Is EdTech A Bubble? (5 Reasons it isn't and 5 Reasons it is)

In the past few years, EdTech has become a buzzword in India. People are talking about it; investors are investing in it, and startups are launching left, right and centre.

While some people believe that the bubble has already burst, others think the sector is still snowballing. This article will look at both sides of the debate to better understand what’s going on.

I met with a friend who works for a VC firm, and it got me thinking about the EdTech industry — to say it’s exploding is an understatement. As I was reading through news articles and visiting websites, I realized that I was constantly trying to answer one question in my mind: Are we in a bubble?

Ahh, the billion-dollar question: is EdTech a bubble or not? You go to any EdTech community, whether it is reddit.com or Quora, and they will tell you how the EdTech market is a bubble. But just because everyone thinks it’s a bubble, you shouldn’t believe them right away? Let’s find out.

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With the advent of the internet and smartphones, there’s been an enormous growth in “EdTech” — educational technology.

• There are more than a hundred EdTech companies in India. Most of them didn’t even exist a few years back.
  
• EdTech startups raised more than ₹1,600 crores, and the sector is currently valued at around $2 billion. Competition is high, but so is the demand.
  
• EdTech has also spawned a number of startups with innovative ideas about how technology can be used in classrooms: for example, by creating virtual reality experiences where students can learn science through immersive environments like volcanoes or underwater habitats; or by using artificial intelligence algorithms to teach children math concepts without having them memorize formulas first (which goes against many current educational methods).
  
• For example, you can use your phone to learn coding from Udacity or Coursera or take an online course on business management from Upgrad or Coursera. You can also get an MBA degree from IIM Ahmedabad for significantly less money than the going rate at most traditional business schools (though some critics would argue this isn’t an option at all because AICTE does not accredit it).

The number of students opting for online learning has grown by almost 16%, showing promising signs for India’s EdTech sector. The sector has seen a lot of good and bad investment decisions in the past couple of years.

The sector has seen a lot of good and bad investment decisions in the past couple of years. The industry is valued at around $2 billion.

• EdTech has received much attention from investors, resulting in some exciting developments in Indian EdTech startups and products.

• Online learning is growing in India. According to a report by NASSCOM and the Internet and Mobile Association of India (IAMAI), about 6 million Indians are now learning online. The report also states that the number of registered learners on Coursera alone has grown from 0 to 1 million in just one year.

Let’s look at some significant reasons why Indian EdTech is a bubble.

1. Lack of demand:

More than 70% of India’s population is still below the age of 25 years, and only about 20% are high school graduates or above, according to a study by KPMG. This means millions of children need to be educated in elementary schools across India. A considerable number of students will also have to take admissions in colleges after Class XII, which means they need help preparing for competitive exams like NEET (National Eligibility cum Entrance Test) or JEE Main/Advanced.

Education is an essential social service but has never been a critical area where private investment is seen as lucrative. So investors have largely stayed away from this sector due to its low profitability potential, making it a tough nut to crack for EdTech startups.

2. Lack of trust in platforms:

The second reason why the Indian EdTech is a bubble is that too many platforms offer similar services, but none of them has been able to build trust with their users yet. This has led to distrust among users and made them wary of using new platforms and relying on old ones for their education needs.

For example – I have tried several times over the years to take up courses on Coursera. Still, I have stopped midway every time because I don’t trust that platform anymore after reading about some security breaches or other problems leading to distrust.

3. Unrealistic expectations:

Another reason why many believe that the Indian EdTech industry is nothing but a bubble lies in its unrealistic expectations from investors and customers alike. The investors expect startups to generate high returns on investment within a short period of time, while customers expect them to provide services at low costs without compromising on quality.

4. Poor quality:  

The second reason Indian EdTech is a bubble is because of poor quality products developed or marketed by startups in this space. Many companies are trying to sell products that don’t solve problems or have value for customers who use them.

5. Lack of innovation in products and services offered by players in the market:

• When we talk about EdTech, it is essential to realize that education is not a product or service that can be easily digitized. It is an ecosystem which needs to be nurtured, developed and managed by professionals. The current players are more focused on selling their products than creating solutions. They are more interested in developing products rather than solving problems. They are more interested in selling their services than providing answers to real-life situations.

• The current players cannot differentiate themselves from each other because they are all offering the same kind of services like online assessment, online tutoring etc. There is no innovation happening in this sector as far as product offerings are concerned.

Let’s examine some significant reasons that could pop the bubble and tank EdTech growth in India.

1. Lack Of Demand and Investors’ Interest

There’s a lot of hand-wringing about the lack of demand for EdTech products and investors not being interested in EdTech companies. But there’s no clear correlation between a market that is oversaturated with products and a bubble. The question is why this happens and how long it will last.

As an investor, I don’t know if you can succeed in EdTech if your business model relies on selling directly to customers or entering into partnerships with schools. You don’t have the same margins as other industries where you can sell direct to consumers (or even through big-box retailers).

You won’t be able to make any meaningful partnerships until after you’ve grown into scale… something that takes time (and money). So while there may be plenty of opportunities right now, many aren’t viable at scale yet because they haven’t figured out how to make money from them without raising prices exponentially higher than what parents would pay out-of-pocket.”

