Why has every edtech startup failed? (Part 1)

The State of Online Education Part 1

Why has the internet failed to change the university system?

For all the talk of the innovation and disruption brought by the internet and startups, the higher education system remains almost entirely the same as it did before the internet- students gain entrance into 4 year colleges or universities, they complete coursework every semester, which is a mix of tutorials, assignments and exams, they attend campuses in person. At the margins the internet has changed things (online lecture slides, PDF textbooks, online quizzes); but the core remains the same. 

But the internet has drastically changed other parts of our lives. To take one example, online dating is now the dominant way in which heterosexual couples meet. Its meteoric rise is shown in the chart below.

If we could zoom out to the 10,000 foot view and gain some perspective on where we are currently in online education. What would we find?

This will be a 3 part series looking at the state of online education. This first post will look at where online education fits into the lifecycle of products and the differences between innovative products early in their cycle and mature products. We’ll consider what this means for how we can design and market online learning as a product.

Innovative vs Mature Products

The fundamental question is whether online education is a mature product or an emerging product. Whilst the answer may seem obvious – Online Education is an emerging product– exploring the reasons for this is useful because it will help us make the right decisions about how we:

  • Design new products
  • Build our teams
  • Market our products

Mature Products

Let’s first examine mature products. Their characteristics include:

  1. Features that don’t change a lot between different product versions.
  2. Profitability and positive cash flows.
  3. Outsourced production processes, which are possible because mature products don’t change too often.
Textbooks are a classic mature product

  1. Features don’t change much between different editions. We can all identify the main features of the textbook – (table of contents, text, images, callouts, end of chapter exercises). New features (like ethics, real life case studies) are often add-ons but don’t fundamentally alter the function of a textbook.
  2. Textbooks are profitable and cash flow generating on a per-unit basis. The problem is that students are moving away from textbooks or finding ways to not buy the latest edition.
  3. There is an elaborate production process required to produce a textbook involving many parties. The production process is outsourced into different functions with little cross-understanding between different roles. This is only possible when the core product doesn’t change much.

Emerging Products

In comparison to mature products, emerging products differ in key areas: 

  1. Core functions improve rapidly and change significantly. New features fundamentally change the way the product functions.
  2. Define an entire new market for their products. Whilst they may satisfy needs for existing markets, they also create entirely new markets. 
  3. Rearranges production processes and value chains so that end users benefit from the innovation.

Let’s take a look at an example of an emerging product – the original iPhone which created the entire category of Smartphones.

1. Core functions rapidly improve

When Steve Jobs first introduced the iPhone in 2007, it did not ship with an App Store for 3rd party developers. Originally, Jobs didn’t want outside developers on the iPhone and hated the idea of the App store. After much persuading from his lieutenants and a developer backlash, Jobs finally gave in. The iPhone 3G in 2008 became the first iPhone to ship with an App store.

The addition of the 3rd party apps meant that the iPhone could now function as a virtual piano, help you track calories, it could call a cab for you or trade stocks. The App store fundamentally changed the way an iPhone functioned for a user.

2. Define an entire new market

Whilst emerging products may satisfy needs for existing markets, they also create entirely new markets.

The iPhone launched the product category of the smartphone. All smartphones since the iPhone have followed the same formula as the original – a touch screen, an internet connected device and a phone. 

Besides defining the smartphone category, the iPhone has also launched entire new industries on top of the features it enables. Industries like ridesharing and food delivery are only made possible because of smartphones which combine internet communication and location awareness and allow coordination between many different parties.

3. Built in-house

Because emerging products represent something fundamentally different from what existed before, companies cannot rely on the existing value chain. Anyone who wants to introduce an emerging product must control the key parts of the value chain so that their innovations reach the user.

The fundamental breakthrough of the iPhone was a smooth and intuitive touch screen (It literally allowed you to touch the f*cking internet!). This represented a big change from the WAP internet browsers that existed on feature phones at the time.  

An example of the “mobile internet” known as WAP

To take advantage of the breakthrough in the UI, Apple shipped an integrated hardware-software package. The iPhone was a beautifully designed piece of hardware – a touch screen display, a single home button and a phone with radios and wireless antennas. But Apple paired this hardware with its own software operating system – which allowed it to take advantage of the breakthrough. It invented things like natural scrolling, pinch to zoom, rubber banding which have defined smartphone UI ever since. 

Mobile phones before the iPhone

Apple could not rely on the existing value chain – controlled by telecoms carriers who mandated line after line of specifications to phone manufacturers about things like physical buttons, minimum functionalities etc. Apple came in and changed all of that.

Online Education

So where does online education fall in the spectrum between innovative and mature products?

I’ve mentioned before that with mature products (like textbooks), we can easily identify its main features (text, images, callouts, end of chapter exercises) – which don’t change drastically with new versions or editions. In this case, online education is so new that there is no common understanding of what constitutes “online education” – MOOC’s, adaptive tutors, Wikipedia, Youtube educators, immersive games, online webinars, algorithmic engines etc. These are all valid things someone might say when asked “What is online education?” They are also hugely different from each other. Online education is still trying to define the outlines of the experiences it offers.

Online education is not profitable and it hasn’t generated much cash flow (yet). The online education space is littered with companies that have raised venture capital on the back of hype cycles and grandiose promises (“mind reading robo tutor in the sky”). After failing to deliver, many of these companies have been sold for parts for a fraction of the venture capital that they raised. There have not been any standout successes in the online education market, yet.

The last metric to consider is the value chains or production processes for producing online education. Most attempts at online education have been inputs into an existing higher education system. Learning management systems specifically work to help universities upload and manage documents with their existing classes. MOOC’s allowed existing universities to upload their courseware online and make it available to anyone across the world. Adaptive learning platforms help existing teachers produce marginally better online learning experiences for their students.

No one has rethought the entire value chain with the capabilities that the internet offers us. This has ensured that new entrants have not been able to have a large impact on the student experience. Students can’t obtain an equivalent degree through a MOOC. Using adaptive learning modules doesn’t mean students can finish their degree in half the time.

Conclusion

For these reasons, it’s clear that online education is still emerging as a product and we haven’t yet designed the right products and business models in order to change the higher education system. In the next post we’ll take a look at online education through the lens of new mediums and we’ll see how we are still in the beginning of the beginning of online education.