Layoffs in india's online education space continue vedantu that turned into a unicorn in september last year has sacked over 600 employees this month an academy india's second largest ectech firm after baijus has reportedly laid off thousand employees over the past few weeks in a cost cutting drive with cobit tail rings receding schools.
And offline models opening up the hyper growth of 9x which vedanta experienced during the last two years will also get moderated in the quest for hyper growth indian ed tech companies have moved fast disrupting the education sector hi everybody in the past few months you.
Must have seen a ton of people being laid off from the edtech industry of india what was once a booming industry with every other startup being valued at a billion dollar valuation now it almost looks like the doomsday for the edtech industry of india while on one side mega brands like unacademy laid off 600 people and baiju's laid off 800.
Employees on the other side companies like lido and uday have shut down in spite of raising millions of dollars in funding so the question over here is how did it suddenly happen that the edtech industry of india went from being a gold mine to a graveyard of startups what kind of startups will survive this edtech crash.
And most importantly as students of business what are the most important lessons that we need to learn from the upcoming edtech ratio of india this video is brought to you by golden buy but more on this at the end of the video to understand the root cause of this crash we first have to understand the mathematics behind the boom of.
Edtech in india and why exactly did the edtech industry of india suddenly become a billion dollar market so let's draw a comparison between physical institute versus the digital institute and try to understand the financials of both these companies for this let's take the classy example of our iit coaching let's say mr chadda is.
An iitn who runs a company called chada's iit factory this company has only three classes has 50 students in each classroom 11 standard students come in the morning batch and 12 standard students study in the evening batch so each year the net intake is 150 students and paying students are 300 they teach three subjects physics.
Chemistry and maths the classes are held for six days a week and three hours per day so only one subject is taught per day similarly the teachers teach for 6 hours per day 3 hours for the morning batch and 3 hours for the evening batch now let's try to understand the financials of this company the fees according to pune's nominal.
Standards is 1.5 lakh rupees for a two year course which is 75 000 rupees per year now remember all these numbers are for 2014 and now the prices have shot up now if you do the math for this standard number your total revenue turns out to be 2.25 crores per year now let's count the expenses teacher salary at 1.5 lakh rupees per month for 3 teachers sums up.
To 54 lakh rupees per year rent at 50 000 rupees per month for three classrooms sums up to 18 lakh rupees per year an admin support staff study materials housekeeping and bills combined would be close to 20 lakh rupees so the total revenue is 2.25 crores and the expenses sum up to 92 lakhs so the profit is 1.33 crores right.
Wrong why because one of the major expenses that we did not consider over here is marketing this is one of the biggest expenses for an iit coaching center especially before 2016. why because facebook and instagram did not have a humongous mobile user base as.
They do today so the only way for you to market your classes would be through conventional marketing methods like billboards seminars newspaper ads and tv ads and this is what made marketing extremely costly for these iit coaching centers because billboards would cost them 50 000 rupees a front page.
Newspaper ad would cost them between five to seven lakh rupees and to host a seminar it's going to cost you another 30 to 40 000 rupees to book a small auditorium of 500 people and that too for a single day now obviously one billboard one newspaper ad and one seminar won't be effective right so merely for repetitive advertisement.
Through these channels the cost of marketing itself used to shoot up as high as 20 to 30 lakhs just to fill up 150 seats but the sweet part over here is that you still made one crore as your profits and as you can see from these financials this is a very very capital intensive business wherein you need 70 to 80 lakhs.
Of minimum working capital even if you're a mid-sized coaching center but this is why ladies and gentlemen the jio wave came in and it revolutionized the way the coaching industry of india functioned this is when we saw the rise of digital coaching institutes and the way these people transformed the industry was that.
Instead of renting a classroom and hiring teachers for one complete year they hired the best teachers paid them two months of their salary and got them to record all of their lectures on a camera so three teachers with two months of salary would cost you nine lakh rupees of fixed cost along with another 2 lakh rupees for your video editing now.
If you look at the beauty of this model the moment you have a pre-recorded course you don't need classrooms so no rent no deposit you do not need a huge admin staff no puns and you wouldn't even consume as much electricity so the miscellaneous expenses come down from 20 lakhs to less than 5 lakhs so capital wise this business becomes.
