The rise of “EdTech” is only in its infancy

Edtech will continue to grow at an above-average rate for years to come, predicts Credit Suisse’s Kirill Pyshkin.

The COVID-19 pandemic has changed learning habits, forcing universities, companies and students to opt for online education solutions to continue their training. What will be left of it when all pandemic restrictions are lifted? And how can investors take advantage of these developments? Update with Kyrill Pyshkin, Portfolio Manager at Credit Suisse.

Why is edtech an interesting investment topic right now?

This is an investment topic that I believe will continue to be relevant for at least the next 5-10 years. It is also a topic that has the advantage of being very specific. This theme focuses on a universe of companies that obtain the vast majority of their revenues directly from services related to educational technologies. Of course, we could consider that a “technological” giant like Microsoft also provides useful technologies for the boot camp, but that would only represent a very small part of its revenue. We therefore prefer to focus on relatively small companies, which were sometimes still start-ups a few years ago, and which only offer solutions related to educational technology, whether in the areas of university-level training, continuing education for companies or applications that are presented in a more playful way.

“The share of digital in education will increase from 3.1% in 2019 to 5.5% in 2025.”

A parallel can be made with other areas, such as robotics: in this case, you can buy securities from Siemens, for example, which also offers solutions related to this activity, but which represent only a very small part of the industrial giant’s total turnover. That’s why the Thematic Actions team’s investment philosophy is based on “pure players” within their respective fields.

How big is educational technology (EdTech) spending now and how will it evolve?

This is a booming field that has been further boosted by the COVID-19 pandemic. According to HolonIQ forecasts published in February 2021, the average annual growth rate (CAGR) of EdTech spending was estimated at 13.1% before the pandemic – after the pandemic, it stands at 16.3%. Thus, starting from a total expenditure dedicated to EdTech of 183 billion dollars in 2019, research companies estimate that this amount will exceed 400 billion dollars in 2025. The share of digital in education will thus increase from 3.1% in 2019 to 5.5% in 2025 and compared to an estimated proportion of 4.9% in 2022.

Aren’t these predictions very optimistic and influenced by the phenomenal development of all online services during the pandemic? Now that people are no longer confined due to COVID-19, at least not in Europe, they will not prefer to go back to having classroom classes…

No, I think the movement will not stop because of the end of the restriction measures. On the one hand, because important developments in online education could already be observed before the pandemic – COVID-19 has accelerated the pace of adoption of these offerings. On the other hand, it should be borne in mind that developments in online education are still in their infancy – with 5% of total spending devoted to this topic, this is ‘a field that is still very much ‘in its infancy’. , as we say in venture capital. That’s why I think this topic will still be very relevant, at least for the next 5 to 10 years.

“Many companies, for example in the ‘tech’ sector, place less emphasis on their employees’ diplomas than on more specific skills.”

If we look at the geographic distribution of the assets that make up its Edutainment fund, the United States remains extremely dominant with a total share of 37.7%. In Europe, only the United Kingdom, with a share of 7.1%, appears in the top 5, behind Japan (22.7%) and ahead of Australia with 6.7%. Is the rise of education-related technologies primarily an Anglo-Saxon phenomenon?

There are several explanatory factors for this situation. In the United States, developments in online education and related technologies have been greatly promoted, primarily due to the focus on the costs of education, particularly in universities. Tuition fees, as they are called, are often extremely high at universities and often require students to take out very large loans that must be repaid by those who have studied.

A second explanatory factor is that many companies, for example those in the “tech” sector, place less emphasis on the qualifications of their employees or job applicants than on more specific skills. An engineer working at Google, for example, will only use maybe 10% of what he learned during his training. On the other hand, he will need to completely master certain programming languages ​​or a technique related to his role. Instead of doing four years of training, some people prefer to go straight to a three to six month “Bootcamp”, which is cheaper for them and allows them to be fully up to date on certain techniques. Some IT companies today prefer to select staff, pay for quick training, and hire them at the end.

“The big problem with MOOCs offered by universities is the low percentage of people who complete these programs – this proportion is usually only 10%.”

A third factor that explains the rise of EdTech concerns access to training, especially in emerging countries. In China, it may happen that there are large classes with fifty or a hundred children. In India, many students benefit from good training, but resources are often very limited. Years of underinvestment by various governments partly explain these situations. That is why most of the companies that appear in our universe contribute to providing solutions for the achievement of certain UN Sustainable Development Goals (SDGs), especially those included in Goal 4 on Quality and access to education.

How do you see the development of online course offerings such as MOOCs offered for free by Western universities, including Switzerland: is it a competition for companies active in EdTech – or an additional offering?

The offers or services offered by companies active in Edutainment often become complementary to the free offers of online courses offered by universities. A company like Coursera rarely develops the course content itself, but it provides an online platform to teach the course and can also offer solutions that allow you to obtain certifications and even diplomas for the knowledge acquired in this course. The big problem with MOOCs offered by universities is the low percentage of people who complete these programs – this proportion is usually only 10%. When people pay to get certified, that share increases significantly.

“Some companies rely on Edutainment as a way to retain their employees.”

A company like Docebo offers a learning environment (learning suite) that allows all types of companies to create and manage content without having to worry about the technological aspect. 2U’s online learning platforms are used by the best universities in the world.

Edutainment is a combination of the English words “education” and “entertainment”. What exactly is the fun aspect of the training solutions and tools offered by the various start-ups active in this industry?

If you take Duolingo as an example, the company’s approach to language learning apps is to combine gaming and learning aspects. We also observed that some companies rely on Edutainment as a way to retain their employees – for example, to offer continuing education courses in a more attractive way than reading a 100-page binder.

After all, are the solutions offered by these different companies operating in EdTech and Edutainment suitable mainly for acquiring specific skills in continuing education, such as languages ​​or programming languages, or can they also be suitable for acquiring basic training? ?

Of course, there are different ways of conceiving education: on the one hand, there is the traditional approach such as studying at EPF or universities to obtain a bachelor’s or master’s degree. On the other hand, there are now all kinds of alternatives that are being put into practice, namely due to the increasing number of online offers, which consist of offering smaller series of diplomas. Both approaches are possible, but I note that the former model, favored in the past, is gradually starting to break down.

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