Edtech major Byju’s recently reported its financial results for FY21, showing a loss of ₹4,588 crore, almost twice the revenue of ₹2,428 crore. The decacorn is only the latest in a line of edtech startups such as Unacademy and Vedantu, to name just two, that have posted massive losses with some of them shutting down business and others laying off staff to shave costs and stay in the race. Their situation is due to the questionable business models adopted by these companies over the last two years. The disruption to mobility during the pandemic had led to an explosion in demand for online classes — from K12 to skilling, preparation for competitive exams, and to non-curriculum edtech. The easy availability of capital from private equity and venture capital investors set off a frenzy. Almost $7.7 billion was invested in edtech startups since 2020, across 314 deals, helping create six new unicorns. But as life returned to normal, parents preferred to shift their children back to offline classes, impacting the K12 segment adversely. Funding started to dry up at the same time due to rising global interest rates and tighter liquidity.
Some edtechs also cut corners to acquire customers eroding the credibility of the whole sector. .Thousands of customers are engaged in prolonged tussles with companies to cancel course subscriptions and retrieve the fees paid by them. There are also some complaints regarding misuse of data pertaining to students. With ballooning customer acquisition costs and funding drying up, edtech companies have been aggressively reducing the workforce. Early stage edtech companies Crejo.fun and Udayy have shut shop while Lido Learning has filed for bankruptcy.
The point to note though is that this is not the end of the road for edtech companies. They have to tweak their business models to reflect the changed environment, which some of them have begun to do. While the K12 segment is impacted due to reopening of schools, the test preparation segment, and certification and skilling segments still have many takers for online content, especially in Tier II and Tier III cities where good teachers are scarce. Edtech companies are now also beginning to move towards a hybrid model, offering both offline and online classes, which could be more sustainable. Offering more courses in regional languages could also increase the reach of these companies. But above all, the companies need to shift focus from mindless pursuit of customer acquisitions to learning outcomes, and developing critical thinking skills in students. The industry self-regulatory body, Indian EdTech Consortium, needs to play an active role in ensuring that the players do not resort to unethical practices and the interests of the students are well served. In the battle for the market, the smaller edtechs could fall by the wayside but that is the inevitable path to maturity for the industry.