2. Government Norms And Intervention

First, let’s talk about government intervention. There are two broad types of intervention:

• Government regulation and norms for the sector. This can be about anything from tax breaks to institutional support, like grants or subsidies for students using EdTech products.
• Regulators like the Federal Trade Commission (FTC) can also impact the industry, as they have been known to bring cases against companies that violate privacy laws or mislead customers with promises of better grades or test scores. (Facebook’s recent issues with user privacy illustrate this point well.)
• Second, we need to consider market size and growth. As a rule of thumb, if there aren’t enough buyers for a product or service, it’s unlikely that it will be sustainable long-term. This is especially true regarding consumer technology products like phones or laptops — most consumers don’t want more than one device at home!
• Government intervention in specific companies or startups within the sector. This would involve individual laws passed against a startup (as with some recent cases), or it could apply more general policies that help one company over another (like when a government decides to buy only from domestic providers).

3. Fake PR And Outrageously High Valuations

You may be thinking: “PR is an essential part of the business, but it’s not fake. It can’t be.” Well, I’m sorry to break it to you, but yes—PR is at least sometimes used for deception.

And it’s not just about creating buzz; PR is also about creating credibility. If the people behind a product or service are known for being honest, sincere and trustworthy, that trustworthiness extends to their product or service, too (even if it’s not entirely true). So if someone buys into this false narrative, they’ll probably remain loyal customers, even when there are signs that something isn’t quite right with what they’re buying into anymore--because they believe in those people and trust them implicitly as long-time friends or business partners who would never do anything maliciously deceitful to make some extra cash off their back (or front).

4. Over-reliance On VC Money And Not Building Revenue Streams

The first reason VC funding is not a sustainable business model is that if you’re going to be reliant on outside investment, it means your plan has to include selling your company before you can move on. That’s fine—and often necessary—but it doesn’t mean you won’t have to worry about revenues and profits. EdTech companies that raise venture capital early in their life cycle will likely need to show proof of concept with revenue-generating strategies from day one.

This means founders are tasked with proving their product works while simultaneously having no way of charging customers for using it. The only option left? Continue raising money until your idea becomes profitable (which can take years). If you’re raising money through an investment round or series A financing round as an EdTech company today and don’t have any revenue streams yet, this could be considered a risky move at best…

5. Innovation and Customer Acquisition Is Harder Than It Looks

The first thing to note is that customer acquisition and innovation are both challenging and very different. Customer acquisition involves building a brand (which takes time), finding the proper channels (which requires experimentation), getting buy-in from management (a long process) and then building products that people want to buy. This can easily take years! Customer acquisition is almost always slow and expensive—if it were cheap and easy, every company would do it well.

But innovation isn’t like this at all—you don’t need anyone’s permission or validation to try something new with your product or service; in fact, one of the great things about being an entrepreneur is having complete control over your business decisions! Innovation means you can choose which problems are worth solving; innovation means you can experiment fearlessly with new ideas without worrying about how much money these experiments are costing or how long they’ll take before yielding any results.

The bubble may not have burst yet, but it could burst soon if companies don’t start to change their strategy for better revenue generation.

I’ve said it before, and I’ll repeat it: EdTech is a bubble. At least some of it is, anyway.

But whether or not you agree with me—or with the market experts who are predicting that the sector will begin to contract around 2025—there’s one thing we can all agree on: the EdTech sector’s growth is unsustainable if its companies don’t start changing their strategies to generate more revenue. After all, bubbles pop when they run out of air.

Here’s a PDF where we have looked at five ways companies can start doing this: focusing less on funding rounds and more on product development and customer acquisition strategies that focus on high-quality users over low-quality ones (a technique known as “acquiring high-lifetime value users).

Top 5 Reasons why EdTech Startups failed

Conclusion

Indian EdTech resembles a bubble regarding money being poured in, but there is a genuine belief in the future of EdTech in India. From global players to Indian startups, everyone wants a share of the pie because you don’t get bubbles when everyone believes in something.

The EdTech bubble may not have burst yet, but it could burst soon if companies don’t start to change their strategy for better revenue generation.

Indian EdTech startups are riding high on the euphoria; flush with cash and rave reviews and running media campaigns to boost themselves, there is a lot that makes this industry look like a bubble. What are the reasons this might not happen? Is it a bubble? What are the chances investors will wake up and pull the rug from under their feet?

The biggest takeaway is that the bubble isn’t just about money or investors’ interest but also about making sure that new startups have a clear vision of how they can generate revenue streams which are sustainable in the long run, so they don’t become dependent on VC money alone.

I do not think EdTech is a bubble, or at least not the Indian variety. There are no signs of irrational exuberance, extreme overpricing and irrationality in valuations. To put it bluntly, most education startups overprice themselves in their initial rounds and manage to get funded. There is also a new wave of entrepreneurs who try to make hay as quickly as they can, but there is a reason why so many investors do not like this approach.

Does that mean India’s EdTech is all set for a big boom? That would be jumping the gun. First and foremost, we are still in a very nascent stage in the development of the industry. There is much more work to be done, viz. awareness generation about these products amongst students, teachers and parents in India, not to mention standardized processes around assessment of learning outcomes etc.

Also, there still is a large gap between the aspirations (as per reports from MHRD) and reality, viz. enrollment rates (which means serious challenges ahead). Some may say this gap is a necessary evil as it allows market forces to take hold and weed out the weak players unable to deliver quality at scale quickly enough.

Whatever the case, Indian EdTech has hardly made a dent in numbers - and it will take some time before they do so; meanwhile, movements like MOOCs (started abroad) might convert some away from EdTech in general, not just Indian EdTech in particular.

So my concluding point would be that let’s keep our expectations about the size of this new industry (and demarcate between what is possible and what we want, which could turn out to be quite different).