The past, present and future of Edtech
In today's episode, we have Vamsi Krishna, CEO & Co-founder, Vedantu as well as Mayank Kumar, Co-founder & MD at upGrad, who walk us through their respective company building journeys as well as the their thoughts on how they expect the future of edtech to unravel. Tune in the find out
Key takeaways from the episode
1)EdTech – boom to bust to ??. This question is on the mind of most people in the ecosystem. In this episode of Matrix Moments, we go to the OGs of EdTech – Vamsi, founder of Vedantu and Mayank, founder of Upgrad to decode what lies ahead for EdTech and what will it take to win.
2) At Matrix, we continue to be believers in the Indian education story. Despite the ups & downs, the market is only growing. The customer pain-point is real and sustainable EdTech models can truly transform the Indian education system. Sharing below our takeaways from the chat:
3)EdTech growth is inevitable - 300M+ K-12 students in India, 90M+ have access to internet & all EdTech companies combined serve <5% of this customer base (similar to early e-com days).
70-80% of India struggles with access to the quality teachers at an affordable price-point!
4)The current state is a natural correction post the Covid tailwind & not a bust. Companies with right business models continue to see growth.
We believe, the time is ripe for new companies to emerge & for existing companies to course correct & build sustainable businesses.
5)Getting the CAC right is critical.
Building organic assets (YT content, student tools, community, etc), product innovation for ARPU expansion, offline acquisition, brand (WOM/referrals) need initial investment but help in cheaper acquisition in the long run.
6)Expansion to offline is critical for certain customer segments/business models - offline presence helps in building trust and credibility. Sometimes, it might not lead to cheaper acquisition but can have very strong impact on overall conversion.
7)International expansion is a natural extension – a good teacher should ideally be able to teach globally!
However, it’s not easy - every market has local nuances. Both the acquisition strategy & product needs to be specifically created for each & every country.
8)EdTech businesses need to strike a delicate balance b/w product & distribution. Great businesses die without a good distribution but no great business can be built without a great product.
Distribution-only companies are transactional & always need new customers to scale.
9)Outcomes & overall experience are critical to building long-term sustainable companies. In education, everything is a cycle - if you do a bad job today, it won’t impact current customer acquisition but 2-3 years down the line there is no way to get out of the vicious loop.
10)Next phase of EdTech will see products with well defined, consistent outcomes – EdTech will have its own “Indigo”. For this, incentives need to be well aligned and businesses should constantly measure their success basis outcomes & not just top-line/margins.
11)Our OGs are most excited about themes like – online schooling, coaching/mentoring, medical training & India-global teacher supply. Alongside these, we@matrixindiavc are keen to back new businesses in formal ed, early learning, vocational learning, Bharat-first plays & more.
Rajat:
Hi, everyone. Welcome to Matrix Moments. Today is a very special episode, we’re shooting this in Vedantu’s office. So I have the pleasure of welcoming two OGs of EdTech in India, Vamsi, founder of Vedantu, and Mayank, founder of UpGrad. These guys pretty much started the EdTech revolution, I’ve known you guys for a while. I guess you both have known each other for even longer.
Mayank:
Yeah, about 15-17.
Rajat:
Wow. I’m sure there are stories about each of you that you’d love to hear. So thank you guys for doing this, really appreciate it. Especially as EdTech is going through lots of churns, lots of boom over the last few years. So we’ll talk about that but before we get into that maybe, Vamsi, to start with you, you started as a teacher, then you pretty much started the EdTech revolution in 2014, right, you started Vedantu?
Vamsi:
Yeah.
Rajat:
So talk us through a little bit of your journey, what led you to start Vedantu, and then what’s gone on.
Vamsi:
Yeah, it’s been a long journey. The journey began way back in 2006 and is almost like a déjà vu moment because coming to think of it as a teacher when we started in 2006 before that our ideas were around e-commerce and something that these days there’s Instacarts and the Winkids are doing so it was sort of a déjà vu moment that it takes like 15 years for that idea to take shape.
But anyways jokes apart this was we’re all 2005 grads, in 2006 we wanted to do something together, education was not still as an idea, it happened as an accident we went into a very small place trying to figure out what to do. And we were working on a few ideas and something struck. We went to a few schools, some of the kids came to us for mentoring, we taught them and it just felt great doing and there was energy there. So that’s really how it started, it started in a very small place called Barnala in Punjab teaching some 36 odd kids, and out of these kids 11 of them ended up in the top five colleges of the country.
That gave us confidence, we were 21-22 at that time so that gave us confidence and yeah, there’s no looking back. We ran an offline business called Laksh for 7 years from 2006 to almost 2012 then the idea of Vedantu as a technology endeavor happened, started coming to us in 2011 because around 2010-2011 we expanded Laksh from one location to sort of like 4-5 locations.
Rajat, when we found the challenges around scaling and offline setup, right, I'm sure all of us like you know witnessed that. This was a time when we were trying to get some good teachers and set up these places in tier 3 and tier 4 locations. We realized that it will take a long time for us to do that. Retention of these teachers in these small places was a big issue. At that time, we thought that how can technology be used to help scale faster and better. Incidentally, this was a time when Flipkarts of the country were also coming up and that was also an inspiration that is there a plain technology.
One of the co-founders we released him, Freed him and he came to Bangalore with a few of his juniors from his college and started doing stuff. After 9 months we realized that we can’t do both, we have to focus on one. That was a big turning point, a big choice, and we decided that if the impacted scale is the goal this is what we need to do. And that’s when Vedantu as an idea came, then sold the first venture to a listed company MT Educarebased out of Mumbai and served in the transition for two years and 2014 is when we came and started this concept of live classes.
