Online Education is a Market Ripe for Disruption : Test Prep Remains Big Spend Category

Every year more than 2 million students sit for the Engineering and Medical examinations and 70-80% of these take supplemental coaching. As the bar in these examinations keeps rising, the spend pool available for test prep players will continuously increase and potentially reach INR 10-15,000 crores in a 4-5 years time.
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[Editorial Notes : Online education is becoming big in India. Guest author, Mayank Khanduja from SAIF partners looks at the overall market opportunity in online education in India.]

Education in India has always been an interesting area for technology entrepreneurs given the large market and examples of successful global businesses in the space.  We at SAIF have been looking at the online education space for a while and believe that now is the time when all the ingredients are coming together for a disruption. Within online education, the test prep market is especially exciting for a variety of reasons.

Online Education : Disrupting Education
Online Education : Disrupting Education

Test prep will continue to remain a big spend category

Indian higher education space has always been very competitive with the benchmarks only going up. Thus most parents err on the side of spending as much as possible on providing the best supplemental education for their children. Every year more than 2 million students sit for the Engineering and Medical examinations and 70-80% of these take supplemental coaching. As the bar in these examinations keeps rising, the spend pool available for test prep players will continuously increase and potentially reach INR 10-15,000 crores in a 4-5 years time.

Smartphone and tablet usage could be a big game changer
With increasing internet penetration and online proctored tests becoming the norm, students are getting more and more accustomed to accessing test prep digitally. What would really spur this adoption further is the ever-increasing usage of mobile devices. Looking back at my days of CAT prep, I would have really liked to solve verbal or data interpretation questions on my mobile on the long bus rides home. The proliferation of education and test prep related apps on the app stores demonstrates that this trend is now taking shape.

Online model can take test prep outside the top cities
Offline test prep centers have long built a strong brand for themselves with some amazing faculty. But unfortunately, like all offline businesses, they are able to cater to only a certain catchment area from each center. To grow beyond their traditional strongholds, they need to open more centers, which requires both capex and great teachers in each area. An online model could overcome these challenges and take the best content to even students in non-metros and Tier 2 cities faster than offline centers.

Content would be a differentiator
Globally, both “marketplace” and “owned-content” models have emerged in the online education space. While there is a strong non-linearity in the marketplace model, we believe that students would continue to be attracted to a platform with the best content. It must be emphasized that just digitizing offline content may not cut it with the students. Instead it needs to carefully curated and structured to allow students to build a study plan around it. Further, questions would need to be supplemented with additional info like detailed solutions, tags for topics, flash cards for revision etc.

Undoubtedly, online education businesses would face many challenges as they scale up. Building a strong brand in the education space would take time and investment, especially in great content. Also, they would have to wait a couple of cycles to see the students’ results come through and demonstrate their quality. Competition from offline centers cannot be over-looked either.  While all these factors make the ride an interesting one for online test prep companies, there is undoubtedly a strong tailwind that gives great teams a chance to build large businesses.

About the author: Mayank Khanduja is Vice President at SAIF Partners. He blogs at http://www-at-venture-trail.comtweets at @KhandujaMayank and can be reached at mayank@saifpartners.com]

Disclosure: The author works with SAIF Partners, a venture fund that has invested in online test prep company Toppr.com.

Image credit : shutterstock

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