Digital Education Market
Market insights and perspectives for digital education companies
- Executive Summary
- Strategic importance of continuing education
- Global e-learning market
- Geographical insights
- Key product segments and characteristics
- Customer segments and recommendations
- Future trends (Game changers) – next 10 years
- Conclusions and recommendations
The global e-learning market is one of the fastest growing opportunities in education and training. This is expected to grow even faster as jobs and necessary skills in the future change more rapidly than ever before in history.
While the overall market growth is attractive it is important to understand the underlying sub-segment characteristics, geographical differences, technology trends and disruptions to select the right products and equally importantly – ‘what not to do’.
Compared to traditional education companies like publishers or ‘bricks and mortar’ private education providers e-learning companies enjoy a far greater valuation multiple and are experiencing the largest share of fund raising and M&A activity i.e. ‘capital is chasing the idea’.
It must however be noted that due to technology and device leaps the future of digitally enabled learning lies in mobile learning, game and simulation based learning and immersive learning (3D virtual reality) which will rapidly substitute the traditional e-learning standard courseware.
The ensuing sections details this complex, fast changing, but very exciting business on a global basis and recommendations on what digital learning players need to consider.
Strategic role of continuing education
Lifelong learning and workforce productivity have a proven linkage and is now recognized as the core component of business strategy for large and small corporations. This trend is driven by rapid changes caused by increasing digitalization of business processes (e.g. Online retailing, ERP systems, digital experience) in traditional businesses, emergence of a digital only economy (e.g. Uber, AirBnB.) and creation of new job families that didn’t exist before.
E learning proves to be an excellent way to achieve quality results in a short period of time because it:
- Keeps workforce updated on new and developing requirements to perform their job
- Aids workforce planning and succession through ‘on demand’ training
- Controls training budgets/costs
- Trains students (at all levels) and employees for skills of today and tomorrow
- Authoritative research indicates that 64% of employees fail within 4 years of joining due to skill attrition and irrelevance.
- Many far-sighted employers have institutionalized lifelong learning as an intrinsic part of the development planning and integrated it in the training management.http://realbusiness.co.uk/hr-and-management/2014/12/02/why-both-employers-and-employees-need-to-embrace-lifelong-learning/http://money.cnn.com/2016/08/04/technology/general-electric-coding-jeff-immelt/
There is near universal agreement that globally e-learning market will show fast and significant growth in the coming years. Self-paced e-learning (learner directed, own pace, no fixed start/end but same evidence of learning or assessment as in-class learners) market is currently estimated to be US$ 255.5 Bn (2017) and is growing at CAGR of 23%. (Source: Ambient, Docebo, IBIS Capital). There are still some nomenclature inconsistencies for example if we include “Gamification” in the sector definition the growth rates would be even more impressive.
The fastest growing segments are K-12 (33%), Higher Education (25%), Language learning (20% with English at 25%) and Corporate (8%).
The fastest growing regions and their market drivers are:
|Region||Est. Size ($)||Growth %||Drivers|
|Africa||2.5Bn||15.2%||Learners will to adopt technology based learning for education, knowledge and skills but infrastructure is a major challenge. Government of development funding support necessary for a viable business model|
|East Europe||3.5Bn||17%||Russia is the key driver with government investments and numerous start-ups driving the sectors|
|Asia||4.5Bn||17.3%||India and China are the key countries with growing adoption of technology (especially mobile), shortage of quality education provision, convenience and affordability as key drivers. Other factors are use of e learning in corporate markets for talent development. China requires local and bilingual content.|
|North America||120Bn||4.4%||Home of innovation and adoption. More of video/animation vs. flat content, Integration with ERP/LMS/Video Conferencing tools. All segments are attractive from a pure size standpoint. MOOCs have proven a ‘freemium model’ – free content and paid assessment and credentials.|
|Latin America||7.5Bn||14.6%||Device provision by government and private schools in K-12 and college. Brazil, Argentina are key countries.|
|Middle-east||2.5Bn||8.2%||Government spending especially in Saudi, Oman and Qatar for IT literacy at all levels, and e-learning within state universities. Private schools offer e learning as a differentiator and sometimes guided by local school regulators for use of digital tools in classroom. Corporate e-learning is also an attractive market.|
|West Europe||35Bn||6%||MNCs and SME corporate e-learning and MOOCs are the key drivers.|
|Segment||Components||Relevance to Digital education companies||Characteristics/Opportunity|
|Content||Content creation Content publishing||High||Learning content with efficacy tools with adaptive learning at the core of instructional design. Text/audio/video/simulation/ -> formative assessment->adaptive guidance->tutorial/remediation->test and credentials|
|Management Systems||LMS, testing and certification, integrated software, library of teaching resources, network and online interaction resources||Moderate||This area is driven by global software companies like Google, Apple, Blackboard, Moodle, Canvas and rapid software/device/hosting platform changes imply that there are capability and entry barriers|
|Distribution (e-learning providers)||Online m-education MOOC Immersive GameEd||High||Building a platform neutral instructionally sound, duly credentialed, high quality user experience products in the chosen learning segments with building blocks to aid single sign-on on various management systems|
Pressure of government aided and private universities to manage rising costs of higher education will be a significant driver in the future.
