Ed-tech seems to have been here for an eternity. What began as a novelty between 2006-07 with pre-recorded lectures on Youtube has, over the years, evolved into a multi billion dollar industry that touches the lives of millions of users on a daily basis. Today, ed-tech is no longer about standalone videos on YouTube, but is an umbrella term that refers to any technological initiative designed to streamline learning--be it in the K-12, test preparation, upskilling or B2B space. Despite this, startups in the space have had a rocky ride over the past half-decade with investors and skeptics raising questions about their cash burn, business models, and even their crown jewel: content. The black swan event that is COVID-19 has seen educational institutions and students flock to ed-tech platforms during the transition to online learning, but this begs the question: is ed-tech here to stay once the dust settles?

The Origins

The ed-tech boom really took off post the ‘Great Recession’. In 2009, investors pushed $150M more into ed-tech firms than the year before, even though the rest of the economy was languishing in a recessionary spiral. Ed-tech, which began as a consequence of the dot-com bubble, was finally having its own ‘Internet’ moment. The next few years would see the humble beginnings of today’s ed-tech revolution. Udemy, Udacity, Coursera, and the now defunct UniversityNow all came up during this time and raked in investor dollars. A common theme, as you can no doubt see, was the focus on offering a digital complement to higher education, a natural continuation of the standalone YouTube videos from the early-mid 2000’s. Since the late 2000’s, ed-tech has only got bigger. In 2014, the sector received $500M of funding in the first quarter of the year alone. Startups slowly began to move beyond being a complementary tool to university education and started voyaging into other areas of ed-tech such as test preparation, vocational training and K-12 education. Today, there are 19 Ed-Tech unicorns around the world who have collectively raised funding of over $10 billion over the past decade. China, USA and India have emerged as the home for ed-tech innovation, perhaps owing to the size and demographic of their populace. 

Adoption and Profitability Before COVID-19

A 2018 survey in the United States by NewSchools and Gallup indicated that ed-tech was well on its way to seeing adoption in schools even before the pandemic. 87% of teachers confirmed that they were using digital learning tools such as Google Classroom at least once a week. In the B2C space, Coursera saw the number of registered learners increase by over 20% in 2019 to touch 45 million (as compared to 37 million the previous year), making it the largest MOOC in the world. It is clear that ed-tech was on its way towards mainstream adoption even before the pandemic. 

Profitability of ed-tech startups, however, painted a bleaker picture. And the reason was clear - the freemium business model adopted by most B2C players. The freemium model, in brief, refers to the strategy wherein companies offer free trials to capture market share in the hope that registered users purchase paid features post the free trial. Take Coursera for instance, a company widely known for its wide range of free courses. In 2019, the company posted an annual revenue of $140M with a registered user base of 37 million, a measly $3.7 in revenue per registered user. This business model, when combined with the high cash burn of most B2C ed-tech startups and the churn that is common to the sector, led to concerns over the long-term profitability of these companies and the sustainability of their business models. 

What’s changed?

The pandemic has been a god-send for ed-tech startups. With schools and universities shut down for the foreseeable future, and students and young professionals locked down inside their homes, digital learning has become a ‘need to have’ rather than a ‘nice to have’. Data from India indicates that companies have seen a 100% increase in active users during the pandemic. For instance, Byju’s, the poster boy of Indian ed-tech has seen over 7 million new users enroll on its platform since the lockdown. Moreover, investors are also showing a renewed interest in the sector. In India, 14 ed-tech startups have concluded a round in the past few months amidst the economic disruption caused by COVID-19, with Byju’s, leading the pack with a $400M round. Upskilling apps, in particular, will see increased interest owing to the recent layoffs around the world and the need for new skills in the post COVID world. 

Ed-tech companies, even those in the B2C domain, have also been quick to reach out to schools in order to ease the latter’s transition to digital education while laying the foundation for a potential B2B vertical in the future. Moreover, schools and universities themselves have been quite quick with adopting digital tools with several of them in Indian and the USA now conducting classes online. With schools and universities having seen the benefits of digital technology first hand and ed-tech companies partnering with institutions, it is likely that the future lies in a hybrid model of content delivery and evaluation once the world reopens. 

Winning in the post-pandemic world and more

Despite the far-reaching impact that COVID-19 has had across the world, it is unlikely that ed-tech and digital learning will become the new norm anytime soon. Most companies in the space have seen a spike in new users solely owing to their ‘free trials,’ and converting these customers to paying users will be easier said than done once educational institutions resume classes. More importantly, education will always hinge on the personalised relationship between a student and a teacher and the unique needs of each learner, something that today’s startups are not adept at duplicating. If anything, the rise of digital education during the pandemic has only furthered the ‘digital divide’, leaving the billions of non-internet users in the dark. The factors above will ensure that there are limits to the progress of digital education and that ed-tech startups will only ever be complementary pieces in the educational ecosystem. That being said, the pandemic will reignite interest in B2B Ed-Tech with schools and universities realising that digitisation is the way ahead. Companies in the ed-tech space, therefore, should be nimble, keep an eye on profitability and reengineer their business models with a focus on B2B partnerships and a hybrid delivery channel for the post-Covid world. 

Thumbnail Image: New America