Live classes for us were pretty natural because we were teachers, we did teaching, that is what gave us success at Laksh. So rather than following an asynchronous mode of delivery we said that if we want to replicate that experience and create a scalable model of that the design choice has to be something related to that so live classes were a very nature al choice and very initial days like very, very challenging initial days. No 4G, forget 4G, 3G was patchy. Build a very bare bones platform for doing one on one, did that for almost like two, two and a half years then did one to few and then one too many.
One too many was a big change because that got the unit economics working price down, an incentive for the teachers increased so the quality of the teachers we could bring into the system increased. And then there’s been like a real boom and then after that since 2017 onwards it has grown leaps and bounds. Covid happened so that even further took it off and, yeah, then good to see a category getting created through that and fundamentally at a student level what all of this has done is got the price point down for the similar quality teaching from what an offline would charge at roughly around like 150 or 200 bucks per hour to today we’re offering like around 60-70 bucks per hour and with more technology like something like recently we launched around AI Live that even has like we could just a get a download time.
So I'm pretty excited with more innovations like this and more disruptions where quality teaching can reach the masses so in summary that’s the journey.
Rajat:
That’s wonderful and we’ll come back to some of that. Mayank, over to you, you started live in the EdTech or education space as a consultant then a VC, you started around the same time I guess ’14-’15?
Mayank:
Yeah, ’14-’15. 15 March. Vamsi started and then I said ok, let me also start. Then I think for me my journey is like not that interesting, I did everything that textbook tells you to do, everybody said consulting is a fad so I did consulting. Then they said you should invest first little bit, so I did investing. In the journey, I just realized that before UpGrad the only thing I’ve done was education so for good or bad I just could not do anything else. There was no other option, but everybody said to have an entrepreneur journey as an option but to take up education. It was not like a sort of thought-through kind of thing.
Rajat:
I'm following in your footsteps, consulting.
Mayank:
My take is that maybe now is the time, now is the best time.
Vamsi:
I didn’t mention this, so Mayank had a huge role to play. So when I was doing Laksh he was a consultant, an education consultant and he used to come with all the gyaan that you know what, yahaan ye horaha, Brazil mein ye horaha,and I was like literally like, you know, frog in a small world. So he has a big role to play --
Mayank:
He was telling me that 3G nahe chalta hai, 4G nahe chalta hai,and I was telling him that ki dekh ye Brazil mein ye horaha,let’s talk real topics right now. My journey was mostly – I mean I started my journey as an adviser helping companies in education grow to scale up, got a good understanding. We started in India but then there were no education companies at scale in the country so most of our work ended up being in Brazil, Latin, China, the Middle East, and Southeast Asia and so worked with a lot of larger education companies then and that gave me some understanding but it was always on the other side of the table that we were doing some work, we were delicensing but you were not doing anything.
So to do I had to cross the bridge and I thought the next bridge is perhaps to put some money, get some skin in the game, and then I realized with my money and then I realized maybe that’s also not that interesting. But in all fairness and honesty, that time when I was looking at the education sector that’s the time when Vamsi also sort of started his journey. In 2014-‘15 when I looked at the entire landscape there were not too many great education companies in existence at that point time and everybody was looking at the education problem as a sales and marketing problem and nobody was thinking from a learner's first perspective and there were opportunities available.
My personal take on looking at education was that education was seen as a content library, if you don’t have access to content you get access to content. But nobody was thinking of teaching and that’s where the thought of UpGrad came into incubation partly looking at what was happening outside and partly the itch that if you cannot invest somebody else’s money and you’re still finding struggles in doing that, why not start of your own.
I think the tipping point for me came in as part of all the diligence when you’re looking at part of the companies – this was again outskirts of Delhi, Greater Noida, and apparently there is a joke that if you throw a stone, you hit a engineering school. There are so many engineering colleges. One of the engineering colleges we went in, the building was completely empty, you went up to the second floor three or four kids were sitting and studying and there were no teachers. What Vamsi said was that the quality of education was questionable, so I asked them what are you guys doing here and the answer was no, we come and go, teachers sometimes come and they don’t, and I laughed. Like whenever I tell this story everybody laughs at that point.
That’s the time it struck me that’s the quality of education and we keep on talking about all these things but – I mean I come from a highly subsidized privileged education background, my full education was sponsored by the government in many ways. Knowing all about education I mean I could not – I mean I could not laugh about it so I had to do something about it and that's where taking inspiration from him and knowing what was there that's where the UpGrad journey started.
Rajat:
So, guys, coming to we’re at a very weird point from an EdTech perspective which was a slow start ‘15, ‘18, ‘17 then suddenly this boom came accelerated by Covid. Now if you talk to people in the industry and people are saying boss, it’s a bust. So what’s your view, is it a bust, is it a correction or what’s going on?
Mayank:
I mean I said even at the start of this conversation somebody said it’s a bust, the EdTech market has gone and my answer is that the EdTech market is there it’s even bigger today. Perhaps the valuation is questionable, perhaps how we’re chasing growth is questionable but the market exists, and there is a customer set that needs to be educated. Online provides a great medium, as Vamsi said it provides the right cost structure, right quality, and right access to the best faculty members coming in.
