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Edtech was a hot topic for last 2 years and it made Byju’s the most valuable Indian-owned digital brand. The Edtech story seems to be gradually unravelling in the last few days as these firms are starting to stutter under pressure. Most have been forced to cut staff sharply.
To be fair, these are still nascent signs of trouble. Few weeks back, two of the major Edtech companies in India, viz Unacademy and Lido Learning laid off a number of their employees citing cost pressures. Just last week, one of the Edtech unicorns, Vedantu, has also laid off 3.5% of its workforce or around 200 persons. The Edtech companies call it routine team restructuring based on skills, but obviously, there is more to it. One obvious reason is that most of the Edtech companies are being forced to downsize their revenue estimates after the recent reopening of schools across India. That is likely to reduce demand for online learning. There is the funding part. Most Edtech companies have been getting liberal funding from global PE investors. With monetary tightening already implemented by the US Fed, there is a sense of reluctance among PE funds and VC companies to commit more money to these new digital ideas. That is why the cash burn is starting to pinch these stocks and profits were an elusive commodity anyways. This has put the pressure on Indian Edtech story.
Behind the frenetic growth in market value of these Edtech companies, there was a combination of 3 factors. Firstly, there was the perception created that every student needed to supplement school studies with an Edtech support. Secondly, this was pushed through with very aggressive and over-the-top marketing, which has become fairly controversial of late. Thirdly, in many cases the course content was created by amateurs which resulted in lower rates of renewals. The experience of the users was never as exciting and enlightening as a bunch of smart looking kids and charismatic movie personalities made it appear. The gap between expectations and reality, has just grown over time.
India has a long history of failed Edtech companies. At one point of time, Edtech names like Educomp and Everonn were touted as the next big thing. Educomp took on too much debt and Everonn got embroiled in a fraud. Later, another such attempt by Tree House was also a major disaster. The problem with Indian Edtech is they have thrived on the back of the Greater Fool theory for too long. There is only a point up to which you will continue to get willing buyers. Now it is time to return to reality. Edtech is still a great idea. The future will belong to the Edtech names that create real value for its users and stakeholders!