The Premium Model in EdTech: Aggregators

While Edtech has experienced a rapid growth of investments and a proliferation of startups across the secondary, post-secondary and corporate markets, there is a specific segment of the market that has received the most attention globally: the aggregator (open and selective).

If we break down the core activities of a teacher, she produces the education content (provider) or sources and aggregates the relevant content for the course, delivers it to the needs of her students, and assesses their progress with formative and summative evaluation. The suppliers to the education market (including Edtech) mimic a similar structure. As in the chart below, there are:

• content providers who produce or publish original content
• education programs or software for structured delivery of the content which include learning management systems
• aggregators which offer curated market places for content providers
• vendors who provide immersive learning experiences (e.g. with use of simulations)
• traditional evaluation and test providers
• suppliers that provide tools and services to the above.

The shift to e-learning has led to the rapid growth of the aggregation model in recent years. Higher ed or the postsecondary market led the transition to e-learning. In 2014, while the K-12 sector represented over 50% of the relative expenditure in education in the US, the post-secondary market accounted for about 60% of the e-learning expenditure.

Historically, e-learning as a concept dates back to 1989 by the University of Phoenix whose online university now boasts over 320K students. This was followed by CalCampus who offered the first complete online curriculum in 1994, and then by Jones International University that became the first accredited fully web-based university in 1996. Today, 96% of US universities offer some online course, with some of the top-rated online degrees offered by traditional programs as Penn State, UCLA and Columbia. Moreover, many of these online programs generate higher revenues, for example, the online MBA programs of UMass and Amherst make up a quarter of the enrollment but contribute 40% of the revenue.

This shift to e-learning in the post-secondary market led to the emergence of the aggregator in the past few years, driven by the early models as MOOCs and their university alternatives e.g. OpenCourseware by MIT or Stanford. Cheaper and better authoring tools (e.g. Adobe Captivate, Storyline, Lectora Inspire, etc.) and services (e.g. guidance to create online content with Fedora and Skilljar) democratized the creation the content, enabling a whole new population of independent teachers and non-educators to produce education content. MOOCs gave them access to a marketplace of consumers, which further accelerated the proliferation of content, making a lot of general education a commodity for an evolving generation of consumers expecting such content for free.

In fact, a disproportionate amount of VC funding went into the aggregation model, not only within the US, but also globally. Per SAP research into fundraising volumes in Edtech globally in 2012–2103, 70% of it went into the aggregator model globally, led by investments in USA, India and China.

Over the 3 year-period from 2011 to 2014, majority of the VC investments in Edtech in US went into companies that are essentially aggregators (table below).

However, while the MOOCs, the initial aggregator model, rapidly gained in popularity and signed up millions of students, they struggled to translate a rapidly growing user base into revenues. Ironically, the rapid growth of the open market raised the premium on content curation. Lynda and Pluralsight exemplify a selective aggregation model. They play more the role of a publisher with a relatively stringent selection and editorial process with services to enhance the final video output of educational content providers. These 2 companies had attracted almost as much funding as the largest 6 companies in the open aggregation model, which serve more as market places than publishers.

Consumers and corporations have been willing to pay a subscription fee for this perceptively premium content, resulting in a higher share of the industry revenues for these 2 companies. It was not a surprise that Linkedin finally bought Lynda for $1.5 billion last year, given its successful penetration in the corporate market, which the MOOCs are trying to emulate (e.g. Udacity partnership with AT&T and Udemy with 1800-Flowers).

Cheaper authoring tools, tutorials and easy access to existing and new student populations via the aggregators have all led to the proliferation of education content. It has also led to the rise of the independent instructor, who now earn supplemental income or entire salaries through this new channel. Subsequently, this explosion of content has elevated the importance of search, discovery and curation, be it editorial or algorithmic. There has been a similar premium on such features in other content markets as music and videos. While Lynda and Pluralsight have capitalized on this need thus far, new features that further enable students to find the right content for one’s specific need on demand will differentiate the next generation of aggregators.