Very very economical but at the same time here are the insane advantages that you got with the online coaching business in 2017. number one your market doesn't have to be restricted to a small radius of 15 to 20 kilometers now you could sell your course all across india to even 10 000 students all you have to do is bear the.
Fees of hosting a course on a platform which would cost you not more than two to five lakhs for the entire year number two your offering could become extremely customized you could sell just physics courses for 20 000 rupees the entire package of pcm for 50 000 rupees and if a student wants just the prerecorded course you could sell it at a base price.
Of 40 000 rupees or if they wanted a doubt session you could charge another 10 000 rupees premium and even then the cost of your product would be lower than the cheapest fees of an offline course and the best part is that you could either pay the teachers on a ten to twenty percent commission basis on each sale or you could get these teachers to.
Spend time in doubt clearing because the conceptual teaching is already done by the pre-recorded course and last and most importantly all thanks to internet and jio instead of spending 50 000 rupees on a single billboard that barely generates any leads you could get your video ad to more than 50 000 parents through facebook ads instead of spending.
5 lakh rupees on a front page newspaper ad you could reach a million people in your specific target audience with facebook and instagram ads and instead of spending 40 000 rupees to book an auditorium and hope for 400 people to show up you could spend the same money and get 4 000 people in your free webinar with.
Just a few software subscriptions and after that you just need a small sales team to convert these leads that you've generated through facebook and instagram ads and you know guys we actually consulted a digital marketing company called 1.4 media to try and understand what exactly was the customer acquisition cost back in 2017 to convert.
A customer who is going to pay 50 000 rupees for a course and as it turns out back in 2017-18 this cost was lesser than 10 000 rupees as in you have to spend 10 000 rupees into marketing and sales and you will be able to acquire a customer who will be paying you 50 000 rupees as your course fees and this 10 000 rupees is what you call.
As customer acquisition cost now people know this very very carefully because i'll come back to this later now coming back to your balance sheet on top of this profit taking out another 10 percent commission for the teacher you still have 70 percent in profits now although this number is very very lucrative even a 50 profit margin is a.
Very very big deal on a scalable digital medium and a huge market like india so all of this put together you could sell the same course which is sold for 1.5 lakh rupees by the chadas at just 50 000 rupees with live doubt sessions every week held by the teachers themselves and even if you sell to just 500 students with 25 000 rupees profit per student.
That is 1.25 crores in profit straight away and that too without incurring 75 lakhs of working capital expense that is needed to operate a physical coaching center now although there are many more hurdles in digital marketing also like targeting bad ads and bad production nobody can deny the fact that the profits with the edtech business in.
2017-18 was absolutely insane so to summarize this edtech back then needed ultra low working capital was a high profit margin business with practically a limitless potential to scale and most importantly the entry barrier to start an edtech business was very very less and this is what led to a gold rush of investors with billions of dollars of.
Funding pouring into every category of edtech like coding k12 neet iitg and even upc subjects so now the question over here is when this was such a huge profit margin business and india is such a huge market why are these companies going out of business why are the investors killing these companies and why are these.
Companies laying off so many employees well this is where ladies and gentlemen the difference between 2017 and 2022 comes in you see guys for any business when the entry barrier goes down there is an extraordinary increase in the competition so when course making got cheaper and selling got easier everybody.
Started shooting videos everybody used instagram ads everybody had a sales team and most of all many of these players had a million dollar funding so when this happened two things happened along with it number one when there were a ton of instagram ads with the exact same product the cost per conversion increased drastically so back then if.
You could convert a customer for 10 000 rupees as the market got more and more crowded this number would hit 20 000 and even 30 000 rupees and since a lot of these players got funding the pricing was started to heat up in 2019 so now if you had a course for 50 000 rupees a funded company was willing to offer it at a 5 discount so suddenly there was.
Another company that was giving out live sessions at 50 000 rupees with a 20 discount and soon enough the cost of the product started to decrease but the customer acquisition cost kept on increasing in fact before 2020 the customer acquisition cost of these tech companies were somewhere between 20 to 25 percent.
Of the revenue as in 10 000 to 13 000 rupees was needed to convert a student who was willing to pay 50 000 rupees but by 2020 the cost of customer acquisition shot up to 70 to 80 percent of the revenue so in 2020 40 000 rupees was needed to convert a student paying 50 000 rupees in fact the customer acquisition cost for an edtech company.
