The Inconvenient Truth About the Ed Tech Boom - OZY | A Modern Media Company

The Inconvenient Truth About the Ed Tech Boom

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The Inconvenient Truth About the Ed Tech Boom

By Jon Marcus


The sector's biggest boys are gobbling up most of the investment — and could soon be chomping on their smaller rivals.

By Jon Marcus

This story about was produced by the Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

  • It might seem like the best time to be in ed tech, as investments pour in amid a pandemic that has forced the world’s classrooms to go online.
  • But most of the investment is going to just six companies.
  • They’re now poised to gobble up smaller innovators with smart ideas but little capital to keep up with the expanding demand for their services.

Even as the country skidded to a dystopian halt in the first days of the pandemic, Sam Chaudhary and his colleagues found themselves with more work than they had ever seen.

Chaudhary is co-founder of the education technology provider ClassDojo, which enables students, teachers, and parents to share content, schedules and feedback — a critical need as education abruptly became remote.

“We woke up on a Monday and saw 10 to 15 times” the number of customers the company had served at the same time the year before, he remembers. “It was nuts.”

That ed tech firms are attracting lots of business in a newly virtual world isn’t a surprise. What might be is that many of them aren’t making money from it. Analysts cite ClassDojo as an exception, with a model that gives its services away for free to teachers but charges families up to $7.99 a month to keep kids learning at home.

Other ed tech companies are running out of operating cash and laying off or furloughing their employees, as they contend with higher costs to handle growing numbers of new users who haven’t been paying anything and, in many cases, can’t afford to start.

“Education on the surface in pre-K through [grade] 12 seems to be this amazingly fruitful space” for ed tech, Chaudhary says. But “if you look at the actual performance of companies in this sector, there haven’t been that many successes, even before COVID.”

While the global disruption of in-person education seemed poised to change that, it’s largely benefiting the biggest, established brands so far. Of the 10 most-used K-12 ed tech tools tracked by management network LearnPlatform since the start of the pandemic, eight are from Google. Observers fear that smaller startups with promising ideas may be swallowed up in acquisitions or simply fail to survive.

The ed tech sector received $803 million in investment during the first six months of the year, according to the industry news website EdSurge. But half of that went to just six companies, including the celebrity tutorial provider MasterClass, the online learning platform Udemy, and the school and college review site Niche. Players that are cashing in are “mostly the well-capitalized companies that had enough money to make a pivot,” says Sandro Olivieri, founder and president of the Bay Area consulting firm Productive.

More than 70 percent of the 104 ed tech companies that responded to a survey by Productive said they have been giving away or discounting their products, as many firms tried to attract school districts, colleges and universities for the fall. Only about a quarter of them reported an increase in paying users.

From the outside, the ed tech sector may appear as if “there’s a bonanza and it’s like the dot-com boom again and everybody’s printing money,” says Michael Hansen, CEO of the K-12 and higher education digital learning provider Cengage. “That is not the case.”

Companies have also seen expenses soar. BrainPOP, which produces short animated videos that explain complex ideas to K-12 students, offered its platform for free and has added more than one million new accounts since the spring, CEO Scott Kirkpatrick says. Its server costs have risen, and it has had to hire more workers.

This moment feels a little like earlier recessions in other industries, which is to say there’s often a shakeout.

Michael Horn, Clayton Christensen Institute for Disruptive Innovation

Kirkpatrick is taking the long view, he says. “This is going to do good things for our business for years to come.” The 21-year-old, privately held company has since resumed charging families up to $159 a year for its products. Not all ed tech providers had the capital to do what BrainPOP did, however. Two-thirds of those that responded to the Productive survey said they were six months away from exhausting their operating cash.

“This moment feels a little like earlier recessions in other industries, which is to say there’s often a shakeout,” says Michael Horn, co-founder of the Clayton Christensen Institute for Disruptive Innovation, a nonprofit think tank.

Schools and colleges are short on cash too, amid the COVID-19 crisis. The average school district faces close to $1.8 million in pandemic-related costs this year, according to AASA, the School Superintendents Association, while their budgets are projected to decline by from 16 to 18 percent.

Tired of sales pitches from ed tech providers, one school superintendent in Washington state sent out a tweet begging them to stop. She hit a nerve. The National Superintendents Roundtable started a campaign called “Just Stop It!”

For superintendents, the flood of sales calls came “amid all the problems they were dealing with from people yelling at them for not closing the schools fast enough or closing the schools too fast, not to mention the political and economic pressures,” says James Harvey, the roundtable’s executive director.

Without the time to vet every offer, most buyers appear to be sticking with the brands they know. “There are going to be a lot of districts who say, ‘Let’s just buy that product with the logo that we recognize,’ ” Chaudhary says.

Among the winners is Coursera, which provided every student in the world free access to its online university and college courses. Since mid-March, the company has had nearly 40 million enrollments, a 500 percent increase over the same period last year; the free offers are scheduled to end Sept. 30. Cengage provided free subscriptions to its online textbooks and says 290,000 students took the company up on it, a 70 percent increase from last year. It has returned to charging for its digital textbooks and study tools.

Industry insiders now expect a wave of acquisitions as dominant brands corner even more of the market by snatching up smaller players that provide services they don’t.

“We’re seeing people with capital be opportunistic, who say this is the time to buy a company in a different subject area to round out their portfolio,” says Morgan Battle, managing director at Tucker Capital, who focuses on educational technology. “On the flip side,” he says, there likely will be companies that feel they need to join a larger platform to survive the crisis. “Some unfortunately won’t make it.”

Among those will be startups with promising innovations, says Productive’s Olivieri.

“When the investment is going to the usual suspects in the space, we’re not tracking the best ideas,” he says.


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