Edtech: The Decentralisation Of The Learning Economy
My colleague Nikolas and I took a deep dive into the EdTech space over recent months. It is clear it has reached an inflection point and continues to offer considerable opportunities for entrepreneurs and investors. We have produced a report to share our thoughts and to highlight what makes this sector so exciting. We explore the main forces behind its growth for the coming years and what sub areas we are most interested in. In this medium post, I summarize the first part of the report and take a closer look at the underlying macro trends, shifting consumer attitudes and the new ways of learning. A second medium post by my colleague Nikolas Krawinkel will follow, exploring the investment opportunities within Edtech that we are following closely. You will find a link to the full report at the end of this article.
Despite the rapid advancement of technology, the way we learn, teach, and deliver education has stayed largely the same for decades, if not centuries. Yet the global market for education and training continues to expand and is expected to reach $7.3 trillion by 2025.
Even with the growing need for education and skill development, only 3.6% of total spending in education is allocated to digital learning (Holon IQ, Citi bank). This is remarkable given that more than half of the time spent learning is done digitally. It is also clear that the education sector must adapt to keep up with the changing requirements of the global workforce. The need for skill development is increasing at an unprecedented rate, with businesses having to continuously invest in their workforce in order to remain competitive, adapt to change and retain the best talent.
Change is now afoot with digital spend on education expected to at least double in the next 5 years. Importantly, there are clear indications that education is now moving from its historical, centralized framework to a highly fragmented and multi-layered system where most learning occurs beyond the boundaries of traditional institutions — the implications of which are profound.
“Traditional learning institutions simply cannot, and will not, evolve fast enough to keep pace with the rapidly changing needs, perceptions and behaviors of the future workforce,” Nikolas Krawinkel, Partner at Mangrove Capital Partners
Learners on the rise
The number of worldwide learners is increasing steadily with an additional 350 million post-secondary graduates and nearly 800 million more pre-secondary graduates expected in the next decade. Indeed by 2050 there will be a staggering 2 billion additional learners across the globe.
To keep up with this growth, the world would need to add 1.5 million teachers per year on average, approaching a total of 100 million in the coming years (up from 80 million today). These basic macro and demographic trends make two things evident: 1) there will always be a critical mass of people who want and need to continue their educational journey 2) scalable tech is needed in order to complement the shortage of human teaching supply that the world is facing.
Lifelong learning
There are many trends that underline the growing importance of lifelong learning in today’s economy. For instance, the average tenure of a job is now only 4.5 years, and today’s workers will likely have 10 to 15 different jobs in their lifetime (Deloitte). This is especially true for younger generations — employees aged under 34 change jobs most frequently with an average job duration of 2.8 years for employees aged 25 to 34 in January 2022, versus 4.7 years for those aged 35 to 44 (US Bureau of Labour Statistics). This means that throughout life, there is a constant need to re- and upskill in order to remain competitive in the job market.
Furthermore, the European population is ageing, with over 30% of the population currently already over the age of 55 (Eurostat). This profound change in demographics is having a considerable impact on the workforce — Germany alone is losing over 500k workers annually and there are now more Germans older than 60 than younger than 30.
The result is a significant loss of experienced workers from the workforce, but also an increased retirement age. In Germany, for example, the proportion of people of retirement age continuing to work doubled in the past 10 years (Destatis). The ageing workforce will need to continuously learn new skills for an even longer period of time in the future. It is also likely that retirees will increasingly seek to learn new skills in order to supplement their pension with an additional income. Indeed, 28% of pensioners in Germany had a monthly net income of under €1 thousand in 2021 (Destatis).
Finally, it is estimated that 65% of students who pass the baccalaureate today will have a job that does not yet exist (World Economic Forum). These trends all highlight the growing need for education and training programs, addressing all age groups, in order to continuously prepare workers for the rapidly changing job market.
Attitudes have changed
Today, only 51% of Gen Zs want to pursue a 4-year college degree, down from 71% just two years ago. Furthermore, 56% believe that a skill-based education makes more sense (ECMC Group). This shift in attitudes is being driven by the fact that companies like Tesla and Apple no longer require college degrees for many of their jobs. Additionally, most universities are not offering degrees that equip young adults with the skills they need to succeed in the real world. This is particularly concerning given that students are taking on significant levels of debt to finance their education, with the cost of tuition fees in the US and UK rising dramatically over the last two decades. Apart from hospital services, education is the sector where consumers in the US have faced the steepest price increases over the past 20 years.
