By Dayoung Lee and Kabir Sethi
The Union Budget FY24 set aside Rs 1.12 lakh crore for education — the highest-ever allocation to the sector. Finance minister Nirmala Sitharaman also announced the setting up of a national digital library for children and adolescents. The focus on digital infrastructure is good news for the edtech industry, which has seen a sharp rise and a free fall since 2020. During the pandemic, over 130 million Indians came online, causing start-up funding for edtech to grow three-fold, user-base for K12 to double, and the market size growing from $0.7 billion to $2.8 billion. In February 2022, industry trends started to reverse with the reopening of schools. As many as 25 start-ups shut down last year, with big players having laid-off over 7,000 employees. There was attention on the lack of definitive legislation, a push for stronger regulation, and concern around privacy and child rights violations.
While regulation is needed, it’s not the time to write edtech off just yet. During the pandemic, we saw the potential of tech firms in taking educational services to hard-to-reach areas and populations. Research shows that climate change, disasters and forced displacement are expected to cause similar disruptions in learning. While we hope that school closures are in the past, Dalberg research on the massive gaps in access to digital infrastructure points to the need to be better prepared. Students who were unable to make the shift to online classes were forced to miss class hours, drop out of school, get married or engage in forced labour. Building a robust remote learning environment can help prevent this by making our education system adaptable to future shocks.
It can also make education more inclusive and accessible. During the pandemic, one out of 10 households bought a new phone so their children could attend online classes and the proportion of children from households owning a smartphone increased from 36.5% to 61.8%. With a stronger push and the right strategies, tech firms can widen the pool of customers. India is one of the largest markets for education, but edtech has been able to reach only a small section of the population. Expanding their reach to diverse consumer bases and including students from rural, low-income backgrounds could help firms regain momentum. As edtech firms look to regain their footing, what are things that should be top of mind for the industry?
Rebuilding trust
Trust in edtech is eroding. In addition to privacy concerns, customers have grown wary of unfair trade practices. In response, the government is mulling regulation to curb fake reviews, misleading marketing and profiteering.
One way to rebuild trust is effective self-regulation. The India EdTech Consortium (IEC), led by the Internet and Mobile Association of India, saw major players agree to common code of conduct that protects consumer interest and strives to deliver quality, affordable education to all. It’s a good start, but more is needed to ensure tangible accountability. Sector-wide coalitions with a commitment to adhere to standard, ethical practices should be coupled with mechanisms to check and report excesses and violations.
Building trust in products is equally important. A survey by Edtech Impact shows the lack of rigour in quality claims — only 7% of surveyed firms used ‘randomised controlled trials’ to establish evidence and 12% conducted third-party verification. Firms need to move beyond anecdotal evidence, testimonials and case studies to produce quantitative, academic proof of service quality and outcomes.
Partner with state governments
Firms can boost activity in the B2G (business-to-government) segment. The Centre has shown commitment to boosting e-learning platforms through initiatives like Swayam and Diksha portals. These have been crucial to laying the groundwork for remote learning in public schools. More can be achieved if tech firms recognise state governments as important stakeholders.
Most edtech content is aligned with CBSE curricula; the same can be done for state board curricula. The Maharashtra government, for instance, issued a circular in March 2022 restricting NGOs and edtech companies from conducting trainings, running campaigns or distributing e-learning materials to schools without approval from the State Council of Educational Research and Training. They reasoned that such material may not be aligned with the state’s ‘overall education plan’. Developing content that supports state-level plans and curricula can prevent such bottlenecks and make new market segments easier to enter.
Design for rural realities
What does customising services for rural, low-income realities look like? For starters, edtech products should be able to function effectively in low-connectivity, low-bandwidth situations and be optimised for compatibility across devices.
Secondly, they must address the paucity of content in regional languages, which results in many non-English-speaking students getting left out of the edtech learning curve. It calls for active engagement from local stakeholders and developers fluent in these languages.
Thirdly, it means translating social and economic realities that may differ from region to region. For instance, something as simple as needing an email ID to sign up can pose a barrier to rural users. The solutions include user-friendly interfaces, simplified sign-up processes and demystifying unfamiliar vocabulary.
Factor in private budget schools
Estimates suggest that 60-90 million children are served by 2-4 lakh affordable private schools (APS) in India — i.e. 30-50% of children nationally. Data from 2011-15 points towards a shift from government schools to private schools. During this period, enrolment in government schools fell by 9%, but there was a 36% increase (16 million students) in private school enrolment. The pandemic interrupted this growing momentum, pushing many APS to the brink of closure.
Private budget schools remain important for edtech to reach low-income students, and firms would benefit from realising the potentials of this underserved market. Some leading firms have already taken a step in this direction. LEAD, for example, has been specifically targeting APS through teacher training and learning resources. Similarly, Educational Initiatives (EI) provides personalised adaptive learning to low-income students in public and private schools. These models show the merit in expanding the base beyond affluent, urban and private school students.
Develop innovative funding models
The industry is marked by heavy costs of developing products and marketing them. Providers spend heavily on promotion (200-400% of revenue in initial years) due to lack of diversification and differentiation. This comes down to 40-50% post achieving scale. In the B2G space, there are additional hurdles. Overcoming red tape and convincing authorities to buy an edtech product is time-consuming and expensive.
As a result, edtech products are expensive. There is a huge gap in what they cost and what non-users are willing to pay. Users spend Rs 15,000-20,000 (three times higher than what non-users are willing to pay, at Rs 5,000-10,000). In the case of government schools, tenders for edtech solutions pay less than Rs 200-300 against their cost of Rs 1-2 lakh.
With services out of reach for a majority, new funding structures and innovative models must be explored to drive down costs and increase affordability. Strategies anchored in transparency and outcomes, such as impact loans, must be explored. Our work with the QEI DIB has shown that educational bonds can help achieve improved learning outcomes with reduced risks for investors. Our analyses have shown greater reliance on CSR funding and a shift in donor preferences towards gender and climate. Intersections with education exist along these axes, and can be leveraged to attract funding.
The industry can produce multifaceted benefits for the education ecosystem. It has proved crucial in pivoting to remote learning environments during an emergency and can serve a similar purpose in the long run. There is evidence to suggest that as the sector matures, it could translate into better learning outcomes for students. The edtech growth story need not be over. Developing cost-efficient products, tailoring them to newer audiences, and building fruitful partnerships and coalitions are some of the ways to ensure this.
Lee is partner and the co-lead of Education to Employment Practice, and Sethi is associate partner, Dalberg Advisors.