The COVID-19 pandemic has had a significant impact on the edtech market, with schools, higher education institutions and businesses switching to distance learning, in some cases literally overnight. As a result, edtech is now firmly in the mainstream and there is no sign that this will reverse in 2022 or beyond.
After this period of revolution in which many different companies have been successful, we are likely to see a period of intense competition and consolidation. Investors now need to be very selective when choosing where to invest within the market, so what are they looking for?
The future of corporate e-learning
One thing investors expect to see more in 2022 is “learning in the workflow”. This involves quickly and easily accessing an answer or short learning content while you work. Even better if it’s directly relevant to a business you’re currently working on or planning to prepare for. To achieve this, “learning in the workflow” must fit perfectly into the workday. Investors will be looking for cutting-edge assets that make this possible. This can be the platform for delivering content quickly and efficiently or a technology that recognizes a time of need and delivers relevant content.
We are also seeing the convergence of learning experience platforms (LXPs) with more established learning management system (LMS) proposals. This will be a key battlefield in the coming years.
LMSs will seek to improve their user experience to maintain their position in heavy, compliance-based administration segments. Many LMSs have invested little in their front-end, and customers are becoming less and less forgiving of training programs that look very dated. LMS companies addressing this problem are likely to retain their lead in “must-see” training, which covers areas such as internal policies, compliance, or onboarding new employees. Ultimately, the main buyer’s consideration is often powerful administrative tools to help learning and development teams manage learning schedules, select and assign content, and use data to assess student progress, for example . Their look and feel just needs to be “good enough”!
The LXPs started from the opposite end of the spectrum. Their front-end interfaces tend to be well presented, like Netflix, while the systems’ back-ends generate content recommendations based on the user’s goals, experiences, preferences, and history. Although LXP platforms are much more customized, most currently do not have all the administrative functions to efficiently deliver training programs across an entire enterprise. So customers often have to overlay an LXP on top of their existing LMS. It is not convenient and often has integration problems. Investors are looking for LXPs that are starting to fill this gap and have enough administrative functionality to be the only central learning platform.
This is a complex and fast-moving picture, so customers are increasingly looking for strategic partnerships in e-learning to help them navigate. Investors are looking for vendors who can combine platform, service and content to deliver an end-to-end solution. Importantly, they can take responsibility for delivering a comprehensive learning program. Too often, customers run multiple vendors who point fingers at each other when things go wrong. If suppliers can build that relationship as a strategic partner for their customers, then they are in a good position to offer a return on investment and build a strong customer base.
Human resources solutions that provide learning
End-to-end HR solutions will also play an important role in the edtech space in the coming year as companies continue to prioritize employee engagement and retention. There is a valid reason to integrate the HR information system and e-learning platforms: create a richer dataset from which to personalize learning. This type of proposal already exists, but historically it has been reserved only for the large business segment. But this is starting to change. For example, companies like CIPHR have created a joint proposal for SMEs. Customers can offer their employees a better user experience by making sure their learning is integrated with the HR profile, such as for review rounds. Looking to the future, technology will enable organizations to offer more engaging and personalized learning paths directly linked to career advancement. From a customer perspective, they can have a holistic view of employee management on a single platform: employee information management, recruiting, onboarding and offboarding, as well as employee engagement. Suppliers who gain traction for this approach in the SME segment have a huge market opportunity and will be attractive for investment.
The future of edtech in schools and kindergartens
Schools and day care centers have historically been more conservative in adopting edtech than companies, but COVID-19 has spearheaded five to 10 years of progress in 18 months. There are now many companies that can demonstrate traction, but the key for investors is to see good evidence of the potential for mass adoption. In the UK, we typically see the tipping point for this in a few thousand sites. Once a great product reaches this scale, school leaders tend to refer to each other and sales are booming. Before this scale is reached, the sales cycle can be very intense and this kills profitability. A lot of good feats never make it.
CPOMS is an excellent successful case study. He was the first innovator of SaaS security software, and his early sales efforts created the market. Once a strong presence grew in some regional areas, the word quickly began to spread. It became clear that every school should move around safeguarding pen and paper, and CPOMS had the best product with market-leading net promotion scores. It has grown from 5,000 schools to 14,000 schools in just a few years. It is now repeating this success with a new product, Staff Safe, which allows schools to upload, store, record and govern all information regarding adults working within a school environment.
The challenge for investors is to discover the next CPOMs.
Winners and losers as the competition intensifies
Prior to COVID-19, there was already steady growth in edtech adoption in both educational and corporate settings, but this was quickly accelerated by the pandemic. As we slowly return to normal, the edtech market has demonstrated significant post-pandemic resilience. However, while COVID-19 has created a period of many winners in edtech, it cannot last forever. As competition continues to intensify, investors will choose companies that are playing on key themes in the next stage of market maturation.
Rory Nath is an Investment Director at ECI partnera leading mid-range private equity firm focused on growth.
An investor perspective on edtech in 2022
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