The Netflix model may just save India’s online learning apps

Then Byju’s began to crumble. As schools reopened after the pandemic, its K-12 business waned. A unit that taught youngsters how to code
imploded. An established network of test coaching centers, one of founder Byju Raveendran’s many expensive acquisitions, is doing well. But that franchise — Aakash Educational Services — has several owners and can’t be easily monetised.

With creditors of an unpaid $1.2 billion loan trying to drag it it into bankruptcy, Raveendran has lined up a rights issue at a pre-money valuation of $25 million. Investors like Prosus NV and Peak XV are livid. Two years ago, Byju’s was worth $22 billion. They and other backers, owning 30 percent, reckon that the startup’s only chance of survival lies in ejecting its eponymous founder. They want to put up the proposal to a shareholder vote.

The swift rise of Indian edutech coincided with a drying up of opportunities in China. What began there in 2018 as a ban on for-profit kindergartens
from getting equity-market funding became a full-fledged clampdown. The tutoring sector was barred in 2021 from providing classes on school curriculum subjects. That helped draw capital to India, especially during the Covid-19 lockdowns. Byju’s rapid decline has put a big dampener on that excitement.

Yet, online education is still a viable proposition in the world’s most-populous nation, though it’s the test-prep market that has real demand, not K-12 or coding. India has a little over 100,000 medical and dentistry placements, with more than 1.5 million jostling to get in. The 23 Indian Institutes of Technology accept only 17,000, after a main test followed by an advanced exam.

Alakh Pandey is the original @PhysicsWallah on YouTube, where he has 11.6 million followers. Even before he floated PW, the college dropout had amassed a following across smaller cities and towns as a superstar coach. His cofounder Prateek Maheshwari trained as an engineer at one of the IITs and worked at Caterpillar Inc. After the fundraise, PW set up a campus in Kota, a city in the northern Indian state of Rajasthan that has emerged as a mecca of test prep. Nearly 300,000 students land up there annually, hoping to give themselves — and their families — a shot at a better life. (Maheshwari says that the most defining period of his teenage years was the time he spent in Kota, preparing for the IIT entrance exam.)

Byju’s Raveendran had taken a similar bet on offline tutoring when he bought Aakash for about $1 billion in 2021. Before PW’s entry,
Unacademy, backed by Singapore’s state investor Temasek Holdings Pte among others, had also stormed Kota, poaching tutors from Allen Career Institute, the leader. The family-run Allen responded to the online threat by taking $600 million from an investment platform of media mogul James Murdoch and Uday Shankar, a former Asia-Pacific president of Walt Disney Co.

Ronnie Screwvala, the cofounder of upGrad, a skills-development platform, is also a Bollywood movie producer. The similarity with media is hardly incidental. It is keeping interest in Indian edutech alive, as players look to marry the scale of cloud computing with the classroom clout of charismatic, million-dollar tutors to create a winning hybrid. But which is a superior route? A coaching-center heavyweight like Allen building digital muscle? Or an internet sensation like PW entering the brick-and-mortar world?

Both approaches could work, provided companies don’t seek to replicate Byju’s hyper-aggressive sales machine or spend as lavishly as it did on unrelated acquisitions. PW now offers courses for 35 Indian exam categories, including civil services and army recruitment. Cofounder Maheshwari is opening one new offline center every five days. Annual sales have more than doubled in one year to 20 billion rupees ($240 million), supported by around $50 million from assorted acquisitions. About 54 percent of the remaining $190 million is from online tutoring, while another 43 percent comes from 50-plus physical locations, where more than 180,000 students shell out $500 apiece. A money-making core generates resources for expansion. The buzzwords are affordability and profitability.

The funding winter for edutech is real — the shock from Byju’s collapse is still playing out. The next big unknown is government policy. Nobody expects a Beijing-style showstopper, but New Delhi recently announced guidelines for the industry. State governments will make their own rules amid hectic lobbying to relax the proposed minimum age of 16 years for
after-school tuitions. It will be almost impossible, however, to police online apps. The government is rightly worried about the stress on youngsters, often leading to self-harm. But as PW’s Pandey says, many of India’s small villages got their first engineers and doctors because of the internet. That quest for upward mobility will be impossible to kill.

Andy Mukherjee is a Bloomberg Opinion columnist. Views do not represent the stand of this publication. 

Credit: Bloomberg