Continuing failure of Ed-Tech
-By Nitya Mall
The past two years have witnessed the downfall of a once-booming industry — the ed-tech industry. Renowned companies like Vedantu laid off 385 employees in its fourth layoff round this year, and Unacademy gave the pink slip to approximately 12% of its staff. Other startups like Lido, Udayy and DUX have wound up due to a lack of funds and India’s most valued Ed-Tech startup, Byju’s is now inches away from bankruptcy.
What does not add up is that most of the players in the industry are well-funded and five of them have even reached unicorn status. So, what ails this industry?
Technological development has had a significant impact on most sectors and the technological wave in the education sector was inevitable. Initially, ed-tech startups were providing services at meagre prices. They would hire a few teaching staff on a non-commitment basis to produce pre-recorded lectures and circulate them as per students’ needs. Thus, the cost and maintenance of these startups were low, and this translated into low-cost, quality services for the customers. Investors also saw this as a golden opportunity and jumped on the bandwagon, and the startups received $2.2 billion in investment in 2020, becoming the third most funded Indian startup category.
The pandemic brought with it a serendipitous opportunity for the ed-tech industry. While the entire economy was in turmoil, this industry was thriving with the closure of schools and traditional modes of pedagogy. The companies were offering more discounts and free sessions to increase their consumer base. From being providers of supplementary education, ed-tech startups became platforms of primary education.
In 2022, the pandemic bubble started to burst. With schools reopening and normalcy setting in, enrolment rates in ed-tech platforms plummeted. Numbers might reflect increasing revenues for these companies; however, on the flip side, their costs are also continuously increasing more so, in the post-pandemic era. In FY22, to earn INR 1, unicorns and soonicorns spent Rs 3.63 on average amid pandemic-induced aggressiveness to acquire market share. The faults and lapses in these ed-tech startups were finally exposed.
One of the basic reasons for the crash of ed-tech startups is that both students and parents prefer traditional and physical modes of education and have always remained sceptical of the efficiency and efficacy of online education. The reason behind this is that there is only limited time per student in the case of online modes and a lack of follow-up and tutor-student interactions.
There is a huge gap in the regulation of ed-tech startups. Unlike schools, these startups do not undergo any vetting or verification from the government. There is a complete lack of information on the basis on which the companies hire educators and the quality of service provided. With hundreds of platforms and courses flooding the internet, it becomes even more difficult for the consumer to find the optimal fit, which further drives them away from shifting to such platforms.
On the other hand, most of the ed-tech startups had failed to crack the unit economics. The consumer acquisition cost (CAC) for these companies soared in the pandemic and post-pandemic periods. The customer acquisition cost (CAC) for an ed-tech company serving the K-12 sector in India can range from INR 10,000 to INR 60,000. With the inflow of cash and investment, large companies were able to splurge, but the smaller ones had to bid adieu. Even after huge expenditures on CAC, these companies faced low retention rates. The churn rate in this industry is also high as there are multiple substitutes available in the market, and each company has to continuously strive to acquire new customers as the repeat rates are also low.
Additionally, many of these startups, like Byjus’, spent immensely on marketing. From Byjus’ signing Messi as their ambassador for the Education for All initiative to Vendantu and Unacademy associating with IPL 2022.
In order to cover such heavy costs, companies turned to highly profit-driven models that did not sit well with most Indian consumers. The prices saw huge increments with separate registration costs, course fees, and additional hardware that they started pushing and labelling to be compatible with their interface. The companies started to coerce parents to take loans and purchase long-term subscription plans without providing disclaimers for cancellation. Complaints from dissatisfied customers looking to cancel their trial period offer or subscription lined up, however the response on the part of the companies was lax and lacking.
This all led to the ultimate downfall of the industry, which is now drowning in huge amounts of debt and is continuously laying off employees.
But the story does not end there. These startups are now on the hunt for different methods to remain afloat and restore their former glory.
Most of the ed-tech startups are now looking to diversify and are shifting towards a hybrid model. Byju’s made a significant move by acquiring Aakash Educational Services, a 32-year-old company, in a $1 billion deal. This acquisition marked Byju’s entry into the offline education market, boasting over 200 centres. The company is now committed to investing over $200 million to establish an additional 500 brick-and-mortar tuition centres. On a similar note, Unacademy recently revealed its venture into offline learning with the announcement of upcoming Unacademy Centres dedicated to competitive examinations.
Companies are venturing into untapped areas of the edtech market where they can avoid the challenges associated with B2C cost structures. As an example, some entities have initiated partnerships with schools to digitise the curriculum within the K-12 segment.
The government is also actively trying to enter into collaborations with private organisations to improve the penetration of education through technology, especially in rural India. This could be favourable for existing players to enter into public-private partnerships to provide technology-based education solutions.
The final question is who will be able to survive this race amongst the ed-tech startups. In an overly crowded industry, companies have either gained popularity through aggressive marketing or have acquired a devoted consumer base organically on the basis of their content. Companies that have managed to forge a huge brand name will definitely remain key players in the industry; however, the top players may be the latter.
- Edtech’s failure is Indian education sector’s curse to bear https://www.moneycontrol.com/news/business/startup/edtechs-failure-is-indian-education-sectors-curse-to-bear-9226641.html
- Why are edtech companies struggling despite funding boom. Times of India Blog. https://timesofindia.indiatimes.com/blogs/voices/why-are-edtech-companies-struggling-despite-funding-boom/
- As pandemic boom fades, can ed-tech startups survive? www.business-standard.com. https://www.business-standard.com/podcast/current-affairs/as-pandemic-boom-fades-can-ed-tech-startups-survive-122060600051_1.html