Education technology, or EdTech, is one of the fastest growing, and needed technology sectors to make our schools more competitive, give our teachers the resources to succeed, and students the ability to grow. 

However, EdTech is a difficult industry for entrepreneurs to break into, for investors to profit from, and for schools to adopt. Edtech companies are flooding to the market with over  1.8 billion in venture capital invested into education technology companies in 2015.

The big players were early to the game--Apple, Google, Facebook have all moved into this hot market to stake their claim with iPads, Google Classroom, and key partnerships.

With all this new technology, and billions of dollars spent, why is edtech flunking out?

1. Broke Startups and Hated Giants

The scary part about being in startups is that there are many applications with no defined revenue.

For example, Snapchat was an application that had absolutely no monetization until recently with giving people the ability to pay for geo-filters, and brands to pay for promoted snaps.

The alarming fact is that most edtech companies don't have any revenue either. The reason is that there are so many companies entering a tight race for a closed and finite market.

There are two main business models for edtech companies: "free for teachers" and "sales to administrators."

Sales to administrators is a top-down approach where administrators tell teachers what tools to use and how to use them. The former gets great adoption from teachers, but is difficult to monetize.

That leaves two categories - broke startups that teachers love, and rich companies that teachers hate.

Unlike companies that can scale to millions of users to sell advertising as a revenue stream, edtech startups do not have this luxury as privacy and data protection comes first. Hence, edtech startups are fighting to find sustainable business models. In a traditionally top down system, many are struggling and many will die out in this fragmented market.

2. There Are Too Many of Them

There are hundreds of startups alone that specialize in just math-focused products. All of these companies are doing the same thing to target tiny niches in the school system. Yet there is an increase in edtech accelerators pushing even more competition into this oversaturated market.

This is normal for any new industry, where many companies enter to become the leader in their niche. In the coming years, the edtech space is going to face a growing threat of consolidation as these leaders establish themselves.

This trend is not just particular to edtech as other industries have gone through the same cycle of expansion and contraction.  Harvard Business Review calls this the consolidation curve with a clear life cycle.

3. No One Knows Who the Customer Is

Edtech companies have mixed up their target customer. Right now, most edtech products are focused entirely on the student and student outcomes. Of course to make positive change in education, the end result should be for the students, but you have to tweak the process to change the results.

Who controls the process? The teachers do. This is why targeting the teacher as the primary user is the best bet for adoption and making an impact because teachers are the gatekeepers for the introduction of technology, especially in lower grade levels.

Unless an edtech company targets the right end user, it'll have a hard time gaining traction and creating a sustainable business. Edtech is more challenging in this regard because startup founders lack a strong understanding of their complex market, where the end user is not the target customer.

4. Engineers Trying to be Teachers

Many Edtech companies are started by founders with backgrounds in technology without much prior understanding of pedagogy.

Edtech entrepreneurs have to gain mastery of teaching without being a teacher, and that's no easy task. Without such knowledge, the industry will be littered with beautiful applications that do not actually move the needle in student success. Companies such as Edmodo, Clever, and Chalk.com have tackled this by hiring teachers into their companies.

To be successful in this upcoming consolidation, these founders have to understand the methods of teaching and learning. "We like to think of ourselves as a learning company rather than a tech company. Understanding pedagogy is the responsibility of everyone in the company." says William Zhou, CEO of Chalk.com, an edtech startup in Waterloo, Canada. "Our team works directly with teachers to truly understand learning challenges and opportunities."

That key understanding of pedagogy is the only real way to make movement in education, and become successful in the tech industry.

Conclusion

There is no doubt that many edtech companies will flunk out. The ones that don't pay attention to pedagogy will end up creating deadend apps. The ones that forgo sustainable business models will be eaten by others as the market faces a consolidation.

For companies like Chalk.com, who are focusing on solving teachers' actual problems, and not just checking boxes on sales proposals, they aren't worried.

Published on: Mar 24, 2016