I have zero questions about the market, I mean I have a question mark on people who’re quoting this is not in the ecosystem so once they’re in the ecosystem they’ll realize that there’s significant value addition that you’re doing. Yes, perhaps the growth that many of us were chasing was not the right way of chasing growth and we need to course correct ourselves but is there an impact, yes, is their customer need, yes, are you serving the customer in the right manner, absolutely yes. I don’t see it’s a bust or a boom condition, I mean this is a part of a phase of the journey, you have to go through this, get your model right, the market is there, you need to just find the right way of scaling up in this market.
Vamsi:
Absolutely. I just can’t agree more. Let’s just look at from first principles, right, what Mayank just said is very first principle thinking. See, one thing, if I’ve realized about human life, is it always goes towards better efficiency. Having run an offline business for almost 7-8 years it’s inefficient. It’s inefficient from multiple perspectives, right, forget quality. In the cost structures you have on the rent, the cost structures on all these components you’re essentially charging that to the customer in this case the student.
Online fundamentally takes all that and that is why it’s able to place it at a lower cost, that's one. Second, in an offline setup, you’re restricted to a four or five-kilometer geography around your house and especially in K-12 more so wherein even the travel stuff is restrictions are there. And in order to provide that kind of quality if you're in a metro or a top tier you might still be lucky, you might have an access to a nearby teacher but what about the majority 70-80 percent of the folks out there, there is no way they have access to such a high-quality teacher or teaching at that cost. And then I'm not even talking about convenience and all those aspects.
So I think from a first principle perspective it’s inevitable and coming to the question on the bust and all it’s all relative. You know all of us have portfolios, we’ve invested in the stock market and the stock market also has gone down. Is this the time wherein you would exit from your portfolios, of course not. You’ll allow the compounding to work its impact because you’ll believe in the long-term story, it’s similar here. Just look at the numbers, right, 300 million kids just in K12 alone, out of that around 85-90 million have access to the internet. Out of that, all the online education companies combined would be less than 5 percent penetrated today. These were very similar numbers by the way of internet e-commerce in India back in 2014 times, now it’s double digit like probably 15 plus something.
The same thing will happen here, you just need to stay in the game and just continue to as Mayank said to continue to obsess over the learning outcomes and give what is the best and what is right for the student. If you actually compare with the huge 8x, 9x kind of a growth spurt we saw in Covid times the current growth rates going to be relatively smaller as compared to that. Now if you chose to call that a bust then you can call that a bust. But let me also tell you, Rajat, even before and you know this even before Covid, EdTech and I can talk about Vedantu’s numbers, we were growing at an average of around 2x to 2.5x year on year which isn’t bad.
Covid always accelerated it to like maybe a 5x, 6x number, if that is coming back to a 2x or like plus 50 percent that's an amazing growth rate. You just need to be there and great companies would evolve out of it because 95 percent of the market is still out there and there is no way in a country like India in such a diverse country like India without using technology you can solve this problem of providing quality teaching through all the students across the country.
So in fact I would go on and say that these are the times when the right models and the right companies would further emerge as winners because there is no noise, and noise will be reduced. Whatever consolidation had to happen has happened and the ones who are actually just staying put and focusing on the fundamentals would actually come out very stronger on the other side of it. So I would say in fact it’s a huge opportunity and the right people will take advantage of it.
Rajat:
Couldn’t agree more with Vamsi and Mayank, I think even from our perspective we continue to be excited, I think it’s a little bit of a frame of reference situation where as you were saying if you think that the Covid growth rates will continue obviously that's not going to happen but the market is there if you can figure out the right economic model to serve I think large companies will get created. Education itself is one of the largest industries in the country from a services perspective so there’s no reason why it can’t be disrupted by online, the cost to serve quality etcetera can be maintained.
Absolutely agree with you guys, but let’s get back to obviously there are issues that people need to deal with for example the sector’s always had this CAC issue and it’s not going away anytime soon. So what can you people do, right, new founders, what are you guys going to do to figure that out?
Vamsi:
Yeah, so it was not that it was always the issue, I would say in Covid and say rightfully so because in Covid times all the parents were there, schools were shut for a large part of the time, they were in the mental frame of mind, they were ready for to be shown this and that is why it was imperative at that time to go out there and expose to as many students and parents as possible these services. And hence at that time we essentially think of it from a land grab perspective and there if you're not aggressive at that time when else would you be aggressive. So many players confuse that with saying that this is the way to acquire customers wherein that is just an MOT you were in and it’s important to recognize those MOTs. I think the MOT at that time was different, at this time needs to be different and you need to be adaptable enough to change that MOT that's how at least we think about it.
So around that time if you're also focused on doing it in exactly that way you’ll also miss a big opportunity. But having said that there are a lot of I would say for lack of a better word organic channels, think of these as assets that you can create as a company that will continue to give you user acquisition or use coming to you even in the absence of your paid channels. And the way to probably a framework to think about it is which of your channels or assets will continue to give you students even if you don’t spend a single rupee on it.
For example, way back in 2016 or ’17 we saw that kids are searching for solutions to NCERT books and all that. So we put that content out and started optimizing for SEO, it took some time, two years, two and a half years, but that then gives a very ready steady kind of traffic which goes up and down with seasons but even if I don’t spend any money on marketing it still comes. Although a lot of it is generic and you need to figure out which of the traffic is relevant and which is not and you can figure that out through various models but that is just one example.
Another example can be a little bit of YouTube and there are other examples like there are many examples like this. So the way to balance this is that yes, to get some users to you, you might have to initially start spending and initially, that model won't work but you need to do that because if you don’t have kids coming to you or students coming to you and if they don’t experience you the word of mouth won't even kick in so there is a critical mass required. So that is one equation. But only depending on that is also something which might not serve unless and until your like word of mouth and all those things are like perfectly set that this critical mass is enough now for getting you growth, so that's one.
