New Education, Same Old Mistakes
When was the last time you saw an Indian startup advertising a job opening on television? Never mind that; when was the last time you saw a TV spot for a homegrown company that was so proud of its apparently vibrant work culture?
Byju’s is one of the biggest ed-tech startups in the world right now. It is flush with VC money (to the extent that it posts job openings on television), boasts an profitable business model, and is the leader of an apparent wave of omnichannel transformation in India’s education sector.
And therein lies the kicker — it’s apparent. As fast-growing the ed-tech industry might be, we must acknowledge a significant possibility that there is still no substantial change in how we educate ourselves. That is what this piece will aim to deep-dive into. I’ll look into a) the problems the ed-tech industry is trying to solve today, b) whether that problem-solving translates into substantial learning outcomes, c) the role that venture capital and private equity play in it (and the role they don’t but should), d) how the competitive landscape of the industry is constantly going through an uncertain cycle of change because of its own doings, and finally e) why the growth of major players like Byju’s may not be the Midas touch India has been waiting for.
Before I start, this is not a solely business-oriented piece. The end-goal is to look into how much my premise stands, and that will require business context at different points in this piece.
Anybody who’s a millennial or a Gen-Z in India will know that India’s education system has, for most of its existence, been in a sorry state of affairs. Dropout rates magnify as we progress from grade to grade, higher education is accessible primarily only to those with money, private institutions barely have a mechanism for lending financial aid to kids, and our public institutions have shambolic syllabi. So when Lockdown 1.0 came into effect last year, students were naturally worried how their places of study would be able to cope with such a crisis, and therefore worried about how they themselves would survive. This is true not only at the school level, but also among college students.
Enter ed-tech solutions. The advent of moving all work online gave ed-tech startups an opportunity to scale without spending excessively on physical asset ownership or sales. It also gave VC funds an opportunity into infusing funds with the hope that they’ll see faster, more effective returns on account of lesser costs, and faster achievement of economies of scale.
Ed-tech startups understand their demographic extremely well. Indians have always been anxious about how mobile their kids could be in such a competitive world. In a 2020 report on the industry, Inc42 reported that the income elasticity of education is 0.93, compared to 1.95 for healthcare. The average Indian is okay with education being pricier, but would flinch if it were healthcare. Basically, they’d rather have diabetes than let go of their kid’s coaching classes. Jokes apart, this concerning vulnerability has been a goldmine for ed-tech startups.
The ed-tech industry is broadly divided into 5 major categories: K-12 education, test preparation, skill development, online certifications, and full-stack enterprise solutions for institutions. K-12 and test prep are undoubtedly the fastest-growing sectors. K-12 is predicted to occupy 41% of the market share in the next 5 years, with a nearly-4x growth in market size in that period. In the same vein, per-capita spends for customers are expected to quadruple for the test prep space. Given that home-schooling will also become a rising trend soon, the presence of these platforms increases convenience.
A lot of startups have niches, so it’s easy to define their value proposition. There’s Cuemath, that focuses on building math and coding skills for school-going kids. Camp K12 is also venturing into the same space. While still in its beta stage, Embibe uses AI-based solutions to personalize your learning, including curating smarter tests — a better alternative to pre-prepared material. Testbook and Gradeup focus primarily on government exams. Classplus provides whole tech-based solutions to self-employed teachers to pivot from offline to online teaching. Scaler Academy (formerly InterviewBit) helps with interview prep in product development and data science.
Much of this sounds exciting. However, the talk of the town has undoubtedly been in the test prep sector. Those niches haven’t achieved scale at the levels that test prep-oriented startups (some of them unicorns) have achieved. And solving niches won’t necessarily mean they’ll get pricing right from the get go. A platform like Embibe would be pretty tech-heavy, so much of its costs would arise from backend coding. To achieve fair contribution margins to begin with, the pricing would probably have to cater to a richer section of society.
