Netflix's monetisation model may just save India's online learning apps

By Andy Mukherjee

One summer morning nearly two years ago, 127,000 Indian teenagers thronged the internet — not for an online rock concert, but a test-prep session.

For Physics Wallah, which coaches aspirants for punishing engineering and medical school entrance exams, this was the largest live lecture the edutech had ever run, though its regular classes also pack 50,000 learners nowadays. And it all happens in real time: If anyone gets stuck, standby instructors are available in chat rooms or over video calls, with artificial intelligence helping to predict the parts students are likely to find difficult. 

India’s online test-prep business isn’t much different from a gigantic — and highly interactive — digital media operation. The Physics Wallah app has 2 million users logging in daily and spending 80 minutes. With that kind of audience engagement, it’s possible to make money by charging an average customer $50 a year, a third less than the cost of a two-device Netflix subscription in India. 

PW, as it’s commonly known, was a two-year-old platform when its first institutional fundraise — $100 million from WestBridge Capital and GSV Ventures — turned it into a unicorn with a $1.1 billion valuation. That was in 2022, when Byju’s, another Indian startup, was the world’s most valuable educational technology business.

Then Byju’s began to crumble. As schools reopened after the pandemic, its K-12 business waned. A unit that taught youngsters how to code imploded. An established network of test coaching centers, one of founder Byju Raveendran’s many expensive acquisitions, is doing well. But that franchise — Aakash Educational Services — has several owners and can’t be easily monetized.

With creditors of an unpaid $1.2 billion loan trying to drag it it into bankruptcy, Raveendran has lined up a rights issue at a pre-money valuation of $25 million. Investors like Prosus NV and Peak XV are livid. Two years ago, Byju’s was worth $22 billion. They and other backers, owning 30%, reckon that the startup’s only chance of survival lies in ejecting its eponymous founder. They want to put up the proposal to a shareholder vote.

The swift rise of Indian edutech coincided with a drying up of opportunities in China. What began there in 2018 as a ban on for-profit kindergartens from getting equity-market funding became a full-fledged clampdown. The tutoring sector was barred in 2021 from providing classes on school curriculum subjects. That helped draw capital to India, especially during the Covid-19 lockdowns. Byju’s rapid decline has put a big dampener on that excitement. 

Yet, online education is still a viable proposition in the world’s most-populous nation, though it’s the test-prep market that has real demand, not K-12 or coding. India has a little over 100,000 medical and dentistry placements, with more than 1.5 million jostling to get in. The 23 Indian Institutes of Technology accept only 17,000, after a main test followed by an advanced exam.

Alakh Pandey is the original @PhysicsWallah on YouTube, where he has 11.6 million followers. Even before he floated PW, the college dropout had amassed a following across smaller cities and towns as a superstar coach. His cofounder Prateek Maheshwari trained as an engineer at one of the IITs and worked at Caterpillar Inc. After the fundraise, PW set up a campus in Kota, a city in the northern Indian state of Rajasthan that has emerged as a mecca of test prep. Nearly 300,000 students land up there annually, hoping to give themselves — and their families — a shot at a better life. (Maheshwari says that the most defining period of his teenage years was the time he spent in Kota, preparing for the IIT entrance exam.)

Byju’s Raveendran had taken a similar bet on offline tutoring when he bought Aakash for about $1 billion in 2021. Before PW’s entry, Unacademy, backed by Singapore’s state investor Temasek Holdings Pte among others, had also stormed Kota, poaching tutors from Allen Career Institute, the leader. The family-run Allen responded to the online threat by taking $600 million from an investment platform of media mogul James Murdoch and Uday Shankar, a former Asia-Pacific president of Walt Disney Co.

Ronnie Screwvala, the cofounder of upGrad, a skills-development platform, is also a Bollywood movie producer. The similarity with media is hardly incidental. It is keeping interest in Indian edutech alive, as players look to marry the scale of cloud computing with the classroom clout of charismatic, million-dollar tutors to create a winning hybrid. But which is a superior route? A coaching-center heavyweight like Allen building digital muscle? Or an internet sensation like PW entering the brick-and-mortar world?

Both approaches could work, provided companies don’t seek to replicate Byju’s hyper-aggressive sales machine or spend as lavishly as it did on unrelated acquisitions. PW now offers courses for 35 Indian exam categories, including civil services and army recruitment. Cofounder Maheshwari is opening one new offline center every five days. Annual sales have more than doubled in one year to 20 billion rupees ($240 million), supported by around $50 million from assorted acquisitions. About 54% of the remaining $190 million is from online tutoring, while another 43% comes from 50-plus physical locations, where more than 180,000 students shell out $500 apiece. A money-making core generates resources for expansion. The buzzwords are affordability and profitability.

The funding winter for edutech is real — the shock from Byju’s collapse is still playing out. The next big unknown is government policy. Nobody expects a Beijing-style showstopper, but New Delhi recently announced guidelines for the industry. State governments will make their own rules amid hectic lobbying to relax the proposed minimum age of 16 years for after-school tuitions. It will be almost impossible, however, to police online apps. The government is rightly worried about the stress on youngsters, often leading to self-harm. But as PW’s Pandey says, many of India’s small villages got their first engineers and doctors because of the internet. That quest for upward mobility will be impossible to kill. 


Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper.