At last count, there are close to 30 startups in this space, most of them using a mix of video content and adaptive testing.  Differentiation is limited. Content is getting commoditized. 

A consolidation in this space with the larger (as in, the ones who raised big $$$) buying out smaller players and several smaller players shutting down is imminent. 

The need for a revamp of the test prep industry is not just for building new models of consumption by going online, but also to solve fundamental issues that have hindered the growth of the market - high costs, poor accessibility and a conventional one size fits all approach.

My take:

1/ Test prep has not changed for decades. A model that was meant to alleviate the problems of school education has become plagued with issues that need correction within itself. It has become a 'factory' model with high student-teacher ratios and no personalized learning opportunity for students who need help. Online videos/adaptive testing does not address the human intervention required for a teenager who is struggling to balance school pressure with test prep. Personalized one-to-one tutoring is expensive (INR 500 to INR 1800 per hour) and not scalable.

2/ Test prep remains inaccessible. Of the USD 7 Bn test prep market, 15-20% is organized. The rest belongs to the mom-n-pops and local tutorials - that's USD 5 Bn of the market consisting of students who cannot afford expensive test prep (urban/semi-urban markets) and/or access it for geographic reasons (rural). What's more, the urban-rural divide continues to widen. The Indian Statistical Institute (ISI) published results of a 2012 study citing that students from high-income families have four time higher success rate in the IIT admissions than those from lower income groups. Also, close to 60% of those entering IITs are from the CBSE, a board that represents just 6% of the target group. At a price range of INR 1.2 to INR 3 Lakhs, test-prep is available to only to a very small number that can afford it. As far as the rural market goes, the larger players don't want to enter them for economic/tutor supply factors.

3/ Student behaviour is changing. Today's test prep student grew up on Facebook and WhatsApp, queries Google whenever she needs to find something and the first device of choice is the mobile. She does not understand desktop. When everything around her has changed, how does the old test prep model fit in?

At HashLearn, our product HashLearn Now hopes to alleviate these problems. We are building a model for test-prep leveraging technology for scale, yet, with human intervention and not pure-play online video courses or testing platforms. By building a system that can offer high-quality at low price points, our vision is to provide a tutor to every student with a smartphone and a data plan.

We believe we can truly empower every student irrespective of location and financial background to learn better by connecting him/her with a tutor right at the moment where the student is stuck.  

​And this focus on that particular moment of a student's learning curve is where true intervention and resolution matters. 

The companies that win are those who understand this very well. Google (find what I'm looking for on page one), Twitter (find latest news as it breaks), Amazon (find and buy anything in a few clicks). 

But I can't expect my regular online grocery delivery service to find my house without making a call. (And like most regular people, I don't change houses often.)

It's clearly a case of poor implementation.

Consumers adopt online services for various reasons, typical issues that really bug them - long queues, finding a parking slot, or even something as unexpected as "I don't like talking to people"- this was the reply given by Ticketmaster's first online customer when asked about his decision to buy online instead of making a call.

So don't take customers who use your 'broken' service for granted. Though it might look 'trivial', 'fixable', or 'not priority' to you, the next company that comes along and solves that seemingly small problem is poised to win them over. 

People don't change/replace habits all the time, do they?  So it's a lot of hard work to get there. But once you do,  you are onto something valuable.  

Make that phone call obsolete, will you? Make it a 'Fill it, Shut it, Forget it' experience. That's when you are truly disrupting the game.

PS:  'Hooked: How to Building Habit-Forming Products' is a great read in this context.

Of course I am not the only one who saw this coming. Coursera appears to be taking important steps towards solving key issues and creating new opportunities in the online education space:

1. Improving completion rates through the use of facilitators in classes and the impact of a community of like-minded learners coming together, helping and motivating each other. The current completion rate for MOOCs hovers around 10% and is touted as the main reason why some call it a 'fad'.  In-person intervention with timely assistance, it's believed, can help learners stay motivated and disciplined.

