5 differences between consumer and institutional edtech

We have had a couple of institutional edtech exits in the last month - engrade and area9.  Institutional edtech companies are ones whose customers are the insitution - teachers, schools, districts, etc.  consumer edtech companies make the student or parent their customer.  Historically, the vast majority of edtech companies were institutionally focused, because it was more likely that students had access to devices and the internet at school than at home.  This flipped about 12 months ago.  With the advent of the smartphone, far more students have access at home than school across all demographic segements.  Companies like edmodo, class dojo, remind101 and zeal have recognized the flip and made their products free to schools in hopes of building large networks of students and parents.  Other companies like duolingo and various coding apps are going directly to consumers through app stores.  It is too early to tell if these strategies will work, or if large networks of consumers monetize well in the learning space, but it is a very different approach from institutional edtech.

When we get exits on the institutional side, it often reinforces the notion that there is a level playing field  in financial outcomes between institutional and consumer learning approaches.  Here are 5 reasons why these approaches differ and why the degree of difficulty and timeframe for creating value in institutional is dramatically higher.

1 - Capital - Consumer learning works off the same proof points as standard consumer internet products - traction, retention, growth, monetization.  The success of what you are doing will be measured against other consumer companies.  The top tier venture industry is comfortable with this despite the monetization unknowns in consumer learning.  This makes considerably more capital available to consumer edtech companies, because institutional edtech has never shown the kind of growth needed by top tier venture capitalists.

2 - Time - selling to institutions is very difficult in the education space.  They are much less clear on their technology goals than customers in a typical enterprise market, and experience significant and continuous leadership change in both their elected boards and superintendents.  You can avoid this and create a viable small business by selling directly to teachers and schools (pricepoint for least friction is $3-4/student to teachers and $1500/school, see prior posts on why).  However, these businesses have small market sizes, both capping in the range of $100-150 million historically.  Nothing wrong with this from a small business perspective, it's just that you aren't going to raise much capital or grow that quickly, so you are in it for a decade.  To create a large institutional edtech company, you are going to have to get good at selling to districts, and eventually to states.  This is slow, frictionful stuff.  

On the consumer side, by contrast, you can drive outstanding growth with a great product.  Several of the previously mentioned companies are growing 5-10% per week and have been for months or years.  That compares favorably with almost all consumer internet companies.  Many entrepreneurs are nervous that building a large network and monetizing later won't work, but historically companies who have built great products and large networks are able to monetize, so the perceived risk is probably higher than the actual risk for companies with both great products and high growth.

3 - Impact - for me personally, this is the most important, but i recognize that many are just trying to create viable companies, so you can skip this one.  The thing about education is that we have been conducting teacher-led, classroom based physical instruction for a couple of hundred years.  We are probably approaching our apex in terms of productivity.  It is possible that giving edtech tools to teachers for the classroom model could have similar effects as tech has had on companies.  Lets say optimistically that you could make the classroom 100% more productive.  The problem is that in all low income areas in the developed world and in the entire developing world, a 100% lift in effectiveness is inconsequential.  What learning needs is a 100x increase in learning per student, which is more likely to come with a paradigm shift rather than incremental efficiency gains.  Students learning directly online is such a shift.

4 - acquirers - there are three repeat acquirers in institutional edtech - Pearson, HMH and McGraw Hill.  It is possible News Corp will become an acquirer, but not much action yet.  At least one of these companies is usually going through bankruptcy and the others are quite price sensitive, because they are not growth companies, so any acquisition is measured by its ability to contribute to the bottom line in the short term.  Thus, many acquisitions south of $50m.  Consumer on the other hand is stacked with high growth acquirers looking for strategic fits.  Education is a $4 trillion space, so everyone on the consumer side is going to keep an eye on the market to gauge whether attention is shifting from learning in an institution to learning individually.    If your consumer learning company can sustain very high growth, you are making a case that you are drawing that attention.

5 - quality of life - again, if you are just trying to make a buck, skip this section.  Making the student your customer aligns your goals with theirs.  Things like "faster learning", "higher engagement", and "deeper understanding" are much more likely to drive revenue from students.  In the institutional space, these are important, but may well be trumped by how easy it is to add and delete students from your program or other things that make institutional life easier.  Personally, alignment with the student makes me far happier in the long run, because transformational approaches need alignment, they have enough friction because of the change they are creating.

The Big Shift

When Rocketship started almost a decade ago, we were outliers.  We believed that students learned best when they were taught developmentally for academic skills and through projects for developing their hearts and minds.  This bifurcation between the methods for teaching was not generally accepted.  Most of the highest performing teachers and schools were not trying to teach each child.  They were developing amazing school cultures and work ethics that would help students to overcome their deficits.  

Fast forward to 2014.  Because of the popularization of blended learning, flipped classroom and a massive increase in classroom and at-home technology, most teachers and schools think a lot more about teaching each child today than they did a decade ago.  While a decade ago, it was considered insane to remediate the hundreds of skills that a student might be lacking from previous years, now it is on people's minds.  That is the good news.  

The bad news is that teaching each child using current tools is an intensive manual effort.  I sat with an amazing teacher for the first half of last year watching her assess and create learning paths for each child in her class.  It took her 10 to 15 hours each week to do this well.  The spreadsheets she used to track the skills and gaps of each child and plan their activities was amazing.   It worked fantastically!  Students were learning a ton in her class.  But seriously, how many teachers are going to do this?

We created zeal to solve this problem.  Our hope is that by reducing those 10 to 15 hours to a few minutes of a teacher's time each week, we will accelerate the shift to treating each child as unique.  Our goal is to make it so simple to teach each child that it is less work than whole-class instruction.  This will buy back time for teachers to teach the whole child, all of the skills that help children succeed in life - persistence, teamwork, empathy, how to solve hard problems...

Zeal's work has been intense this past year.  We have been working with a dozen classroom teachers through many iterations of our program.  We are so thankful to our early "zealots" for helping shape our system.  We are about three months away from opening up our closed beta program for teachers ready to teach each child.  If you are interested, follow @gotzeal and come to the website and sign up for our beta.   We are excited to accelerate the big shift to honoring each child's unique gifts and letting off some of the pressure teachers face.