However, in my opinion, an even more important driver will be the very fast paced skills environment for employability and continued relevant to the job market. A degree credential will not be enough for currently employed or job seekers to secure a job.
As an example – would you hire a digital & social-media marketing specialist with a diploma and a proven portfolio of projects or someone with a bachelors degree in communications? Would you hire a certified health sector accounting specialist with proven experience in using workplace ERPs and finance systems or a generic accountant with no such specific experience or training? New skills are emerging quickly and many employers like Ernst and Young (EY) have formally removed degree credentials as an entry requirement.
This trend offers opportunities to digital education companies to participate, sometimes in partnership with universities in the following segments (a more rigorous evaluation and short listing is required at a later stage)
- Open Courseware – working with universities to convert academic courses into open online courses
- MOOCs – Instructionally sound scientifically organized online courses by ‘star’ professors with free access and fee for testing and getting credentials/course credits
- Online accredited courses – as above but priced for content+assessment+course credit
- Online un-accredited courses – as above – course credit but with a certification
- DIY degrees – self-learn all the courseware and appear and pay for the exam. In essence aggregate ‘nano-degrees’ from online accredited courses and get a full degree.
Benefits – cheaper and access to large student audience instantly, user oriented and friendly service, high quality resources and partnerships are entry barriers
Limitations/challenges – recognition of qualifications/credentials, suitable for self-motivated and organized learners, one size fits all (e.g. working professionals, students, unemployed all in the same cohort)
Competition – highly publicized and hyped providers like Coursera, Udemy, Udacity, edX, Khan Academy.
Differentiators – focus on only the most sought after skills/courses, customize for non-American markets, get courses certified and accredited by multiple jurisdictions eg. Asia, East Europe, Middle-east markets who have a less rigid approach to online education.
Corporate and Professional Education
Corporates generally prefer bespoke e-learning content especially for employee induction, functional and system training however there are specific skills areas which have a direct link to corporate goals especially employee productivity and competitiveness of the workforce where corporates are willing to sponsor candidates for e-learning. If these programs are sector tailored and have industry or academic certifications there is greater acceptance.
Here is a partial list –
- Digital Economy (certified by industry leaders e.g. Google/Amazon)
- Digital communication essentials – e-mail writing, proposal and client communication, presentation tools
- Essential of coding
- Mobile app development
- Social media marketing
- Digital marketing
- Communication design/graphic design
- Business analytics and financial literacy
- IT literacy
- Software and IT (certified by industry leaders eg CISCO)
- Network administration – CISCO
- ERP administration/support – SAP
- Web design and programming – various including Microsoft
- Programming languages – various
- Project management (PMP)
- Cyber security
- Financial sector essentials and niche programs (certified by industry associations eg ICA – international Compliance Association or Banking Associations)
- Internal control and compliance
- Financial crime prevention
- Financial forensics
- Accounting systems and practice
- Contract and corporate law
- Proficiency in accounting packages
- Hospitality/Airline/sports/events (can be expanded)
- Real estate/facilities management/Urban planning (can be expanded)
- STEM – MOOCs with ‘star’ professor video lectures with lab simulations, exercises, quizzes, adaptive testing and references – course accreditation by top tier universities in different jurisdictions
- Essentials in engineering (Math, Physics, Design)
- Core to branch (Data structures, programming languages, mechanics, digital circuits/logic, engineering drawing, thermodynamics, electrical circuits)
Professionals are self-sponsored candidates who wish to pursue life-long learning to improve their relevance in the workforce, career advancement or pursuing their non-work pursuits and hobbies. While all the above programs are of relevance to the B2C professional segment additional programs eg. Photography, Art, Music, Digital Design, Entrepreneurship, Language Learning are possibilities.
Benefits – B2B i.e. corporate market opportunity reduces cost of marketing and could start with digital education companies’ existing clients. Bulk deals with multiple year contract pipeline and addition of new products creates a revenue flow. Professional segment is predicted to grow faster as e-learning backed with recognized credentialing must and will take off.
Limitations/challenges – Corporate training budgets are being slashed constantly but if a cost/benefit case can be made Digital education companies can steal share from classroom and traditional training budgets. B2C marketing for professional segment requires especially digital marketing skills and can be developed over time.
Competition – Fragmented competition and digital education companies can play a global standard provider. There are opportunities for small but strategically valuable start-ups to accelerate our entry.
Differentiators – World class, credential backed industry/company/job holder/seeker relevant programs that help keep companies and their workforce competitive.
Although K-12 market is nearly 50% of the total global e-learning revenues it is highly fragmented by language, country, curriculum and components i.e. content, teaching aids (smart boards etc.), teacher resources, supplemental – tutoring, exam prep and has a number of free, global scale brand name providers and agile local players that have created a competitive niche like Khan Academy (global). Additionally, K-12 education is highly political the world over with government driving a significant part of the policy and purchasing.