The other thing that you can go do is like think of creating these as assets like assets means technology or tech-led or product-led top of the funnels which will continue to give you students or stream of students or parents which you don’t need to really spend on. That might require an initial investment and that is what you need to judge depending on the capital available to you and how much you want to invest. The brand is also one part of it, so if you think of a brand is also a part of it and because if you invest in a brand you don’t have to do it every month, it’s something.
So it’s a combination, it’s a balance of this and if you do this balance right, then you have suddenly a particular equation in which your customer acquisition cost and that sort of works out. In this the basic assumption, Rajat, I still want to reiterate this is your experience is there, that is critical. If that isn’t there all this doesn’t matter, so that's a big disclaimer in that.
Rajat:
Yeah, either churn will happen or word of mouth as you said won't even start.
Vamsi:
In fact, it’s even uglier than that, unfortunately in education, everything is a cycle and in Mayank’s case it’s even larger cycles. If you do a bad job you won't really have that impact on your initial customer acquisition because the word of mouth hitting also takes time. So it works both ways, if you're very good even then it doesn’t really – you know, it’s not reflecting in your initial cohorts, if it’s bad also it won't reflect but once you like take two years or four years in Mayank’s case then the effects take shape. So if you do a bad job then there is no way to get out of that loop but if you do a great job then actually that has a disproportionate return coming to you.
So experience, I would say compounding impact on this whole customer acquisition cost effect.
Rajat:
Mayank?
Mayank:
I come from a similar school but slightly different, my first thing was to increase output, at least make your product so that people realize that there is a value that one needs to pay, because look in this market there is that much that you can charge when there’s that much that you have to pay for customer acquisition. So if you can’t let’s say first of all can’t control the cost of acquisition at least increase the gross margin and what you’re collecting every learner that's the first thing that you can start. Build a product and that requires from a DNA perspective not just what’s the value the customer needs but also how you innovate on the product.
If you have a certain product can I add this feature, can I make it more sort of credible, can I make just for the argument's sake can I make online tutoring into school education and how can we expand on that. There are ways and means in which we would constantly innovate and create a high RPU. The second thing is if let’s say you acquire a high RPU you have to also realize that there are two landlords online world, who are charging the highest rent possible out there but they’ve got hundreds of millions of landlords offline and you will see a move towards getting to offline to attract customers because the cost of real estate may not be as expensive as the cost of online real estate which is completely monopolized and then you can get more fragmented sort of real estate available which is cheaper and you build some credibility, especially in tier 2, tier 3 markets where people want to see you.
They just don’t want – I mean I was talking to somebody in Lucknow who was running our operations in that city and they were saying okay I do need a physical center where people come in and see me. I will not have a conversation about it so that's a second which is offered and will come in play an important role. The third one Vamsi said is that you have to build certain assets, the challenge in assets specifically when it comes to education is that when it comes to examination time education is a daily event, you're preparing for a couple of examination, it’s a daily event. In higher education working professionals it’s not a daily event, you don’t get up in the morning and say I want to learn Python. I mean it’s not a news article, it’s not toothbrush activity.
Rajat:
Triggers are very different.
Mayank:
Very different triggers and you have to play on those triggers at the right time or create that need, it’s challenging in higher education as much – I mean, relatively speaking during examination time when K-12 company actually works out because you want to get up and check last year’s question paper, this year’s question papers. So creating an asset is critical but you just need to be very careful about where you're creating an asset so it’s a daily need not a once in a blue moon kind of a need.
Then lastly for us, about 40-45 percent of our revenue comes from repeats and referrals. So there will be a – the experience matters, if the experience is bad you're completely gone, you're down to the dogs because if you have let’s say the land grab that Vamsi said, you got some land now your goal is that whatever you can generate part of the revenue will come from this only. For that you need to just give a kickass job in making sure that they’re happy, they’re satisfied. And you need to focus on the right metric to measure like sometimes you measure NPS and I love NPS but I have a problem with NPS also because NPS is like you're going to a massage and you're getting the massage and you're asking how is the rating, you are like I'm very liking it and then 15 days later you say oh, the massage is still hurting me here.
So NPS is a measure of the experience at that point in time but the real outcome is what leads to repeats and referrals. And therefore, then focusing on the right metric, what is the experience that you want to give. I can give a very easy examination and get the NPS higher, but if the guy cannot clear the interview preparation what’s the point of giving a great experience. It’s a massage analogy that you have to keep in mind when you're going through this but these four things between RPU, offline, online, getting your asset right, and experience that leads to getting people back in would play an important winning factor.
Rajat:
Awesome. I remember a long time back you told me less than 20,000 rupees you don’t even bother.
Mayank:
With inflation, with the infinite supply of money 40,000, but still don’t even bother.
Rajat:
That supply is gone.
Mayank:
On a lighter note, when people think 20 years later, they’ll say what did you guys do during the infinite capital thing many will answer that we were just selling and buying some pictures of apes and that world will change and we will say what useful thing we did at that point of time.
Rajat:
Awesome. Taking this online, offline thing both of you would have tried or thought about it, so what’s the current thinking?
