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This business model is for educational apps and organizational learning software developed and sold by EdTech companies. Education is changing fast, and there are a lot of opportunities for the right people.
What is an EdTech business model?
There are several educational app development sub-verticals or ideas that you can consider creating a successful education app. Four of them that EdTech startups are focusing on include Courseware, Mobile Learning, Curriculum and Assessment, and Digital Assessment.
Sub-verticals that EdTech startups are modeling their portfolio on:
Three Well-Established Education Startups
Chegg Inc.: It’s a growing educational tech company that provides schools/colleges/libraries with an array of digital learning solutions. It includes a platform for students to access tools and homework help, as well as an online textbook rental program.
K12 Inc.: K12 is an educational management company that aims to promote online learning as a substitute for classroom training. Through K12, students between kindergarten and the 12th grade can access courses in a wide array of subjects, including math and science. The company’s vision makes it one of the best educational apps for kids.
2U Inc.: it stands out from all other business models for education startups as a creator of end-to-end learning channels.
It is clear that they have continued to thrive despite an unexpected pandemic. However, predicting the future of EdTech would be immature. From the current situation, it becomes easy for one to point to directions where EdTech development appears most likely to excel and succeed.
Trends Affecting the EdTech Industry
Global Internet Penetration, Data-Driven Decisions, Virtual Reality, Augmented Reality, Conversational AI, Adaptive Learning, Robotics, Blockchain, Game-based Learning.
Business & Tech Trends in EdTech
New Business Models, Next-Generation Learning Experience, AI Applications & Data Analytics, Security and Trust, Education to Employment, Optimization
How EdTech Generate Revenues
- Freemium or Free Trial: It is highly effective to have a freemium business model – one in which basic features are offered free to students/teachers. The model encourages people to buy the premium versions of your app with better or more features.
- Top-Down: a traditional approach to selling to schools is to work through district leaders, this is often categorized as a top-down or institutional model. You can decide how much you want to penetrate by estimating the market size of your product and service.
- Bottom-Up: the market is first investigated to determine how much the product will sell, after the total amount of sales is determined, the price can be determined to have a significant profit margin. The best way to reach consumers is through schools with free offerings.
- Sponsored: the model is growing in popularity and is one where neither the school nor the parents pay, instead, a business like Coca-Cola pays to have its brand/logo appear on classroom supplies. When supplied with FREE packages, schools/students will likely take up the offer. It helps the company to establish brand awareness in the education sector and indirectly increase sales.
- EdTech Marketplace Model: those who sign up for the Udemy platform can post their courses for free for anyone to see, or they charge a fee and earn money from student purchases. It gives students access to premium courses, and Udemy takes a cut from the proceeds.
- Ad-Sponsored Model: EdTech entrepreneurs can offer ads in their courses to make up for costs. Online courses cost money, and ads pay for the product of online lectures and other 3rd party products and services.
Choosing the Right Revenue Model
The Customers You Serve: the people you aim your service/product at can differ in terms of how they make their buying decisions.
Where Your Customers Are Based
Different countries/regions have different preferences or how they want to pay for the Ed software.
The Product or Service You Are Selling
Will your product be used on a regular basis, or an occasional purchase?
Your Business Stage And Growth Plans
If you’re focused on acquiring new customers, your model should be toward a freemium/pay-as-you-go model. If you’re focused on retaining existing customers, subscription models will be more attractive.
What Are the Requirements to Start EdTech?
Know Your Market
Know the needs, and how you’re going to meet the needs. To really know and understand the market, you need insight into what matters to your customers, what drives their decisions, and how they will perceive and use your product and service.
Study the System
Before you go into business, spend some time studying what you’re getting yourself into. It helps you make the most of your product/target your audience precisely, thus leading to success in the long run.
Pitch Right
Make sure to explore products thoroughly before purchases and implementations, so it is up to you to bring your ideas and proof of concept to them a few steps ahead of the buying process.
Know the System, Hire a Teacher
One of the most obvious problems for EdTech startups is a lack of input from teachers, this makes it hard to assess where products/features are failing or need improvement. Having an educator on your team is the best way to build your product. Using their expertise to validate the product, promote the product by featuring its educational content, etc.
Why Start an EdTech Startup?
