Why India’s Ed-Tech Startups Are Shrinking

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

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

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

A return to traditional classrooms

During the COVID-19 pandemic and subsequent shutdowns, the industry began to thrive. It was, in a sense, a replacement for the traditional classroom learning that the country relied on in the past. However, as the pandemic situation began to ease, the children returned to school. Moreover, around 80% of Indian students found the online learning system cumbersome and were unable to interact with their peers in person. It was a huge obstacle to the synchronous online teaching mode, which is how the industry has delivered its courses so far.

Funding is drying up

The pandemic and subsequent industry growth has given investors a green signal to fund EdTech startups. As a result, investments in the sector have shifted to US$2.2 billion in 2020 compared to $533 million the previous year. However, once the seemingly unlimited cash flow comes to an end, experts say companies should four to eight business districts to get its own cash flow.

Customer acquisition costs

The rapid growth of EdTech in India is the result of companies to pay many of its resources in customer acquisition. These EdTech platforms all advertised their services heavily and offered discounts to make themselves more attractive to customers. Experts suggest that EdTech platforms were spending 70-80% of their revenue on consumer acquisition. Once the funding runs out, they wouldn’t be able to spend as much on customer acquisition and therefore wouldn’t be able to stay afloat.

Unrealistic pricing models

Despite heavy investments in customer acquisition, EdTech platforms have no customer loyalty. Parents are more than eager to move their children from online coaching lessons to offline coaching lessons because the platforms are paid unreasonably high tuition fees from around INR 2000 to INR 2500 (USD 25-31) per month. This can be up to INR 24,000 and INR 30,000 ($300 to $379) per year, which is equal to or even more than what parents have to pay for school.

Since EdTech platforms do not replace traditional education, it is natural for parents to cancel their subscriptions if they are able to find cheaper alternatives in offline mode.

Lack of attention to school results

Another cause for the collapse of the growth trajectory of EdTech startups is that these companies are more profitability driven than on education. Many EdTech companies would embrace clickbait advertising or spend huge amounts of money on celebrity ads to trick parents into believing the artificially created demands for these online programs. Such an extent of the commodification of education makes it hard to believe that these online platforms or courses are developed in the best interests of children.

In addition, parents also have struggle to obtain the required teaching materials, which leads to a drop in their child’s grades. In India, there are different school boards and each has its own curricula. However, some EdTech platforms only provide materials for one of these programs, such as the Central Board for Secondary Education (CBSE), claiming that it will benefit students when taking entrance exams. This is because there are no regulations on course content, material provision, and certification, leading to a disparity in quality between different EdTech platforms.

As a result, to reduce costs and sell their courses, EdTech companies will choose a more popular curriculum and teach these study materials to as many students as possible, even if they are studying 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. Understanding that students desire a more interactive approach to learning,

EdTech companies are also extending their services to offline mode. For example, 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.

Sign out requires a lot of investment in physical infrastructure and even require these companies to hire additional staff to keep their operations offline. While this may be a lot of expense upfront, it could actually help EdTech startups build trust with their customers and retain them for the long term.

Relying on opportunistic growth is not sustainable. Whether these EdTech startups will continue to shrink or survive the recent crisis depends on how they choose to address their shortcomings while remaining profitable. Ultimately, education comes down to what students need, and everyone deserves a quality and equitable education.

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Header image courtesy of Pixabay

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