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India’s sole edtech unicorn, Byju’s, hogs the lion’s share with $1.27 billion in total funding but there’s paltry funding for a broader range of edtech startups.  (Bloomberg)
India’s sole edtech unicorn, Byju’s, hogs the lion’s share with $1.27 billion in total funding but there’s paltry funding for a broader range of edtech startups.  (Bloomberg)

India’s vast hinterland is the real market for online learning

  • Only the brave have ventured into tier-2+ towns in India with edtech, building a base in areas where the big players aren’t active
  • Monetizing edtech is hard enough in the best of circumstances, but much more so in small town India

BENGALURU : Smartphone usage is growing exponentially. Half the population is below the age of 25. And a burning aspiration for education to improve living standards cuts across varied strata of society. All this suggests a huge opportunity for edtech to bridge massive gaps in conventional education in India. It appears to be happening, too, when you look at rising investments in edtech startups, with $1.17 billion invested in the last two years, compared to $540 million in the previous three years, according to venture capital data tracker Tracxn.

But that hides a skew. India’s sole edtech unicorn Byju’s hogs the lion’s share with $1.27 billion in total funding. Out of the $729 million invested in edtech startups in India in 2018, $540 million went to Byju’s. Last year Byju’s share was $185 million out of $442 million. What it means is there’s paltry funding for a broader range of edtech.

Compounding that is edtech’s focus on learners in the metros and state capitals, where payment systems, internet bandwidth, and familiarity with online products are well developed, apart from users being able to afford relatively high ticket sizes.

However, this leaves out the mass of learners, who are also underserved by government spending which was 3% of the GDP in the last budget compared to twice as much in developed countries.

China and India account for 30% of the world’s learners, but China gets seven times as much as India in edtech investment, according to education market intelligence firm HolonIQ. It is widening the gap in human resource potential between the two countries which will have cascading effects.

FEW PLAYERS

Only the brave have ventured into tier-2+ towns in India with edtech, building a base in areas where the big players aren’t active. They face tough challenges, which they’re trying to overcome with a mix of improvisation and tech.

Testbook, which provides test prep for more than 100 central and state government job exams, is one example.

“Two-thirds of the one crore people who appear for these exams are from small towns, and only 1-2% make it," says Ashutosh Kumar, co-founder and CEO of Testbook. Founded by five IIT Bombay alumni six years ago, the startup raised $8.3 million in series B funding last month.

The success rate of Testbook users is 7%. Kumar himself hails from a small town in Bihar: Madhubani. He went to Kota, famous for its IIT-JEE prep schools, and got into IIT Bombay. He did B.Tech and M.Tech in metallurgical engineering, but had a passion for coaching on the side in IIT-JEE tutoring schools.

His dream was to be an entrepreneur after college, and mass market edtech was aligned with it. He found four like-minded alumni in Narendra Agrawal, Manoj Munna, Praveen Agrawal and Arpit Oswal.

Monetizing edtech is hard enough in the best of circumstances, but much more so in small town India. “Edtech companies with larger transaction sizes face high acquisition costs for sales, but amortize it by entering longer three-year contracts. High life-time value of customers is an unproven assumption," says Arjun Malhotra, managing partner, Good Capital.

Testbook’s subscription charges are a fraction of the likes of Byju’s, but Kumar says it has limited acquisition cost to 55 a user, which makes the business model viable. “We have 10 million registered users, out of whom 10 lakh are paid users and half of them are active paid users," says Kumar.

To overcome the reluctance to use digital payments in a predominantly cash-based economy, the startup has come up with a voucher system. Customers can go to kirana stores to buy vouchers with codes for registration. It also partners with local tutorial centres to reach users as well as give them offline contact points.

TECH WORKAROUNDS

There are also tech workarounds for patchy internet.

A student taking a mock test, for example, would be connected with a remote server only at the start and finish.

The app stores the content on the user’s device for the majority of the test to be done without repeated application programming interface (API) calls to the server. Audio-visual content has low bandwidth options, like Netflix, and can be downloaded and viewed multiple times offline, with protection to prevent use on other devices.

The upside in all this is that Testbook is building capabilities that new entrants may find hard to replicate. “India-2 markets are hard to break into because of the nuances of localization required at every level," says Malhotra.

Sumit Chakraberty is a consulting editor with Mint. Write to him at chakraberty@gmail.com.

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