Is Indian edtech’s house of cards collapsing?

Yatti Soni | | Updated on: Jun 09, 2022
Boy doing on school work with laptop and headphone | Photo by Compare Fibre on Unsplash

Boy doing on school work with laptop and headphone | Photo by Compare Fibre on Unsplash

On-line first approach that worked during the pandemic not so relevant now

Edtech start-ups, which recorded frantic 300 per cent to 400 per cent customer growth during the pandemic, are now struggling under the double whammy of pandemic tailwinds wearing off and a global funding slowdown.

As students return to schools and colleges after almost two years of pandemic, parents have become hesitant in signing up for online classes. “There is this feeling of missing out, especially in the case of parents with younger kids. They are concerned that kid’s confidence and social skills will take a hit because they have not socialised for last two years” an edtech entrepreneur, who does not want to be identified told BusinessLine

Adding to this, Sajith Pai from Investment team of Blume Venture said as Covid provided tailwinds wear off, a lot of the online first approaches are not as relevant anymore. We are seeing models which made sense in a covid world struggle for relevance and fit in a non-covid world. “For instance, online extracurricular classes for kids. People forget that a lot of such classes are about socialisation of the kid with others, or time off for the mom when the kid does a 50-75 minute class at a centre — daycare in a way,” he added.  

To top this, the customer acquisition costs (CAC) in edtech is also rising sharply because of saturation in the traditional acquisition channels. According to Amit Ratanpal, Founder & MD, BLinC Invest, the lead costs increased by a factor of at least two-to-three times after the pandemic, pushing companies to find new go-to-market strategies and customer acquisition channels. However, Scaler’s co-founder Abhimanyu Saxena did not agree that customer acquisition costs overall in edtech is high and said that Scaler’s CAC has been going down consistently.

Edtech going offline

Major players like Byju’s and Unacademy have forayed into offline or hybrid learning models. Even upskilling startups like Imarticus Learning, Stoa School, Scaler have incorporated elements of offline in their course structures. Scaler has partnered with co-living startups to offer customised living space (Scalerverse) to its learners but classes continue to happen online. Stoa School has started experimenting with city-wide meetups and three-days residency programs but its core medium of teaching still remains online.

Whereas, founder and managing director of Imarticus Learning, Nikhil Barshikar said that Imarticus  has been offering hybrid learning from day one. The company has 15 centres across India and is also actively expanding operations to new markets in Tier I and Tier II cities in India and overseas. 

“Edtech companies are looking at offline as an add-on channel to keep growth up. Just as D2C (direct to consumer) companies as they grow move from their own sites to Amazon or Flipkart to physical retail and become omnichannel, we will see growing edtech players also become omnichannel,” said Pai. 

Talking about trend of edtech going offline, Aditya Kulkarni, co-founder of Stoa said, ”for many companies looking at offline, the idea could be that their average revenue per user will go up if they bring people together in offline classrooms. Offline classes can allow companies to charge higher subscription prices because users have access to physical classes, doubt solving sessions etc. Especially, how the last two years have been, most people have been isolated. I also see there is a business value in going offline and my assumption is that is how businesses are looking at it.”

Rising number of layoffs

Well-funded unicorns like Byju’s and Unacademy are able to absorb the skyrocketing CACs and added real estate costs of running offline centers. However, in the case of smaller startups, these factors can make it tough for businesses to survive. This is what happened with an early stage company Udayy, which laid off 100 employees before shutting down its operations earlier this year. 

Another K12-focused edtech Lido Learning is on the verge of acquisition after having laid off about 150-300 employees in February 2022. Further, global funding crunch has led many edtech companies to downsize teams in an attempt to increase their financial runway. Unacademy laid off 600 employees, followed by Vedantu letting go 624 employees, Frontrow laying off 145 employees, Invact Metaversity laid off 20 employees amid co-founders dispute and 30 employees were laid off at Eruditus.

“During the pandemic, a few edtech companies adopted a high-burn-high-growth strategy, without focusing on learner outcomes. With a customer acquisition-focused mindset, the sustainability of the business was effectively dependent on the future rounds of funding. In the event where the companies could not secure new funding, the focus shifted on profitability and sustainability, and in the process, companies had to lay off employees to manage and rationalize their cost base,” said Ratanpal. 

However, Scaler’s Abhimanyu Saxena believes it is happening across industry and not just in edtech. “One reason why there are more stories of edtech could be that edtech was one of the hottest segments last year. The impact is more on companies which had high headcounts, low margins and massive burn.”

Published on June 09, 2022
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