EdTech post Covid.
From lay offs to struggles to pay salaries.
Recently you may have come across headlines like- “BYJU’s lay off 800 employees”, “Vedantu fired 200 people”, and many other EdTech giants laying off employees. These headlines raise several important questions- What has happened to the EdTech industry? Why the industry, which was once the darling of investors is, now forced to cut costs by laying off employees? Most importantly- Why did investors pour in heaps of money for EdTech startups? To answer all these questions, we first have to understand the business model of EdTech startups, which made it so lucrative.
Lucrative and scalable business model
Suppose you own a JEE coaching institute with 2 batches of classes, 11th and 12th each. To run this institute, you need at least three teachers(1 for each subject) who teach the batches the whole year. Then, you will need a building and other infrastructure to conduct the classes. Apart from these, you will need support staff to operate the institute. Considering a batch's average size to be around 50 students, the total number of students you can host is about 200. Now view an EdTech startup which offers the same JEE coaching; what will it need. Three teachers to record the video lectures, a few servers to host the content, and they are good to go. The difference comes at the point where a normal brick-and-mortar coaching institute can host around 200 students for the cost of 3 teachers, and an EdTech startup can use those recorded lectures for thousands of students and even for more than a year. Also, they do not need to rent a building or infrastructure, which reduces their fixed cost. This idea of reaching out to several times more people for almost the exact cost made the EdTechs capable of scaling rapidly, and thus the investors poured billions of dollars into them.
Now you may think, if the EdTech startup’s model was so lucrative and scalable, why are they laying off people. The answer to this is inorganic growth and stiff competition. If you look at EdTech space now, many big names like BYJU’S, Vedantu, Unacademy, upgrade, and the list goes on. Due to this stiff competition, each EdTech, instead of creating a brand association with a student, is trying to acquire the market aggressively by reducing the prices of their courses and spending extensively on marketing. Due to this, they are reducing their profit margins and increasing- “Customer Acquisition Cost(CAC)”, which is the cost a company has to spend to make the customer pay for its product. The inorganic growth is also not adding much to their cause as students don’t care much about which brand they are going for rather, they look for lower prices. This ordeal of increasing CAC and decreasing profit margins has forced EdTech startups to lay off employees as a cost-cutting measure.
WEEKLY ROUNDUP:
⚡ Demo of Hydrogen-Powered bus developed under Startup Program: The 9-meter bus built by Oil India on a 60kW PEM fuel cell engine will power the electric drive and provide a minimum range of 450km. At the same time, emitting water in the exhaust, the company said in the statement.
🤖 Enord- India’s 1st AI On-Edge Drone Tech Startup: The startup incubated at IIITD is designing & developing India’s first AI Pilot™ drone namely, ‘INSPECTOR®’ which is specifically designed for conducting inspections.
🛒 Alariss Global launches in India: US-based global expansion marketplace Alariss Global has announced that it will set up an office in India to help entrepreneurs with global ambitions to launch in the US and elsewhere.
💸 Venture Capital fund approved: On Wednesday (June 22), the Kerala government approved the setting up of an INR 250 Cr venture capital (VC) fund to accelerate the growth of startups in the state.
That’s all for this week!
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