India’s ‘Ed-tech’ Startups Face Opportunities – and a Few Challenges
Seven-year-old Rahul is not sure whether he wants to join
KleverKid or not. His mother took him to one of the outlets of this “one-stop
shop to find the best possible program, afterschool activity, tutor, or coach
for your kid” to survey what they had on offer. “What will they teach me?” asks
Rahul. “They don’t even know how to spell clever.”
KleverKid is among a spate of newly emerging companies
addressing India’s primary and secondary school sector. Given the poor state of
available facilities, there aren’t two ways to look at market demand. “Everyone
is enamored of the large size of the market,” says T.V. Mohandas Pai, chairman
of Manipal Global Education Services.
In highly populated emerging markets such as India, the real
need is for primary and secondary education, or what the U.S. refers to as
K-12. But most of the attention seems to be focused on higher education; even
the Indian government is holding seminars on how to attract foreign students to
Indian colleges. Quality pre-college education has been left to the
non-governmental organizations. It doesn’t help that education has been
declared a not-for-profit sector.
The statistics are disheartening. According to the latest Annual
Status of Education Report (ASER) released last year, India is close to
universal enrollment for the age group 6 to 14, with the percentage of children
enrolled in school at 96% or above for six years in a row. That’s the good
news. The bad news is that reading levels remain low: in Standard III, only a
fourth of all children can read a Standard II text fluently. Math continues to
be a serious and major source of concern. For example, the percentage of
children in Std. II who still cannot recognize numbers up to nine has increased
over time from 11.3% in 2009 to 19.5% in 2014. Notes ASER, which studies
children in rural India: “Compared to similar figures in 2013, there has been
an increase in private school enrollment in almost all states.”
Riding this wave, scores of entrepreneurs in India have emerged
in the education space over the past few years. They have partly been spurred
by the success of TutorVista, an India-based business targeting
the U.S. market that was sold to Pearson for hundreds of millions of dollars.
The current crop of entrepreneurs is concentrating more on the homefront. Their
focus is not so much on formal schools but on adjuncts to learning.
According to VCCEdge, a research platform for the Indian
investment ecosystem, the angel, private equity and venture capital deals in
the education sector rose from 27 (valued at $187 million) in 2010 to 49 ($248
million) in 2014. In 2015, there were 51 deals valued at $155 million. The
largest was the $40 million invested by Sequoia and Aarin (in which Pai is a
partner) in Byju’s Classes. Recently, Byju’s raised another $75 million from
Sequoia and Sofina in the biggest 2016 deal in ed-tech in India.
The ticket size of the investments tend to be on the low side.
Aside from Byju’s, other relatively big deals in recent years include more than
$200 million from two separate deals in 2010 and 2014 by PI Opportunities Fund
and Catamaran (owned by N.R. Narayana Murthy of Infosys) in Manipal, $25
million by Mayfield, Helion and Kalaari in Simplilearn, $15 million apiece
in Meritnation (Info Edge), iProf (Norwest and IDG), Classteacher (Fidelity
Growth) and UpGrad (serial entrepreneur Ronnie Screwvala).
A Big Market
“The education space in India presents a huge opportunity,
primarily because it is largely unstructured,” says Pavan Chauhan, co-founder
and managing director of Meritnation, an online learning and assessment
solutions company in the K-12 segment. “India is an extremely large market for
educational offerings. If we look at some stats, India has over 250 million
students in schools and over 27 million students in higher education. The poor
quality of education in the country coupled with the willingness among the
Indian middle class to pay for a good education creates a wonderful opportunity
for entrepreneurs to make an impact.”
“The total spending on education in India – both public and
private – is around $150 billion,” adds Pai. “Of this, around $50 billion is in
the K-12 space. There are two aspects in education. One is the regulatory
aspect of running the school — curriculum, pedagogy, teachers. … The second is
the process of learning.”
The learning process is a big market for startups to target,
continues Pai. “Learning is getting disrupted in a huge way by technology
startups. Content is being provided on a multimedia basis; tablets with
preloaded contents are being sold; quizzes, tests, online tutoring,
personalized tutoring, MOOCs (Massive Open Online Courses), certification
courses, and all such things are being tried out.”
India — with its growing need for quality primary and secondary
education, the ongoing creation of a technology-based digital nation, and the
proper social environment (the Right to Education Act was passed by Parliament
in 2009) — should have been a laboratory for such experimentation. But efforts
to make improvements have been mixed.
Byju’s Classes is an example of why it is so difficult to get a
fix on the pre-college market. The company, which was started in 2011, entered
the primary and secondary education segment in 2014. But it is not restricted
to teaching kids how to go through school; it has coaching classes for
competitive exams — the joint entrance examination (JEE) for the Indian
Institutes of Technology (IITs), for instance.
