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Course with employment: "The Profession of a Methodologist from Scratch to PRO"
Find out moreIn the first three quarters of 2021, the revenue of the 100 largest EdTech companies in Russia reached approximately 45 billion rubles, which already exceeds the figures for the entire 2020. This amount is expected to exceed 60 billion rubles by the end of 2021. This increase in revenue was not unexpected, given the growing interest in online education and digital educational platforms in the country.
2021 turned out to be similar to 2020: there were few new challenges, and companies primarily focused on developing and strengthening the skills and methods developed at the beginning of the pandemic. This opinion is shared by Sergey Akopyan and Ignat Zayonchkovsky, organizers of online competitions and internships for young entrepreneurs "Preactum." Amid ongoing uncertainty, businesses have adapted to new realities, implementing proven approaches to achieve sustainable growth and success.
This year, we have witnessed many significant events that have impacted our daily lives. Let's consider which habits formed in a changing world will stay with us for the long term. It's important to understand how these events have affected our behavior and what changes have become part of our lives. Adaptation to new conditions has led to the emergence of sustainable habits that can become the foundation for a better quality of life in the future. By maintaining positive changes, we can build a more harmonious and productive future.
- Why has the number of unicorns doubled in a year and what to expect after the New Year?
- The "Wild West" is ending. Why have startups started working on quality?
- Who started the marketing budget race and who can't keep up?
- Why has online begun to converge with offline and why does the EdTech industry need summer camps and copybooks?
- How are platforms experimenting with payment methods and why is now the best time for this?
- Artificial intelligence has taken over industry conferences. Why are real AI startups less impressive than projects and promises?
- The state has come to EdTech. How China Destroyed a $100 Billion Industry and What to Expect in Russia?
- Why Are Russian Startups Storming the International Market and Who Are the Year's Outcasts?
- "The Train Hasn't Left the Station." There's Plenty of Room Left in the Education Market for New EdTech Companies.
Unicorn Boom
For many years, venture capitalists have shown little interest in education startups. The main reason for this was the low number of successful public offerings of such projects. Until 2021, EdTech companies had virtually no IPOs, as confirmed by PitchBook analysts. However, this is changing, and growing interest in educational innovation is opening up new opportunities for investors and entrepreneurs.
The pandemic has had a significant impact on financial markets, leading to active IPOs of large companies amid heightened demand. The educational platform Coursera held an initial public offering on the New York Stock Exchange (NYSE) in late March 2021, valuing its stock at $4.3 billion. Shortly thereafter, the language learning app Duolingo was valued at $3.7 billion on the Nasdaq. In November, Udemy's initial market cap exceeded $4 billion. These events highlight the growing interest in online education and digital platforms in the new reality.
According to PitchBook, investment in education startups totaled $13.8 billion in the first ten months of 2021. This significant support in the EdTech sector has led to the emergence of 14 new unicorns – companies with a valuation of at least $1 billion. For comparison, between 2014 and 2020, only 21 education startups reached this valuation. The future of this industry remains uncertain. According to HolonIQ, investment in EdTech grew in 2015 and 2018, but then declined. It is important to monitor edtech trends and investments to understand whether the sector can continue to grow and attract new funds.
Demand for Quality
To further develop, companies need to improve the quality of their products and services, as the era of the "Wild West" is coming to an end. Andrey Lobanov, founder and CEO of Algorithmika, expressed this opinion at the EdCrunch Glocal conference. In a context of increasing competition and changing market conditions, an emphasis on quality is becoming key to successfully promoting a business and attracting clients.
In the Smart Ranking analytical report for the third quarter of 2021, Sergey Laput, Director of Development at TutorOnline, noted that clients register on several educational platforms before choosing the right one. They compare parameters such as price, service level, user-friendliness, and brand reputation. Teachers also look for platforms that offer convenient service and a stable flow of students. A representative of Skillbox Media, developer of the Wachanga preschool education app, emphasized that at this new stage of growth, the quality and depth of knowledge acquired are becoming the main driver of user choice. This demonstrates the importance of providing high-quality educational content to attract and retain clients on platforms.
