Why are edtech companies struggling despite funding boom in India
2022 saw several B2C edtech players making some grim announcements. In February 2022, Lido announced to its 1000+ employees that the company is closing down due to lack of funds. In April, Unacademy laid off 600 employees, followed by Vedantu which laid off 200 employees, and the latest where 800 WhiteHat Jr employees resigned from the Byju’s-owned edtech start-up within a span of 2 months after being asked to work from office. While the undertones, and speculations of these edtech companies not performing well, or not having funds have been the point of discussions, one cannot ignore the fact that these companies are well funded with deep pockets. Edtech startups in India raised more than $4.7 B in 2021, and four of them reached the unicorn status during 2021-22, so why are the B2C edtech models in India struggling despite a good funding to back them? Let’s examine:
High Customer Acquisition Cost | CAC
In the beginning of 2020, when edtech was in full bloom, the cost of customer acquisition shot up by 70-80% of revenue of the edtech platforms from a humble 20-25%. It is a simple dynamic, the marketing and branding activities for all B2C edtech platforms remain the same – its digital. They all relied mostly on digital only channels to generate leads and then hired expensive sales executives to convert them, throwing targets and incentives at them. The cost to acquire a single customer – that includes your whole lead generation and acquisition cycle- became so high that it became impossible to justify the unit economics. Kr. Asia reported in one of its articles that the CAC for an edtech company operating in the K-12 segment in India varies from INR 10,000–60,000 (USD 137–821) per student. Simply put, after investing an exorbitant amount in marketing and retention, B2C edtech firms in India will not be able to make enough money from their models.
Unrealistic Pricing Model for Indian Markets
Another issue with the B2C edtech platforms in India is the unrealistic pricing models which they try to thrust on parents. Undeniably high CAC, repeat CAC pushes the edtech players to increase their pricing, without realising that the end customer- the parents have only as much. Central Square Foundation, a nonprofit organisation focused on education, advocates that there are more than 400,000 affordable, low cost or budget private schools across India enrolling more than 7.9 crore students
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