The country’s education industry is estimated at a whopping $135B. The EdTech sector, with 0.6% online penetration is an $800M market in 2020, which is expected to grow 5x to $4B by 2025, according to Blume report.
EdTech is emerging as India’s #1 consumer internet sector. COVID-19 has proven to be an inflection point for EdTech like the demonetization did for fintech and payments. Legacy institutes and traditionalist parents & students who until now were wary of adopting EdTech, are left with no choice but to embrace digital learning. Also, with over 665 Mn wireless internet subscribers, India has seen a massive 14% increase in the addressable base for internet services in just one year. This has given rise to personalization and convenience when it comes to the school curriculum and off-classroom learning.
From K-12 learning to test preparation and upskilling/reskilling to learning management systems/SaaS platforms, EdTech startups have branched out to cater to various sub-markets. In this edition, we will deep-dive into the popular sub-sectors and emerging startups of the EdTech industry.
EdTech Sectors - Classification by age and nature of edification
EdTech can be thought of in two buckets from a regulatory perspective - regulated and unregulated/private market. The regulated sector is under the strict purview of the government (the government regulates schools and colleges by mandating accreditation, controlling the syllabus, regulating fee structures, etc.), making it a tricky space to operate in. In contrast, the unregulated sector (in which most startups including the likes of BYJU's, Unacademy, Vedantu, Toppr, etc. operate) is allowed to make a profit, charge unregulated fees, and decide their own syllabus. Most of the well known EdTech players in India have been in the unregulated sector.
The matrix below outlines how education is structured in the broad age categories - students in K12 schools, students in universities, and working adults combined with the nature of education (Competitive vs Non-competitive).
Popular Segments in B2C
1. K-12 and Test Prep for School to College
India is an exam-centric educational market and this sector capitalizes on India’s obsession with marks. There are ~71M students in the age group of 5-18 and considering average revenue per user (ARPU) of $200 (BYJU’s charges ~$300/INR22.5K which is a bit on the higher end), the potential market size in this segment is ~$15B. Assuming ~10% online penetration by 2025 given lack of alternatives and growth of cos like BYJU's, Unacademy, Vedantu, Toppr, Mastree, Leverage Edu among many others, the total expected EdTech market would be ~$1.5B by 2025.
2. Test Prep for College to Jobs (Govt Sector)
This is the most diverse in terms of customer personas since the range of jobs is highly varied. Students from the same college pursuing the same degree might choose to work at a software role, a business role, or in a government job - each of which has a very distinct and unique assessment process. Let’s see the market size for government sector jobs.
There are ~100M people in the 22-25 age group. Approximately 25M candidates appear in multiple recruitment examinations for non-gazetted govt jobs and 1.8M students appear for civil services like UPSC. Almost 50% of students (12.5M) prefer test prep services with ARPU of INR 5000/$66 in non-gazetted govt jobs and 50% of students (0.9M) prefer test prep services with ARPU of ~INR25K/$330 in UPSC examination. This makes a potential market size of $1.13 B from the government test prep market.
Assuming 20% online penetration given more demand from Tier-2 and Tier-3 cities because of lack of coaching facilities and growth of cos like Unacademy, Testbook, Adda247, Neostencil, OnlineTyari among many others coupled with regional language content, the total expected EdTech market would be ~$226 M by 2025.
3. Skill Development and Online Certifications
India traditionally has witnessed a huge skill gap when it comes to employment. The effects of the primary school learning deficit are felt at college and university level, where students have made it after rote learning and striving for marks. Only 45.6% of the youth graduating from educational institutions are employable. This presents a huge need to bridge this deficit. Skilling and certification startups are cashing in on this deficit.
There are ~23M white-collar working people in the age group of 25-45 and assuming a 30% target group and ARPU of $250, the total market size is ~$1.7B. Considering 50% online medium because of limited options in the market, the expected EdTech market size by 2025 would be $850M. Currently, this sector is dominated by international players like Coursera and Udacity but the likes of upGrad, Great Learning, and Eruditus have hitched their wagons to the upskilling opportunity. Targeted at professionals looking for a leg up in their careers, these companies offer a variety of short-term and longer-term courses as well as executive education courses.
Popular Segments in B2B
1. SaaS for Coaching Institutes
Startups in this segment are serving hyperlocal tutoring centers with a shopify-like platform and digitizing them. The number of students taking coaching classes or tuitions is estimated at 71 M for K-12. There are ~14M students taking coaching for Government services exams in the 22-25 age group. Most of the startups have priced their product INR1 per student per day i.e INR365/$5 per student per year making the total potential market size of $425M.
Assuming 10% online coverage, the EdTech market size for this segment would be $42.5M and startups like Classplus has already obtained the nod and capital from quite a few high-profile buyers like Blume, Sequoia and RTP Global.
2. SaaS for Schools and Universities
Lockdown due to COVID has made schools more amiable to working with startups and experimenting with the technology. The educational institutions have had to transition to using virtual classrooms, online meetings between teachers, online tools to teach, give, and correct homework, assignments, and exams, creating unprecedented opportunities for B2B EdTech players to serve and disrupt the global market with parallel increasing penetration in India.
Illumnus, a SaaS-based learning management software for schools and universities, is perfectly placed to capture the market not only in India but in other global markets as well.
India’s EdTech is not just limited to the likes of BYJU’s, Toppr, Vedantu, and Unacademy. India is home to over 4450 EdTech startups. 194 of them are funded and another 35 have been acquired. 2020 has especially been very exciting for VC funding for EdTech. In less than 6 months of 2020, the EdTechs have raised as much money as the sector did in all of 2019. 14 Indian EdTechs have raised funds ranging from angel and seed rounds to Series C. We can expect a lot more unicorns and soonicorns to emerge from this sector.
Our Emerging Startups Watchlist
We have been tracking some ed-tech startups for some time. We believe they are going to disrupt the market and are in the process of becoming the next big thing. Though, the likes of InterviewBit and SimpliLearn have already gained a lot of traction and are valued at close to $100 Mn. Here is our watchlist for 2020.
Education is one of the few sectors which has been able to find its way through prevailing pandemic with technology. With demand in this sector likely to be unaffected, more people will be shifting to EdTech than ever.
“The biggest consumer internet company in India will not be an ecommerce company, but an education company.” - Gaurav Munjal, Co-founder and CEO of Unacademy
Now, the big question is “Can India’s Amazon be one of the EdTech companies?” We believe that with higher gross margins, high ticket size, solid unit economics, and rising middle class, the answer could very well be YES!