Netflix's Model Could Boost India's E-learning Apps

On a summer morning almost two years ago, a staggering 127,000 Indian teenagers gathered online not for a virtual rock concert but for a test preparation session. Physics Wallah, an Edutech platform specializing in coaching students for rigorous engineering and medical school entrance exams, experienced its largest live lecture to date, with regular classes now accommodating up to 50,000 learners. The sessions unfold in real-time, offering immediate assistance through standby instructors in chat rooms or via video calls, aided by artificial intelligence that anticipates challenging areas for students.

India's online test preparation industry resembles a massive and highly interactive digital media enterprise. The Physics Wallah app boasts 2 million daily users who spend an average of 80 minutes on the platform. With such high levels of user engagement, the potential for monetization is evident, as the platform could charge an average customer $50 annually, which is one-third less than the cost of a two-device Netflix subscription in India. PW, as it's commonly known, achieved unicorn status with a $1.1 billion valuation following its first institutional fundraising round of $100 million from WestBridge Capital and GSV Ventures in 2022. 

Byju's began to face challenges as schools reopened following the pandemic, leading to a decline in its K-12 business. Additionally, its unit focused on teaching coding experienced significant setbacks. While its network of test coaching centers, acquired at considerable expense by founder Byju Raveendran, remains profitable, the franchise, Aakash Educational Services, is hindered by multiple owners and is not easily monetizable. With creditors seeking repayment of an outstanding $1.2 billion (99,000 crore rupees) loan, Raveendran has proposed a rights issue at a pre-money valuation of $25 million (200 crore rupees) to stave off bankruptcy. However, investors such as Prosus NV and Peak XV are discontented. Just two years prior, Byju's boasted a valuation of $22 billion (182 K crore rupees). With a 30 percent ownership stake, these investors believe the company's best chance of survival hinges on removing its namesake founder and are advocating for a shareholder vote on the matter.

The surge in Indian education coincided with diminishing opportunities in China, where regulations tightened from 2018 onwards, starting with a ban on for-profit kindergartens receiving equity-market funding and culminating in a comprehensive clampdown. This shift diverted capital to India, particularly during Covid-19 lockdowns. However, Byju's declining performance has tempered enthusiasm. Despite this, online education remains viable in China, particularly in the test-prep sector, rather than in K-12 or coding. In India, with over 1.5 million applicants vying for approximately 100,000 medical and dentistry placements and only 17,000 spots available in the prestigious Indian Institutes of Technology, the demand for test preparation is evident.

Alakh Pandey, the original PhysicsWallah on YouTube, commands a substantial following of 11.6 million on the platform. Prior to establishing PW, Pandey, a college dropout, had already built a strong presence as a celebrated coach in smaller cities and towns. His co-founder, Prateek Maheshwari, holds an engineering degree from one of the IITs and previously worked at Caterpillar Inc. Following a successful fundraising round, PW established a campus in Kota, a city in the northern Indian state of Rajasthan renowned as a hub for test preparation. Kota attracts nearly 300,000 students annually, all seeking to improve their prospects and provide better opportunities for themselves and their families.

Byju's Raveendran made a comparable investment in offline tutoring by acquiring Aakash for approximately $1 billion in 2021. Prior to Physics Wallah's emergence, Unacademy, supported by investors such as Singapore's state investor Temasek Holdings Pte, entered Kota and recruited tutors from the leading institute, Allen Career Institute. In response to the online competition, the family-owned Allen Career Institute secured $600 million in funding from an investment platform led by media mogul James Murdoch and Uday Shankar, the 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 prove successful, provided companies refrain from replicating Byju's hyper-aggressive sales tactics or extravagant spending on unrelated acquisitions. Physics Wallah now offers courses for 35 Indian exam categories, including civil services and army recruitment. Co-founder Maheshwari is establishing a new offline center every five days. Annual sales have more than doubled in one year to 20 billion rupees ($240 million), bolstered by around $50 million from various acquisitions. Approximately 54 percent of the remaining $190 million revenue is derived from online tutoring, while another 43 percent comes from over 50 physical locations, where more than 180,000 students pay $500 each.

The edutech sector is experiencing a funding downturn, with repercussions still unfolding following Byju's decline. The next major uncertainty lies in government policies. While a Beijing-style crackdown isn't expected, New Delhi recently introduced guidelines for the industry. State governments will establish their own regulations amidst fervent lobbying to relax the proposed minimum age of 16 years for after-school tutoring. Policing online apps will prove challenging. The government's concern about the stress on youngsters, often leading to self-harm, is justified. However, as Alakh Pandey from Physics Wallah notes, many small villages in India have seen their first engineers and doctors emerge due to the internet. The drive for upward mobility spurred by online education will be difficult to extinguish.