Small projects demonstrate particular flexibility and attention to client needs. The founders of the Tilly app, which offers interactive activities for preschoolers, focused their efforts on improving the quality of their content throughout 2021. This allows the app to effectively adapt to user needs and provide a high-quality educational experience for children. We've updated our platform and introduced a new product—an interactive course for preparing for school without a tutor. Olga Demenitskaya, Development Director and co-founder of the Tilly platform, notes that the "Learn It Myself" course was developed over a year and underwent three changes to its methodology. Numerous nuances must be considered when creating the course, as children's perception of colors and shapes varies depending on their age. For example, children under three are able to distinguish between small and large objects only if there is a significant difference in size. Furthermore, some images, such as an old television, may be unrecognizable to young users. We also face high demands on the quality of illustrations when we receive comments from parents, for example, about misinterpretations of plants in pictures. This underscores the importance of careful attention to every detail during the course development process.
The trend toward creating high-quality and well-designed educational products is spreading even to projects that previously relied solely on aggressive marketing. The rising cost of advertising traffic in the market makes attracting customers for one-time purchases unprofitable, notes Anastasia Karpova, head of the EdMarket online education specialist incubator at Skillbox Media. Today, a well-thought-out concept, the creation of educational materials, as well as student support and detailed feedback on their homework, are essential. As a result, Karpova emphasizes, there is a growing demand for methodologists, methodologists, and curators.
The trend toward online learning among adults aged 40+ is becoming increasingly noticeable. Mature individuals are increasingly choosing retraining to change careers or master a new field. This category of students represents an interesting market segment: they are solvent, active, and strive for tangible results. To successfully meet their needs, it is important to focus on the quality of educational content and providing proper support to users throughout the entire learning process.
According to data from the international analytical agency HolonIQ, projects in the field of supported education attract four times more interest from investors compared to other startup categories. This underscores the importance and potential of this field, notes Natalia Tsarevskaya, Head of EdTech at the Skolkovo Foundation's IT Cluster. Investment in such projects demonstrates the growing demand for innovative educational solutions and their significance for the development of the modern market.
Natalia Chebotar, an education expert and former Director of Strategy and Research at Yandex.Uchebnik, emphasizes that users have the opportunity to prepare for change. According to her, many of them remain naive and often lack the necessary qualifications to make informed decisions. In the modern world, people are now responsible for their own development and choose how to learn. However, the need for education does not arise as often as desired, and often the only learning experience is school, tutors, or universities. It's important to note that modern educational programs and products often offer a more human, engaging, and practical approach compared to traditional bureaucratic systems. This opens up new horizons for learning and development, allowing everyone to become an active participant in their own educational journey.
Marketing Budget Race
The number of people learning is growing faster than the number of those providing training, said Alexander Laryanovsky, Managing Partner of Skyeng, at the GoGlobal Forum 2021 conference. According to his estimates, educational platforms compete for only 1-2% of the adult population of Russia, which is approximately 1 million people. In such conditions, advertising becomes the main tool for attracting customers.
According to Smart Ranking, Russian companies, on average, allocate 20% of their revenue to marketing. For language courses and courses for schoolchildren, the average annual customer check can be lower than the customer acquisition cost (CAC). Marketing investments are only justified if the client stays with the service for a second year or returns after a short break. In the professional education sector, the cost of acquiring a new client reaches 30–40% of the total bill. This underscores the importance of effective customer retention strategies and optimizing marketing spend.
Many market players offer products of similar quality with minimal differences, making it difficult for clients to understand the differences until the first use, notes Natalia Chebotar, former Director of Strategy and Research at Yandex.Uchebnik. This creates competition in marketing and investment budgets, as differences in quality and product advantages are insignificant. Any innovations are quickly copied by competitors, leading to a leveling of offerings.
In 2021, the Like Center business school took first place in the Smart Ranking ranking of the largest companies in the online education market. Over the first three quarters of 2021, Like Center invested significantly in marketing and advertising integrations, spending 532 million rubles. As a result, the company's revenue increased by 410%. However, reduced marketing budgets could negatively impact the company's position. This will lead to decreased visibility among users and a slowdown in sales, as noted by Irina Semenok, Marketing Director at Netology. Umskul ranks 16th in the Smart Ranking with revenue of 350 million rubles. This platform, which specializes in preparation for the Unified State Exam (USE) and Basic State Exam (BSE), entered the ranking for the first time and represents Tatarstan. Analysts believe the key factor in its success is a well-thought-out advertising strategy: the company focuses on promoting teachers and targets students rather than their parents. Experts emphasize that in a competitive environment, small companies are particularly challenged, often unable to sustain rapid growth and leaving the market.
