3 major trends affecting ed tech companies

Just like the year before, 2021 was a good time to be in Ed Tech. Investments in the sector rose sharply around the world, with funding levels in the US nearly twice as high in the first three quarters of the year as it was in all of 2020, so Data from HolonIQ. Several companies also took the moment to go public, including Udemy, Coursera, and D2L.

For the past two months, major ed-tech companies in the US have shed light on how they are doing during phone calls about their earnings reports for the third quarter of their current fiscal year, which usually runs January through December. Below, we’ll take a look at three major trends that they highlighted.

The flywheel effect

Two companies that help universities build and maintain online programs are taking steps to attract more students to their platforms.

One is 2U. Although the Online Program Manager (OPM) has built its brand around helping elite universities introduce and maintain degrees, in recent years it has expanded its offering to include short courses, certificates, boot camps and bachelor programs.

In order to further expand its offering, the company acquired edX, one of the world’s leading MOOC platforms, in mid-November for $ 800 million in cash.

The deal gives 2U access to a platform with around 41 million registered learners who want to move from free MOOCs to paid courses and programs. In a phone call with analysts In November, Chip Paucek, CEO and co-founder of 2U, said these users were more likely to sign up for 2U’s online degrees and other degree programs than leads generated through other channels.

“We believe this student overlap will be an important factor in the marketing cost benefits we expect with this transaction,” said Paucek. “It is a direct replacement for leads we are currently paying for and will generate new revenue.”

Coursera, a MOOC provider that went public earlier this year, is pursuing a similar strategy of moving non-paying users to paid offerings. The platform offers free online courses, but also paid professional certificates and study programs.

“There is a flywheel effect as the growing selection of content and references attracts more and more individuals and institutions, which in turn motivates our educational partners to create even more content on the platform,” said Jeff Maggioncalda, CEO of Coursera, in a Call with analysts Beginning of November.

Coursera and 2U’s similar strategy is an attempt to cut student acquisition costs. For example, officials at 2U expect the edX acquisition to cut annual marketing costs by $ 40 million to $ 60 million over the next two years. 2U spent $ 390 million on marketing and sales in 2020, up from $ 342 million in 2019. according to documents filed with the Securities and Exchange Commission.

If 2U and Coursera are successful in cutting that spending, it could deal a blow to other OPM companies, said Phil Hill, partner at ed-tech consultancy MindWires.

“It’s going to make it pretty difficult to be in the market if you don’t have a way to cut that cost,” said Hill.

A threat to the traditional higher ed

Coursera and similar companies have worked with universities and their faculty members to create MOOCs and educational offerings since their inception. Despite these close ties, there is evidence that they pose an increasing threat to traditional colleges.

The pandemic dealt a severe blow to large parts of the traditional sector, which has seen a sharp drop in student enrollments for all but the most selective institutions over the past two years. Community colleges are hardest hit with Student numbers drop by 14.8% since autumn 2019 according to the National Student Clearinghouse Research Center.

During the November call, Maggioncalda theorized that a strong labor market could cause enrollments in community colleges to decline as students now choose to get a job instead of continuing education. However, he added that some of these learners may be withdrawn from community colleges to look for testimonials through these alternative programs.

“If learners can get faster, more affordable, more flexible and job-relevant certificates in a place like Coursera, Coursera is a substitute for community colleges,” said Maggioncalda. At the beginning of the call, he said that Coursera’s entry-level certificates – developed by Facebook, Google, IBM, Intuit and Salesforce – have enrolled more than 2 million students since 2018.

Moody’s Investors Service adopted a similar tone on its release stable prospects this month for the higher ed sector in 2022.

“New entrants such as corporations and online education companies will offer traditional universities real competition, especially as pricing moves more into focus,” analysts write in the report.

Inclination to training offered by the employer

Several ed-tech companies are seeing income from efforts to partner with companies to train their employees.

Officials at Udemy, a major MOOC platform that went public in October, said during a phone conversation with analysts in early December that their work with companies now accounts for 39% of their sales – up from 23% a year ago.

And D2L, a learning management systems company that went public in early November, is helping provide employee training for more than 300 companies, D2L president and CEO John Baker told analysts during a phone call in early December.

The company, whose third quarter ended October 30th, also launched a new offering this year called D2L Wave, which connects employees to online programs offered at participating colleges.

“There’s a huge addressable market for business and we’re working hard to build our pipeline,” said Baker.

2U has also seen growth in helping companies retrain their workforce. During the company’s recent conference call, Paucek said this was the company’s fastest growing segment.

These ed-tech firms are likely to increasingly partner with corporations to move employees from frontline positions to higher-skilled positions, said Ryan Craig, managing director and author at private equity and venture capital firm Achieve Partners from “A New U: Faster + Cheaper”. Alternatives to college. “

“It will be a series of short, discreet skill-building offerings that will be put together in a curated or tailored way,” said Craig. “That will happen within companies in five years, and that will further reduce the influence of colleges and universities.”

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