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What Makes EdTech a Profitable Business Model?

By Prateek Saxena
June 9, 2020 9. min read
Last update on: September 10, 2020

EdTech is nothing new, although that is how the majority of write-ups published on the internet would like you to believe. To break it down for the understanding of all, an ecosystem where technology is deployed to assist the delivery of education is referred to as EdTech. 

Come to think of it, even a conventional computer lab at a 90s something school qualified as an EdTech. 

Yet, few people realized back in the 90s that the Industrial revolution 4.0 would pack more gigabytes in a smartphone than computers. Therefore, if the devices of today dawn a new-age, compact, and pocket-friendly outfit, shouldn’t the same rule apply to education and its delivery methods. 

Turns out that it does and that is one of the reasons entrepreneurs are throbbing the gates of venture capitalists to fund the future, or shall we say the present, of 21st-century teaching, EduTech. 

Liked the introduction? Wait for the story to unfold. 

The EdTech business has shaped up to be one of the most lucrative (for innovators) and luring (for investors) models of businesses over the years. It’s one of the few industries that could survive this COVID-19 pandemic and honor its promising growth. What makes us say that? 

  • Goldman predicts the US economy to shrink by 29% by the end of the 2nd quarter of 2020. Global stocks have seen a downturn of at least 25% as of March this year, and unemployment is shooting through the roof. Yet Yuanfudao, a Chinese online platform for live courses raised US $1 billion Series G round IN MARCH. This is the highest ever capital raised in a single round, anywhere on the planet, by an education company.  
  • The global digital expenditure in the Education industry would be worth $341 billion by 2025 as per HolonIQ.

global digital expenditure in the education industry

  • Yet, of the overall expenses that the industry would make, this amounts to a miser 4.4%, during the projected time. 

growth in global education technology expense

Do you now see the window of opportunity in Edtech, or due to it, for introducing technology enablement in education? It is a sector where the opportunity cost to miss out on an idea could be zillions. But the readers should be warned against the deadly Fear of Missing Out i.e. FOMO syndrome.  

If you are full of Edtech startup ideas or even education startup ideas, great, but it has to be approached systematically. Anyone searching for an education app development company, or for that matter, freelance educational app developers must first classify their business model. Before agreeing on the terms and conditions, entrepreneurs must probe for answers to the following questions, which can even be the answer to why investors who are looking to fund an EdTech model are asking: 

  • Does the Elearning app development company have the talent pool to provide AI, ML and robotics support? 
  • Does the learning app development company have the expertise to integrate conversational AI and AR/VR features into the app? 

get chatbot cost estimate from Appinventiv

Online business opportunities appear profoundly great on whiteboards but turn into a nightmare when you get to the execution stages. 

Consider the following sub-verticals that EdTech startups are modelling their portfolio on offers: 

edtech service level model variation

Upsurging Interest in EdTech 

Technology is affecting every aspect of our lives and changing them by the day. But it’s not just our life, its businesses as well that are transforming and can’t afford to look away. The Organization for Economic Co-operation and Development (OECD) projects that 1 billion jobs, that is approximately 1/3rd of all jobs in the world, would be transformed by technology in the upcoming decade. 

In fact, within the next 2 years i.e. by 2022, 42% of all core competencies deemed essential for jobs are expected to change. Such a fast-forward and unavoidable upskilling revolution can be delivered feasibly only through technology. 

The US will spend more on education than it will on defence in 2020 with an est. US$1.3 trillion worth of expenditure. This represents 6% of its GDP. The mammoth share of this expenditure will make up for salaries and infrastructural development for institutionalized education. A realistic indicator of Edtech within the states could be venture funding. In 2019, investor interest in Edtech deals was at its five years highest with the US $1.66 billion flowing into the sector across 105 deals. 

deals and funding in education domain 2015 to 2019

But could it be a fluke? What if coincidently there had been a hype bubbling somewhere thanks to venture capital rumor mills. We can run this assessment through a litmus test. 

For our experiment, we choose three well-established education startups that are opportunistically building their Edtech business arms. A measure to gauge public demand for their services would be to see how their virtual education startups have played out during the COVID-19 pandemic. 

Chegg, Inc. 

  • It is an education technology industry with a product suite replete with digital learning solutions. At a time when businesses are clamoring for government aid to survive Chegg recorded US $132 million in revenue in Q1 2020. 
  • Of this US $100 million is attributed to Chegg Services that runs a direct to consumer, subscription-based model of digital education. It offers online mentorship, homework aid and writing tools for students. 
  • At the end of Q1 2020, they have a 2.91 million subscriber base. As they released their numbers in an earnings call, their stock prices shot up by more than 30 per cent. 
  • Charting a difficult terrain during the Coronavirus outbreak, the company expects to replicate this trend and register revenues between the US $135 – 137 in Q2 2020.

