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Innovation

As kids return to school, Indian edtech faces challenges ahead

Companies have spent billions of dollars to expand their services but there could be change ahead for some.
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Written by Rajiv Rao, Contributing Writer on
An Indian girl using laptop, sitting on floor
Image: Getty Images/iStockphoto

Recently, Indian edtech company Byju's added more to the woes of the Indian edtech sector by announcing it was laying off hundreds of staff.

It's been taken as another sign that while edtech -- education transformed through technology -- has been a star startup sector in India, soaring during the pandemic, it is now facing existential questions about how it will ply its trade in the years ahead.

Indian parents, mostly from middle-to-low income families with no access to formalized online learning during the innumerable coronavirus-induced lockdowns, were desperate for anything that could keep their kids in the game. Edtech firms were only too happy to oblige.

SEE: Flexible learning: How hybrid teaching is changing the classroom forever

Valuations soared. Byju's was an astonishing $22 billion just recently, after raising around $6 billion in venture money over the years. It posted revenues of 2,381 crores (roughly $321 million) in FY20. Byju's collected 75% of this pie from Indian students and 25% from other parts of the world.

We don't know how the company performed in 2021 -- crucial metrics to evaluate its current financial health -- because the firm hasn't released them as yet. Byju's says that it is still de-coding recent acquisitions that have complicated the picture and that the numbers should arrive soon.

With over eight million paying customers and 115 million non-paying subscribers, founder Byju Raveendran and his co-founder and wife Divya Gokulnath have been far from shy about going on talk shows and posting YouTube videos where they talk about an imminent listing in the US or India. 

But with thousands fired by edtech companies, and firms such as Lido and Udayy shutting up shop after burning through hundreds of millions of dollars in VC funding, dark clouds have descended on the industry. 

After all, it is one thing if broader economic factors such as the war in Ukraine or widespread soaring global inflation create issues for edtech. It is an entirely different proposition if the business model of edtech, ballooned and hyped up by the pandemic, is a leaky one.

The return to school

The one thing that has recently upended edtech has been the very thing that it filled in for during the pandemic -- school.

There cannot be a more discouraging landscape -- or a bigger opportunity -- than fixing India's (and, in fact, the world's) primary school mess.

Government schools, where most of India's children learn, are spectacularly dysfunctional, under-resourced and ill-equipped for the task at hand.

Consequently, as of 2018, in a country of 1.4 billion, only half the children at a grade 5 level can read, and even then only at a grade 2 level. A similarly dismal proportion of children are able to do a two-digit subtraction problem correctly.

Those who can afford decent private schools that cost money and are difficult to get into will nevertheless experience a nationwide ritual of rote learning and prompt regurgitation on exam day for the entirety of their school lives.

Not being able to do this well in terms of high marks means being turned away from most good institutions that have impossibly high cut-offs -- a perfect 100% in some cases.

Therefore, to reach those fantastical targets, Indian children finish a full day of school only to once again trudge into yet another joyless educational experience over a couple of hours -- private tutoring.

Here, class lessons are further honed to make those cut-offs. It is a huge industry.

Admissions to ferociously competitive medical schools, engineering colleges or law schools often require the taking on of additional tutoring or 'tuitions' as it is referred to locally. It's the same for administrative services, the police and a plethora of other job categories: Indian edtech caters almost exclusively to these constituents.

Consequently, the pressure on Indian students and their parents, especially the lower you slide on the income scale, often becomes unbearable. 

And yet, education remains the only path out for India's downtrodden. So much so, in fact, that families are willing to spend most of their incomes on whatever else that can give their children the ability to catapult out of their current misery.

These endless waves of hope are what the edtech industry has been currently surfing on. 

And therein lies its biggest problem.

The great edtech squeeze

Indian edtech's revenue model has, by and large, been heavily subscription-based, which means considerable leg work to sign up a customer. Its target is often middle-to-low income families.

When you send out overworked and stressed-out sales agents with impossibly high sign-up quotas to fill, trouble often follows.