But there’s arguably another factor at play that’s much larger than any other: marketing. Byju’s spent more than $63 million on advertising in 2019, a 2.4x increase from the figure in 2018 — $26 million. For comparison, the next highest figure in 2019 was that of Toppr (now a Byju’s acquisition) — nearly $3 million. Your guess for what goes on in Byju’s backend is as good as mine. But, the face of the company could very well be its aggressive push-based tactics. This piece started with asking the last time you saw a job posting while you were watching TV. Byju’s hires business development associates like hot cakes. An estimate according to Moneycontrol puts the number of these associates at 40000 and more. Before the pandemic, much of their job involved pursuing leads given by their managers, talking to vulnerable Indian families, and ultimately trying to convince them that they don’t have a better option. After the pandemic, the need for push-based sales only seems to have increased. There has been a continued focus on entrance test-oriented education that has allowed ed-tech to fuel the anxieties of Indian parents.
This is as opposed to pull-based marketing, where you lure in your customer base by telling them how cool your product is. That’s a strategy upGrad, for example, is using. They’re proud of the institutions backing their certification courses, like MICA, IIM Kozhikode, Deakin University, et al. Their 1-year data science diploma also provides access to mock interviews hiring partners. Then, there is Unacademy, whose website front is all about how cool their faculty is. The fact that they also pulled off live online classes at a larger scale, and earlier than anyone else, really helped them achieve a fair product-market fit. Not even Byju’s can boast that, except, of course, until recently, when some of their K-12 content was live classes owing to the pandemic. Then again, it doesn’t seem to be their core concern either. And therein lies the key difference — Unacademy’s target audience doesn’t involve a lot of kids right now. Meanwhile, Byju’s decided to have kids in their crosshairs.
The idea of an education online was initially supposed to be the democratization of resources not easily accessible to everyone. You could be anywhere and learn Andrew Ng’s Stanford ML course, or a foreign language, or any skill that didn’t require you to spend too much on a formal education, yet still be employable enough, at a fraction of the cost. The problem is ed-tech in India is not solving that problem. It’s furthering narratives that have existed for ages. There is still a bottleneck that continues to be capped by formal institutions of learning.
Meanwhile, in places like the US, you have a concept like Lambda School, that are trying to fill that exact gap. The problem-solving in India’s case is only at the post-school stage, where you have firms like Scaler trying to formalize interview prep. Every startup that has eyed kids has most likely just added to their burdens, and not alleviate them. What’s interesting is Lambda’s entry point. Unlike Indian ed-tech, they’ve made the user — you, me — their product. They’re trying to maximize you, because they’re literally investing in you. You’re not just a vanity metric for them. While test prep and skill development may be two separate categories, it’s as if they’re also competing for attention, with test prep always violently pushing aside skill development.
There are two important questions that ideas of product-market fit, marketing techniques, and other performance indicators should raise — 1) what happens to the focus on pedagogy because of this, and 2) do people who fund ed-tech startups lose sight of the focus on pedagogy?
Answering 1) will require checking out the content of these apps. Of course, the visualization of certain ideas in science and math would be hugely effective for kids. That way, there’s little doubt that content creation would be an issue for any of these startups — Cuemath would be doing the same things as Byju’s in that regard. Some videos will be lucid and animated, while some just dull, as this HT piece has to say. Moreover, the content for K-12 could be very different from that of test prep — a given fault with diversification, which is something Byju’s is hedging all its chips on right now.
This is also why content creation is hardly going to be the competitive differentiator for K-12 and test prep. However, in the same regard, the lack of live classes could be a hindrance, because pedagogy depends a lot on the teacher’s style. It has also coincidentally been the value proposition that Unacademy, Vedantu, and WhiteHat Jr have been riding on. Byju Raveendran built his reputation as a rockstar teacher, teaching auditoriums of 20000+ people, and broadcasting the class via the internet. It’s not hard to believe that there could be a compromise in pedagogy when the brand is scaling. So far, the figures say otherwise — Inc42 ranks Byju’s the highest on learning effectiveness among all ed-tech platforms. There’s no detailing of how that survey was conducted, but it’s fair to assume that for understanding concepts in school, it gets the job done. On the other hand, though, you have popular memes like this one. I’m surprised how this has not yet been taken down :)
Top educators on these platforms are paid generously when it comes to the spectrum of teacher salaries. Unacademy’s largest expense type by proportion of all expenses is employee benefits — nearly a quarter. However, a slightly deeper dive reveals a key insight: the payments are based on views. With adequate enough credentials (like a graduate degree), anyone can be an educator on the platform. But, Unacademy started off as a YouTube platform. They’re always on the hunt for independent creators, who have their own subscriber bases. It’s entirely possible that these people could be courted with crafty, attractive signing bonuses. A similar model of poaching faculty is followed by engineering coaching institutes in India.