Operating in the k12 segment varied from 10 000 rupees to 60 000 rupees per student so you see the margins started growing thinner and thinner after a certain point and most of these companies started incurring losses but this is when the pandemic happened this global lockdown has really seen edtech education technology.
Explored in a manner that no one could have imagined with the corona virus creating havoc globally closing down schools colleges universities coaching institutes and other educational institutions the education sector is adapting to the change.
And during this time companies were ready to take up a lot of laws because they knew that this was the time to get the customers habituated to online learning so again the edtech industry of india saw more ads more discount more freebies more hiring more funding and most importantly more players joining the market but as soon as the pandemic.
Faded away schools and colleges started and the humongous resources that the tech companies actually gathered was no longer needed so obviously the companies fired the surplus staff which includes both the teachers and the sales team so the question over here is is the attack crash finally here and if at all it's here who are the players who are.
Going to survive this crash now listen to this very very carefully people because there's a very very important business lesson to be learnt over here you see in the edtech industry of india regardless of how big or small a company is regardless of which category this company actually belongs you will see.
That there are three types of players in this space the first type of player that we have are super brands like buy jews and an academy who have made such an exceptional name for themselves that they've kind of achieved top of the mind marketing and they are now hoping that once a student pays 50 000 rupees and does well in the exams the parents might.
Spend another 50 000 rupees next to you so this time there is no customer acquisition cost associated with this conversion the second type of players that we have are rich sellers these are the ones who don't have as much name and recognition as baijus but they have a million dollar funding to run countless ads on facebook and instagram so these.
Are companies that are advertisement dependent and then we have the most powerful and the most profitable players in the market which are personal brands and organically built company brands on social media and here's where we've got prashanth sir and study iq for upsc telus go for coding amanda tarwal and.
Shraddha and obviously the legendary physics voila and these players will always make money they will always remain profitable and if they do it right they could even become bigger than an academy and buy jews and that too without funding this is because of three reasons number one they have an irreplaceable brand.
Value that separates them from a commoditized tech market number two they have an incredible distribution channel to get students without running ads and most importantly because of the brand that they've built through content because they've given so much value to their audience even if they run ads tomorrow their customer acquisition cost.
Is going to be ultra low so if amanda the world runs an ad saying buy this course he would acquire customers at 110 the cost as compared to a random funded edtech company so if you see the funded edtech sellers who do not have a content machine are the weakest players in the industry.
So even with the million dollar funding these companies could easily go out of business at the same time players like ahmad atarwal and prashanth sir even without funding they will do exceptionally well in the market and this is what brings me to the most important part of the episode and that are the lessons that we need to learn.
From the remarkable rise fall and calibration of the edtech market of india before we move on i want to thank our partners for this episode and that is golden pie people is not only the edtech market that is crashing but also the stock market that is crashing all the investors that have enjoyed the bull run are now starting to face the brunt.
Of this fall and during times like these you need to play it smart and invest your hard earned money into instruments like bonds where it gives you stable returns previously only the hnis had the privilege to invest in such highly quality bonds but golden buy is now making these bonds accessible to retail.
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That the minimum investment is just ten thousand rupees in case of ncd ipu's and currently the muthud ncd ipo is live and you can check it out from the special link in the description moving on the first thing we need to learn is that whenever the entry barrier of a business decreases it leads to a humongous flooding of players into the market so.
Either be a first more in the market like an academy or baiju's or be a smart mover like telusko and amanda tarwan number two instagram and facebook marketing is reaching its peak and within some time even though the cost to instagram might not increase the cost of conversions will keep on increasing with time so soon enough even if you have the.
Best product in the market your ads might just get ignored like television ads today so do not just rely on advertisement and this is both for edtech and d2c also because even there the entry barrier is decreasing and last and most importantly no matter how much funding you've got with your company.
If you do not build a personal brand for yourself or for your company you could be out of business in no time because winter is coming for facebook and instagram ads and at the same time if you build a personal brand for yourself if you've built the superpower to broadcast information to a million people.
Even a billion dollar company can never ever replace you that's all from my side for today guys if you learned something available please make sure that the like button in order to make cutie baba happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for watching i will see you in the.
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