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Consumer
Roger Lee, Justin Da Rosa, Courtney Chow  |  October 29, 2019
Online Universities, MOOCs and More . . . What’s Next in Ed Tech?

It’s clear that education in the U.S. is still in dire straits. We spend more than most other developed countries on education, yet our students have fallen behind in academic success. Educators lack the necessary resources to effectively teach our youth, while the workplace is changing at such a rapid pace that traditional, postsecondary education is becoming increasingly inadequate (despite the rapid growth in higher-ed costs). Large segments of the population—due to income level, English-language deficiencies, disabilities and other factors—find themselves closed off to education opportunities that others in society can easily access.

The good news, though, is that technological and consumer behavioral shifts over the past few years have enabled a whole new set of learning experiences and opportunities that we believe might begin to close some of the glaring gaps in our education system. Entrepreneurs and innovators are now entering what we feel is the next phase of education technology—one marked by an embrace of mobile and social education platforms delivering high-quality and efficacious experiences outside the four walls of an actual school (often through unique B2C or B2B2C distribution models). These businesses are capitalizing on immense consumer demand and beginning to show that scaled, profitable consumer businesses can be built in ed tech.

Although we recognize change will not happen overnight, we are incredibly excited by the times ahead and believe there are several very compelling of areas to pay attention to within education. But first . . . some background on how we got here.

The State of Education in the U.S.

Education is the second-largest industry in the U.S., accounting for a whopping $1.5 trillion of annual spend, according to estimates from BMO Capital Markets. We spend more than most other developed countries on education: As shown below, the U.S. ranks as one of the top-ranked countries in education spend as a percentage of GDP, based data from the Organization for Economic Co-operation and Development (OECD).

Despite all this expenditure, outcomes have been sub-par. Union Square Ventures recently published great research showing that across various measures, educational outcomes have been stagnant for the last 20 years. This includes test scores, satisfaction of education, earnings potential, and employment rates, to name a few.

The lack of progress has caused the U.S. to fall behind many developed countries in academic success. The OECD administers a worldwide exam every three years called the Programme for International Students Assessment (PISA) that measures 15-year-olds’ performance in math, reading, and science across 72 countries. The last published results (2015) showed the U.S. was just about at the OECD average in reading and science and below average in Math.

Beyond academics, there is also a growing concern around workplace readiness and an expanding “skills gap” between what students are taught in school and the skills they actually need in their jobs. More than 50% of graduates believe their formal education is not adequately preparing them to enter the workforce.  Furthermore, increased automation and digitization of the workplace is dramatically changing what skills are relevant in the workplace: 35% of skills considered important in today’s workplace will not be in five years. This is putting increased pressure on companies to find ways to recruit, train, and re-skill their employees.

There are wide-ranging causes of education’s problems (an entirely different post could be written on the topic alone). In summary, they range from complexity and bureaucracy in the system (90% of education expenditure is publicly funded); to under-resourced teachers (OECD data shows that U.S. teachers spend on average more time in the classroom overall, but less time per student, as compared to teachers in other countries); to rising costs of education pricing out students from lower-income demographics (average cost of college has almost doubled in the past 20 years, after adjusting for inflation, and students are sitting on an astonishing $1.5 trillion of outstanding student loans in the US).

Ed-Tech: Some Context

Over the last two decades, the industry has leveraged technology in an attempt to alleviate some of these challenges in the education system. One wave of past innovation centered around reducing the time-consuming, administrative burden that educators face with tasks like enrollment, attendance, course management, assessments, etc. It was this phase that gave rise to “learning-management systems” (LMSes), such as companies like Blackboard and Instructure (Canvas), which digitized and streamlined many of these processes.

Another movement focused on digitizing learning content and scaling delivery of that content. MOOCs, for example, captured the public’s (and investors’) imaginations in the mid-2010s. The acronym stands for “massive open online courses” and refers to interactive courses that are delivered online, direct-to-consumers, on a broad scale. A different group of companies focused on developing digital curriculum, supplemental material, and lessons within schools. Others, meanwhile, focused on helping institutions reach students directly online and remotely—2U, for example, is a company that helps universities build, administer, and market online degree programs.

A third wave of innovation catered to the employment market, specifically businesses whose aim was to build directly employable skills (most of them were technology-related). This includes coding bootcamps (General Assembly, AppAcademy, Hack Reactor, etc.) and digital corporate training (Lynda.com, Pluralsight). More recently, many MOOCs have evolved to B2B-centric models, also providing content and training to people inside corporations.

The Next Phase

Making a dent into an entire country’s education is no easy feat, and we recognize that progress will take time. However, we are more excited than ever by new technology available today that can have an important role in expanding access to new learning opportunities and communities—and in new and different ways than before.

Perhaps most critical is the ubiquity of cloud and mobile, which have enabled the delivery of learning experiences on a massive scale (anytime and anywhere) while lowering distribution costs to virtually zero.

Technology also enables the formation of powerful, close-knit digital communities of students, parents, and teachers who support each other in the experience of learning. After all, learning is inherently a social experience.

Unencumbered by borders or physical distance, many education businesses have scaled their platforms globally – several companies we know have built up sizable international user bases organically. There is clear demand for educational opportunities globally, particularly in emerging markets, where quality learning opportunities at the local level harder to access. In some markets, very large local ed-tech businesses have emerged: two very well-known examples are VIPKid in China and BYJU’S in India (both companies have grown to multi-billion-dollar valuations, according to Pitchbook).

