“Education is not preparation for life; education is life itself,” – John Dewey, American philosopher.
With the ever-increasing focus on democratization and technology enablement of education globally, it is hardly surprising that ed-tech has been one of the top sectors of this decade in the minds of most investors. With nearly $8B deployed across two thousand companies, private equity investors have unquestionably thumped the table over the potential of this space. How have they fared so far?
A mixed bag, really. 2014 and 2015 witnessed hectic activity in ed-tech, from the point of investments as well as exits. LinkedIn`s acquisition of Lynda for a whopping $1.5B made headlines in early 2015. 4 other ed-tech companies – Udacity (USA), PluralSight (USA), Age of Learning (USA) and TutorGroup (China) – joined the “Global Unicorn Club” with companies like Skillsoft and Blackboard as incumbents. The themes that broadly seemed to have had the highest impact were professional skill development, MOOCs, language learning platforms and early learning. However, it was hard to miss murmurs around the hundreds of companies with excellent content or great new technologies or models that were unable to elicit favorable responses from paying customers and investors. Or, that listed ed-tech companies had largely underperformed their respective benchmark indices, largely around the world. The latter can perhaps be attributed to initial bubbly valuations in the sector that got tempered through more rational linking of valuation with real-world metrics.
So what challenges have impeded scaling of startups in this space? Established institutions (read schools, colleges and universities) hold sway on three-fourths or more of the market in dollar terms, almost everywhere in the world. More often than not, these are resistant or reluctant to change or to adopt new paradigms of technology, stonewalling ed-tech startups. Regulations don’t make it easy, putting restrictive conditions on how education businesses can be run, evident nowhere more than in India. On another end of the spectrum, somewhat encouraged by technology and new age media, free but high quality content offered by the likes of Khan Academy makes it hard to create businesses just on the back of good content. One can garner consumer engagement and loyalty, but monetization, well that’s another story altogether! Another interesting phenomenon is that most education businesses focus on a certain tightly defined lifecycle in a consumer’s life stage and for that reason LTV does not stack up well for the COGS and the CAC. Early learning, test prep, language learning, and professional certification – they all face the classic LTV challenge. Supplemental K-12 is perhaps the only exception but the space is hard to crack for many of the earlier mentioned reasons.
All’s not gloom and doom though. It is impossible to fathom that a $5 Trillion (yes Trillion!) market can stay unaffected by shifts in paradigms caused by the Internet, smartphones, video revolution, social media and artificial intelligence. Private equity interest may ebb and flow but most stakeholders believe deep down that education sector will change forever and technology companies will bring about the change. Early trends are that the following themes will witness the most innovation and thereby create the highest impact in how education is delivered, and consumed in the decades to come –
Personalization – Education as it has existed works through a nexus of Content, Coach and Community. Adaptive learning algorithms, targeted analytics and AI tools can help create the first 2 Cs, which can make education platforms connect with consumers and therefore scale. Gamification and social media connect can cater to the third C. This really is the future of education. Imagine a learning tool that can point and correct weak areas of a school kid even before her teacher or parents become aware of them!
Early Learning – Young parents in this decade have been massively impacted by something that happened in April 2010. The month when the first generation iPad was launched! The iPad and other such touch devices and smartphones are what kids born in this decade are getting their first learnings from. It is almost inevitable that early learning apps will become household phenomena and shape future generations.
School and College Enablement – Established institutions may be slow on the uptake, but they will come around and realize the inevitability of technology intervention in education deliverance. And ed-tech companies that do break into the “system” will benefit from sticky, predictable and repeatable business for sustained periods and likely create valuable businesses.
Language Learning – For a variety of historical and geo-political reasons, English is today the lingua franca of about 120 nations. By some estimates, 80% of English speakers in the world are non-native speakers. These facts intuitively point towards a large global market for English Language Learning, and validated by the scale demonstrated by companies such as Tutor Group, Duolingo, etc. In addition to the English learning market, there is also a large market for learning languages such as French, Spanish, Italian, Chinese, Japanese and German.
Market inflections are hard to call – especially in a market as large, diverse and multi-faceted as the global education industry. But will this sector be massively impacted and revolutionized by technology intervention and positive disruption in the coming decade? We absolutely believe so. And given how much impact that can have on the way the world learns, interacts and progresses forward, we sure hope so!