Mayank:
So for us, we’ve two segments, college learners and working professionals. So our working professionals offline need not necessarily be more sort of critical area. But for our college learners who are currently in the colleges or looking for the college admission offline does play an important role. I'm talking let’s say we have a large study abroad business line, for study abroad the parents are coming they have to sit someplace. They can’t just watch in Zoom and say okay I'm going to put in 10 lakhs, 15 lakhs, 20 lakhs rupees for that education. So how do you create a great offline experience for credibility and sometimes not lead to top of the funnel but whatever is mid-funnel, the bottom of the funnel conversions become easier because there’s a trust factor built in.
And that's mostly for tier 2 a different strata, lower output customer and if you create those presences you're visible. See, I mean, we’re spending about 6-7 hours on the phone but the remaining 8 hours is sleeping and the remaining 17 hours are that physical moving around in the enviorment. And how you capture those physical moving around an environment where people can come and get those trust I feel I don’t see from a learning experience perspective offline will add a lot if you had more complexity to scaling but for the acquisition perspective it definitely has credibility.
Rajat:
And, Vamsi, any different thoughts from you?
Vamsi:
No, I think we’re still early in our own exploration, early in the sense that having operated an offline I do see there is a – they’re different, so there is some value add there especially to Mayank’s point, the customer acquisition and brand perception. Forget offline, Rajat, interesting thing I’ll tell you. The moment we started giving physical books that itself had an impact on brand and satisfaction. And I don’t know what you want to call it, right, but it was some offline component. So we have this psychology probably that when you get something it’s real, in online however we’ve evolved it still feels like it’s in the kind of services.
So having operated that for eight years I do see value there. What we’re figuring out, they were trying to figure out is for which target group is it more valuable. At the end of the day the way we think about it is we’re extreme student center city as our core value. So we think outside in these things. So if today we’re at a 4.5 penetration what will lead this to a 10 percent and if offline has a component to play in that's how we’re thinking about it and the answer is surprisingly yes, there are certain pockets in the country if we just continue with online it will take a certain time for them to convert, trust and adapt. And it’s as simple as trust because the parent sometimes feels in these areas that kid if he’s studying online in home he is not paying attention just because of lack of some supervision, physical supervision.
If you just do the same thing maybe in a physical center they have an innate psychological feeling that bachcha padhrai. So these things, lot of these things are factors in which we’re exploring that which tier, which age group and these are the stuff we’re exploring and we’re doing experiments.
Rajat:
So what I'm getting from both of you is offline is more for the market penetration process for both of you. How would you choose that over say going international, lots of EdTechs are going international. So would you choose one over the other or do both?
Mayank:
I think yea, a do both but as I also mentioned because as Vamsi said it’s in that early penetration round, when the penetration increases the market you always get to a chasm right then you have to take a jump, that jump could be massive brand building, that jump could be giving out free refunds route, even looking cash on delivery, I mean there are these jumps and innovation that need to bring inand for education I think offline will be that one jump. You may not teach them, you may just have a center where people will come to and that will have an impact on how the conversion will happen.
But for us international was more a natural extension because it’s a delivery of services, right, it’s not a product delivery, not a sort of shipping goods and logistics and supply chain management of that. I have great faculty members who can teach well, who can teach globally and I work with international universities which I can take to international markets. It is easier said than done because it looks very simple and because you have all the infrastructure, we started the Indian diaspora that's one place we got the initial centers for adoption but cracking again the customer acquisition is very different from country A to country B to country C.
So while I can say I have hundreds of products, let me go to country A and launch it actually the approach for us is that there’s a product A for country A and product B for country B and product C for country C rather than all the products getting launched there because we’re just figuring out the customer persona, whose the customer, how will we reach out to that place. So for us international is a natural extension rather than a forced extension but it’s not as easy as it looks, it requires bid of thought processes as to where you want to penetrate.
Rajat:
The go to market is different and product is also different.
Mayank:
Very different, a hundred percent different. In one place for example I’ll give you an example. We’re trying something in Singapore but Singapore has a massive government subsidy. If the government subsidy is reduced from 90 percent to 80 percent the demand drops. And you have to launch a program which has got government subsidy. While if you go to the US you can’t compete with the high RPU program because there are many sorts of great high RPU programs so you have to come and leverage your cost to bring the price down to attack a market from a different angle. So every market has its own set of nuances but you just need to know those local nuances and you can’t do it by being here in India.
Rajat:
That makes sense. Vamsi, you’ve largely been a live business like live classroom business. Now you mentioned that you also launched NAI tutor. So talk a little bit about how you made those choices and what’s going to scale further for you.
Vamsi:
It’s a very apt question. So how we think about this is students’ interest being our core value we actually don’t believe that we’re a live product it’s naturally tended out in that way. We’re actually a student first company so what we think about in all these cases, Rajat, is we keep the student at the center and try to figure out which design would be best suited for that particular age group and then try to go about designing the solution. Invariably it did happen that if want to stay stronger learning outcomes this was the apt design as a primary source. Having said that we have massive post-class support using recorded videos which are massive actually.
I think we would have like thousands and thousands of hours of recorded content which is also used, apart from that practice, adaptive practices, worksheets, tests, so all these. It’s an entire learning journey, what you see at the start as a hero is obviously the live model because the teacher is there and it sort of naturally becomes the hero product. But if you really go in deep and ask me what results in a learning outcome I would say it’s a combination of all these things woven together well that really creates a learning outcome. If only live classes you do we would not have been able to achieve that kind of an outcome.
