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Why are edtech companies struggling despite funding boom – Times of India


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Pallav Pandey is founder of Uolo
2022 saw several B2C edtech players making some grim announcements. In February 2022, Lido announced to its 1000+ employees that the company is closing down due to lack of funds.  In April, Unacademy laid off 600 employees, followed by Vedantu which laid off 200 employees, and the latest where 800 WhiteHat Jr employees resigned from the Byju’s-owned edtech start-up within a span of 2 months after being asked to work from office. While the undertones, and speculations of these edtech companies not performing well, or not having funds have been the point of discussions, one cannot ignore the fact that these companies are well funded with deep pockets. Edtech startups in India raised more than $4.7 B in 2021, and four of them reached the unicorn status during 2021-22, so why are the B2C edtech models in India struggling despite a good funding to back them? Let’s examine:
High Customer Acquisition Cost | CAC
In the beginning of 2020, when edtech was in full bloom, the cost of customer acquisition shot up by 70-80% of revenue of the edtech platforms from a humble 20-25%. It is a simple dynamic, the marketing and branding activities for all B2C edtech platforms remain the same – its digital. They all relied mostly on digital only channels to generate leads and then hired expensive sales executives to convert them, throwing targets and incentives at them. The cost to acquire a single customer – that includes your whole lead generation and acquisition cycle- became so high that it became impossible to justify the unit economics. Kr. Asia reported in one of its articles that the CAC for an edtech company operating in the K-12 segment in India varies from INR 10,000–60,000 (USD 137–821) per student. Simply put, after investing an exorbitant amount in marketing and retention, B2C edtech firms in India will not be able to make enough money from their models. While the deep pocketed startups were able to splurge money on marketing and advertisements, smaller players had no choice but to exit. 
Unrealistic Pricing Model for Indian Markets
Another issue with the B2C edtech platforms in India is the unrealistic pricing models which they try to thrust on parents. Undeniably high CAC, repeat CAC pushes the edtech players to increase their pricing, without realising that the end customer- the parents have only as much. Central Square Foundation, a nonprofit organisation focused on education, advocates that there are more than 400,000 affordable, low cost or budget private schools across India enrolling more than 7.9 crore students (this number is speculated to be 12 Cr by now), 95% are paying an annual fee of less than 30K INR. The subscribed or paying user ends up paying anywhere between Rs 2000 – Rs. 2500 per month which in most of the cases is more than the school fees. On top of that, various edtech players push the parents to take loans, purchase the devices they recommend to access their courses,  like tabs etc., and coerce them to sign up for a long term subscription model, which parents sometimes do not even know how to cancel. This challenge was highlighted by a report by RedSeer Consulting and Omdiyar Network on edtech (2020) and talked about the gap between the current prices offered by various b2c edtechs and the average price a consumer is willing to pay. The fact that some of the edtech services can cost more than a school’s annual fee is a problem statement that edtechs are failing to solve. Sensibly any parent will invest upto 50% of School fees in after school activities, it should not be the case that they have to choose either/or. 
Contextual Integration is Missing | School Context
What a student learns in school and what he practices at home or invests his time on, improves his/her academic skills- that is the context at least parents have in mind. Indian parents do not want to shell out money on courses which are out of context from the school’s curriculum. The best example to understand this is from the tuition or coaching a child takes. The first question that the humble tutor asks is – ‘what did your teacher teach today?’ and  they help the child revise exactly that. This school context is essential but unfortunately the Edtech companies lack this. The 6 hours spent by the child in school are reset to 0.
Limited Time of the Child
The total time a child has only so much. Traditionally speaking, in a school going kids’ household, a child spends 6 hours of his time in school, after that he/she comes back home to do the homework, or maybe go attend tuition, or just play around or watch TV etc.  The amount of time available to start a child on something afresh is fairly limited. When the schools during the pandemic were fully online, or in hybrid mode or semi-functional, parents and children could have the liberty to pick up something new. In fact we saw a slew of non school curricular focused startups gaining momentum. However, as the schools are opening up, the whole dynamic of how the services of b2c edtech companies is integrated within a schools or child’s timetable has changed. And this is where we see them beginning to struggle.
A lot of B2C edtech players during the boom, and backed by deep funding,  failed to factor in time, effort, context and cost of their target audience before rolling out or marketing their services to the consumers. As things go back to normal, all the above problems we discussed will get compounded, in fact they have already begun to.
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Views expressed above are the author’s own.
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