It may not be a stretch to draw some more parallels between ed-tech and brick-and-mortar coaching as we know them in India. On explaining what attracted them to Byju’s, Sequoia India admires a strategy the startup used to gain users in the beginning— provide exclusive access to a few thousand students to the app through a merit-based selection process. It’s a simple pyramid structure that has worked extremely well for coaching institutes in India. It has always worked because the one idea Indian parents hate believing in is that their kid could be different from these toppers. It has also always ignored that in Indian education, merit has almost always been a function of privilege, caste, and class. All things hustle culture seems to ignore, but we’ll get back to this a little later.
I haven’t forgotten 2). In the past 6 years, there have been 346 funding deals in ed-tech, covering $2.2 billion. As expected, test prep startups had the largest number of deals, and also the largest average funding rounds. Some of the most proactive VC firms in ed-tech include Blume Ventures, Sequoia Capital, Omidyar Network, and Tiger Global, among others.
For a venture capital firm, an interest in the pedagogy would most likely be reflected in annual recurring revenue, customer acquisition cost, customer lifetime value, and margins, which is another way of saying that there may not be a direct interest in the how of the product. There surely is in the what can I get of it. There is a possibility that on pedagogy, a product may rank highly, but the awareness of the product itself may not be as good. That doesn’t stand true only for pedagogy. For quite some time, Toppr was hailed as the better product between itself and Byju’s. It had a smoother, faster, more intuitive app, and was ready to take on its clunkier rival head-first. However, a key reason that the former is now a cog in the latter’s machine, instead of a separate machine altogether, is because it could never crack sales. Product developers were hired to drive sales strategies, and that likely did not work. This article explains why Toppr is an asset worth $150 million in Byju’s accounts today. And, of course, VC firms loved that Byju’s was EBITDA-positive early on, and made leaps in revenue, to the extent that in 2020, it reportedly touched a billion dollars in sales. This lack of direct interest in the fundamentals of education, like pedagogy, doesn’t necessarily ensure the upheaval of our textbooks as we know them.
Private equity/venture capital has had a role to play in India’s education even before this ed-tech wave. American private equity firm Blackstone Group acquired a 37.5% stake in Aakash Educational Services in 2019. The question you should be asking is, “Do foreign PE/VC firms know how torturous and dull coaching classes can get?” The answer is that it may not be too high on their priority list. Aakash is a money-minting machine, one of the largest coaching institutes in India. With Byju’s acquisition of Aakash for $1 billion, the one thing that does get ensured is that Blackstone will have a bumper exit whenever it wants. For Byju’s, it was a two-birds-one-stone kill; they acquire Aakash’s student base, and also expand on their hybrid, online-offline teaching model.
VC firms are at the forefront of a “Bharat-first” penetration strategy. The term “Bharat” refers to tier II, III, and IV cities. It’s a strategy not exclusive to ed-tech; it’s visible in OTT, fin-tech, food delivery, among other spaces. The intention seems to be to spread convenience to every nook and cranny of Indian society. However, that strategy possibly ignores the idea that education as a market is different from others, because it’s a necessity for families. Whole loans are taken out in its name. There are make-or-break emotions attached to education. Sure, VC firms have tons of deal-flow to attend to, so one may say it’s difficult for them to look at every detail. But, this is the core.
The stories of VC firms meeting potential founders are also an interesting lens to view this argument through, because it gives us a glimpse into the mythos that a founder has built around themselves. If you chart Unacademy’s growth back to when they were just a YouTube channel, you’ll find that co-founder Roman Saini was considered no less than a god on Quora. Ah, Quora, the hell that even Satan wouldn’t dare to enter. The fantasy of wannabe Elon Musks and Adam Neumanns. That’s it; Quora occupies no more space in my article. Not just this; there’s a cute moment in Pitchers, where the team is trying to (unsuccessfully) court investors in Hiranandani. They have a meeting in a car, with none other than Gaurav Munjal, co-founder and CEO.
