Why the Indian Ed-Tech Sector Has Scope For at Least 10 Unicorns
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If we look back in history, at each technological inflexion point, it has been said that these technology shifts will change the face of the education sector. When for the first time radio came, we said education will change; then television came, and it was said that education will change, and now with the internet coming, all of us feel education will certainly change. But education is such a fundamental need for everyone that it does take time for a “disruption”.
This internet disruption phase is different -- provided we focus on doing the right things. Many think that the internet has made high-quality content accessible to the masses as well as distribution has become easier. Thus, people have started confusing a good content company as an "education company" or a good marketing and sales company as an "education company". However, as we all know, education is a lot about outcomes and the learning experience. And the good trend that we see in the Indian ed-tech industry is the rise of multiple companies that are here for the right reasons and are here for making an impact by focusing on outcomes.
In the Past:
If we look back at 2018, it had been a great year for ed-tech in India, both from the market opportunity and business scale perspectives, as well from a funding perspective. Investors are looking at the education sector more favourably. Total funding flowing into the education sector crossed $500 million in 2018 -- after a muted last couple of years. Few companies claimed to have crossed Rs 1,000crore revenue benchmark, and many claimed to have crossed Rs 100 crore revenue benchmark. The early- stage startup ecosystem is seeing a lot of traction across sectors from K-12 (kindergarten to 12th grade) to test preparation to higher education and professional education.
As we all know, education is a large market in India, and there are many layers of inefficiencies built in this sector. This allows entrepreneurs and early-stage companies to build meaningful education companies across sectors. The sheer size of the education sector in India commands not just a couple of billion dollar companies, but at least 10 billion dollar companies. And this year has shown some really interesting trends, which augurs well for the Indian ed-tech ecosystem.
The K-12 segment enrols 250 million learners in India and the quality of education is not of the best quality, and that has allowed companies like Byju's, Toppr and Vedantu to build very interesting businesses in this space. In India, a government job is considered to be the safest and one of the most aspirational career choices, and for some government posts, over 100 aspirants apply. Many companies are looking to capture this ecosystem with robust product offering and differentiated business model. Professional education is also heating up with global companies trying different approaches to target the over 50 million working professionals with their unique offerings. Beyond these specific large segments, many companies are looking at creating a strong position in their own right, from pre-kindergarten education to career counselling to overseas education. Therefore, there has been rapid growth in the ed-tech sector in India.
Here are Some Clear Themes That Have Emerged in The Ed-tech Space:
1) There is a clear theme of shifting from content access to outcomes. Companies have now started focusing on strong handholding that would lead to clear results for learners. Quality now is more important than before. And this is valid across various sub-sectors within the education sector. Especially in the professional education space, there is a strong push by providers to focus on jobs and career outcomes.
2) There is also a strong push towards creating a stronger distribution, along with mass media awareness. Within distribution, companies are leveraging the offline channel for customer acquisition. Byju’s and Toppr are great examples of home-to-home counselling approach, very similar to how “Encyclopaedia”/“Book of Why’s” used to be sold 15-20 years ago with someone knocking on the door and counselling parents to buy those for their children. Many test-preparation providers such as Testbook are leveraging offline distribution/franchise network to attract customers
3) Education is no longer an event, but a continuous process. This is very true when it comes to the professional education space. Education has always been thought of as, once we are 23-25 years of age, we don’t need any further education. The rapid changes that the industry is witnessing currently is forcing professionals to go for constant education and learning, opening up this sector strongly. This has opened up multiple opportunities for building sustainable businesses.
4) Someone who has seen education for many many years once mentioned to me: “In education, everything is about pricing”. And 2018 has also witnessed a strong push by companies towards increasing the average realisation per learner. K-12 companies are looking at offering multi-year subscriptions pushing Average Revenue Per User (ARPU) higher. Test-preparation companies are bundling multiple services to push for higher realisations. Similarly, higher education companies are looking at charging for the value they are offering.
If I have to summarise, 2018 has given strong confidence to various stakeholders with over $500 million of investment flowing into the sector. Though investor frenzy should not define the sector’s attractiveness, the fact that many companies have scaled up, along with focusing on quality of education, bodes well for the ed-tech sector in India. There is a strong sense of excitement among investors and entrepreneurs for building scale ventures. While 2018 had been exciting for the education space, we will have a much stronger 2019 where many opportunities emerge across sub-sectors.