The above however should not be a dampener in our assessment. There are several, relatively global scale and politically neutral, segments of K-12 e-learning market that digital education companies can successfully evaluate and execute.
- All digital International curriculum i.e. IB in private schools
- All digital globally popular UK curriculum like iGCSE/A-level in private schools
- Supplemental e-learning modules for the above for examination prep/practice/online tutoring
- Fully integrated digital prep system for College admission examinations – SAT/GRE/GMAT/LSAT. Learn, practice, test, coach (through online tutoring)
- All digital game/simulation based standard concept modules for Science and Math that are more universal and curriculum agnostic
Given the growing migration of e-learning market to ‘gamification’, mobile the contents and platforms should also make use of social platforms for peer-to-peer sharing and get rich content and data from learners and teachers to constantly improve.
Benefits – Existing players like global tech giants like Google, Microsoft, Apple and disruptive innovators like Khan Academy have already created the platforms and awareness in the K-12 segment about the efficacy of digital learning. The market offers B2B, B2G an B2C opportunities and digital education companies and choose the scope and sequence of how it wants to address the customer segments.
Limitations/challenges – The market is highly fragmented (see above) and decision-making is slow in B2G segment. Scale of B2B (private schools) is very small as K-12 is inherently a localized business. Hence B2C and selective deal driven B2G segments are worth pursuing. Price points are being driven lower and lower and hence a selective profitable entry is critical. A lot of free resources (Tutor2U) and free tools (itunesU) can be a threat.
Competition – Fragmented competition with some global players.
Differentiators – new technology based content/distribution (mobile, simulation/gaming) for globally scalable product segments like IB, iGCSE/A-level and Science/Math concept based modules would offer significant differentiation.
- Employers placing greater emphasis on skill evidence in the next decade…
- 77% of jobs require technology skills vs. 50% currently
- 90% of fastest growing jobs families will require mastery of tech, specific knowledge and evidence of exact job skill
- 65% of today’s high schoolers will doing jobs that haven’t been invented yet
- Ubiquitous smart devices and near universal internet access will be a reality
- Rapid device ownership implies ‘bring your own device’, ‘cloud based SaaS (software as a service) model of content delivery
- University curriculum will lag and be antique for the desired job skills
- As new jobs get invented skills upgrade will be ‘on demand’
- Digital learning system in use is already obsolete and will leap into the future with mobile, game/simulation/immersive learning, education apps and social platforms with ‘learning and practice nuggets’ on the go…
- Legacy Smartboard/projector/PPT /Shared laptop/tablet will be eliminated
- Bring your device and cloud based ‘fun’ and ‘on the go’ tools described above will be the future
- Embedding workplace skills in the curriculum will get adopted in more progressive curriculum e.g. Coding, app development, digital/social media proficiency will soon be part of K-12
Global e-learning market is the hottest segment in terms of M&A activity, valuation multiples as well as fund raising.
- Global education M&A activity reached US$50Bn with 80% of the value contributed by digital learning segment
- 60% plus of the acquisitions were by strategic buyers like Pearson
- EBITDA multiples of e-learning companies is comparable to software companies due to a SaaS/Cloud based business model. Currently it is 11x EBITDA vs. 7x for traditional education /education technology companies and just 4x for traditional publishers
Digital education companies needs to fundamentally transform from a ‘vendor’ to the content market to directly participate in the ‘content’ and ‘distribution’ space. This is unique opportunity to leverage digital delivery to overcome entry barriers to the education and training market hitherto enjoyed by global publishers and classroom training companies.
Traditional publishing companies are also suffering from declining revenues, profit margins, cost-cutting in new products and hence price squeeze digital learning vendors.
- Transform carefully while building capabilities and skills in content authoring, instructional design, and web/mobile content distribution.
- Research and select the best-fit product/market segments i.e. Those where there is current content development capability, market is growing, market access is low investment-high yield e.g. B2G, B2B and directly addresses skills need-gaps
- Focus on next generation technologies i.e. mobile learning, simulations, gaming, virtual-reality/immersive learning
- Focus on next generation platforms i.e. Cloud based hosting and device agnostic content rendering
- Offer efficacy warranty to customers – prove that the solution will meet mutually agreed learning and skills attainment outcomes i.e. Performance based pricing.
- Partner with other non-competing companies like Learning Management System companies like Blackboard, Canvas, Moodle to bundle e-learning products as a ‘solution’
- Develop the platform for alternate revenue streams from day 1 e.g. 3rd party advertising white space in the application, ‘in program’ product advertising (branded products/examples/case materials), fully sponsored course modules (e.g. CISCO paying for network certification courses)
- ‘Accreditation first’ approach with higher education/vocational course to get instant recognition and validity of the certificate/diploma/nano-course for employment or credit transfer for degrees.
- Rapid development and learning process – develop beta->test and improve->expand rollout->determine adoption/financial success->grow/kill
- Focus on high growth – high margin geographical markets i.e. North America, India, China. Sequence on the basis of unit revenue/margin, language (English vs. bilingual) and early adopter characteristics (e.g. US Silicon Valley).