Over the past 10 years computer technology has come to occupy a central place in American life and has caused a redefinition of the level of literacy skills needed to participate effectively in American society. At the same time, some 20 to 30 million adults have serious problems of basic literacy. Within this context, the Office of Technology Assessment has undertaken a comprehensive assessment of literacy in America and the application of technology to literacy improvement. This report is specifically focused on examining the long-term economic viability of the adult literacy software market, and exploring policy options and their potential impact on the marketplace. The first two of the report's four major sections concern the educational technology market including the structure of the K-12 software market and niche markets in the larger adult literacy market (including job opportunities and basic skills, correctional education, university/college literacy, adult education, and English-as-a-Second-Language/bilingual education), and the economic viability of the literacy marketplace. The third section describes case studies of nine literacy software companies, followed by an analysis of patterns among the case study participants. In the final section, on the economic viability of the literacy marketplace, it is established that, because of the fragmented nature of the literacy market, the current economic recession, and other factors, the health of the industry supplying software and related products to literacy markets is not good. Software publishers committed to the literacy marketplace for the past 3 years are only now beginning to show small profits, and few corporate profits have been invested in the development of new products. The major barriers faced by literacy software publishers and coping strategies are identified, and several federal policy intervention strategies are considered, including increased stable federal funding for literacy service providers, investment in professional development and technology, and increased federal support for research and development. (MN)