I’ve long been concerned about the levels of business model innovation on display in the EdTech startup community.
Founders frequently come up with new and exciting digital products, but to turn a clever product into a successful business you typically need more than product innovation; you also need to think laterally about the way you can make money from the product. Too many EdTech founders treat this as an afterthought. The result is that they end up with great products but failing businesses.
With this in mind, I was pleased to come across a recent article in TechCrunch about the state of business model innovation in the EdTech space. The article, written by Guido Kovalskys, canvases the different business models adopted by the EdTech Startup community.
First of all, there’s the traditional “boots on the ground” players. These are the startups that emulate the business models of the established players by setting up sales teams that go district by district in the US, or even school by school in the UK. This is an expensive process where it is very difficult to compete against established companies like Pearson. The expense also makes it difficult to deliver profit. Without scale, it’s very difficult to be profitable, but it’s very difficult to gain scale with profitability. Many startups startup with the aspiration to change – to disrupt – education for good, but many soon find that they need to do anything they can to make money. Or, if they’re investor funded, they need to show revenue. For some shrewd and well-funded players, like Canvas and Mastery Connect, this model can work, but it is also about as far from disruptive as it can get.
A second group of EdTech companies is more innovative and seeks to adapt consumer models to education. Underwritten by VC enthusiasm, this model invests in building up a huge user base on the assumption that the best way to create a hugely valuable edtech company is to build it on top of a huge group of customers. The logic here is that this model worked for Facebook and Linkedin, so it should work in education. Edmodo and ClassDojo are probably two of the most prominent VC-funded EdTech companies to adopt this model. Both have registered over 40 million users with a simple offering. They focused on developing products that were really useful to real teachers and then they gave the products away to them for free! Unsurprisingly teachers shared these applications with other teachers and a viral process took off. This has certainly caused problems for established players who go through the front door (of schools and districts) and change a high price products that seldomly delight teachers. But the problem for both EdModo and ClassDojo is around monetization: how can they convert their users into paying customers? Neither seems to figured this out very successfully. Edmodo has clearly been trying with a marketplace model, formative assessment tools and distinctive district offerings in the US. But the jury’s out on whether this will work. And if Edmodo struggles with 63 million users, where does that leave companies with significantly lower free membership numbers?
The Business Model Innovators
“Free” is a good model for securing users, but is it a good model for building a sustainable EdTech business? It might end up working for some, but it is frankly unlikely to work for many. But not all EdTech players rely on the binary distinction between chargeable and free. Some are actually innovating by finding ways to offer value to customers while simultaneously making money. Teachers Pay Teachers is a good example of this. Using a marketplace model, the company makes money by helping teachers find useful resources and rewarding teachers for creating and sharing resources. It’s a simple model but it works. DuoLingo is even cleverer. It offers free language learning in a range of languages and, as such, is tremendously useful to users. But the same users support DuoLingo’s need to make money by providing an unpaid translation service. The user practices their language skills by translating real world documents like BuzzFeed articles; but in the process, the user helps DuoLingo make money from the lucrative language translation business. It doesn’t sound like it would work, but it does!
That’s business model innovation!