Like many others of its ilk, Byju’s is hedging its bets. (The
IIT entrance exam market is huge. Whole cities — such as Kota in the state of
Rajasthan — specialize in coaching classes for the JEE. IIT aspirants spend two
years plus there, studying for IIT and acquiring a school-leaving certificate
from an affiliated school at the same time. The pressure is so high that every
year sees several suicides.)
The pressure starts building up at a young age. The Kotas are
the boarding schools of today, only they don’t believe in games or social
graces. It’s a difficult choice: on the one side a substandard education (only
a handful of private schools in urban areas escape that odium) and on the
other, a crammer.
Says Byju’s Classes founder Byju Raveendran: “India is the
largest K-12 education system in the world, but we consistently rank low in all
global education assessments because of three core problems: Lack of
access to good teachers; learning is not personalized — it’s a
one-size-fits-all approach because of a 1:35 teacher-student ratio in
India (as against 1:14 in the developed world); and, most
importantly, memory-based learning driven by fear of exams
rather than the love for learning.”
Driven by Technology
“There is huge potential to use smartphones and tablets as
learning devices,” adds Raveendran. That, in fact, is the big difference today.
The Internet, howsoever limited it is at present, has spread to the far reaches
of the country. And smartphone penetration is taking rapid strides. “Technology
is what brings flexibility to learning,” says Raveendran.
“Most ed-tech interventions focus on using technology to solve
problems,” says Jairaj Bhattacharya, co-founder and CEO of ConveGenius. The
startup has more than a foot in both camps. Explains Bhattacharya: “ConveGenius
is building two different products under the same technological backbone. One
of them focuses on the K-12 space whereas
the other focuses on the test prep, employability and skills
market for higher age groups.”
“In the past, ed-tech interventions have not been very
successful as the innovation and thought leadership came from the West,” adds
Bhattacharya. “Products were being designed by top-notch engineers sitting in
another part of the world for users based in India or Africa. The innovations
have to be bottom up rather than top down, which means companies need to
understand the real issues at a community level and develop technologies
accordingly.”
“Technology plays an important role in expanding reach, better
learning experiences for children by making it customized, relevant and
on-demand, and measuring efficacy,” says Viswanathan R., co-founder and CEO of
Magic Crate, which builds products for children from ages two-and-a-half to eight.
“Technology has and will continue to play a big role in the K-12
space,” adds Shabnam Aggarwal, CEO of KleverKid, a marketplace for parents
and academies to connect, enroll, and leave feedback about their experiences.
“When the printer arrived, we thought it would change education; it gave us
more books. When the radio arrived we thought it would change education; it
gave us more reach. When the TV arrived, it gave us more entertainment and
engagement. When the computer arrived, it gave us more access.”
Aggarwal continues: “Now that the smartphone has arrived in the
hands of most parents around the world, we should be careful about what we hope
it can and cannot do. The phone combined with the Internet has the power to
give us access to unique bits of information. We can use technology to help us
find the right connections to others; we can use it to build upon fundamentals;
and we can use it to communicate. However, technology alone cannot teach us
empathy, creativity, or patience. It cannot be our mentor, our supporter, and
our challenger. It is simply a powerful tool we can use to enhance and scale
what teachers are already doing.”
“Access to the Internet
and advances in technology have recently disrupted many sectors, foremost among
them being retail, hospitality and banking,” says Vamsi Krishna, CEO and
co-founder of Vedantu Innovations, a one-to-one live online tutoring startup.
“Now is the turn of the education sector to be disrupted. Startups are
introducing new models that are reimagining how education can be imparted and
learning can be enhanced.”
“Until very recently, delivery of quality education was tightly
controlled by the brick-and-mortar institutes and the physical location of good
teachers. What that meant was students had to travel from one place to the
other resulting in considerable waste of time and resources. Many children in
smaller towns and villages don’t have the privilege of moving to bigger cities
due to constrained resources,” Krishna adds. “Clearly, India represents a huge
untapped market for any startup that can address the twin challenges of quality
and accessibility in the education sector.”
Krishna says that prior to launching Vedantu, “we mentored over
10,000 students at Lakshya Institute, our first entrepreneurial venture which
focused on preparing for competitive exams. While the offline model was
successful, we felt a personalized approach towards learning would cater to
students’ needs in a much better fashion. Thus, we conceptualized Vedantu to
bring personalization back into education and to address the basic problem of
generalization and the one-size-fits-all mentality prevalent in the education
sector today.”
