This is a quadruple blow to India’s hitherto burgeoning edtech crisis. Prices are falling. Funding is drying up, and existing investors are no longer willing to support the careless cash burn to which the sector has become accustomed, resulting in massive layoffs.
All this was just two years ago. The COVID-19 pandemic was precisely the catalyst the sector needed to take off and gain momentum to escape. During the two years when Indian schools were closed (the longest Covid-related school closures in the world), the online learning model of the edtech sector appeared to plug massive gaps in the traditional education sector – both government and private – The schools were exposed due to the sudden closure.
As worried parents flocked to edtech ventures in larger numbers, demand, revenue, funding and valuations soared. Five new unicorns were mined in this area. Venture funding in the sector increased from $500 million in 2019 to $4.7 billion in 2020 ($1.9 billion by Byju’s alone) and jumped 50%, reaching $6 billion in 2021.
This tsunami of money in turn brought a flood of startups in me too. The market estimates that four out of ten startups in the edtech sector aimed at the K12 space in 2021 were Indian. There was much talk of the Indian edtech market reaching $30 billion by 2025 and a potential $300 billion by the end of the decade. According to VC firm BLincInvest, there were over 9,000 edtech startups in India in 2021 and the number of K12 offerings alone was expected to grow 6.4X in 2022.
That was in 2021. 2022, however, is painting a very different picture. If the reopening of schools has sent many of its customers back to the traditional option, its major growth has been halted. Worse, an avalanche of consumer complaints about questionable marketing practices, including loans tied to shadow lenders, with all the nasty clauses hidden in the fine print, prompted the government in December 2021 to defend consumers against misconduct by edtech players. Forced to come up with an advice to warn.
“It has come to the notice of the Department of School Education and Literacy that some edtech companies in the guise of offering free services to parents and signing electronic funds transfer (EFT) mandate or activating auto-debit facility, specifically targeting are tempting. vulnerable families,” the advisory noted. The long list of do-nots specifically cautioned consumers from accepting any auto-debit mandate for loans arranged by the edtech firm through partners. Avoid Automatic Debit Option: Some ed-tech companies may offer a free-premium business model, where a lot of their services may seem free at first glance, but in order to gain access to continuous learning, students need to pay a paid Membership option has to be selected. Activation of auto-debit may result in a child having access to paid facilities without realizing that he is no longer accessing the free services offered by the edtech company,” the circular notes.
As consumer awareness — and unhappy with the questionable marketing strategy adopted by most players — grew, the debt-funded customer acquisition model fell short. NBFCs and small-ticket personal loan providers working with edtech startups have reported a sharp drop in business.
This has exposed a fundamental flaw in business projections painting a rosy picture of unbridled growth of edtech players. Yes, there is a market. According to government statistics, India has over 260 million students, 1.5 million schools and over 10 million teachers, making India the largest school system in the world. But size does not equal quality. Government schools and so-called ‘affordable’ private schools, which contribute over 90% of the enrollment, suffer from severe deficiencies in infrastructure, faculty strength and quality as well as pedagogy, leading to their out-of-school education with EdTech. The door remains open for Offering.
But power is another matter. A survey conducted by SchoolNet, one of the early players in the edtech business, which largely works with both government schools and unaided private schools in the affordable sector across states, found that parents-to-be on schooling Average annual spending by father on schooling such as private or group tuition and exam preparation 14,000 more in government schools 18,000 in unaided private schools. Only 3% of parents with children in private schools spent more than 50,000 per annum on supplementary education. it’s far from from 25,000 125,000 that edtechs target from a single customer. And rising awareness and government warnings have derailed the cunning marketing machines of these players, which relied more on sales talk and less on proper disclosure.
Ed-tech has responded to a growing number of consumer complaints and the imminent threat of a government action – China, which places a similar aspirational premium on education and competition and had an even larger ed-tech sector, was banned in 2021. was given. Profits—and preventing ed-tech from receiving foreign funding or going public—have prompted India’s edtech to become a self-regulatory body.
Going a step further, this is clearly not enough. Two issues are at the heart of the edtech crisis: one, the low attractiveness of online learning (with its hidden cost of equipment and broadband for access) when the alternatives to physical learning have opened up and, second, the affordability factor.
Unless the sector goes back to the drawing board to come up with an alternative delivery model – perhaps a hybrid, instead of positioning itself as an option, it starts working with schools and, above all, starts working with schools on its marketing. Cleans up the Act and reduces your reliance on debt. With consumers driving acquisitions, 2021 could well end as a mere flash in the pan.