2013 in review and Ed Tech trends for 2014

I came across an interesting article today about educational trends in 2014. Some were obvious while others were a bit surprising.  The writer Victor Hu is an Ed Tech investment banker at Goldman Sachs, so I assume he has his nose to the ground and has a great deal of knowledge of the industry. However, I do wonder just how much Ed Tech business there is for a firm like Goldman to try and win. It’s not exactly a multi-billion dollar industry like Oil & Gas is… But that’s beside the point. Here are a few snippets from his article.

 

“In higher ed, aggregate student debt has ballooned past a trillion dollars, while unemployment and underemployment continue to plague the 54% of students who manage to graduate in 6 years (not to mention the 46% who do not). Colleges and universities face shrinking public funding, declining enrollment and contracting endowment returns – and in some cases deeper, more existential questions.”

Student debt has been a serious problem that has grown out of control in the past decade. Forbes wrote an article recently that really opened my eyes to just how bad it was. It states that two out of every three students graduate college with some type of debt, and one in ten graduate with over $40,000 of loans. That’s insane! Even community college, which traditionally has allowed students to more easily graduate with less debt, saw ~40% of their students graduate with loans outstanding. Students are getting saddled with increasingly heavier burdens and I haven’t heard of many effective initiatives to slow this trend.

Victor also writes about universities facing declining enrollment and shrinking funding. One news story came to mind immediately. The Wall Street Journal ran an article detailing The Thunderbird School of Global Management’s problems with lower endowment and fewer students.  The school is on the verge of bankruptcy and has decided to try to sell their campus to a for-profit college operator.  When most people think of for-profit college, names likes DeVry and University of Phoenix come to mind…not exactly the first-rate institutions that alumni of the school want to be associated with. Still, this is as problem faced to a lesser extent by many schools. As job placement worsens and student debt grows, students are beginning to find other ways of securing a job and starting a career.

 

 ”The private markets have never been more robust, with new generations of edupreneurs and investors partnering to tackle some of education’s most intractable problems.”

It’s good to hear my thoughts confirmed. Victor sees much more of the market than I can, but even I was able to figure out that 2013 was a good time for EdTech entrepreneurs to build a business and raise capital. Which leads us to one of his trends for 2014:

 

After averaging around $260 million for the ten years ending in 2011, venture and growth investment in education technology and services spiked to over a billion dollars in 2012, and surpassed that figure again in 2013, prompting many in the industry to cry “bubble” with reference to the first edutech crash in the aftermath of the original Internet implosion.

The difference this time, however, is that many of the companies tapping the private markets have proven product-market fit, and some have already achieved meaningful scale. The majority of edutech companies raising sizeable growth rounds recently have demonstrated the ability to serve their market segments in sustainable ways. Expect the capital trend to continue in 2014 as more and more companies seek to apply software and internet technology to transform different parts of the education value chain.

This was surprising to me. Kind of. I’ve only covered this industry for the past few years so I probably entered around the time of the up-swing. It is amazing to hear that between 2002-2011, the average yearly investment in this industry was only $260 million. In a matter of 2 years, that number has grown 5x. Hard to tell whether EdTech is a bubble right now (maybe all of tech is a bubble), but either way, hopefully these companies can use that money to make a real difference in the classroom.

 

Online education has been around for decades, but historically has been the domain of smaller education market segments, nontraditional learners and non-elite institutions.

We have now passed the inflection point, and online is ready to go mainstream in every part of the education continuum in 2014.

Next year, we’ll be five years into the famous prediction by disruptive innovation gurus Clay Christensen and Michael Horn that online education will account for half of all high school courses delivered by 2019. In higher ed, elite universities have joined in, likely causing any institution who has not yet implemented an online strategy to race to do so. In the meantime, a variety of online learning platforms have proliferated, with diverse content and monetization strategies. After causing a media swoon in 2012, MOOCs have moved quickly beyond Gartner’s “peak of inflated expectations”; some have already plunged into the “trough of disillusionment,” and others are beginning the long, steady climb up the “slope of enlightenment” toward product and business model sustainability.

Obviously the most interesting portion of the article for me personally.  I think it’s interesting how people have predicted the “peak” and “trough” of online education. A few years ago, the internet was littered with praise of the MOOCs and initiatives to globalize education and remove the traditional barriers. This year, I saw tons of articles about how online education was a failure and how hard it was to actually learn through a MOOC course. I’ve dabbled with MOOCs also and if you look through my edX profile, you’ll see many classes that I failed to complete. Work got busy, the class wasn’t a top priority for me, I fell too far behind and forgot about it. I’m sure it happens to many of us. Still, this resource has undoubtedly helped millions of people already from all over the world (remember that Mongolian kid who took MIT’s Circuits and Electronics course?) With time, these MOOCs will evolve into more engaging, thoughtful classes.

Victor brings up a great point about the online learning platforms with diverse content and monetization strategies. Obviously, the number of learning platforms is incredibly broad; just look at the homepage of No Excuse List.  But have you ever thought about how diverse the monetization strategies are?  There’s the traditional subscription program from sites like Lynda, the pay-per-class structure from sites like Udemy and General Assembly, or the enrollment programs that give you one-on-one time with mentors like bloc.  Ebook writers often allow you to read the book online for free, but charges money if you want to download it.  I wonder if there’s one type of monetization plan that will become the standard in 2014.

Looking back, 2013 was an incredible year for EdTech. It has been building momentum for years now, but I didn’t expect it to explode like it did. Let’s hope it continues in 2014.

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