EdTech III – Online Learning/Skill Development

This post is the third of a three part series on EdTech. Check out part I here and part II here. Please read them before this one for flow!

This is probably my favorite one to talk about. Probably the broadest of the three, this vertical includes your typical MOOCs, other online courses, upskill platforms, etc – think the Courseras, Masterclasses, and Degreeds of the world.

General trends in education make this an attractive sector to be in

As a society we’re moving towards a philosophy of lifelong learning – the idea that we do all our learning in the first 22-28 years of our life and then spend the next ~40 years using that knowledge is growing more and more stale. That added to the reasons talked about in the earlier section – micro/nano credentialing being on the rise, students growing more ROI driven and employers getting comfortable hiring people without college degrees – provide the bread and butter to this industry. I’m pretty bullish on this sector as a whole – I think the trends talked about above will continue and even be helped by the pandemic.

Has coronavirus given this sector as big a push as we believe?

That said, here’s where I disagree with the current rhetoric around online learning. People today argue that the coronavirus itself has brought about a sustainable significant uptick in demand for online learning resources, with people flocking to websites like Coursera and Masterclass over the past few months. The argument is that the virus has accelerated our adoption of remote learning as a primary means of education, as evidenced by the surge in demand for online learning.

But according to me, this isn’t necessarily indicative of a lasting behavioral shift – this is merely a short term product of the nature of this crisis, and by the economic ramifications of the situation.

Let’s take a look at some really basic data, from the most easily accessible trends database – google trends –

Check out the spike in mid-March, and the following downward trend. If you play around with the search terms and create more charts like this, you’re going to see similar trend – though maybe not as clear as this one.

There are two main factors that are driving this – time, and the economy.

The most strikingly immediate implication of coronavirus in mid-March was that all of a sudden everyone was staying home, was adjusting to WFH/had time off from college and had more flexible and open schedules. In simpler terms, people were bored!

Additionally, education/skill development runs countercyclical to the economy. It’s pretty intuitive when you think about it – when people are laid off, or are worried about their job, they’re eager to refresh or gain skills so as to not become irrelevant in the job market. And that’s what we’re seeing here. The surge in demand for online learning is NOT the new normal, it’s a temporary product of the economic and social implications of the crisis.

All this said, I want to reiterate – I am bullish on this sector as a whole. I’m not trying to say here that these companies and platforms just have short lived joys from the virus – I think they are well poised for success. What I’m referencing here is the phenomenon observed primarily in public markets where the best companies aren’t necessarily the best investments due to the market overvaluing them, and the worst companies can be the best investments due to undervaluation. While most of these companies are private, and thus less susceptible to valuation swings, my point here is just that these companies should not be modeled and projected from the newfound demand levels of Q2 2020, and the industry shouldn’t assume the numbers in March and April will continue.

This is a crowded space, with competitors trying to carve out their own niche

Now, lets step away from the broad generalization of online learning and dive into some specific aspects within it. One of the main things that struck me about this space was how crowded it is, and how many players there are – Coursera, Khan Academy, Udemy, Udacity, MasterClass, LinkedIn, Codecademy, Osmosis – the list is pretty much endless. Several of these different offerings try to carve out their individual niches – Masterclass borders on the line of entertainment by teaching you fun stuff from celebrities, Osmosis is specifically targeted towards med students, Chess Academy is well, for Chess, and Coursera is kind of an all-encompassing platform.

If a consumer wants to learn about a particular subject, how do they decide on a particular platform to learn from? There are obviously specific circumstances that push one in a particular direction (if you’re looking for fun  + learning Masterclass is probably the path you’d take), but I think for most others it depends on four main factors: price, value of certification, quality of skill gained, and mode of learning. Depending on your motivation for taking an online course, you weigh these factors differently. Of these, I think factor two and three are pretty hard to compete on – certificates from the larger, more recognized players are more likely to hold value, and the quality of education itself is pretty easy to adjust. Competing on price, well, doesn’t work too great for anybody. Mode of learning is perhaps the most exciting of these dimensions. As talked about in earlier sections, gamification, AI/ML, adaptive learning and VR/AR are key areas for education offerings to improve upon. For new companies in the space, I’m excited too see how they use these and structure their offerings in unique ways.

That said, I personally think this space is ripe for consolidation and increased M&A activity. I don’t see why the largest players in the space would not look to acquire smaller companies and newer entrants. This isn’t to say there isn’t scope for innovation and new platforms to enter, especially on the mode of learning dimension – I’m excited to see efforts to integrate VR/AR, gamification and adaptive learning in online courses. You’re probably also going to see new companies tackle particular subjects/niches. Acquisitions seem to be the most likely exit for such companies.

Coding bootcamps: A specific case study

Coding bootcamps are an interesting subset of the online learning vertical, and is probably the most crowded of them – if you google something like ‘learn Java’, you’re going to see a ton of options pop up – prominent ones include Codecademy, SoloLearn, FullStack Academy, etc.  An interesting side note about these is several of them adopt an ISA (Income Share Agreement) payment structure – basically, you pay only after you get a job after completing the bootcamp. An example of such company is Lambda School (with backers like GGV, GV, YC, Bedrock).

One of the reasons why so many players want to enter this subset is that there is a significant supply demand gap in the United States for software engineers and technical talent (coming from India where literally everyone’s trying to be an engineer, this was kind of surprising for me to read about). Coding bootcamps are a solution to encourage people to gain the necessary technical skills in a short amount of time and fill the requirements of the tech industry.

The other reason I believe coding bootcamps are ripe for online learning is the nature of the material itself – coding is a tangible skill, easy to gamify and direct to practice (on the very computer you’re learning about coding). Tangible skill education makes for easier online learning. Because of that, I’m excited to see how with the refinement of virtual and augmented reality, a variety of environments can be created to make the education of certain skillsets more effective. Things like driving, cooking, and even playing sports could possibly be taught online in your VR headset!

EdTech is a tremendously exciting industry to be in right now. I’m confident that the next decade is going to see massive changes in our very understanding of what education is, and how it is supposed to be delivered.