Why India’s Ed-Tech Startups Are Shrinking

A dive into the A, B and Cs of India’s EdTech startup landscape.

The education technology (EdTech) sector in India was worth US$2.8 billion as of 2020. With the pandemic forcing schools and children alike to incorporate technology into learning, EdTech has become the third most funded startup category in India after e-commerce and FinTech startups as of 2022. Despite the growth EdTech saw during the pandemic, it has become the latest victim of the slew of layoffs affecting the tech landscape across the world.

One of the biggest EdTech companies in India, Byju’s, announced in June that it would be cutting off 600 people from its workforce. Earlier this year, another EdTech platform Unacademy also fired 600 employees, citing role redundancy as the reason. Other EdTech startups, such as Lido Learning and Udayy, have completely shut down. To make sense of these events, let’s take a look at the reasons behind the slump in the Indian EdTech space and what its future looks like.

A return to traditional classrooms

During the COVID-19 pandemic and the subsequent lockdowns, the sector began booming. It was, in a sense, a replacement for the traditional classroom-based learning that the country had been relying on in the past. However, as the pandemic situation started to alleviate, children have been returning to school. Moreover, around 80% of Indian students found the online learning system burdensome, and they missed interacting with their peers in person. This was a huge hurdle to the synchronous online teaching mode, which is how the industry has been carrying out its classes in so far.

Funding drying up

The pandemic and the subsequent growth of the sector gave investors a green signal to fund EdTech startups. As a result, investments in the sector grew to US$2.2 billion in 2020 compared to US$533 million in the previous year. However, once the seemingly unlimited flow of cash comes to an end, experts say that it would take companies four to eight business quarters to actually get its own cash flow going.

Costs of acquiring customers

The rapid growth of EdTech in India is a result of companies pouring a lot of its resources into acquiring customers. These EdTech platforms were all heavily advertising their services as well as offering discounts to make themselves more attractive to the customers. Experts suggest that EdTech platforms were spending 70-80% of their earnings on consumer acquisition. Once funding dries up, they would no longer be able to spend as much on customer acquisition and thus would be unable to stay afloat.

Unrealistic pricing models

Despite the heavy investments in customer acquisition, EdTech platforms have no customer loyalty. Parents are more than eager to switch their kids from online coaching classes to offline coaching classes because the platforms are charging unreasonably high tuition fees of around INR 2,000 to INR 2,500 (US$25 to US$31) per month. This can add up to INR 24,000 and INR 30,000 (US$300 to US$379) a year, which is the same or even higher than what the parents have to pay for school.

Since the EdTech platforms aren’t a substitute for traditional education, it is only natural that parents would cancel their subscriptions if they are able to find cheaper alternatives in the offline mode.

Lack of attention to educational outcomes

Another cause of a slump in EdTech startups’ growth trajectory is that these companies are more focused on profitability than on education. Many EdTech companies would adopt clickbait advertising or spend huge sums of money on celebrity ads to lure parents into believing the artificially created demands for these online programs. Such extent of commodification of education makes it hard to believe these platforms or online class are developed in the children’s best interest.

Besides, parents have also struggled with getting the required educational material, resulting in their child’s grades dropping. In India, there are different educational boards, and each has its own curriculums. However, some EdTech platforms only provide materials for one of these curriculums, such as the Central Board of Secondary Education (CBSE), claiming that it would benefit the students when they take entrance exams. This is because there is no regulation on the course content, provision of materials and certification, leading to a disparity in quality among different EdTech platforms.

As a result, to lower the cost and to sell their courses, EdTech companies will choose a curriculum that is more popular and teach those study materials to as many students as possible, even if they study a different curriculum. Aiming to maximize profits, they end up forgetting that there is no “one size fits all” approach to education.

What is the future of EdTech in India?

All of these factors show us that there is a need for change in the way EdTech companies operate. By understanding that the students desire a more interactive approach to learning,

EdTech companies are extending their services to the offline mode as well. For instance, Byju’s acquired the medical entrance preparation institute, Aakash Educational Services, for US$1 billion in 2021. In the same vein, Unacademy has launched an offline center in Kota, Rajasthan. It also plans to open other centers in Jaipur, Bengaluru, Chandigarh, Ahmedabad, Patna, Pune and Delhi-NCR.

Going offline requires a lot of investment in physical infrastructure and would even require these companies to hire additional staff to maintain their offline operations. While this might be a lot of expenditure to begin with, it could actually help EdTech startups establish a sense of trust with their customers and retain them long term.

Relying on opportunistic growth is not sustainable. Whether these EdTech startups will continue to shrink or will survive the recent slump depends on how they choose to address their shortcomings all while remaining profitable. At the end of the day, education is all about what students need, and everyone deserves a quality, equitable education.

Also read:

Header image courtesy of Pixabay