Online vs. Offline
Companies are increasingly returning to in-person learning formats or seeking blended options. In 2021, Tilly developers introduced printable copybooks into their courses. This demonstrated that writing without copybooks is quite difficult. Larger companies are actively opening or acquiring summer camps. Some are seeking to enter promising niches, while others use camps to attract new customers and build a community around their platform.
In May 2021, the Indian educational platform Eruditus acquired iD Tech for $200 million. iD Tech organizes summer camps for schoolchildren, where they study science and develop STEM skills. Prior to this acquisition, Eruditus had not provided education to children, focusing its efforts on adults. In June 2021, it was announced that Like Center planned to open 150 Names-Smart campuses across Russia to support young entrepreneurs. In Moscow, IThub College has been running a summer city camp, IThub Camp, for two years now, offering career guidance to schoolchildren aged 13-16, focusing on IT specialties. This initiative promotes interest in technology and helps young people decide on a future career in IT.
According to research by Geekbrains, approximately 25% of students interested in IT education are willing to combine online and offline learning formats. Alexander Volchek, CEO of Geekbrains, noted in an interview with Smart Ranking that offline platforms in the regions can become an important growth factor. They help create a community in various parts of Russia, which contributes to the development of the IT sector not only in large cities such as Moscow and St. Petersburg, but also in smaller towns.
Artificial Intelligence Undercover
According to research by Microsoft, 92% of educators have begun to implement artificial intelligence (AI) technologies in the educational process. Moreover, almost all respondents (99.4%) are confident that the use of AI will increase the competitiveness of their educational institutions in the next three years. According to Stanford University's 2021 Index Research, EdTech startups invested $4.1 billion in AI technologies. This is significantly more than investments in other industries, second only to the pharmaceutical industry, which invested $13.8 billion, and autonomous vehicle manufacturers, which invested $4.5 billion. The integration of AI in education opens new horizons for improving the quality of the learning process and tailoring educational programs to student needs.
Despite significant growth in the education market, none of the leaders have implemented the latest educational technologies, such as augmented and virtual reality, artificial intelligence, and blockchain, into their practices, notes Natalia Chebotar. Some companies are attempting to develop personalized learning paths and recommendations, but these are just the beginning, mostly limited to automating routine processes. Modern technologies remain relevant only as topics for discussion at conferences, she emphasizes.
Modern artificial intelligence technologies are not as impressive as they might seem at specialized conferences. AI is primarily used in recommender systems and analytical platforms, notes Yuri Molodykh, Director of the NTI Foundation's Center for the Development of Technology Competitions. He points to two key limitations that hinder the practical use of AI in education. The first limitation is the insufficient adaptation of technologies to the specifics of the educational process, which hinders their effective implementation. The second limitation is the lack of high-quality data for training models, which reduces their accuracy and usefulness. These factors hinder the full potential of artificial intelligence in the educational context.
- Slow technology adoption. Years, sometimes even decades, pass from the first demonstration to widespread use. Douglas Engelbart, a Stanford scientist, presented the first working teleconferencing system back in 1968. But video conferencing only truly became widespread in 2020, when the coronavirus pandemic began worldwide. Email has become more ubiquitous, but it's still more than 30 years since the first demonstration.
- Lack of training data. To train a neural network to perform well, huge data sets are needed. But this data can only be collected by real users using the service—a chicken-and-egg problem. Researchers are currently developing methods that allow systems to learn from small data sets—unsupervised learning or one-shot learning. But it's still unclear whether these methods will yield results in education. Large players (such as Yandex, Uchi.ru, and Skyeng) collect large volumes of data more quickly due to their scale. Over time, this will allow them to create increasingly complex AI products.
According to Yuri Molodykh, the development of video conferencing technologies will take less than 50 years, the time it took from the creation of the first video conference by Douglas Engelbart to the popularization of the Zoom platform.