As The Ken, BBC, The Hindu and countless other publications have chronicled in investigative reports, some edtech firms have exploited underprivileged families, especially during the pandemic, with a host of unsavoury behavior.

According to these reports, sales teams try and make hapless parents feel horribly guilty if they don't sign-on and admonish them for 'playing with their children's future'. Families are pressed into making commitments, even though sales agents know that payments are beyond their means.

With per capita income in India below $2,000 and average monthly fees that could reach $50, desperate parents who had spent up to half their annual salary on a subscription during the pandemic -- and couldn't afford it after a few months or once school started -- found out that they were locked in for the duration of the one- or two-year contract.

SEE: Cloud computing security: Five things you are probably doing wrong

According to the reports, these parents say that after the fifteen-day trial period, edtech agents vanished. Getting hold of them to cancel their subscription was impossible.

To make things worse, edtech companies had agreements with loan companies who apparently automatically issued loans to new signees without their permission and then begin to auto-debit from family bank accounts.

Companies like Byju's and Unacademy have both responded to these reports by arguing that these complaints are isolated instances if you consider the numbers who are happy with their services. Byju's points to its 85% renewal rate as a vindication of its services and that its grievance redressal rate is a solid 98%.

Meanwhile, the clamour has prodded Indian politicians to taken note. Member of Parliament, Karti Chidambaram, presented the dire state of the sector to his colleagues after which the Indian government issued a general warning to families to beware of the auto-debit trap, but not much else.

Should the government regulate the industry? News editorials have suggested it. The spectre of regulation then galvanized the industry to band together and came up with a self-policing model called EdTech Consortium, which will apparently draw up a 'common code of conduct' and a grievance redressal mechanism.

Even if it works, could it be too little too late to keep those edtech dreams alive?

Edtech goes hybrid

Byju's has to be credited with creating engaging, interesting digital content with personable, polished presenters. It has also no doubt been a boon to millions of Indian families during the pandemic when options were limited.

But some may be asking whether they can afford a paying subscription or if they want it now that school has re-opened. Even if you could afford it, will parents think it's worth it in this era of free content on YouTube? Will you replace it with your regular tutoring center? Or go for both?

Here is a development that answers those questions: edtech is going hybrid with offline centers, and once again, pell-mell speed and scale seem to be the modus operandi.

Byju's is spending $200 million to build 500 offline centers across 200 cities this year. Unacademy has planned a handful in major cities. Others are following suit.

In other words, edtech's online presence is slowly becoming less important -- perhaps a marketing front or a secondary learning site.

The hybrid model, however, becomes a crucial way for companies to de-risk their online business in case retention rates fall, which is happening. Apparently, startups are seeking drastically fewer loans for their students, as reported by their non-bank lending partners.

SEE: Metaverse: Momentum is building, but companies are still staying cautious

From here onwards, it becomes even more of a marketing and pricing exercise -- do you, as a customer, want offline only, or offline with digital, 'offline-digital-engineering-prep', 'online-K-12 with 4 free live chats' and so on.

And they will probably do well considering the desperate desire to get into a decent post-secondary institution that can land them a paying job. But how will these companies now be valued without the 'tech' fueling massive efficiencies, galloping revenues and huge margins?

Today's environment will be much smarter and less forgiving. 

However, there is someone who did not choose a path to vast profits while pioneering a way to help students globally.

Salman Khan, armed with an astounding four degrees from MIT, as well as a Harvard MBA, was dissatisfied with his job managing a hedge fund. In 2008, he quit and pursued his true obsession -- teaching.

He decided to launch Khan Academy -- the first nonprofit online venture focused on providing free, world-class education to anyone across the globe and is currently watched in 100 countries through 46 languages.

Somehow, Khan didn't feel that scale or billions in private capital was necessary to start an edtech company with true impact. He was able to raise enough money from donors.

This doesn't mean that financial incentives, profits and margins don't have a role in education. They certainly do -- if they can exist in a fine balance with the well-being of their customers.

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