K12 Inc. 

  • K12 is an education management company that promotes online learning as a substitute for classroom training for students covering the curricula for kindergarten to 12th grade. 
  • Their revenue for the first 3 months of 2020 was U.S. $257.2 million. It’s marginally higher than their earnings for the same period last year which were U.S. $253.3 million.
  • Amongst all of its business units, the online public school program raked in the U.S. $228.3 million. 
  • K12 CEO Nathaniel Davis shared insights into user query trends for registration, which were high for both February and March. 

2U, Inc.

  • Amongst all the education technology startups, 2U distinguishes itself by creating end-to-end learning channels for non-profit academic institutions to offer online degrees. 
  • It runs a Software-as-a-Service (SaaS) model for its B2B partners. 2U earnings for Q1 2020 touched base at U.S. $175.5 million. This figure records a 44% spike against its 2019 earnings for the same period. 
  • It’s SaaS business registered revenues worth U.S. $118.5 million. 2U’s acquisitions, GetSmarter (for short-term courses) and Trilogy Education (for boot camps) brought in consumer spending worth U.S. $57 million. 
  • As part of their immediate plans, they are working with Simmons University, an existing client to effectuate a digital undergraduate program. Additionally, they launched a video production solution labeled Studio in the Box, for faculties to record training sessions from home amidst the COVID-19 pandemic. 

What Does This Mean?

It is clear from the observations that Edtech businesses despite an unexpected catastrophe have not just survived until now, but thrived. Predicting the future would be immature but taking stock of the situation we can definitely point in a few directions where Edtech appears most likely to augment resources.

Trends Affecting the Edtech Industry in 2020 

The devices are getting smarter and more efficient. IoT is casting a thorough web of interconnectivity assuring big data generation and enabling Artificial Intelligence to identify improvement measures for autonomous customer experiences (CX). Speaking of which, the CX will be enhanced by Mixed Realities adding a new dimension to EdTech and catalyzing its ascendency. 

The Coronavirus pandemic has teased signs of speeding Blockchain’s adoption as a result of which the distributed ledger technology could be used for decentral and secure data management. 

Gen Alpha (those born after 2010) could be the first to taste the introductory iterations of the technologies taking Edtech next level.

educational technology expense 2018 to 2025 

A.  Global Internet Penetration 

As of writing, approximately 4.5 billion people in the world have access to the internet making up 59% of the world population. Cybersecurity Ventures places the total internet users at 6 billion by 2022 by which time the total world population is expected to reach 8 billion. By 2030, total internet users are expected to reach 7.5 billion which could be 90 per cent of the then 8.5 billion world population. 

  • Digital access to education would ensure a border-less experience zeroing in on B2C education distribution channels. 
  • With learning material becoming remotely accessible, Edtech solutions could well and truly be the panacea for education for all. 
  • Digital classrooms and textbooks could reduce the cost of publication. Education could be tailored to each student with self-paced classes becoming commonplace.
  • It plays right in tune for children with disabilities, for who innovating customized provisions for education will not be a challenge anymore. Simultaneously, it presents equally enriching online business opportunities for people with foresight.  

B.  Data-Driven Decisions 

Digital textbooks will be a starting point in the exercise to structure E-learning. Tracking online learning patterns would be a revelation in maximising the tools required for a multi-sensory, fulfilling experience. 

  • Tailored experiences would rise. With AI, ML and Big Data fast-maturing, content delivery would be without hiccups and more personalized than ever. 
  • Universities are warming up to the reality that data management needs retrofitting. Where spreadsheets sufficed, visualization tools must come in. 
  • When predictive analytics is left to do its bit, faculties can focus on what they are best at i.e. to teach. 

C.  Virtual Reality 

Virtual and Augmented Realities are shortening the distance between studying and experiencing something. In a nutshell, immersive learning is the process of imparting education/learning vis-a-vis simulations and AI. 

  • Millennials would recollect memories of a science park visit for experimental demonstration. Now, put on a VR- headset and you are virtually transported to the park. 
  • Denmark-based startup Labster is a point in case wherein it builds virtual laboratory simulations for STEM (Science, Technology, Engineering, Math). In 2019, it raised US $21 million Series B funding. 
  • Interplay Learning is an online training platform for skilled trades upskilling frontline workers for on-the-job proficiency. It uses VR and 3D simulations to train people and raised a US $5.5 million Series A round in early 2019.

D.  Augmented Reality 

Augmented Reality commands a higher likelihood of a wider adoption within the Edtech market earlier than VR due to its enablement on smartphones. 