Lastly, the unbundling of education – taking standardized curricula and content from traditional academic settings and making it accessible to the masses in smaller pieces – opens up a world of self-service and DIY learning to consumers.

Considering the confluence of these factors, it is no surprise that investment into the ed tech sector last year was the highest it’s been since 2011.

We are excited by a handful of categories across the education continuum, listed below, that have the potential to improve education as we see it.

Childhood & Youth Development

The criticality of early childhood development is now very well understood (for example, 90% of brain development happens before the age of five). Parents are growing more and more motivated to teach their kids core skills at younger age as a means of getting ahead. At the same time, creative and social experiences woven into education for kids are becoming increasingly emphasized and are proving to have meaningful impact on kids’ learning.

One sub-segment of companies we are excited by includes platforms teaching kids core skills like STEM, language, literacy, and writing skills. Good examples include Epic!, a digital library purpose-built for kids, and Prodigy, a popular digital platform for teaching kids first through eighth-grade math. In addition, we are excited by businesses broadening access to interest-based classes and after-school activities / enrichment programs for young students. Examples here include Outschool, which offers small-group based online classes covering thousands of interests; Sawyer, a marketplace for local kids’ classes, camps, and activities; as well as Homeroom and KidzToPros, both of which help schools manage and scale comprehensive after-school activities and enrichment programs.

Supplemental Learning & Teaching Tools / Materials

We believe that the traditional format of education seen in schools across the country (standardized curriculum, mandated assessments like homework, papers, tests, etc.) will continue to have an importance place in our system. As a result, we envision that innovation in K-12 and college settings will remain focused on improving student outcomes, e.g. test scores, college acceptance, on-time graduation, etc. Where we hope to see change take place in particular is the underprivileged population – helping the one in three high school grads who don’t go to college and the 40% of college students who don’t graduate within six years, for example.

We are very excited by platforms helping both students and teachers in this regard. Brainly, Course Hero, and Quizlet are examples of companies offering students study tools, course notes, test prep, homework help and more across K-12 and college. Tutoring is a massive industry that has been primarily offered in-person to date, but companies like Varsity Tutors are enabling the online delivery of tutoring services at scale. On the educator side, Teachers Pay Teachers is a popular marketplace for teachers to find teaching resources and lesson plans online.

Also included in this category are what we think of as learning visibility platforms, or companies providing more transparency to the teacher, parent, and student relationship – ClassDojo is a highly popular example in this category.

Workforce Up-Skilling / Re-Skilling & Vocational Training

As we discussed earlier, the workplace is changing at a faster rate than ever before, which is re-defining the profile of skills needed by knowledge workers who are graduating college or are already in the workplace. Meanwhile, we’d be remiss to overlook the need for skilled labor – jobs that require special training, certification, or licenses – within traditional industries like healthcare, manufacturing, skilled-trades (electricians, carpenters, mechanics, etc.), construction, and even education, to help alleviate the growing talent shortage in many of these fields.

A plethora of interesting companies have emerged in this category, enabling the development of career-related skillsets directly aligned to job advancement (existing careers) as well as employment (new careers). Guild Education has introduced an innovative model of working with companies to offer education as a benefit to their employees, for example. MOOCs like Coursera, Udemy, and Udacity have formed B2B-focused divisions aimed at selling content directly to corporations, alongside their B2C businesses. Coursera, in particular, has taken an approach of working with industry partners like Cisco, IBM, and Google to offer specializations and certificates in specific disciplines, in addition to online degrees from universities. Degreed is a software platform that helps corporations stitch together their myriad education resources (MOOCs as well as books, articles, etc.) into one simple UI, and provides analytics & insights into their workforce’s learning.

A lot of new offerings are emerging that cater to individuals entering new industries or career paths. Lambda School is innovating on the traditional coding bootcamp model by offering their classes 100% online, paid for via Income Sharing Agreements (ISA), an increasingly popular way of funding education. Traditional industries are gaining attention, too: Osmosis, for example, helps enhance the medical student learning experience with high-quality video content and other study tools like notes, flashcards, case questions, and even a study schedule.

We continue to look for opportunities across all industries and are particularly intrigued by the notion of disrupting the traditional trade / vocation school model.

Lifelong & Interest-Based Learning

We don’t think learning should be confined to just academic or workplace settings. As humans, we all have a natural desire to learn for our own enrichment and fulfillment. In some cases, these have a direct impact on our academic success or job prospects; other times the impact is more indirect. In any case, we think there are numerous opportunities here too.

Language learning is one category where we are seeing a lot growth driven by globalization and growing cross-border communication. Companies like Duolingo and Babbel (popular in Europe) have combined cognitive techniques with gamification to create highly engaging mobile apps for language learning.

Some platforms have taken a vertical, interest-based approach: Skillshare, for example, is built for creatives.

Other companies are disruptive by innovating who the actual educators are. The most well-known example in this category is MasterClass, which offers classes taught by renowned experts & celebrities.

Learning about education is an ongoing effort for our team and firm.  If you think there is something we missed or if you’re building a company aligned with our thesis, we’d love to hear from you!

Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor makes its services available to the public or other advisory clients. The information above is based solely on the opinions of the authors and should not be construed as investment advice. The examples throughout are illustrative and not recommendations or endorsements of any particular business. For more information about Battery Ventures’ potential financing capabilities for prospective portfolio companies, please refer to our website. It should not be assumed that recommendations in the future will be profitable or equal the performance of the companies identified above.

Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this post nor notify its readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate.

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