The K-12 edtech companies have been on a roll for a while. But now barely a day goes by without the announcement of layoffs as major players cut costs and focus on profitability, a U turn from the last two years' path of profitless and almost desperate growth. Since 2020 after schools across India downed shutters, money flowed like water into the sector and the more aggressive players expanded and went on a shopping spree like there’s no tomorrow. But the bubble had to burst and many now believe it has and that the worst is yet to come.
A few days ago, one of the largest players Unacademy announced 350 more job cuts in addition to the 1000-odd it had already effected, as it scaled down or shut some verticals. The CEO of the platform in a statement expressed sadness although he failed to point out the internal or self created reasons for this even as he held forth on external factors.
Prior to Unacademy, Byju’s too announced its intention of laying off around 2500 of its employees across departments including product, content, media and technology. In total, it is estimated that a total of around 7000 layoffs have already happened in 2022 in this space, with several more expected.
While this is definitely a cause of concern for those vested in the industry, there are a few issues here worth examining. One is to assess how much of this debacle is self created and how much is outside anyone’s control. Two, it is worth examining why the higher education edtech companies seem to be cruising along and even raising money and acquiring companies while their K-12 counterparts struggle to keep afloat.
As the pandemic tightened its grip on India and the world in 2020, a lot of the K12 companies stared at a never before opportunity before them. Here was a country with 250-odd million school going children at home staring at a future ahead with no avenues for learning or entertainment. No matter which segment a company was previously operating in, this was too juicy an opportunity to let go. The availability of cheap money made it possible so practically everyone jumped in a frenzied manner into every possible space and segment available : companies that were specialising in tutoring jumped headlong, and with virtually no preparation, into test prep. Those who were focussed on math and science honed into coding and other fields. In addition, the value proposition for this segment has always been lower since a lot of free content is available, both through government and private platforms.
It would be fair to say that very little thought or preparation went into these forays and these were driven more by FOMO or even greed than any strategic thinking. Where they couldn't add a new vertical, these companies bought smaller fish to fill any possible gaps, often at valuations that made little sense. For this, these young and at times brash operators have no one else but themselves to hold accountable. Several of them were egged on by investors who had little on their mind barring how to quadruple their investment in as short a time frame as possible. Even at the time this frenzy was unfolding, many in the space warned that these good times may not last but these were brushed aside or ignored by those who could only see dollar bills.
Industry representatives and others point out that even as one feels some sympathy for fired employees, they too are culpable as many of them left their more stable and perhaps lower paid jobs for the lure of better pay packages and ESOPs even as they knew that the boats they were boarding were rockier and in some cases far less ethical in approach.
Some external factors too have added to the pain of the K-12 edtech industry. To begin with, a return to the normal world of physical classes and interaction has made many parents aware of how important social and peer interaction is for any learning to happen. The same is true for tutoring and test prep. This has meant a return to physical classes across segments and many pure online players have ventured into physical classes, albeit belatedly. Two, funding appears to have dried up across sectors and edtech has like others borne the brunt of it. The overall macro economic environment post pandemic and the Ukraine war has taken its toll on all businesses.
To come to the second question of why higher education edtech companies - be it UpGrad, Emeritus, SimpliLearn, Great Learning - seem far more insulated is primarily because the value proposition and/or the mode of delivery have seen little change pre and post pandemic. Most of these companies offer acquisition of skills or upskilling that improve employability. While many of these players too have diversified into related areas, they have done it in a far more thoughtful and circumspect manner. Most of their buys have been to fill existing gaps as well but in most cases it was to harness and unleash the energy of the founder or promoter of the businesses they have acquired rather than hiring a senior manager to develop it from scratch. The drive, passion and vision that the founder brings can rarely be replicated through a high paid hiring.
Another reason why higher ed edtech players don’t face the same problems as K-12 is their market reach and accessibility. Many of the players can offer their programmes and courses across the globe with equal ease as syllabus or language barriers are far lower. Players like Simplilearn and Emeritus have 60% and 75% of their present learners overseas. This is also a luxury K12 doesn’t enjoy since children typically follow the national curriculums and pedagogies and these vary widely across countries.
In fact many of the Indian higher ed edtech players have reported their highest growth and in many cases profits in 2022 although profitability remains elusive for most. Many of them claim that making money and turning profitable remains well within their grasp - as close as next financial year - but analysts and observers say they could be counting their chickens well before they hatch. But no matter how one looks at it, this space does appear to be staring at a more optimistic future than their K12 counterparts.
Last but not the least, there is one factor that always makes children harder nuts to crack. Children are by nature more fickle and harder to discipline than those in the age groups that the higher-ed players are targeting. Getting a child hooked and remaining there is a Herculean task as any parent will testify. Word of mouth only takes you so far unlike with an adult who sees his contemporary better his situation after finishing an upskilling course or learning a new one. Neither are children interested in keeping one with the Joneses especially when it comes to learning math nor are they beset with anxieties for the future to the same degree. This ensures that the cost of acquiring and retaining a new learner is much higher for the K12 space. A recent survey by L.E.K, a consultancy firm and DC Advisory, an international investment bank, found that only 30 percent of the parents say they are likely to renew their subscriptions for such content. Suffice to say that this is the nature of the beast and partly explains why this segment finds itself in a rockier boat.
In the final analysis, the gloom and doom that currently surrounds the K-12 players may worsen in the short run and many expect it to eventually lead to a separation of the wheat from the chaff. Those that survive this churn may well be the fittest of the fit.