2. Bringing real-world classroom effects to a pure virtual environment - right from face-to-face discussions with peers and the social constructs around classrooms leading to debates, knowledge sharing, partnerships and meaningful relationships among learners.

3. Co-opting local stakeholders - educators and institutions, assuaging the alienation some feel about new learning platforms.

4. Experimenting with new models in blended learning, industry-academic partnerships, accreditation structures and customer acquisition. A retail presence offers flexibility to adapt product offerings for geo-specific opportunities.

These hubs have potential to become meeting grounds for future entrepreneurs, artists and thinkers to collaborate on new projects versus working in silos.

The opportunity for Coursera.
Coursera's Learning Hubs open up a new revenue stream and distribution opportunity for the company. Partnering with large institutions/colleges and keeping access free of cost while a good start, sustainability and scale could come from creating a more robust, for-profit services model built on top of the core (free) content. Centres could charge learners and companies an affordable a la carte fee for a range of ancillary services such as supplementary classes by experts, individual/corporate memberships for access to the facility, and placement support - just to name a few.  With the model maturing over a period of time, professional educators in the locality will also see value in offering services in these centres on a revenue/profit sharing basis with Coursera.  

In the medium to long term, it might not be presumptuous for us to expect the company appointing Learning Hubs run by credible edupreneurs with local market know-how and not just large institutions. This could be based on various licensing models (product/geographic-wise) and corresponding revenue/profit share structures. 

So while the naysayers lament MOOCs being another bubble riding on the wave of internet success stories, brick-and-mortar centres lend yet another higher-level of authenticity for education's online evolution making it seem more 'accessible', real and acceptable in the ecosystem - to learners, teachers and corporates. 

For an organization that's been around only for over a year now, Coursera seems to be making all the right moves for bringing credibility to online education, akin to what Amazon did for e-commerce in its early days. I wouldn't be surprised to see a Coursera centre in my neighbourhood in the near future. 

There are three categories of test prep providers: 

Destination centres: large-format players primarily focused on national exams like the IIT JEE, AIEEE (now JEE-Main) and the AIPMT. They have a few, but large centres working out of their own premises or in association with schools and colleges through an independent / integrated model. Brands: FIIT-JEE, Resonance, Bansal Classes.

Retail networks: multi-centre players focused on regional exams like the state Entrance exams and in some cases, national exams as well. They have either large regional networks (in a State or a particular geography) or national networks with centres across the country - either direct or franchisees. Brands: TIME, Career Launcher, Pearson Learning Centre.

Local stars: individual tutors/small tutorials primarily focused on regional exams(Board/Entrance) and in rare cases, national exams. They work out of homes or offices depending upon the size of the business.

Together, these stakeholders constitute the USD 7 Bn dollar supplemental education sector in India in a USD 40 Bn market (CLSA 2009 figures). [For comparison,  the US supplemental education market is worth USD 5 Bn.]

Using  publicly available data and a rough estimate, the total organized segment is worth around USD 650 Mn or 10% of the total test prep market.  

Rounding off to USD 1 Bn, that's just 15% of the market.

The unorganized players - Local stars - constituting 85% of the market, is bound to get most impacted by the impending changes in the examination system.

Everything is changing.
There are three important trends in the Indian test prep space:

Exams going online - Entrance exams having been pen-and-paper for decades, tutors shunned technology, cyclostyling was the norm and computers were only an after-thought. The online move by AIEEE, which used to be the single largest entrance exam in the country with over 1.1 million candidates, sent out a strong signal of the times to come.

Exams going national - For decades, exams have been disaggregated across states requiring students to prepare for different tests with different syllabi. The costs/logistics associated with this process was manifold and stressful for both parents and students alike. This is the reason local coaching providers exist and national players adapt products to each state exam. But now, entry into IIT, NITs and other national institutions is regulated by one exam - the JEE(Main). [NEET, the equivalent for medical seats is awaiting a court decision].
[Update: The NEET has been replaced by the AIPMT from 2014].