Systems that learn from small amounts of data are successfully used in games such as Go and chess. idChess, a platform for analyzing and recognizing chess games, recorded a 220% increase in demand for its services in 2021. Chess players record their games during tournaments and training sessions. idChess automates this process, recognizing moves in real time and recording them in chess notation. After completing a game, users can send the game to their coach in GIF or PGN format, as well as share it on social networks, which helps popularize chess and exchange experiences.
Demand for digital game analysis services has grown significantly, confirms Petr Chernyshev, CEO of FriFlex and founder of idChess. To date, 87,000 chess games have been digitized using idChess. Similar projects have been successfully implemented in other sports, such as hockey, fencing, and volleyball, Chernyshev adds in an interview with Skillbox Media. These services not only help analyze game strategies but also contribute to the development of athletes, giving them the opportunity to learn from mistakes and improve their skills.
Experiments with Monetization
According to a Skillbox Media survey, startups have been actively experimenting with payment and monetization methods throughout the year. This is due to the fact that Russians' spending on educational services increased by 49%, according to analysts at Tinkoff Data. These changes highlight the growing interest in online education and the need to adapt business models to successfully attract customers.
In 2021, Skypro became the first major EdTech company in Russia to implement the Income Share Agreement (ISA) model, providing students with the opportunity to receive a loan from the educational platform, which will be repaid from the graduate's future income. According to Alexander Laryanovsky, Partner and Director of Business Development at Skyeng, this model is especially relevant for IT specialists, given the high employment rate and talent shortage in this field. Laryanovsky compares the ISA model to the state education system, where a person studies for 10-15 years and then pays income taxes. Investor Igor Rybakov recommends using this loan model only if the expected salary increase for the year fully covers the cost of tuition. If loan repayments are delayed for more than 12 months, it's worth considering whether it's worth taking out. Smaller projects are actively exploring simple monetization methods, including the freemium model, which offers a free trial period or the option to disable banner ads for subscribers. Many startups that previously used this strategy continue to adapt their subscription terms and conditions. One such company is the children's educational platform Tilly. Initially, it offered two plans: monthly and annual, with users more often choosing the more affordable option. The founders decided to increase the average order value by eliminating monthly subscriptions, but soon reverted to the original plans. They are currently experimenting with the length of the trial period and the content available during it. This allows the platform to find optimal solutions for attracting and retaining users. Natalia Chebotar believes that the number of experiments with business models will only increase. Ideas are emerging in modern discussions in which employers or educational institutions finance student education. Another approach involves investing in individuals, allowing them to simultaneously start a business and pursue an education. Chebotar emphasizes that such innovative models can significantly change the approach to learning and developing personal potential. Anton Yelnitsky, owner of the online course hosting service "AntiTrainings," shared information about trends in online education with Skillbox Media. In recent years, courses have increasingly been sold on installment plans thanks to partnerships with banks. Bloggers are beginning to view educational courses as an effective way to increase their income. According to Yelnitsky, the revenue from the course, which took just two months to develop, is ten times higher than advertising revenue for the same period. He estimates that the total annual turnover of courses from famous individuals reaches several billion rubles. This highlights the growing popularity of online education and its importance in modern business models.
The State Has Come to EdTech
In July 2021, the Chinese government introduced new regulations for educational technologies (EdTech) targeting school students. All extracurricular education centers were banned from posting advertisements, holding classes on weekends and holidays, and teaching subjects from the school curriculum. In addition, they were prohibited from listing on stock markets and attracting investment from foreign investors. Companies were required to register as non-profit organizations. These measures are aimed at regulating the education sector and protecting the interests of students and their families.
According to HolonIQ research, before the restrictions were introduced, the extracurricular education market in China exceeded 700 billion yuan, which is approximately $110 billion. According to analysts from the Chinese Society of Education, approximately 75% of schoolchildren aged 6 to 18 received education outside of public schools. These figures highlight the importance and scale of extracurricular education in China, as well as its impact on the country's educational system.
The official goal of the government was to reduce parental spending on education and reduce the burden on schoolchildren. However, this decision has had serious consequences for the education industry: many companies have begun mass layoffs, returning to offline teaching and launching sports and arts courses that are not subject to the new restrictions. US investors are urging avoidance of Chinese EdTech, with many stocks now trading below $1.
