There has been a rising dissatisfaction among parents enrolling their kids for edtech offerings in kindergarten to grade 12 (K-12) segment and test preparation categories including Joint Entrance Examination (JEE) and National Eligibility cum Entrance Test (NEET), affecting renewal rates and causing further distress to edtech models, as per the survey.
The survey covered 521 parents to understand their experience with edtech offerings in the K-12 and JEE-NEET preparation segments.
While edtech models in these categories are met with a negative net-promoter score (NPS), segments involving adult test preparation and upskilling saw higher advocacy levels from respondents, the report said.
NPS is an industry metric to measure customer loyalty and satisfaction, taken from asking customers how likely they are to recommend a product or a service.
“The survey theme is not that individuals have abandoned edtech but rather the segments that have seen negative NPS are seeing a slowdown in growth,” Danish Faruqui, partner at LEK Consulting told ET. “That shows that evolution of products has not happened at a pace that it should have happened. The sub-segments with negative NPS are segments where disruption is most possible now, giving edtech firms a chance to revaluate their offerings,”
he added.
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The tapering of demand for edtechs also comes when macroeconomic headwinds are bringing forth uncertainty towards large fundraises. Re-opening of brick-and-mortar players has added further pressure on online learning models, resulting in rising customer acquisition costs (CAC).
At present, Byju’s and Vedantu are among the big online players in the K-12 segment while Physics Wallah and Unacademy are among major competitors in the JEE-NEET space. The upskilling roster includes names such as UpGrad and Eruditus.
RISING NPS
According to the LEK and DC Advisory report, only 30% of surveyed parents said they are likely to renew their current subscriptions for K-12 edtech providers, with the segment receiving a negative NPS of -4%.
Parents cited lack of proper channels for doubt solving and poor teacher quality as key reasons for their dissatisfaction. The report highlights improved response rates on doubt solving and better engagement with students as key areas for improvement.
For the JEE-NEET and undergraduate test prep segment, lack of an immersive environment, including peer interaction opportunities, class sizes, teaching material quality, and channels for doubt solving were the key reasons for edtech offerings being edged out by offline competitors, the study said. Teacher quality is also a point of concern amongst respondents.
The JEE-NEET online learning offerings saw the lowest likelihood to renew from surveyed respondents at 14%, attracting a negative NPS of -3%.
Students who used online as a supplemental source of test prep reported higher satisfaction compared to students using it as primary test prep option.
“Edtechs will have to prolong the lifetime value (LTV) journey and the challenge is that the LTV journey is not where it has to be,” said Nitin Bhatia, managing director of DC Advisory.
This comes even as edtechs such Byju’s, Unacademy, Physics Wallah and now Vedantu have all made offline forays this year by launching physical centres, further bolstered by acquisitions of legacy offline learning centres.
“Cost of customer acquisition has increased because of a higher dropout, and with increased dissatisfaction, the customer lifecycle is lower,” said Faruqui of LEK Consulting. “Now, this is coming when a lot of investors are asking questions on the quality of the revenue and asking for a path to profitability, which is making it more difficult for some of the individual companies. The growth rates will come back to pre-pandemic levels from an industry perspective,” he added.
Adult test prep and upskilling segments saw 20% and 37% respondents likely to renew their subscriptions, with NPS standing at 9% and 42%, respectively.
“For adult learning and professional learning sub-segments, there is no real offline substitute, and these sectors of online learning will show healthy growth projections. There was a white space for taking and online players have bridged that gap,” explained Bhatia of DC Advisory.
According to him, moving forward, the test preparation segment will become a two-tiered market with the first being a hybrid play of offline and online education modules for higher price points, and the second a deep tech-led low engagement module for lower price points.
SUSTAINABILITY OF EDTECH MODELS
Reopening of brick-and-mortar learning channels is challenging sustainability of edtech models in some cases even as edtech firms’ NPS turns negative and investors push them to focus on profitability.
Recently, Byju’s in its delayed results for 2020-21, reported massive losses of Rs 4,588 crore, up from just Rs 262 crore in the previous fiscal.
Test preparation major Unacademy reported 85% jump in its net loss for FY22 at Rs 2,848 crore against Rs 1,537 crore in the previous fiscal.
“Edtech companies may need some level of picking and choosing on what they need to retain as their core,” Bhatia said. “In some ways, it is surgery where parts that are unsustainable have to be let go and reprioritisation of resources have to be done.”
Earlier this year, Unacademy announced its decision to move away from the K-12 segment and shut down subsidiaries Mastree and Swiflearn that it had acquired between 2020 and 2021. While the company has reduced its monthly burn from $20 million to $7 million, Unacademy founder Gaurav Munjal took to Twitter last week expressing the desire to turn the company profitable at the soonest.