Renewed importance of Board exams and the move to a common syllabus - Students went through the 'factory model' to prepare for the IIT-JEE/other Entrance exams ignoring the 'Boards'. The result? High ranks in the Entrance exams and poor performance in Board exams. But this has changed now. Entry to IITs, NITs and other institutions using the new JEE (Main) system also takes Board exam marks into consideration. Also, heterogenous syllabi at the Board level had created unequal testing grounds and widened the gap between the Board and Entrance exams preparation making coaching a mandatory requirement for success. Science and Math syllabi at the senior secondary level (Board exams) has now been standardized making it a level-playing field.

Though it's going to be a while before all state exams are brought under a common test and the NEET issue (equivalent for single exam for medicine) gets resolved amicably [Update: NEET has been replaced by AIPMT from 2014], the writing on the wall is towards a homogenous examination system.

What does this imply? 
Under these new circumstances, the biggest winners are Destination centres. Having operated at the national exams level, this is a network expansion game for them (to Tier 2/Tier 3 towns) and a never-before opportunity to scale up using the same or an enhanced product mix. Their entry will have a significant impact on the business currently enjoyed by Retail and Local institutions.

On the other hand, Retail networks can make the most of this opportunity from a distribution perspective. With well-entrenched channels in place, they have to focus on ramping up product development capabilities and introducing new courses across centres. However, they will find themselves in constant battle against against the invasion by larger Destination brands that have a much stronger brand-pull and high-profile faculty. Franchisees of these Retail networks could also get severely affected as most Destination centres tend to set up direct centres in new towns. 

There would be significant level of consolidation in this segment with Destination centres acquiring regional/national Retail networks for giving them immediate access and reach.

But the ones challenged most in terms of both product and distribution are the Local stars. They need help in riding changes happening in the examination system driven by technology and regulation shifts. Whereas the organized segment has access to in-house technology resources and human capital who can help leverage this situation to their advantage, the smaller players have no support/infrastructure whatsoever to make this transition successfully. 

The USD 6 Bn opportunity in the Local stars space:
There is a clear opportunity to 'organize' the Local stars market. They have excellent market know-how, great local credibility and fantastic entrepreneurial drive. But they do not have product development capabilities, a strong marketing engine and the technology know-how, making this an attractive business case.
--
"Shastri Tutorials (ST) is a 10-year old brand in the 9th – 12th coaching segment. Prof.Ravi Shastri who started the company is a veteran in the coaching field and a well-known Physics teacher. What started as a 1000-students per year entity has now fallen to less than half the size due to increasing competition from breakaway outfits and the entry of organized players vying for the same segment. Prof.Shastri is comfortable with the current level of business, but understands change is critical to survival in the coming years.  He knows what needs to be done: a general makeover - new products combining Board and Entrance tests, faculty trained on current exam trends, up-to-date material, better branding, use of digital tools that students are accustomed to these days, value additions such as network-based ranking, SMS+E-mail alerts, etc. But he also realizes that this involves a lot of money. Moreover, at 56, he lacks the know-how and capabilities to move in a whole new direction.  There have been offers from the past to merge with fellow tutorials in the city, but then, he did not want to let go of a business he had so carefully nurtured over the years."

'Acme Learning' sees a clear opportunity in creating  an umbrella brand and unifying these  smaller players while helping them move to Ver 2.0. Their goal is to create a pan-India network bringing smaller players and mom-and-pops under the 'Acme Learning Network'.  

Acme Learning Network offers the promise of a big brand combined with the trustworthiness of a local player. 'Shastri Tutorials' will now become 'Shasti Tutorials - A Acme Learning Network member'.
--
What will Prof.Shastri expect to gain from Acme in exchange for a small percentage of its revenues?

- Centralized product development.
Product know-how, high-quality study materials and tests in sync with the latest exam requirements that helps them compete with the larger players. 

- Lower marketing/acquisition costs.
The power of a common brand signals uniform standards of quality to the market. Common pan-India marketing events aimed at brand-building and common admission drives lowering the average cost of acquisition for the members. Expensive media buys negotiated in bulk and common advertisements released bringing in huge cost savings. Exam Results ads and promotions leveraging the combined strength of the network. 