Better the Education System
In order to improve the education system, startups need to make the educational system more adaptable by introducing advanced tech and helping the economy succeed by providing a product/service that is useful for students and for other companies.
Budgeting
It’s important to make profits and provide superior products and services for your company, if you want your company to be around in the future, it’s crucial you also focus on making sure that students perform well and get a high-quality education.
Strategizing About Money Management
Whether you have funding or are bootstrapping, establish a strategy for managing your money from day one. It is important to create a budget when you start a new business, maintaining a proper budget will help you to avoid financial problems later on.
Projecting Profits & Basing on Realistic Timelines
Be realistic about profits, and decide how much capital you need to raise. Knowing your financial statements inside and out to give a good impression on your investors. When talking with potential clients, be upfront about your pricing, it builds trust and makes people willing to work with you. [Write down your departments and list each one’s budget] [Keep an eye on revenues, expenses, and ROI] [Pay attention to sales & marketing, those who generate revenue for your company]
Always Build Worst-Case Scenario Budgets
Be prepared for the unexpected, building worst-case scenario budgets can help you make better decisions because you are more aware of what could happen.
The amount spent during a period of time is called BURN RATE, and the time the company has to spend is called CASH RUNWAY. Investors like these two concepts because they are easy to understand, and they provide a helpful framework for examining a company’s financial health. Investors prefer to see a low BURN RATE, at least until it reaches profitability.
How to Start an EdTech
- Explore the market [your niche might be the most problematic customers]: looking into the major players in the market, as well as competitors. Once you have researched the market, you should develop a tool/product that provides a unique solution to a niche problem. AI-based algorithms, ML for swift decision-making, impressive learning, and multi-layer management tools, all those are good options when designing a product or service.
- Come with the time-relevant business strategy: business model and value proposition are two important things that you should take into consideration when defining your business strategy. To succeed, leaders must be nimble, prepared to adapt to new circumstances, and willing to adopt a variety of approaches.
- Find your partner: it is crucial to be surrounded by like-minded people, partners, or specialists while implementing EdTech solutions. The team should collaborate and understand each other’s vision so that faster and qualitative product/service is delivered.
- Think big start small: starting a business is not easy, founding teams need to consider multiple factors before making the 1st prototype by a minimum viable product (MVP). Then get feedback from customers, and make adjustments to make it better step by step.
How to Create a Successful EdTech Startup
- A clear understanding of the user base: it is the parents/school authorities/organizations, not the kids/students/employees, who decide if the product is appropriate.
- Understand the current issues: get feedback from your customers, ask what they need and what features they would consider most useful for them. It helps you to develop the best solution.
- Build an MVP: you should build an MVP (minimum viable product) during the development stage in order to avoid a major mistake. The MVP will include the most important features of your offering and your unique selling proposition (USP). Share with your clients, gather feedback, and improve.
Steps to Create a Successful MVP
- Identify the Target Audience: be sure to identify your target audience before you start planning your solution, then you can begin to develop an appropriate strategy based on their needs.
- Understand Their Requirements: do research about your target clients’ concerns & difficulties, you can hire a research team or ask your target clients. You must build client personas to know exactly what your end users are looking for in an EdTech product.
- Develop an MVP: it is a technique for developing/testing the viability of a product idea, which involves creating a low-cost version of the product/app in order to test the clients’ interest. The MVP should be able to solve all the issues your product intends to address.
How to Build an Educational App?
- Market Statistical Analysis: figure out what makes your idea different from the others by thinking [Where do you need to make improvements in your business?] [In what ways can an education application assist you in this?] [In what ways can overall customer satisfaction be built?]
- How Good is Your Content: Do not bother your client with dense content, educational videos are a great way to teach and lead learners into new ways of thinking. Learning applications can be made into games that are fun ways of gaining knowledge.
- UI/UX Design: when designing the app, consider the user’s first impression. Users will only access your app if it is well-designed, appealing to look at, and easy to use.
- Testing: by testing, you’ll spot weak points, which will help you improve the UX for those points.
Must-Have Features of Your EdTech App
- Registration: able to register your app with a unique identifier for all the new accounts.
- Home Screen: it is a quick-access area for the most commonly used parts of the app.
- Profile Screen: a section where users can see their personal in, schedule, and classes.
- Payment/Billing Section: including the settings/history related to the payment process.
