Can Startups Disrupt the Slow-Moving Education Market?
Every year, schools spend billions of dollars on supplies and instructional materials and staff. A lot of that money flows to a few textbook publishers that create content, test-prep, even the tests themselves. Now, entrepreneurs and venture capitalists in Silicon Valley are looking for ways to disrupt this market, revolutionize schools with technological innovation and make some money.
“Everybody’s waiting for the Facebook of education to come along,” said Trace Urdan, research analyst with Wells Fargo. He’s been watching the education market for 15 years, working with institutional investors to predict the right bets.
“The biggest mistake I see, and have seen for a while in this space, is investors and entrepreneurs thinking things will happen a lot more quickly than they do,” Urdan said.
Education is a tough industry to build a new business. It’s bureaucratic, slow moving and political. The teachers using the technology don’t have the power to make purchasing decisions for school districts. Meanwhile, administrators are under pressure to spend tax dollars judiciously and can be wary of gambling limited resources on start-up businesses or products that don’t have long track records.
To get around the slow-moving system, a lot of ed-tech entrepreneurs are selling directly to teachers, parents and even kids.
One company, Mountain View-based Tynker, ran a summer camp to expose kids aged eight to 13, and their parents, to an online program designed to teach kids the computational thinking required in computer coding. The camp cost $600 per camper, not a lot in the big scheme of things for Tynker. But, the camp helps market the “Tynker at Home” product to parents.
‘A Trillion-Dollar Industry’
Tynker CEO Krishna Vedati has already founded two successful commercial tech start-ups. He and his co-founders are trying their hand in the ed-tech world partly because they have kids now. But, also, there’s money to be made.
“This is a trillion-dollar education industry out there and parents are spending tons and tons of money on education,” Vedati said, referencing his own willingness to send his kids to Stanford summer camps. “You just have to figure out — is your product valuable enough for them to pay for it?”
Vedati thinks parents will see the value in teaching kids how to code. After all, many of the well-paid and interesting jobs emerging now involve computer programming. He’s betting that parents will want their kids to get an early start on a necessary skill set.
“Now that we’ve become parents of kids ages eight and six, and my co-founders and my colleagues have kids, we all realized tech is changing so fast, but school is not,” Vedati said.
More than 3,000 teachers across the country are using Tynker’s online program in the classroom. The content is aligned to Common Core State Standards and includes lesson plans so the content can fit in with other class work.
Looking for the ‘Sweet Spot’ in the Marketplace
Tynker currently uses a “freemium model,” common with ed-tech startups. The base product is free for schools, but if teachers want more advanced features like tougher curriculum or assessment tools, the school has to pay for it.
“I think there is an absolute market fit for what we are doing,” Vedati said. “Then comes the business model. We are kind of exploring what is the sweet spot that becomes a repeatable model.”
Vedati is dreaming big. He says Tynker can get 10 million users worldwide, and if 5 percent pay for enhanced features, then the revenue stream will be strong enough to offer the base product free to those who can’t afford it. That’s important to him.
Individual entrepreneurs like Vedati aren’t the only ones taking a stab at the education market. Sequoia Capital has done well for itself supporting companies like LinkedIn, PayPal and YouTube. The company is very selective, only investing in 12 companies a year. This year four of the 12 are in ed-tech, a pretty good indication that Sequoia sees promise in this industry.
“There are clearly companies that are succeeding already,” said Sequoia Capital Partner Bryan Schreier. “There is not only revenue, but profit.”
By and large the companies Sequoia invests in are bypassing school districts and “selling” directly into classrooms. Schreier says if teacher practices change, whole schools will begin to follow suit, opening up opportunities.
“Everybody’s waiting for the Facebook of education to come along.”
“If your product becomes absolutely core to that market and to how people are educated, the opportunities to monetize tend to present themselves,” Schreier said. In other words, get teachers to love the free product and prove its effectiveness, then down the road, districts will pay for it.
But does this model have the potential to shake up the old education market, as many predict?
Trace Urdan from Wells Fargo is one of the few skeptical voices on this topic. He doesn’t think the explosion of ed-tech companies and investment will hurt traditional textbook giants like Pearson and McGraw-Hill that still dominate the market.
“The textbook publishers are absolutely paying very close attention to every little startup that gets funded, and every application that’s out there that’s going into the classroom,” Urdan said. He thinks most startups will run out of funding and the big publishers will buy the best ones at bargain prices. And in his opinion, schools will be happy to buy from established vendors because it’s less risky.
“I think at some level all of this investment will end up being productive in some way, even if the way it’s productive is that at some point Pearson will buy them and bring them to market,” Urdan said.
No matter who ends up profiting, the new ideas could ultimately change the way kids learn. For many people working in ed-tech, that’s always been at least part of the goal.
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For more on how technology is changing education check out KQED’s education blog MindShift.Related