- Regular teacher training.
New pedagogy and techniques. Improving teacher hiring practices. Remedial sessions over the internet. Certification systems. Reinforcement programmes. Intervention by top faculty members for specialized subjects/topics over VSAT/terrestrial internet.

- Up-to-date technology and support.
Right from centre management to student/parent communication systems and MIS. Online testing platforms. Mobile and Tablet apps integrated with course offerings. Centralized ranking for exams across the entire network (a huge plus for students in small towns). Digital classrooms. 

In a single move, Shastri Tutorials gets a full makeover in terms of Brand, Product, Technology, Reach, Visibility, and Faculty. And Acme benefits from the entrepreneurial energy and experience of an existent, large tutor base. A win-win for both parties.

These are, but a few of the benefits that this model offers - the power of a large brand in terms of product, network and marketing; and at the same time the continued autonomy of managing a small business - a model of empowerment rather than that of a franchise. In a franchising system, the franchisor 'appoints' a potential partner -  a teacher or in most cases, an entrepreneur looking for new opportunities - the churn rate is huge as there are capabilities mismatch or loss of interest in driving business. Customers are wary sometimes in joining franchisees (though many end up performing even better than company centres).

However, in the aforesaid model, the  franchisor plays the part of an enabler who co-opts existing tutors/smaller players already operating in the space, consolidating them under one network and providing them resources that are crucial to their sustained success in a new market. In the eyes of the local market, this is the same Prof.Shastri who they have trusted all along offering a better product and service in a new avatar. He is not a stranger.

By building an organic network based on 85% of the test-prep market, a new 1000+ centres  across India under a common brand looks like the big opportunity that could spurn the next wave of innovation and growth in a space, otherwise saturated by staid  business models. 

It's time to re-invent the test prep industry with the help of the neighbourhood tuition master.

For a company whose primary line of business is in helping you find a job, LinkedIn's entry into education could be called backward integration. Or a brilliant move that's been a long time coming. Here's why the brand is well poised to own this space.

Create a new ecosystem for education players.
As of 2012, the global education market was worth USD 4.4 Trillion with the US alone constituting around 30%-roughly USD 1.4 Trillion - much larger than LinkedIn's addressable hiring market pegged at USD 27 billion (Source: LinkedIn via Forbes).  

A small percentage of these figures flowing through LinkedIn could be the best move by the company for its next stream of billion-dollar revenues. 

LinkedIn has been connecting job-seekers with companies. And now, it has the opportunity to connect learners with learning providers. 

Increase traffic to the site by leveraging the huge growth in edu-search.
Education search has been on a growth not just in the US, but in other markets as well. In 2008, India was at the 8th position in education search on Google. By 2012, it had risen to the second place with the US retaining the top position.

Not only is edu-related search growing by nearly 50% yoy in these markets, a Google-TNS 2012 survey revealed that 40% of the search queries in a market like India is for Higher Education - the segment that LinkedIn is targeting. LinkedIn can drive a large part of this burgeoning edu-search traffic to its site with its latest University Pages feature with over 200 Universities (including leading names such as Carnegie Mellon and Purdue) at launch - a move that creates a destination within LinkedIn  for these institutions and their potential customers. 

Combined with new sign-ups coming from the 13 year + group for whom the doors have just been opened up, this will have a significant impact on its user-growth in the near term.

Ride the current wave of disruption in education.
With the growing popularity of MOOCs and other online learning initiatives, education is at the crux of a potential disruption in delivery and consumption patterns. Online enrollment as a percentage of total Higher Education admissions in the US grew to over 6 million in 2012, around 32% of total enrollment, i.e. one in three college students takes at least one online course today. LinkedIn's new target group (13 years +) will be entering this segment in the next 5 years. 

By becoming a repository of learning providers - both offline and online - users can now use LinkedIn to research not just careers or companies, but institutions and courses across the spectrum, see reviews/feedback from people in their network and make informed decisions in tune with their career aspirations. 