  • A perfect example of this would be the BBC Civilisations AR app. 
  • And lest we forget, Pokemon Go was an AR-based experience and its makers, Niantic Labs, raised U.S. $245 million at a US $4 billion valuation last year. It continues to partner with nonprofits in the space to facilitate education with AR. 

E.  Conversational AI 

People have begun accepting Voice-Enabled devices as a staple part of their homely chores. It typifies conversational AI assisting humans and the application of it in the Education industry could soon be underway. 

Cognii is a great example with its conversational AI that has products for K-12 students and corporate professionals with open-format responses to improve critical thinking. 

how to design VUI

F.  Adaptive Learning

Adaptive learning is a learning delivery method where algorithms customize the teaching as per the student. 

  • However, previous attempts to win-over higher education with hyper-personalized learning by one startup Knewton, failed to live up to expectations, crashing its US $180 million financing to the ground. 
  • But progressive steps are being taken nevertheless. Quizlet is an AI-based tool that helps students in studies. It uses machine learning algorithms to identify the pressing needs of each child and tailors the experience towards it. Quizlet recently closed its Series C round at a valuation of US $1 billion during the COVID-19 pandemic signalling high investor confidence. 
  • Querium, KidSense and Kidaptive are also jostling and trying to build a reputation with similar tools in the market. 

G.  Robotics

Robotics is also gaining momentum in education management. 

  • Roybi is a company with its namesake product, the Roybi Robot helping infants aged 3 to 7 years old in STEM skills. 
  • Roybi uses machine learning to match the cognitive capabilities of the child with pattern recognition. The product acknowledges that learning is not a one size fits all garment and needs to be custom-made. It was featured in TIME magazine as one of the best inventions of 2019. 
  • Robotify is a Dublin-based startup that uses hardware installations in schools to educate students in programming lessons. 

H.  Blockchain 

Blockchain’s decentralized fundamentals could be momentous in upgrading antiquated education infrastructure. At the same time, it can incentivize students to put in their best efforts and be rewarded for, say procuring a major degree in a discipline. Not to mention, it can manage data, securing it in immutable ways for student records to be archived. 

  • Blockerts is an open platform incorporated by the coming together of the MIT Media Lab and the Learning Machine (now Hyland). It can be used for a myriad of purposes from certificate/degree issuance to storage and verification. Future employers can be referred to the platform for fact-checking background information. 
  • ODEM is a Blockchain-powered platform connecting students/working professionals with quality teachers. Smart contracts are used to record the specifics of a course. Over time, the ODEM ledger recognizes patterns from the history of courses each student was enrolled in and that which the professors taught. ODEM tokens can be used for transacting on the platform. ODEM assigns skill badges against the participant profile indicating their experience and expertise.  

Key Takeaway 

The global EdTech industry will evolve at a fast-forward pace. Venture capital infusion in the fastest-growing Edtech companies, or Edtech Startups if you would, particularly in the US, China & India, points to the formation of parallel growth sectors between the West and Asia. 

list of edtech unicorns

We say this based on the analysis of all the Global Edtech Unicorns (total 18), of which 8 are American, 8 Chinese, 1 Indian and 1 Canadian. Online learning has not just come out of its cocoon but established itself as a wide network space of emerging technologies. One of the reasons startups fail, or for that matter most startups fail, not just in this sector but anywhere is because they overpromise by building hype, in the absence of reliable data. ByJu’s, Udemy, Coursera and Udacity, one of the most valuable Edtech companies in the world have managed to reach the pinnacle by timely identifying technological applications to bring down the cost of education. To that extent, education software development companies must enter the market with solutions that include remote access, multi-device compatibility, multi-language support and 24/7 uptime. 

Investors and entrepreneurs must focus on amalgamating tech, not for the sake of it, but because they have the opportunity to create an equitable distribution of knowledge that respects the sovereign pace of understanding of each individual. 

FAQs

Q.  What is an Edtech Startup? 

Using technological means to deliver education (education + technology) is called Edtech. Any startup in this space using emerging technologies such as AI, Robotics, VR, AR or Blockchain is an Edtech Startup. 

Q.  How Big is the Edtech market? 

The size of the industry is expected to reach US $93.6 billion by 2020. 

Q.  Is Edtech profitable? 

The largest companies in this space are Unicorns like ByJu’s and Udemy. Their strategy for the first few years is to capture market share and become a niche-leader. Since the user acquisition costs are high, therefore such companies have not recorded a profit, despite billion-dollar valuations.

Prateek Saxena
Prateek Saxena
Co-founder of Appinventiv
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