New restrictions have been introduced in Russia. In March 2021, the State Duma adopted amendments to the Federal Law "On Education," known as the law on educational activities. According to this law, online schools are now under government control, but the procedures for implementing this control have not yet been established. These changes are aimed at improving the quality of educational services and protecting consumer rights in the field of online education.
In September, after a meeting of the Presidium of the State Council of the Russian Federation, Vladimir Putin ordered the exclusion of the term "educational service" from legislation. Starting in 2023, online lessons are planned to be transferred to state information systems, likely referring to the "Mobile Electronic Education" project. This change is aimed at streamlining the educational process and improving the quality of distance learning in Russia.
In October, State Duma Deputy Alexander Khinshtein announced that the seventh convocation of parliament could begin the process of verifying educational courses. If the corresponding bill is developed and adopted, online courses will be required to undergo the same stages of state review as traditional printed textbooks. Against this backdrop, TalentTech has decided to appoint former Deputy Minister of Science and Higher Education Denis Solodovnikov as Director of Government Relations. This appointment underscores TalentTech's commitment to adapting to new requirements and improving the quality of its educational programs.
The government is actively restricting private participation in school education. Although the measures are not as strict as in China, regulations continue to emerge. The main trend is to narrow opportunities for non-governmental educational platforms and programs designed for schoolchildren, notes Chebotar. This restriction could negatively impact the diversity of educational offerings and the quality of education. It's important to monitor the evolving situation, as changes in legislation can significantly impact the choice of educational services for students. Olga Khasyakova, CEO of the InternetUrok educational platform, shared with Skillbox Media that she is closely monitoring the current situation in the area of educational content licensing. Currently, the company has no serious concerns regarding this. InternetUrok has conducted a study of the educational content requirements imposed during public tenders, as part of experimental state programs in schools, and as part of their development strategies. This allows the company to remain relevant and in line with modern educational standards. We are currently auditing our content to thoroughly prepare for accreditation. We are awaiting the Ministry of Education to announce changes regarding material requirements, as well as the frequency and procedure for inspections. Khasyakova emphasizes the importance of these updates for our accreditation process. We are committed to meeting all new standards and requirements, which will enable us to provide high-quality educational materials and services.
RAEC analysts note positive changes in Russian legislation regarding support for the IT industry. The inclusion of "digital educational services" in the second package of support measures was an important step. It is also worth noting the investments of state-owned companies in the EdTech sector, which demonstrates the growing interest in digital technologies in education and the need for their development. These measures can significantly contribute to improving the quality of education and the implementation of innovative solutions in the educational process.
Entering New Markets
About a third of the companies represented in the Edtechs.ru rating, which includes 108 startups, are active in international markets. Educational startups have traditionally sought to enter foreign markets, but in the current environment, this has become a matter of survival. Companies that fail to expand internationally risk losing their competitiveness, says Natalia Chebotar. In 2021, several significant educational platforms entered the international market. InternetUrok expanded its presence in Kazakhstan, and TutorOnline launched operations in Turkey and India. Mishka AI introduced its robotic teddy bears under the Smart Teddy brand in the US, marking a successful move into children's technology. Skillbox acquired 90% of the Brazilian online school Mentorama, strengthening its position in Latin America. Additionally, investment company Baring Vostok invested $11 million in EBAC Online, an online school with Russian roots operating in Latin America, highlighting the interest in developing online education in the region.
Foreign markets offer attractive opportunities for Russian companies to attract foreign investment, low competition, and, accordingly, minimal marketing costs. Alexander Nosulich, CEO of the international online school Kodland, shared with Smart Ranking that the cost per lead in Indonesia is 50 times lower than in Russia, and the click-through rate (CTR) for advertising is five times higher than in Russia. Despite this, new markets have their drawbacks, such as differences in educational programs and standards, peculiarities of local bureaucracy, and higher launch costs. However, these factors often only hold back small startups, leaving larger companies with the opportunity to expand and grow.
Andrey Anishchenko, co-founder of EBAC Brazil and Skillbox, noted in an interview with Smart Ranking that the ambitions of Russian companies extend beyond the capabilities of the domestic market. He predicts that in the next two years, several companies will be able to achieve a market capitalization of hundreds of millions of dollars outside of Russia. Anishchenko believes that the greatest potential lies in the continuing professional education segment, as well as in regions where the number of potential clients significantly exceeds Russian indicators.