The other side of the coin. 
For LinkedIn, the Education opportunity was in its backyard all the time. Giving users tools to discover the right learning providers, take relevant courses and connect with like-minded learners in order to achieve those career goals was a natural fit. 

Connecting people to meaningful careers by mapping skills to appropriate education opportunities will be key to the company's sustained growth. LinkedIn will no longer be just a place that helps people discover careers, but one that helps them maximize opportunities by guiding users through multiple jobs, linking opportunities to skill-sets and thereby relevant education/learning providers.  

Also, by expanding the age-bracket for joining the site to 13 years, LinkedIn will acquire users young-at a stage where discussions around college begins-effectively ensuring that it becomes the brand that stays from college to career. 

Create another powerful, yet diversified revenue portfolio.
Unlike Facebook which derives majority of its revenues from advertising, LinkedIn generates most of its money from Talent Solutions (>50%) and the balance split almost equally between marketing and premium profile solutions. 

The nature of the platform and its structure lends the new education business to similar revenue models. I have made a few obvious postulations.

However LinkedIn's larger opportunity in education could come from enabling Application/Enrollment and other related transactions around this activity.  This could be the scene in the near future - Learners signed up from the time they are 13 years old with their profile, academic records, online certifications and achievements along the way and Universities on the other side wanting to connect with these learners (most importantly, with those who are the best fit for them). Using data available, LinkedIn can enable transactions between these parties - be it a student applying to a University or a working professional enrolling in an online course; similar to how job-seekers use the platform today for applying to companies.

For instance, there are close to 4000 + Higher Education institutions in the US alone.  Over 750,000 students use the Common App to submit over 3 million applications every year paying USD 60 on an average per application.  As a USD 180 Mn dollar business opportunity, that might look chump change to LinkedIn. But when you expand that to multiple segments, multiple providers, multiple countries, the numbers are huge.  

If LinkedIn can make applying to a University or just about any course as simple as applying for a job, that's a game changer.

Use data to create a Learning/Skills graph for the world.
The jury is still out on Facebook's Graph Search. But this could work very well for LinkedIn in the context of Education + Careers considering the strong linkage between the two.

LinkedIn has data on each of its 200 mn members - be it education, skills, certifications, and careers. Apart from having mined this data for creating a (sparingly-used) LinkedIn Skills page, imagine the possibilities of linking this data to education.  By combining the Learner Graph (the graph of learners connected to each other) with the Learning Graph (the graph of courses that are connected to each other), LinkedIn will be able to predict learning patterns, emerging skill-sets and meaningful data that helps the world learn better for gainful employment. 

A college student who uses LinkedIn search for "Courses required to become a Financial Analyst"  should be able to get the right set of courses and a recommended career path as well.

A new 'network within a network' is emerging.
Expect education to take a important two-digit percentage place within LinkedIn's financial reports in the next five years. Some news articles talked about how Facebook should have been the ideal platform for this market considering its history with campuses. But you are on Facebook for different reasons - take BranchOut's failure as a case in point. LinkedIn on the other hand is organically aligned to succeed with the education market. 

Finally, success in Ed Tech is not just about the product. It's about having the right sales organization in place. Unless you have millions in the bank to feed feet-on-street, breaking into educational institutions is tough. In the larger context, LinkedIn's ability to succeed in this new market might lie in just the fact that they have a large sales team in place. The company's sales and marketing spend at 33% of revenues is already the highest in its category (Facebook ~15%). Also, quarter on quarter, its offline sales shadows online sales (Source: LinkedIn annual report). Selling into education would now become an additional task in the hands of an experienced sales team with additional products contributing to their portfolio and incentives.

The question is whether the company will be able to pull it off? Education as a play is different considering the socio-cultural issues around it, be it reducing costs (can they make some part of the value-chain less expensive?) or offering higher quality of information (can they ensure unbiased recommendations?). 

If LinkedIn is able to position itself as a dependable brand for learners and educators offering relevant tools that address their needs meaningfully, the largest professional network could become the largest education network soon.

Last update: 16th September 2013.