Having said that Ai Live was another attempt in the direction of how do we reduce the price point and yeah impacter scale has always been the goal so we’re always constantly trying to see how do we reduce the price point for two reasons, one is sales model disruption is something which I believe with online education taking more brand and people getting aware about it. What we’ve seen also happening in China is it becomes a commoditized product so you don't really require a hardcore sales push because the brand is taking shape, the trust is taking shape and also the price has an impact. As Mayank said if you actually design a high RPU product the sales and marketing also have to be woven around it and that's the right way to do it.
That is one direction which from where we started actually so if you look at the journey of Vedantu in 2014-15 that was the only model we had. From there we’re constantly testing limits on saying that, do we create a product with enough brand established out there that it can be auto consumed, so we call it auto sales. And what we saw is for any product beyond let’s say 20,000 as Mayank was saying you do require that kind of intervention by assistance, mentoring, counseling, something. The moment we go below that it’s very interesting things start happening. So the challenge for us is like how do we design a product which still has a 50 percent plus contribution margins on delivery yet can be priced lower. So this has been going on for two years, we were looking at every component of a class and where the cost goes and where it doesn’t, and we figured out there were four broad components.
One is that the main teacher teaches, then after teaching he asks some doubts, then the third thing is he tests those concepts using some quizzes blah, blah, blah. Then there’s a motivation angle to it, these were at a very broad level the four things which go. Then decided which components of this can be prioritized or automated or tech-enabled and we came out with a combination, tested it out for almost 8-9 months on free users, and then paid students. When we started seeing the ratings and engagements goes similar that when we went out and this is interesting, it’s very early but we’ve been able to disrupt price points by one third to one fourth. So what we were offering for 25K we’re now offering at like around 7K to 8K with the same everything.
The whole year JEE one year course all subjects is available now for 8K. So and that is auto consumed, is the experience there. I would say it’s a 10 percent deviation from the probably a pure live class but yeah, using more technology we probably would be there. So I think this is another direction of work.
Rajat:
There is no sales team?
Vamsi:
No. Absolutely zero. So as Mayank was saying it’s exactly that, right, what he was saying is that you essentially go to this level, and from there now in order to get to mainstream is the chasm and you have to jump over it. There are various things you need to do in order to jump so when we spoke to our 95 percent of the users who don’t convert what they said is two things, right, price and the internet device. Internet devices we can’t do much, offline is one thing which you can do and that is where that's another direction. Another is the price point, this is all the ways we’re thinking about trying to solve this.
Rajat:
Let me ask you on that product note I actually spoke to both of you, you know it’s great if you have both product and distribution for great businesses but if you were to start today what would you build first or what would you focus more on.
Mayank:
Product first. So many great businesses die because they don’t have distribution but no great business can be found if they don’t have a great product so I guess the product is important. You have to take call as a founder when you're starting out are you getting into the education business are you getting into the distribution business. I have a simple question all the time that look if you want to do education you got to do sales and marketing, and both are equally interesting businesses to build especially in this country. But if you build a distribution business my challenge is if you do not have a product that supports thedistribution it gets very difficult for you to control the customer experience and therefore every time you have to acquire new customers. You cannot just repeat referrals all those elements just go away, it’s not education, it’s only a transactional business that you have a distribution for three years, two years and the person will go away but if you're building a product the person will come back to you.
Rajat:
But I’ll tell you what happens, right, so there are a lot of companies that’ll raise seed funds 1 million, 2 million and they spend a lot of that money in just building the product.
Mayank:
That's the problem, if you have distribution you’ll never scale. So I guess it’s as much as a wrong answer it’s a combination of both.
Vamsi:
So I think I agree with Mayank, I would over-index on the product because in education if that isn't there you need to then question then what are you trying to do. But having said that I think the real answer, Rajat, is about thinking of this as a sort of like an equation which we need to keep on balancing. So it’s a dynamic balance equation. So there isn’t a linear answer to this, right, like first product baneynge fir distribution karenge,it’s I think a combination of like what he was saying that you have to start with the product there are no two ways around it but then product he banatey rahogey,so then you're dead.
So the smartness lies in understanding that till which level you need to invest in the product and then you need to start a parallel thread on distribution and then how much to now invest in strengthening the product. So this dynamism is what you need to get right as a founder and it’s very different for different industries also let me also say. Even in K-12 it’s different for say early learning in tuition and in test script it’s very different and I'm sure --
Mayank:
In the initial days for the first three years or 3-4 years, 70 percent of the team was just in the product learning experience and everything, and 30 percent was in sales and marketing. Today when I look at 70:30 the other way around and that shift has happened, but I’ve noticed one thing that let’s say current founders' time is sometimes sort of limited and if you over index yourself on sales and marketing you get growth one or two quarters but third, fourth quarter the growth caps out completely if you're not innovative on new products new product lines. That's something that we’ve witnessed that you have to like Vamsi said go in and solve for marketing and then come back and get the product right for the next wave of growth to come in. Without innovation and solid execution, you’re dead.
Rajat:
Yeah. Actually, it’s the function of the evolution of the market also, right, now that EdTech is reasonably well known, if your product sucks there’s just no chance.
Mayank:
I think still one thing that I’ve noticed we’ve got that jump that we need that the products have not been well defined in EdTech, that's a big challenge and that's what like all of us need to work towards that. The product promise has to be so clear that if you take a flight from Bombay to Delhi it will take 1 hour 55 minutes or 1 hour 35 minutes and you will land in Delhi, you’ll not sometimes land in Ahmedabad or land in Bangalore in the process. I do believe that today if we can get the product promise consistent plus minus 5 percent and you can deliver this you’ll see a very, very sharp growth in this.
Rajat:
It’s very hard, it’s so people-intensive business, right?
