Year-end thoughts and predictions for 2022 (1 of 2)
As I mentioned before Thanksgiving, I’m going to use these last couple weeks of the year for something a little different. Instead of the normal news roundup, this post and next week’s will be an end-of-year roundup on the areas of EdTech that are top-of-mind for me as I reflect on this year and think about 2022.
These posts are driven by more of my own opinion and intuition than usual. Please remember that nothing I write about is meant for financial gain (mine or others) or to “break news.” This newsletter is a labor of love that I use to push my own thinking on the EdTech space. My hope is that, right or wrong, it pushes yours as well.
On to the roundup!
Control eyeballs to control your destiny
The most financially successful EdTech companies of the past 10 years built businesses that unlocked a high-margin demographic better than incumbents.1 A few examples to illustrate this point:
2U/Coursera: In taking degree programs online, 2U both nationalized user acquisition in what had been a highly regionalized activity and expanded the overall size of the market. Coursera used their consumer reach to build upon this concept at a global level
Guild: By proving to employers that continuing education programs for workers delivered a positive ROI, Guild unlocked a pool of tens of millions of potential learners with funding sitting readily available
Kahoot: By providing infrastructure whose results (games) students proactively sought out, Kahoot’s self-service product allowed for a scaled school-by-school go-to-market strategy previously available only to the major publishers with their thousand-plus person salesforces
I bring this up to emphasize how critical novel customer acquisition channels are when building new EdTech businesses. They are also pretty rare, which is part of the reason we saw a fair amount of acquisition in name of eyeballs this year.2 2U bought 40M edX eyeballs. Chegg bought 120M Busuu eyeballs. Byju’s bought…everything.3
I expect to see more acquisitions like this among the major EdTech players going into 2022. I also expect the industry to grow more discerning when evaluating these deals. edX’s eyeballs are not the same as Busuu’s or Coursera’s, which makes it hard to compare across these companies’ eyeball aggregation strategies.
The slow splintering of K12 education
There are an overwhelming number of crises in K12 education right now - Mental health, nutrition, learning loss, teacher shortages, bus driver shortages, among others. While horrible, my hope is that many of these crises can be solved given time and attention.
Of equal or greater concern to me is how the K12 system adapts to the number of new learning options available to students. Pre-pandemic, the distribution of K12 students looked like this:
Public schools: 47.3M (82%)
Private schools: 5.8M (10%)
Charter schools: 3M (5%)
Home schools: 1.7M (3%)
The pandemic dramatically increased the number of home school students. For the 2020-2021 school year (last Fall), the US Census estimated that 11% of US K12 students were being homeschooled. 2021-2022 school year (this Fall) data is not yet being reported and it is possible that these numbers will regress back towards pre-pandemic levels over time.
I’m more interested in trying to play out the domino effects. On the positive side, this break from the public schooling system may provide the proving grounds for new tools, pedagogies, and funding models. It may also provide the context for change in more traditional settings. We are already seeing individuals like Michael Bloomberg invest in the scaling up of new public models (charters landing somewhere between new and old in my mind), I believe we’ll see other individuals and states do the same.
On the negative side, suddenly taking millions of students out of the public school system could be *really bad* for our education system’s finances. We have an enormous amount of fixed infrastructure cost in the US public school system that was financed with specific enrollment expectations. It is hard to contemplate all the different things that could fall apart when that student funding is instead asked to be spread across all of these emergent options.
I’m not sure where all this goes. It seems like there is sufficient stimulus funding that we will not have to face this reckoning in the coming year, but I will be on the lookout for signs of new fractures.
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I work hard to stay neutral here, but it’s important to me that you all know my potential biases!
A big thanks to Michael Feldstein and a number of others for helping me refine this thought over the past few months. There are a number of other layers to this “eyeballs” thesis that I hope will be covered over time, by both myself and others!
The other part of the reason is that capital is incredibly cheap right now, but I believe we’d still see this type of M&A activity in a higher-rate environment, the numbers would just look different and it might happen a little more slowly
I wish I could spend more time on the Indian EdTech ecosystem, which has been on fire this year, but that might require its own newsletter. Suffice to say, several of Byju’s peers have also been acquisitive this year