keyword: kaplan), the World Wide Web (, and the Microsoft Network (keyword: kaplan) -- a presence that costs the $90-million company an annual six-figure investment. Chief executive Jonathan Grayer talks about getting wired.

Inc.: Why did Kaplan join the on-line frenzy?
Most college dorms today are wired for the Web. For our customers, the on-line community is an important place. To be an important part of their lives, we had to be there.

Inc.: Has your investment paid off?
Like most companies, we have the traffic and the product, but we still have to figure out ways to do this that will be revenue-enhancing. Right now our AOL site is generating revenues in the low to medium six digits, through time on-line -- AOL gives us a cut, based on the amount of time people spend at our site -- and "bounty" fees we receive for bringing new subscribers to AOL. We think our Web site will have the most revenue-generating potential of our on-line offerings, but we are still awaiting the acceptance of secure payment transactions to bear that out. We've won awards for our Web site, and we generate leads for our courses from on-line visitors. But after factoring in our investments, we're still on the wrong side of profit.

Inc.: What have you learned from your on-line forays?
Once we were on-line, we realized that our students really crave human interaction, and they pay a lot for it -- on average, $500 to $800 for 10 to 20 sessions. Our customers are buying confidence -- the ability to walk into a test feeling good. That takes time, and it's impossible to create in the world of the Net. Our customers are buying higher scores, and they're not going to compromise their ability to get them by getting something over the wires.

Inc.: Given that being on-line is a break-even proposition at best, why do it?
It's not OK to say, "If our customers care most about the human interaction, then we can abandon our on-line presence." That's the worst thing we could do. We can't afford to be behind the curve. If we're in the business of selling confidence, part of building that confidence is having our customers feel that we keep them out in front in terms of educational and technological developments. When used right, our on-line offerings augment what we do in the classroom.

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