The Rise and Fall of Edtech Unicorns in India

The edtech sector in India witnessed a phenomenal growth in the past two years, as the Covid-19 pandemic accelerated the adoption of online learning among students, teachers, and professionals. According to a report by Omidyar Network India and RedSeer, the Indian online education market grew from $247 million in 2016 to $2.8 billion in 2020 and is expected to reach $10.4 billion by 2025.

Several edtech startups emerged as unicorns, or companies valued at over $1 billion, during this period, attracting huge investments from global and domestic investors. Byju’s, Unacademy, Eruditus, UpGrad, Vedantu, and Lead School are some of the prominent edtech unicorns in India, offering a range of products and services across K-12, test preparation, higher education, professional development, and lifelong learning segments.

However, the edtech boom also brought along several challenges and risks for the sector, as competition intensified, customer acquisition costs increased, regulatory uncertainties loomed, and user retention and engagement declined. Many edtech startups are now facing a slowdown in growth, a decline in revenue, and a loss of market share, as the pandemic-induced tailwinds subside and the offline education system resumes.

What are the causes for the downfall of edtech unicorns in India?

Some of the possible causes for the downfall of edtech unicorns in India are:

• Market saturation and commoditization: The edtech sector in India is highly crowded and fragmented, with over 4,500 startups operating in various segments and niches. The entry barriers are low, as most of the edtech products and services are based on similar content, pedagogy, and technology. This leads to a lack of differentiation and innovation, and a high degree of commoditization and price wars. As a result, many edtech startups struggle to create a loyal and sustainable customer base, and have to rely on heavy discounts, incentives, and marketing to acquire and retain users.

• High customer acquisition costs and low lifetime value: The edtech sector in India is characterized by a low penetration and a high churn rate of users, especially in the K-12 and test preparation segments, which account for over 70% of the market. The average annual spending on online education per user in India is only $48, compared to $1,800 in the US. Moreover, the average duration of online courses in India is only 6-12 months, after which most of the users drop out or switch to other platforms or modes of learning. This implies that the customer acquisition costs for edtech startups are much higher than the lifetime value of the users, resulting in negative unit economics and profitability challenges.

• Regulatory hurdles and policy changes: The edtech sector in India is subject to various regulations and policies that govern the education system, such as the National Education Policy 2020, the New Education Policy 2021, the Draft National E-commerce Policy 2021, and the Personal Data Protection Bill 2019. These regulations and policies have implications for the content, quality, accreditation, pricing, taxation, data privacy, and consumer protection aspects of the edtech products and services. However, many of these regulations and policies are still evolving, ambiguous, or inconsistent, creating uncertainty and confusion for the edtech startups and their stakeholders. For instance, the recent ban on online classes for students below class 5 by some state governments, and the cap on the fees charged by private schools for online education by the Supreme Court, have adversely affected the edtech startups catering to the K-12 segment.

• User behavior and preference shifts: The edtech sector in India is also influenced by the changing user behavior and preferences, as the pandemic situation improves and the offline education system reopens. Many users who adopted online learning during the lockdowns may revert to their pre-pandemic habits and choices, as they prefer the social and interactive aspects of offline learning. Moreover, many users may face issues such as digital fatigue, device affordability, internet accessibility, and learning outcomes, which may affect their satisfaction and loyalty towards online learning. Furthermore, many users may opt for hybrid or blended models of learning, which combine online and offline modes, rather than relying solely on online platforms.

What is the future of edtech in India?

Despite the challenges and risks, the edtech sector in India still has a huge potential and opportunity, as the demand for quality and affordable education remains high and unmet in the country. According to a report by KPMG and Google, India has over 260 million students, 1.5 million schools, 39,000 colleges, and 10,000 engineering and management institutes, but faces a shortage of 1.4 million teachers, 2 million classrooms, and 0.8 million labs. Moreover, India has over 600 million internet users, 500 million smartphone users, and 300 million online video consumers, creating a massive digital infrastructure and user base for online education.

To tap into this opportunity and overcome the challenges, the edtech startups in India will have to adopt the following strategies and trends:

• Diversification and specialization: The edtech startups in India will have to diversify and specialize their offerings, to cater to the different segments, niches, and needs of the users. For instance, they can focus on emerging and underserved areas such as vocational education, language learning, STEM education, coding, gaming, art, music, and so on. They can also target specific user groups such as women, rural, low-income, differently-abled, and senior citizens, who have different aspirations, challenges, and preferences. Moreover, they can offer customized and personalized solutions, based on the user’s profile, goals, interests, and learning styles, using data analytics and artificial intelligence.

• Collaboration and partnership: The edtech startups in India will have to collaborate and partner with various stakeholders, such as schools, colleges, universities, teachers, employers, government, NGOs, and other edtech players, to create a holistic and integrated learning ecosystem. For instance, they can leverage the existing infrastructure, content, curriculum, accreditation, and network of the formal education institutions, to enhance the quality, credibility, and accessibility of their products and services. They can also work with the teachers, employers, government, and NGOs, to provide training, mentoring, certification, and placement opportunities for the users. Furthermore, they can join forces with other edtech players, to share resources, expertise, and best practices, and to offer complementary and synergistic solutions.

• Innovation and experimentation: The edtech startups in India will have to innovate and experiment with new technologies, pedagogies, and business models, to create a differentiated and value-added learning experience for the users. For instance, they can use technologies such as virtual reality, augmented reality, gamification, blockchain, and cloud computing, to create immersive, interactive, and engaging learning environments. They can also use pedagogies such as flipped classroom, project-based learning, peer learning, and adaptive learning, to foster active, collaborative, and self-directed learning. Moreover, they can use business models such as freemium, subscription, pay-as-you-go, and revenue sharing, to offer flexible, affordable, and scalable solutions.

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