Cents

Thoughts on the Future of Ed-Tech Business Models

CentsAudrey Watters wrote an analysis of the current state of business models in education titled “What’s the Future of the Ed-Tech Business (Model)?” on Hack Education that meshes well with my Sunday post on Big Think about Khan Academy and the potential shift towards free education.

Audrey bases her post on the example of Rosetta Stone as she had the possibility to talk to CEO Tom Adams (former class mate of hers) during the Startup Weekend EDU in Washington. The language learning market is of course a very tricky and crowded one compared to rising verticals like math education.

What tickled my fancy are the open questions Audrey leaves us with like the following at the end of her post:

Sell to schools? Sell to teachers? Sell to students? And in any of those education markets, how do you compete with “free” — even when what’s offered that way is actually of inferior quality? Will learners demand high quality ed-tech? Will they (be able to) pay for it?

So, here are my thoughts on future business models in education.

Sell to schools

Schools are notoriously under-funded and budget cuts don’t really help to get technology into the classrooms. The other problem is that administrators don’t want to change entire systems every couple of months just because there is a new, better application or software. Migrating data, setting up new accounts and all that is a pain. Hence people tend to settle on a provider and stick with it for some time. Also, as far as I understand budgets are also getting discussed once a year which in itself lacks some flexibility. On the other hand, this is also part of why it can be attractive to target institutions: once you are in you probably stay there for a long time.

What startups need to do is to embrace that fact and dance with the devil. If you are not really planning to build a Blackboard competitor don’t try to sell your product based on your new, better way of tracking student data. Instead, make your product part of the ecosystem and market it as building block that easily connects to all the major LMS out there. WizIQ successfully embraced that strategy with their virtual classroom that now integrates seamlessly to Blackboard, Instructure Canvas and Moodle.

Sell to teachers

While teachers don’t have a problem to buy content or products developed by fellow teachers, lesson plan and worksheet marketplaces are a good example, they don’t seem to be open to buy from brands. They usually love to use free software and apps but as soon as a price is added, they will leave for the next free version. The Ning exodus last year was a good example.

Hence I see a good chance for apps developed by teachers for teachers to succeed but selling a product as a brand to teachers seems to be unfeasible.

Sell to students

The way to the students usually takes the startup to their parents’ wallet, even in college and university parents are going to pay for a big chunk. If you want to sell a product for children, you might want to target the parents by explaining the benefits of your education software or app. But of course there are also ways to get children excited about your product. My all time favorite Mingoville is a good example here, so is TenMarks and sofatutor.

I think, this is the space with the biggest range of pricing models. Parents tend to be more open to spend money for the benefit of their children so if you can really market, or even better prove, that your product raises scores, the pricing might be secondary.

Compete with free

At the moment, not that big of a big challenge as most free content tends to either be incomplete or inferior quality. But there are also startups that are working to change that for example MentorMob and Veri. I wrote an article on Big Think about this new breed of crowdsourced curation platforms that take the content that is freely available on the Internet and put in into order, coming up with an entire lesson or course about a certain topic based on different sources.

In the long run, free is going to become the standard in Internet based education, though. You can read my arguments on that over at Big Think. Therefore patronage seems to be the business model of the future in education.

Quality

I have had many arguments about the definition of quality back in the days in the Myngle forum and on this blog. It is a very difficult thing to measure and I tend to agree with Avichal Garg’s analysis in his post “Why Education Startups Do Not Succeed

Don’t believe that building a better product will make you successful. Delivering something for cheaper will. Even if that cheaper thing is lower quality. This is usually repugnant to most well-educated entrepreneurs.

Payment

I won’t go into detail about the problems in only payments, which parts of the world might want to pay but cannot due to the lack of infrastructure. In general, I think we are going to see a trend towards low prices. Software as a service, cloud computing and all that are driving the costs to run an online (education) platform down, so there is enough head-space left to go down with the pricing.

I think, people are on the one hand going to pay smaller amounts but also spread their money on more providers. If I set myself a budget of $99 USD per month, why should I spend it all for just one big provider? Why not pick smaller providers (individual teachers / apps) that do one aspect of my learning (vocabulary, grammar, pronunciation, fractions, genetics, …) really well and choose another one for the other aspect and so on.

As a consequence, this means that we need curators, may it be individuals or platforms, to point learners to the best apps and products but that also means that there are new, exciting opportunities.