Speaking of Elon Musk and Adam Neumann, and surely Steve Jobs — all males with their own, eccentric personas — Byju Raveendran has developed something of an aura. He has a rags-to-riches story — he didn’t have an English medium education to begin with. He became an engineer. He had CAT classes for some of his friends, until he realized how much he could scale it. When I say that he became a “rockstar teacher”, I mean it — he commanded huge audiences, and a lot of reverence, especially among people in Karnataka. This Forbes profile of him says a lot about him — he looks at everything as a challenge. He suffered an injury during a football game, which he saw as nothing but a hindrance in his grand journey to the top of the education game. The aura that he has about him is clearly one of “nothing can be a barrier if you have a willingness strong enough to overcome it”. He also wears a black t-shirt all the time. If you named your startup after yourself, you would at least be expected to have an envious level of self-confidence.
It’s the kind of mythos that has propelled the admiration of children in their favorite teachers. Mint covered the teachers in Kota, who are paid anywhere between 18 and 30 lakhs every year. The best ones earn more than 50 lakhs per annum, or more. Kota is lined up with banners of teachers who used to be faculty at a premier coaching institute, and have now moved to greener pastures. TVF’s Kota Factory focused on poaching with its “Jeetu Sir” character. The halls of these buildings are laced with talk about XYZ teacher who teaches math like it’s a beautiful piece of sheet music in the best batch of that coaching institute. It’s the same mythos. There hasn’t been a change in that as far as education is concerned. It’s also the mythos so many millennials have eaten up in the form of hustle culture. Everything — be it caste, creed, race, language, mental health — is just a challenge to overcome. You could be anyone, anywhere, anything, and still make it to the top. We now know that to be a majorly ignorant point of view. Or do we?
This mythos still doesn’t take out results on whether that learning is translating into grades, or better yet, development. We only ever know about the best, the chosen few, but what about everybody else? All that we know about learning effectiveness of ed-tech platforms is through limited third-party surveys, of which we don’t know the methodology. Much of ed-tech content today is still in English. We know that these barriers still continue to affect learning, because somebody did cover a J-PAL study about effective online learning. The Ken covered a public initiative called TicTacLearn, that used a combination of content and WhatsApp to ensure that underprivileged students in now-closed public institutions do not lose out on learning because of the pandemic. J-PAL surveyed these students, and found out abysmal effectiveness rates of 2% with Byju’s and 4% with Vedantu. TicTacLearn’s content, on the other hand, is in 5 languages, covers 6 states, and boasts hopeful numbers so far.
I’ve always doubted whether my argument made sense as a whole. Surely, with so much money, with so much business expertise from VC, and with so much founder passion, the education system of India is bound to change, right? But then, the same HT piece that I linked above once before had a remarkable observation when it came to Byju Raveendran:
“Byju Raveendran looks unsettled only once during our PR agent-chaperoned interview, and even then, the pause is so short-lived that you wouldn’t be blamed for missing it. I have just asked him whether he feels he is enabling the familial pressure that forces uninterested kids into intense courses like engineering or medicine, which ends with resentment at the very least, or even suicide in the worst cases.
Raveendran has just spent the last 40 minutes telling me why it’s more important to him to teach students how to learn than it is to prepare them for entrance exams, so the question, I think, is particularly pertinent in his case. The pause is infinitesimal, though, and he quickly regains control of his face and launches into an answer which is probably a version of the spiel he has given a lot of people. In fact, he’s given it to me already.”
I mean, we’re already teaching kids in grades 6–9 coding, with the hope that they land jobs in Microsoft and Google right out the gate.
We probably still don’t need no education.
[This took quite a bit of research, so here goes the research:
Inc42’s Ed-Tech Report 2020 (a solid report if you want to know the whole ed-tech landscape)
https://the-ken.com/story/exposing-edtechs-vanity-metrics/ (a beautiful article)
And finally, the legendary meme: https://www.youtube.com/watch?v=8AZCXqu5ZaE
If you’ve read it this far, thank you. :)]