Mayank:
It is hard.
Vamsi:
That is where the whole component of technology comes into play. I especially feel that in the last two years there has been more focus that went into sales and marketing have given this was a phase we’re in and that's natural also, it should have been. Honestly speaking did all the products scale I'm sure everyone got at least a 10x jump in their student basis around that. Were the products also scaled 10x to kind of match that experience I mean I can say for sure like Vedantu where the ten things which probably we still feel that we could have done better and that's what we need to work on.
I think at this particular time since we’re talking right now for the companies who have been there it’s really back to the drawing board and like trying to work on what just he said that it’s the predictability of the experience or outcome has to be that. There’s a massive premium you can charge.
Mayank:
That should also increase, I mean if you go to a burger shop in Bangalore versus Bandra it’s the same burger as you don’t get a different burger and there’s equal intensive there as well. There are certain aspects of a product that Vamsi said that you can divide the entire education stack into certain products, certain services and human interventions are there. How you bring that predictability is very critical and the day it happens that I'm not worried that if I reach the airport it will take me whether it’s a one-hour delayed flight or three-hour delayed flight or on time flight if that consistency comes in, education will soar.
Rajat:
Yeah.
Vamsi:
I can’t understand that point, it’s extremely critical. And also let’s understand that we’re constantly in competition offline. It’s not just that okay, two online guys are a thing, and both the products are you have an 80 percentile it works, you're constantly competing with the offline thing. You might right now win on price, convenience, and stuff but at the end of the day, the people are sending to a 30-year-old brand because of that consistency and predictability.
Rajat:
Sure. That makes sense. I wish we’ll have the Indigo --
Mayank:
100 percent Indigo will come in education, 100 percent. I have no doubts about it but it will take time. I think if you ask today most of our conversation is on consistency in delivering outcomes. All product conversations are around that, you don’t discuss anything else, how do we make it seamless, how do we create our budgets like deliver mem this plus minus 5%,and we should be good, the variation is quite large because education is rightly not a great business to be in because A, first you ask somebody for a lot of money and then you tell them okay you paid me a lot of money but now you give me some time also. Usually, they give money to get convenience but here you're asking for money and then give me some time. Now that you have given me time now you have to work hard also.
So it’s a huge, huge business from a customer value perspective kinds of what do I get in return there’s no money, wait for two, three years and you’ll see whether some --
Rajat:
At that point right, so there is both of you are in some way promising some outcomes either in test prep or a job, right, but not everybody gets there. So how does that impact the funnel and students' psyche rate.
Mayank:
So not everybody gets there but I mean you have to build a model where at least 90 percent plus people get there. And at least our perception of high education clarifies that everybody thinks that they’re for a job actually they’re not. Only 30 percent of people who come to us are coming here for a job or job-related outcomes. For the remaining 60-70 – you have to define outcomes and measure those outcomes. You have transition acceleration, professional confidence, and no outcome. We’re currently about 80-85 percent of people find outcomes six months post completion but still, that's not great because till I hit 90 percent it’s where the real inflection point comes in because 85 percent is still like okay there’s 15 percent delta, 1 in 6 are not getting it.
But if we get to 1 in 10, 1 in 12 then we’re talking real product delivery. So people find outcomes, you just need to know what outcomes everybody is looking for. And sometimes – right now what game is everybody playing, they’re playing the game that the chances of finding an outcome are higher here versus not being there versus playing the game where there is a certain probability – this is the probability of finding an outcome. So right now we’re better than not being there but we need to get to a situation where there’s a guarantee of this much outcome coming in at the end of the road.
Rajat:
Yeah, makes sense.
Vamsi:
So learning outcome as in K-12 there’s I would say even more delta T is lesser because of obviously you know school is there as a kind of like a benchmark or a mirror and the parents are able to just like whatever you do the kid’s marks is not improving that's the conclusion they draw. So this is a very deep question by the way as there are a lot of things that a company needs to think about and do here and it’s an evolving process.
I believe the incentives needs to be aligned first and foremost, I mean that's the first MOT. Unfortunately many models in the market because of the fact that you're able to collect the money upfront and also some of the cases the refund policies are like whatever they are. There isn’t any incentive to continue giving a great service and at a fundamental level in the business if that incentive is not aligned then God help you, right, then how are you saying that for the entire duration of 12 months or 24 months or whatever that timeframe is your incentive has to give consistent great outcome to the student is just wishful thinking.
Rajat:
Superb.
Vamsi:
First and foremost you need to design your incentives right, that's one. Second, you need to invest in it, so as Mayank said learning by itself is a deep topic we have now after like four years or five years of work have reached this point that we’re now able to at least measure the baseline and then able to look at if he’s coming for 6th grade that’s the 8th grade Math we have to figure out first of all that is his actual level 8th or 7th or 9th. And that we’re able to do and then after there’s midline and endline and what we try to do is at an endline see that if he’s like a 7th or 6th grade have we got him to at least the 8th grade.
So what we try to measure is like how many percentage of students were able to at least improve by one grade level in that duration greater than that. The current number for Vedantu is somewhere around 68-70 percent of them have improved greater than one grade level with us, so there’s still a way to go. But at least this measurement sort of becomes like a mirror for all the functions including content, trainingand all to say that this is where it is and this is what probably has broken or not broken. We have gone one step further last year, very proud of this initiative, we institutionalized something called VIP which is Vedantu Improvement Promise wherein we said that if you don’t improve after spending one year we will give the entire money back, the fee back.