The dramatically rising costs of tuition fees and textbooks leave significant room for innovation. These costs are especially alarming given that many traditional universities still struggle to turn a profit. In the US and the UK, 25% of universities ran in deficit in 2018–19 (Moody’s).
Ginni Rometty, former chair, president and CEO of IBM, coined the term “New Collar” to define a new category of roles in some of the technology industry’s faster growing fields that do not always require a traditional degree. Typical new-collar jobs include cloud computing technicians, database managers, cybersecurity analysts and user interface designers. Clearly there is a need for digital, scalable university alternatives to provide students with the skills they need to succeed in the modern economy.
Explosion of non-traditional channels
The ways that people learn are now evolving rapidly, driven by changing consumer expectations and new technologies. Learning online has become increasingly popular and Covid-19 has proved that it works. In recent years, the number of learners reached by massive open online courses (MOOCs) has expanded greatly, from 300k in 2011 to 220 million in 2021 (Edsurge). Additionally, the number of hybrid and distance-only students at traditional universities has grown by 36% between 2012 and 2019, with the Covid-19 pandemic contributing to an additional 92% increase in this growth (McKinsey).
At the same time, smartphone penetration globally has reached almost 70%, enabling on-the-go learning. Interestingly, researchers found that 70% of learners are more motivated to learn when they use mobile devices. Microlearning, which involves breaking down complex topics into smaller, bite-sized pieces, has also proven to be an effective way of delivering education and training. According to RPS Research, “microlearning improves focus and supports long-term retention by up to 80%”. Gamification, which refers to the use of game-like elements in education and training, is also becoming increasingly popular. Scientific studies have shown that it can have positive effects on the learner’s engagement and motivation, academic achievement and social connectivity (Science Direct). Examples of new models and channels of learning include Historical Figures, which uses advanced AI technology to allow students to have conversations with over 20,000 historical figures from the past.
“Passion economy platforms, where creators can share and monetize their passion with niche communities, are forming around a more controversial, yet compelling, ethos: Anyone can be a teacher.” Yann Decroos, Investor at Mangrove Capital Partners
Social media platforms are also commonly being used to facilitate learning. Previously the belief was that students want to learn from accredited teachers. Now many passion economy platforms, where creators can share and monetize their passion with niche communities, are forming around a more controversial, yet compelling, ethos: Anyone can be a teacher. “How-to” videos are what bring 51% of all US-based YouTube users to the site (Pew Research Centre) and according to the company’s own statistics, nine in 10 users worldwide perceive its platform as a “place to learn”. For instance, the Youtube channel FreeCodeCamp has over 7m subscribers and offers both coding and Excel educational videos. Indeed some highly successful Edtech companies began as simple Youtube channels — The Simple Club, for example, initially focused on STEM videos but has since now raised VC money and built their own learning platform for students. Meanwhile in China, TikTok plans to show more educational content — from science experiments to museum exhibitions — in response to a government push to limit app addiction, particularly among kids.
Especially for the Gen Z generation, social media platforms have become popular, non-traditional channels for learning efforts. One example would be the hashtag #LearnOnTikTok, which currently has more than 500 billion views. Another is “Goetheinstitut Deutsch”, an offering from the Goethe-Institut for German learners on TikTok. Providing expert knowledge and humor, host Alexander explains in short videos what you always wanted to know about the language. Another example is mobile app Revyze, which aims to build the TikTok of educational videos. It targets high school students and was created in response to feedback from students who would rather learn from their peers than their teachers. Indeed platforms like TikTok have grown to a size where they are ripe to be unbundled for verticals such as education in order to help users find the relevant content they want.
Meanwhile new technologies, such as virtual and augmented reality (AR/VR), have the potential to create more immersive and interactive learning experiences. Studies have shown that VR can create a 75% learning retention rate compared to 10% for reading and 5% for lectures (National Training Laboratory). VR has already been used in flight attendant training, resulting in massive cost savings for airlines by not having to keep planes on the ground. AR and VR may finally find its mainstream breakthrough in corporate learning.
Conclusion
With the needs, perceptions and expectations of learners now changing, barriers to entry are falling and new models and channels for teaching are rapidly proliferating. With neither traditional learning institutions nor existing in-house learning seminars in a position to have a significant impact, the opportunity is wide open for startups.
Check out my colleague Nikolas Krawinkel’s post here (to be published next week) outlining the investment opportunities within Edtech that we are following closely, including K12 digital content opportunities, alternative universities and employee up- and reskilling.
You can also read the full report here.
