What Makes EdTech a Profitable Business Model?

Prateek Saxena August 23, 2022
edtech business Model

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 benefits of education app for kids and organizations and why entrepreneurs are throbbing the gates of venture capitalists to fund the future, or shall we say the present, of 21st-century teaching, EduTech.

The EdTech app business models – both educational apps for kids and organizational learning – have 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?

  • As per Grand View Research, the global education technology market size was valued at USD 89.49 billion in 2020 and is expected to witness a compound annual growth rate (CAGR) of 19.9% from 2021 to 2028.
  • The global digital expenditure in the Education industry would be worth $341 billion by 2025 as per HolonIQ – a contributory factor behind the rising of education startups and kids education app startup ideas

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 for education startups. 

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 education app developers 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 e learning startups are modeling their educational app development portfolio on. You can also read them as the education app ideas which are bound to be successful in the time to come.

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. 

According to the ‘World Economic Forum Annual Meeting’, by 2022 around 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.

As per the Education Data Initiative, schools in the US spend an average of $12,624 per pupil, which is the fifth-highest amount per pupil among the 37 other developed nations in the Organisation for Economic Co-operation and Development (OECD).

According to reports by Reach Capital’s analysis of data from Pitchbook, during the the first six months of 2021, U.S.-based education technology companies raised over $3.2 billion in investment capital.

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 app business models. 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 tech startup 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.
  • The most recent investment made by Chegg was on Apr 13, 2020, when Frank Financial Aid raised $5M.
  • At the end of 2020, they had a 6.6 million subscriber base.

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 vision makes them one of the best learning apps for kids.
  • Their revenue model for edtech business 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, reinstating how it is one of the best educational apps for kids.

2U, Inc.

  • Amongst all the business models for education 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. 
  • 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 education mobile app development appears most likely to augment resources.

Trends Affecting the Edtech Industry

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 4.88 billion people in the world have access to the internet making up 62% 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 percent 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 2021, it raised US $60 million in Series C 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 $18 million in Series B round in early 2021.

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.  
  • Nova Learning Management System developed by Appinventiv, helps teachers to easily upload their courses. On the other hand, the app allows students to enroll and pursue the course easily. Appinventiv provided a solution that brought a positive approach in the edtech sector.

I. Game-based Learning

Gamification, like immersive learning, is a good utilization of technology in Education since it involves students in the process. This technique isn’t new and has been in use for 20 years. Because it is so practical, today’s online learning systems make extensive use of it.

You must be thinking, what is it that makes it so successful? Then simply put, you know learning is always challenging, whereas playing is simple and enjoyable. Thus, the majority of people believe that gamification encompasses a wide range of techniques that can enhance the user experience.

Gamification includes two key elements.

  • To begin with, children get a familiar and engaging environment, so there is no need to waste time and effort trying to keep their attention.
  • Second, the platform’s versatility allows instructional knowledge in a fun way. It has no limits to your imagination.
  • For example, the project “Minecraft: Education Edition” is the best proof of this. Millions of children enjoy this popular computer game that has been successfully used for educational reasons. This tool’s beauty is that it can be applied to any subject, including architecture, geography, english, biology, culture, physics, and chemistry.

Now that we have delved into what makes the EdTech sector a profitable online education business model and what can be expected from its future, the next plan of action for an entrepreneur should be to prepare for a success-guaranteed entry in the sector.

EdTech Business Models

Schools, universities, coaching institutes, and other traditional institutions faced enormous challenges during pandemic. This led to the increase in scope of education.  To ensure business and learning continuity, the learning class had to swiftly upload all of their work on the internet, making access to education easy. Here are some edtech business models that have been already there but have boomed due to the pandemic crises.

Freemium Model

It’s an appealing concept for startups since it allows you to quickly build brand trust and position yourself as a niche leader.

For example, Coursera began by offering free courses on a number of topics with the option of purchasing a certificate. The company soon rose to prominence as an edtech powerhouse, thanks to $210 million in funding.

This technique allows you to generate a lot of momentum quickly and make your product available directly to your end consumer without the usage of intermediaries. The downside of the principal-agent problem in education is that your users aren’t your buyers.

Edtech Marketplace

When you don’t have your own content, you set up an Amazon-style marketplace where educators can sign up to sell their work. This strategy allows educators to promote their course to a large audience while the platform receives a portion of the revenue.

