MC ExpertEye | Is there a bubble in the making in India’s online learning space? 

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Note to Readers: MC ExpertEye is a weekly series of articles that will dive deep into an important topic by seeking answers from experts.

The coronavirus outbreak and lockdown saw a mushrooming of startups in the education technology (edtech) space that rushed to fill in the gap as schools and colleges shuttered across the country and students were forced to stay home.

Not just the unicorns but even smaller companies have managed to attract investors keen on making the most of the opportunity. But is the sector worth the excitement and the bucks? Does it have in it to survive when the outbreak ebbs and people, especially students, can move about freely?

We asked some experts on what they make of the country’s bustling edtech scenario and the challenges it faces. Here is what they have to say:

The shift to edtech was already on the incline, which has been further accelerated during 2020 due to the pandemic. When new categories are in making and experience high growth, some scepticism is not unwarranted. We are all well off studying this growth and treading the fine line between healthy scepticism versus dismissing it as a bubble.

The massive adoption of edtech products in 2020 is driven by both necessity and convenience. The traffic on Toppr platform has seen a 9x growth over the past 12 months. More than 35 million monthly active users are now accessing the platform for various learning needs. Engagement and frequency of usage have also seen a steady rise. Students spend about two hours per day on Toppr. This is even higher for students in higher grades.

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Currently, there are less than 2 million paying subscribers in the Indian K12 (from kindergarten to 12th grade) edtech market and will grow to 15 million over the next five years. By 2025, edtech would have created more valuation than ride-hailing and food delivery combined. And will emerge as the second-largest internet category after ecommerce. In these circumstances, present valuations lie in the eyes of the valuers.

By 2025, edtech would have created more valuation than ride

-hailing and food delivery combined and will emerge as the second-largest internet category after ecommerce.-Zishaan Hayath

I am sure when the categories like ecommerce and payments were in making, we were sceptical whether they would pass the test of time and complexities of the Indian market. Not only did it give birth to decacorns like Flipkart and Paytm but also created a market for smaller and niche companies to co-exist. We still see new companies and innovations in these sectors every year. And that is because they were solving real problems.

We definitely have addressed some of the key challenges like accessibility and personalisation and also acknowledge that there is a long way to go.

If you are showing fast growth, then there will be no impact on valuations. In fact, valuations may even go up. That said, post-vaccine some of the me-too players that benefited from this buoyant market may not get the premium they commanded.

Edtech is not a bubble. A bubble is when there is no customer benefit and there is no real user and a lot of money is coming in. Here you have users. The number of people using edtech has doubled to 90 million in the last six months. There will be some tempering for sure but so long as the two forcing functions—the pandemic and surplus capital waiting to be deployed in the market—persist, we will see a booming edtech market.

Valuations are always relative to growth and may differ by individual companies but the total valuation of the edtech industry is going to be on the higher side and will witness potential growth. We have experienced some decent investments in test prep and upskilling, but we also see a huge play in content curation and tutorial space like Chegg, Coursehero did in The US and Hujiang in China.

The global edtech market is estimated to grow by $404 billion by 2025 and Indian companies are going to benefit from it, the way it happened to the IT industry.

Education technology companies are working in extremely wide-pipe spaces in sub-sectors where they operate whether it is K12 tutoring, test prep market or higher education/upscaling market for executives.

As far as COVID is concerned, once it finishes, we do feel that some of the students, at least on the K12 side, will go back to high schools and so on and that will create some slowdown of growth. Having said that the higher education market of executive skilling should continue to be fairly robust and should be a long-term growth trend.

Bubbles are only visible in hindsight, not when you are inside them. Education, like healthcare, has traditionally been slow to adopt new technologies. That changed in 2020. Physical infrastructure for education will become less important. At the same time, both teachers and students will need to adapt to online teaching. This will mean devising new teaching methods to deliver lectures and new ways of interaction and assessment.

Edtech, like every emerging area, will go through a phase where a lot of companies get funded followed by a phase where long-term winners emerge. We are certainly in the phase where there is an explosion of ideas, startups and investment.

Edtech, like every emerging area, will go through a phase where a lot of companies get funded followed by a phase where long

-term winners emerge.-Shripati Acharya

I expect this to continue for another 12-24 months since education is an enormous opportunity and there are lots of different segments—pre-school, primary, secondary, higher-ed, vocational, extra-curricular and more. We will also see more options in the K-12 segment for parents than ever before for supplemental education. Finally, best in class content will be accessible to anyone with an internet connection, democratising education in a way never seen before.

In the education sector, we will see the growth of companies that can promote result-oriented education with the use of technology. For instance, companies that can help students with hands-on training, upskilling, technical learning, analytical courses, coding, etc. There is a massive opportunity to disrupt the traditional education system of the country.

In 2021, I think edtech will see consolidation, just like what we saw in the coding domain this year.

-Anup Jain

Now, this goes beyond saying that school education will rely a lot on group learning, classroom teaching and traditional modes of communication but that does not mean that technology cannot step in any format. Technology can be used to make learning management by teachers more tech-savvy.

Like online course works, some parts of lecture sessions can go online. A child can attend a class at 8.30 am online and then go to school for lab sessions, group activity at 10.30 in the morning. There is massive scope for disruption there. In 2021, I think edtech will see consolidation, just like what we saw in the coding domain this year.

Indian edtech sector has been the most funded sector in 2020, with a couple of large players grabbing most of the capital. India’s demographic, macro-economic factors and gaps in the existing educational system offer a deep market with massive growth opportunities.

The education market is expected to grow 2x to $225 billion by FY25 at 14 percent CAGR over FY20-25. The National Education Policy 2020 is a very positive reform and could open many new opportunities once implemented. There is also big potential in overseas markets for some of these products. With strong fundamentals, the long-term outlook for the space is very positive.

One interesting trend to watch out for will be, how and to what extent will consumer behaviour come back to pre

-COVID once education delivery starts coming back to normal in 2021.-Sahil Gupta

The pandemic has acted as a catalyst to the adoption of products by consumers. We have seen heightened activity in the space in 2020, with over 60 seed-stage investments. A large number of startups have been established post the pandemic, especially in previously unexplored segments. Some of these segments have already begun to appear crowded. But, we will see leaders emerge in these segments who will go on to raise significant capital at high valuations as they scale and achieve product-market fit.

Metrics like gross margins and unit economics in certain edtech categories can be very attractive, hence driving up valuations. The number of deals happening may be lesser in the near future, but we don’t see overall investments slowing down. A lot of investors who were previously on the fence with respect to edtech are now actively scouting for opportunities in the space.

As long as companies continue to witness strong growth, traction and user engagement, we don’t see much reversal or correction for the next couple of years. However, as companies mature and start generating operating profits, we could see them being valued on EBITDA multiples instead of revenue multiples, bringing in some correction. Like in 2020, we will continue to see consolidation in the future with smaller and niche players getting acquired.

One interesting trend to watch out for will be, how and to what extent will consumer behaviour come back to pre-COVID once education delivery starts coming back to normal in 2021. This factor could decide the long-term sustainability for a few segments and business models.