Picture: Michael Connors

  • Anonymous

    Kirsten wrote: “While teachers don’t have a problem to buy content or products developed
    by fellow teachers, lesson plan and worksheet marketplaces are a good
    example, they don’t seem to be open to buy from brands.”

    I think that teachers would be very willing to buy from any brand that stands for what the teacher believes in. If there is a trouble with brands it is that many of them don’t stand for anything that resonates with teachers. I bet that teachers are probably more critical of brands than most but just like everyone else they are starved for authencity.

    • http://kirstenwinkler.com KirstenWinkler

      Exactly. And as there are no authentic brands in education at the moment they turn to their peers.

      • Anonymous

        Hmmm, NO authentic brands for teachers? If so, I wonder what an authentic brand would look like?

        • http://kirstenwinkler.com KirstenWinkler

          Based on the shift we saw through social media, an authentic brand needs a personality, usually its founder(s). It also needs a clear mission and a bit of social good should also be part of it.

          This somewhat limits the growth of the company but also helps to build a loyal and dedicated audience. If the brand is in digital media, it is a bit easier to scale than for example an organic bakery.

          • Anonymous

            Interesting. I wonder if passion could substitute for personality, values for a mission, and a problem solved for a social good? It sounds to me that you believe teachers are looking for protypically human(istic) as opposed to protypically corporate values.

            I wonder if this represents European or Western thinking?

            In China I think the big three might be Value, Sophistication, and Friendliness.

  • http://www.tjtaylor.net/english/ Alex Taylor – TJ Taylor

    I agree in part with Chinamike, though personally I think it’s more about the extreme fragmentation and difficulty of marketing to individual teachers, which requires a huge and sophisticated marketing and sales effort.
    This post, however, missed one big point, which is explicitly mentioning the freemium model, applied to schools, teachers and especially students. I don’t agree that free is inevitable, but freemium IMO is really the only viable model for most non-game changing products and services.
    Alex

    • http://kirstenwinkler.com KirstenWinkler

      Freemium is very difficult to implement in public education as in most, if not all, cases the free part is ad-supported. Big no-go for most school admins.

      If a product is really interesting, teachers will share it with their colleagues. The educator group is very active and well connected through social networks so it might be even easier to get a decent viral marketing campaign going than in other verticals.

      • http://www.tjtaylor.net/english/ Alex Taylor – TJ Taylor

        I agree in part, but mostly disagree :)
        Ad support is always going to be limited, unless the product follows a publisher’s business model.
        However, I’m not so sceptical about freemium – I remember at a simple level from a few years ago the very basic websites that provided exercises, but if you wanted to see the teacher’s answers and corrections you had to pay – a very simplistic form of freemium.
        The most obvious example of a successful freemium model that I can think of in the public education sphere currently is Google docs and email, which is used by many universities (with only support costs I think) but which is licensed by quite a few SMEs.
        Alex

  • Anonymous

    The model above is missing a few things. First you are missing selling to businesses (that offer classes to employees). Next you are missing combinations of the above (schools and parents, businesses and individuals, teachers and students, schools and teachers, etc). New offeriings need to consider these combinations to both find revenue and figure out how to reduce friction between all these (yes, competing) interests.

    Also, it is my observation that free is just a transitory state for many Internet businesses. People offering free for the most part want to move out of completely free at some point (they only use free to acquire customers). Those that are designed to stay free forever are actually offering a public service and should be congratulated. However for-pay services can certainly co-exist with public service offerings, just like bookstores co-exist with libraries.

    And in terms of the inevitabity of “free”, I don’t see it. You can’t beat libraries at offering free physical books, but you can beat them in other ways. Every free offering has its limits. You just need to understand what these limits are and then offer your services to the people who have a pain and can see (touch, taste, experience) the value in what you are offering.

    Finally, I don’t see freemium as a business model so much as it is a model of leading people to where you believe their pain is the most and your value is the greatest. On the other hand, Freemium is also a way to threaten your competition by eliminating the things they can charge for. As such crafty businesses in the future, like Alex suggests, should include Freemium both as a competitive tool and as a pathway for customers to follow.

    • http://kirstenwinkler.com KirstenWinkler

      I think we need to step back from the idea of a one fits all model and companies that aim to cater to a whole lot of different groups. There is a chance to build small, targeted products and companies that do one thing really really good.

      About the free is the future part, it is based on this post about Khan: http://bigthink.com/ideas/41180