- Invitation Section: consider the user’s ability to share, make it simple/interesting, and easy for users to share your product/app with others.
- Lesson Cancellation: easy for users to remove lessons they’re not interested in.
- Scheduling Classes: the function that students are able to choose classes by teachers.
- Notifications: let your users know about important programs/lessons with push notifications.
- Chat Room/Customer Support: make sure your users can get in touch with you when needed.
- Stats: users have a few basic stats in the app, so they know how far they have progressed in a course, what they still need to do, etc.
- Reviews and Feedback: make the app more useful by having a feedback form/5-star review system at the end of each lesson/course.
How to Monetize the EdTech App
- Freemium: users have limited access to some free sections, but need to pay for other sections.
- Subscriptions: users pay a weekly/monthly/yearly fee to have access to the EdTech app.
- Advertisement Strategy: apps that use ads as their revenue sources also include an option of ad removal through subscriptions.
- Marketplace: Udemy is an example, users here are able to buy courses offered by tutors for a fixed amount. The app serves as a marketplace that connects sellers to buyers.
- B2B/B2C sales model, Institutional Approach, Consumer Approach, Partnership Model.
Where to Take Funding?
Angel Investors
They became actively involved in funding EdTech startups after the pandemic situation, one way to connect with them is to meet them in person and pitch your concept directly, or you can reach out to Angel Investment Network, Gust, AngelList, or U.S. Angels Investors.
VC (Venture Capitalist)
VC investors/firms are interested in growing unicorns – startups with a valuation of over $1B. So they invest large amounts of money in promising startups to get enormous returns on investment. The average unicorn is worth $5B only five years after its founding. Most VCs offer mentorship and introductions to their networks to help you grow your business, which is valuable for your potential. Famous VC of EdTech backers include Rethink Education, Owl Ventures, Reach Capital, and GSV Capital.
Crowdfunding
It is a popular way to get your first money funding to create an EdTech company, different people make small contributions, so you can kickstart your product. Those people expect a feasible return on their investment once the product/service is live. It is more intimate and less demanding. EdTech companies that want to use crowdfunding can post info on Indiegogo/Kickstarter/SeedInvest Tech, etc.
Bootstrapping
Bootstrapping means using your own money as the basis for launching a tech venture.
Corporate and Government Grants
Government/corporations have put education in the limelight, Candid/Grantwatch/GetEdFunding created a catalog of databases of corporate grant funds, which lists the various organizations and programs in both the public and private sectors that offer grant funding for EdTech innovation.
Accelerators and Incubators
LearnLaunch, BoomStartup, and NYU Steinhardt accelerator are intensive mentorship programs for startups in the educational tech space.
EdTech FAILED Cases
KNO
Kicked off in 2009 and crashed in 2013, was focused on delivering mobile learning hardware and double-paneled ebooks. Failure due to rejection of the iPad, competition, and inability to read digital trends.
Schoolgennie
It was instrumental in introducing the early reading program for Indian schools and helping students to make better decisions in school. Due to a lack of industry mentors/market experience, they were not able to test their product-market fit. Then improper budget distribution stumbled a few steps to failure.
Tutorspree
Conceived in 2010 as an algorithm-based platform, high competition, ignorance, and seasonal market fluctuations necessitated its end in 2013.
Treadmill
It was a mobile app for reading and allowed users to share highlighted extracts from e-books and authors. Soon it changed from a social reading app to a book subscription model, it was rendered unviable and failed to stand as a timeless business model.
EdTech Companies & Business Models
Duolingo
It is a language-learning platform, primarily supported by ads. Then it offers subscription plans for those who want a more ad-free experience and special features.
Khan Academy
It is an NPO that provides free educational content to anyone, the content comes from sponsors of the organization, who pay so that it can keep developing new content around the globe.
MasterClass
It strives to make high-quality education affordable for everyone by offering talented instructors a platform, where they can share their knowledge. A $180 annual membership fee is charged.
Udacity
It offers free online courses, and enrollees either pay a fee for each course or pay an annual fee for access to a bundle of courses.
Udemy
It is an e-learning platform that offers digital courses, they sell all the courses through the marketplace, and they also provide an enterprise platform for businesses to set up their own branded Udemay course. There are 2 types of instructors: [who sell the courses directly to consumers] and [enterprise instructors, who create branded courses for business.