Udemy is a well-known Edtech company that has shifted to a marketplace model. Udemy is an online marketplace that allows businesses and individuals to offer their courses online. It is now worth over $3 billion. Udemy takes 50% of the course cost and provides a full array of tools for monetizing, marketing, and producing these courses and their associated learning materials.

Institutional Model

The top-down or institutional model is a more traditional method of selling to schools through district executives. The target market volume is determined based on the projected penetration rate and the market size is first calculated.

Once the desired market volume has been determined, a strategy for achieving the potential revenue is devised. This works by a district or an area head making a single purchase for all of the schools under its control. The top-down paradigm has the advantage of allowing districts to sign big contracts.

Consumer Model

The consumer approach is a new online education business model that allows schools to try a product for free before charging families to continue using it at home. This concept is best suited to businesses that provide things that children can use independently. In this situation, schools effectively serve as lead generators for consumer adoption.

With this concept, it’s critical to establish a “product loop” between school and home, in which teachers use the product with students in the classroom and then advise parents to have their children use it at home.

The benefit of this strategy is that schools prefer free (high-quality) items, which can increase user adoption, and parents are more likely to follow instructors’ suggestions for home use of technology. The uptake is particularly evident in edtech products for toddlers and kindergarten students.

Sponsored Model

A unique and intriguing approach is one in which neither the school nor the parents pay. Instead, a company is brought in as a sponsor and helps pay for product placement, which is usually done as part of a corporate social responsibility (CSR) project.

The benefit is that when you offer a fantastic product to schools for free, utilisation will be relatively high, which is all that matters to the sponsor. The sponsors have the opportunity to build brand awareness and goodwill for their company.

Sponsored items, such as GoNoodle, can help a company’s image tremendously. This Edtech product gives teachers access to a large video library that encourages pupils to be active, creative, and enjoy learning. To give their goods for free, GoNoodle worked with significant institutions like Tonies, No Kid Hungry, Nicklaus Children’s Hospital, and many others. This contributes to the creation of an egalitarian learning environment in which the impoverished can study alongside their wealthier counterparts.

How to Create a Successful EdTech Startup Business Model?

Following the global outbreak of the COVID-19 pandemic, EdTech has grown in popularity.

EdTech improves the traditional education system by improving pedagogy and the learning process. EdTech’s target audience is not restricted to the education sector but it also includes employed people in huge organizations for corporate learning. To create a successful edtech business model you should follow these instructions.

  1. Have a clear understanding of your user base – You should have clarity on the fact that while kids or employees will be using the app, it is the parents or organizations that will be taking the decision. 
  2. Understand the current issues or loopholes – Talk to your clients, research about their issues, ask them what is lacking in the current system and which features do they think can help them get a better learning experience. Ultimately, create a user persona to fulfill your customers’ needs. 
  3. Build an MVP – Before launching a full-fledged application or solution in the market, build an MVP with the must-have features or USPs of your offering. Following the development, share the MVP with prospective clients to understand how they are reacting to it and if there is a positive sentiment attached to the product.

What is the Cost of Developing an EdTech Business App?

Determining the actual cost of an education app has never been easy due to a lot of factors, including the app’s complexity, features, functionality, the operating system used, development time, and the cost of the development team, among others.

However, depending on the company you choose, the cost of establishing an education app with basic functionality might range from $15,000 to $25,000+. Still, this is a general estimate, which can vary depending on the number of hours it will take to build.

You can also read and acquire knowledge regarding mobile app development cost.

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? 

EdTech market is set to grow at a 2.5x proportion between 2019 to 2025, reaching $404 billion in global expenditure

Q.  Is Edtech profitable? 

The largest companies in this space are Unicorns like ByJu’s and Udemy. Their strategy for the first few years was to capture market share and become a niche-leader. However, currently, both the companies run profitable businesses.

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, particularly in the US, China & India, points to the formation of parallel growth sectors between the West and Asia. 

We say this based on the analysis of all the Global Edtech Unicorns. Online learning has not just come out of its cocoon but established itself as a wide network space of emerging technologies. There are many edtech startups that have failed and risen.

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, some 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. 

Every education app developer for startups should ask the investors and entrepreneurs to 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.

THE AUTHOR
Prateek Saxena
DIRECTOR & CO-FOUNDER
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