So this was a very controversial decision inside the company and a lot of hue and cry but I felt that this was a little extreme but so I'm not suggesting this like and everyone should do that, I hope everyone does that by the way. But this actually perfectly aligns the incentive, right there was no other way to perfectly align the incentive, put your money where your main thing is and then like you know the finance function is constantly questioning the academic function which never happens by the way. You know, are you getting in the job or not so this was an extreme way but I do believe this whole aspect of learning outcome is not just a question to be asked with EdTech companies, it’s a question to be asked with the entire industry.
And who is taking responsibility and what are the consequences of you not fulfilling that promise either as a school or as a college or anyone. So I think it’s a deep topic and yeah, a lot of stuff needs to happen on that but important nevertheless.
Rajat:
I guess the beauty is that this 68 percent in offline or say in a quota or anywhere else will be much lower.
Vamsi:
They don’t even know so the problem is they don’t even know. I don’t know higher and lower but the challenge is they don’t know and they don’t care.
Rajat:
Makes sense.Same for even higher Ed I guess outcomes in any offline institute will be much better.
Mayank:
When I just look at how many people want to be in the double ‘I’s of the world and how many get in and of those if you look at the latest stack it’s the placement is about 76 percent for the double ‘I’s in this country which is the prestigious institutions out there. But having said that one thing that I also would like to point out is that we’re in the 5th, 6th, 7th, and 8th year of EdTech sort of ecosystem. The place where it hits us, let’s say our incentives are not aligned and we do a bad job and it just sort of goes to the entire process and we have poor outcomes, gets the right sort of outcome our repeats and referrals will not happen. Our CAC will continue to rise, and the business itself will become unprofitable and will collapse. Till how much time can we supply money and plant it.
So in some way from a business model perspective, the investment in this product is seen as a CAC reduction initiative if you do this our CAC will come down because more people will go through it. It’s just that it takes time to see the results, that's the problem. It’s not like eating Maggie do minute and you enjoy the taste,you have to eat Maggie for one year.
Rajat:
Or if you keep getting Maggie --
Vamsi:
And that is very interesting, Mayank said many people are able to hack this. So even if your that thing is not working you're still able to like put money, three or four years you can like literally show your user growth and nobody would know that the quota is broken or not. But unfortunately, when it hits then hits very bad.
Rajat:
We’re seeing that already, right, I don’t want to take names but we’re seeing it already.
Mayank:
Yeah, yeah, very badly.
Rajat:
So, guys, this has been awesome. Last thing, if you – lot of listeners would be first time education entrepreneurs or thinking of starting up. What are one or two areas that you find interesting that hasn’t been built out and new people can go out there?
Mayank:
In education?
Rajat:
Yeah.
Mayank:
I see there are 3-4 areas and I think I'm talking about my segment which is let’s say higher education and continuous learning etcetera. I think one area that I genuinely feel there’s going to be significant growth and demand is going to be around coaching and mentoring. We’re underestimating the power of coaching, I think Vamsi used the word mindset, the fourth element of his sort of learning experience. You can give hard skills, you can give soft skills, you can’t give a mindset, the mindset happens throughout the journey, and I believe that live coaching, and mentoring has somebody investing 50,000 rupees on insurance will put in 10,000 rupees on their coaching, mentoring every year.
I do believe that that phenomenon will come in, and the second area which I personally am fascinated about is this entire concept of medical education and nursing and talent mobility around that. There is an opportunity where you can get trained medical professionals looking at international markets and those two themes, I'm personally interested in both tactical but those are the things that get consumed on a day to day basis if you can create acoaching and mentoring business, can I create a medical business.
Rajat:
The second one is not NEET prep and all, right?
Mayank:
No. It’s like basically paramedics, nurses, I mean India has to become the same level of supply of their talent as we’re in IT and it’s possible from this country.
Vamsi:
Actually completely and the second point I was exactly about to say and even in K-12 I do believe that – yeah, exactly. That whole model of using massive amazing quality of Indian teachers on becoming a global supplier of teaching for like a global powerhouse of teachers. I mean India is perfectly poised, perfectly poised for that and I do believe it’s a matter of time. A lot of companies have already started to do it and have done it in the past as well. We have such a back then way back but I would say that the opportunity is real, and will become even more so as the cost of the tutoring business globally really it’s really increased. So that's something which I do believe is very interesting and also as a massive potential of disruption opportunity.
The second thing in fact Mayank was telling me some developments in that area and I was very happy to hear that. Online schooling is definitely something that I believe is very interesting and the time has come. Although it has linked complexities attached within because it is the regulations around it and all that but if anything Covid has taught even to these schools is that then why am I restricted to this 10 kilometers or 20-kilometer geography. Some of the best schools actually are very progressive about this, that's a great area and that's also an area which forget about the business model part of it. It will really benefit the community as well. Yeah, these are the two areas that I probably would be looking out for.
Rajat:
I guess for me those early monitors we’re spending some time thinking through this can you actually work closely with the formal education ecosystem and what’s happening. But that space is so large and huge, I think the opportunities is very --
Mayank:
There you can get immediate indigo of education much faster. For 3000-4000 crore revenue company, very fast.
Rajat:
Thank you, guys. I really enjoyed the conversation and hopefully, we’ll do some of this tomorrow over time.
Mayank:
Sure.
Vamsi:
Thanks, Rajat.
Salonie:
Thanks for tuning in. For more Matrix Moments episodes, you can head to www.matrixpartners.in/matrixmoments . You can also follow us on Twitter, LinkedIn, and YouTube for more updates.
