Edtech unicorn Unacademy, currently one of the top-most valued start-ups in the online learning space, has extended its course coverage to more than 130 academic categories which are mostly offered as free content on YouTube. The start-up which recently unveiled a YouTube-centric strategy to expand its user base said that it would continue to develop and offer free content as a core strategy well into the future even as few of its competitors such as Byju’s, Vedantu and others bank mostly on paid subscriptions for revenue generation.
Founded in 2015 by Gaurav Munjal, Hemesh Singh and Roman Saini, Unacademy originally began as a YouTube channel that was created by Munjal in 2010. What started as a side project for Munjal turned into an established company, after his education content posted high viewership. The startup commanded a valuation of $3.4 billion in its last funding round in August 2021.
Speaking with FE, Unacademy’s chief operating officer (COO) Vivek Sinha said that the free content approach that it has pioneered over the last few years using YouTube is its most significant distribution strategy that has worked well over the years in gaining new users. He added that offering free content allows the startup to acquire learners in the early stages of their test-prep journey, who later turn into paid subscribers for other specialised course offerings on the platform.
On Monday, Unacademy announced major changes to its future growth plans with a strategy centred heavily on free content published via YouTube. The edtech platform launched 50 new unique education channels for NEET UG, JEE, UPSC and other competitive exam aspirants which the company believes will help ‘democratise’ access to learning.
“In a way, this will strengthen our positioning in the existing category because some of these 50 channels are going to bring in new users. If you look at our evolution, we began offering free content across multiple test-prep and K-12 categories. Once we understood what sold the most, we then went deeper and launched a paid subscription for those specific categories,” Sinha explained.
The customer acquisition cost (CAC) under the free content model can be recovered the moment a user makes a subscription purchase, unlike a pure paid subscription model where the strategy can be sales-heavy. For example, in the case of the live one-on-one tuition classes market, on top of the sales cost, there is a cost of teacher and video streaming. For these models, the recovery of the entire CAC will take longer at an average customer level.
“The good part about edtech is the average order value is so high that we don’t need to worry about doing 20 or 30 transactions to recover the entire CAC. Our average transaction sizes trend upwards of `30,000 in most of the categories and our gross margins are quite high because we are a manufacturer, not a distributor….We don’t incur any extra cost incremental cost for every new content category that we sell. So we recover the entire customer acquisition cost in the first transaction itself,” Sinha pointed out.
However, Unacademy has also spent a large amount of capital in mergers and acquisitions (M&As) with around 12 such deals. Some of its most significant deals include the $50 million acquisition of test-prep platform PrepLadder, the $5 million acquisition of K-12 learning platform Mastree, and the $12.5 million acquisition of professional networking start-up TapChief. To finance these M&As, Unacademy has raised more than $830 million in funding from various prominent investors like Softbank, Blume Ventures, Nexus Venture Partners, Sequoia Capital India, Steadview Capital, and many others.
Sinha said that Unacademy’s M&As strategy is not similar to a ‘private equity’ investment to grow the portfolio size and consequently increase the valuation of the group company. It rather looks at acquisitions and mergers for growing its team strength and for expansion into new academic categories.
“We don’t acquire companies to operate them like a private equity player or just to increase our portfolio size. All of our acquisitions have a very high degree of synergy and we don’t intend to run most of our acquired products separately…the team usually gets merged and the content will get merged, and the user will base will also get merged. Our M&A approach is very different from our competitors, and fundamentally we are builders, and not investors, and believe in building businesses ourselves,” added Sinha.