Apart from personalization, the two technology-related buzzwords
are mobility and gamification. Says Bhattacharya: “Our main focus areas are
content aggregation and gamification.”
“Meritnation invests heavily in gamifying all key activities
across the site,” adds Chauhan. “A student can earn merit points and badges of
honor and achievement on the site, all of which can be showcased in our Hall of
Fame. This contributes to making studies fun and easy.” On mobility, he says
that Meritnation is at the forefront of mobile education with a range of apps
available on both iOS and Android. “The fact that your entire syllabus with
animated videos, social learning, gamification, tests and more can fit into
your pocket enables learning anytime, anyplace like never before,” says
Chauhan.
“We are using competitive gaming to help students benchmark
themselves with others and then help them improve over time,” explains Shrikant
Latkar, founder of Oust, a gaming platform that helps students compete and
learn. Students continuously play five-question quiz games with other students
and peers to see where they stand. By applying the core concepts of competitive
gaming to learning, our goal is to help students improve their performance and
realize their dreams (from education to employment).”
“I visited 40 odd schools primarily in Tier 2 and Tier 3
cities,” says Latkar, who set up Oust in Cupertino in January 2015. “The
enthusiasm for learning is growing every single day. Access to technology
is improving and solutions that work online and offline will be critical to
win. Students across all economic levels have access to mobile phones. We are
primarily targeting smaller towns because students there can benefit the most
by competing with their more privileged peers in the cities.”
Adds Chauhan: “Online education can be a gateway to unlimited
knowledge and learning, especially connecting students in remote parts of the
country to highly qualified and skilled teachers in the urban centers.”
Limited by Regulations
But the startups are finding out that doing business is not as
simple as learning ABC. India’s Business Standard reported
that education startups are finding it difficult to scale up and meet their
targets. Some of them are on the verge of handing out pink slips to their
employees after investors pulled the plug on funding. “Education is a tough
sector to raise funds as it is fragmented and large.” An associated problem is
that both promoter and investors expect e-commerce style valuations, which is
highly improbable.
“The biggest opportunities in India today lie in the B2C space;
B2B models have been done to death and are in a state of decline as seen in the
huge drop in market cap of once-market leaders like Educomp,” says Viswanathan.
“These opportunities could be in early-childhood, learning-at-home products for
children (the space that Magic Crate is in), to online tutoring (companies like
Vedantu), to marketplaces that connect students with tutors via smartphones.”
As such, this is not a domain that lends itself to repeat
purchase. So the only solution is to expand the market. There are some
established brandnames already, but they largely cater to the competitive exam
category. Byju may have made the leap, but will others be as versatile? They
are on a good wicket anyway; some 50% of the entrants to the IITs come through
such classes. But they suffer from a brick-and-mortar hangover and geographical
limitations; most are unknown outside their base city.
“The biggest challenge is marketing,” says Pai. “How do you
reach the student and how do you ensure stickiness? There is so much
competition in this space and the cost of acquiring a student and sustaining
revenues is very high. The marketing costs are very high. Also, you have to
build annuity streams and invest upfront which is very expensive. And content
creation has to be a continuous process because more and more people are creating
content.”
“The challenges are numerous, from the high costs of customer
acquisition to resistance to the adoption of technology by the supply side —
teachers, tutors, trainers — leading to inconsistent customer experience,” says
Viswanathan.
Then there are the regulations. The main restriction is that
schools must be not-for-profit ventures. “Education in India as per law cannot
be run for profit,” says Chauhan. “Recently however, there has been an
increasing push by the government towards engaging the private sector as a
partner for achieving the goal of universalization of elementary education.
This is a favorable development.”
“I fully support for-profit education,” says Pai. “As long as
the education is effective and the children get good education, I don’t think
we should bother if it is a for-profit or not-for-profit. The not-for-profit
model is a socialist fetish. The politicians have got into it early. Some of
them are running large chains which offer indifferent quality. Many have become
centers of power, and money gets siphoned off. Some companies have invested in
running schools and universities in a for-profit model through a very
convoluted structure. But that is not right and will not work because some
regulations may come in and they could be shut down.”
But the business of education will not close down anytime soon.
From big league philanthropists such as Azim Premji to serial investors such as
Ratan Tata (he has recently steered the Tata trusts to a tieup with Khan
Academy to create tailormade content for India), they are all eyeing the
education turf. Says Raveendran: “The real fun is not in creating a
billion-dollar company, but in making an impact in the way millions think and
learn.”
http://knowledge.wharton.upenn.edu/article/indias-ed-tech-startups-face-opportunities-challenges/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2016-06-09
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