Last week, it was disclosed BYJU’s is set to raise $300MM from private equity investors, at a unicorn valuation of $2Bn.
BYJU’s, founded by the eponymous CEO Byju Raveendran, has been a money-raising machine. Since its Series A just 6 years ago, the company has raised capital regularly, raising $250MM and becoming a unicorn in the process. Investors in the company include Mark Zuckerberg’s foundation, which as per BYJU’s Wikipedia (till Sept 08th) made a “majedar” investment. All of us would have seen BYJU’s fervently explained Pythagoras theorem, even in places as unexpected as the movie theatre (I personally find the explanation non-intuitive and confusing). It is clear BYJU’s has put its money to good use in marketing, and has targeted parents of students on its way to raising even more capital. But how did BYJU’s come about?
BYJU’s was started as a standard coaching class for CAT, the exam to get into Indian BSchools, and therefore targeted individuals in the 21-25 age group. Byju R. started from a small town in Kerala, and went on to take the CAT. After scoring a 100 percentile he began teaching his friends, and then (he claims) cracked all the top business schools. Seeing the potential in CAT classes, he soon progressed to taking sessions in stadiums. Through this story it is fairly clear that Byju’s is an incredibly energetic salesman, and let’s keep that in mind because young companies are images of their founder. Seeing an opportunity in the K-12 segment, BYJU’s gradually pivoted to online and offline video learning. Why the company pivoted is credit to the CEO’s acumen, in identifying a market and business model that is extremely lucrative.
In my earlier piece on WeWork and real estate, I identified the theme of core human needs being huge markets. One large theme which is yet to see a runaway unicorn success is education. K-12 education is an incredibly large market, and it also has the peculiar feature of the customer (parent) never being the end user (child). Additionally, because parents want the best for their children, they are very insensitive to price. On the disadvantages, education is notoriously difficult to “scale” like software because the same “product experience” doesn’t work for everyone. In many ways, education needs the opposite of what Uber, Swiggy and the likes do – it needs non-standardization. While many markets, like India, have fairly standard curriculums, the learning needs and capabilities of each individual are different and hence the educational product delivery has to be personalized. The need for “hyper-personalization” has made education a fundamentally fragmented market, with countless schools, tuitions and ancillary content companies. The key to remember here is education necessarily should result in performance improvement and learning. From a software’s perspective, these are hard to quantify, and this is exactly while so many schools with their regular test-taking exist in the first place.
While we may debate on the effectiveness of schools, a lot of them do deserve due credit for contributing greatly to each educated individual’s life. I, for example, cultivated an affinity for English and writing because of my school (and teachers). A lot of us have gone to coaching classes and have also read online content to understand things better. We could, therefore, look at learning as a three-layered process – core, secondary and tertiary. Core is school, secondary is coaching/tuition, tertiary is course-related knowledge. The first two measure and try to ensure our performance (active), the third is by and large dependent on us (passive). It would thus be fair to categorize the first two as education, the third is at best content.
BYJU’s is likely in the third category, driven to hypergrowth via marketing and a robust sales model. Digging deeper into how the company positions itself, on its website it mentions 1000+ videos (i.e. it’s a content company). On their main video (which has the Pythagoras video, again), the company is described as a marriage of “content, media and technology” (i.e. it’s a content company). The company claims to have the “best teachers”, one of which is a goateed gentleman with a mic explaining sound waves through a slinky. While he may be good, I am not sure if he is the best teacher around for sound (i.e. it’s not learning, but a content company). BYJU’s also claims to use the buzzwords of data science and adapative learning to improve student performance but shows no statistics of student performance. This should be fairly straightforward to demonstrate in India’s standardized curriculum, but it still doesn’t (i.e. it’s not education, but a content company). While the company’s aspiration is no doubt encouraging, the company is not ed-tech (at least not yet) but a content company marketing aggressively. That in no way, though, implies that it is a bad business today.
BYJU’s, the content company, aims to achieve a revenue of $200MM (1,400Cr) this year. The company was at a revenue of $80MM (500Cr) just last year, a full growth of 100%. The implied valuation of the company is $2Bn, 10x its revenue. Valuations for similar private companies are 2-3x of revenue, so the company needs to get to a $1Bn revenue for its valuation to be in line with M&A/public. If you project its historical growth, the company will take 3-4 years to meet this revenue. For private investors, this is a great time horizon. BYJU’s sells its products from 23,000 INR to even 90,000 INR ($400 – $1,000). To get to a revenue of $1Bn, it needs to sell at most 2.5MM of its courses.
In 2017, the company did 250 Cr ($40MM) of revenue, with an employee cost of 62Cr ($10MM) – 25% of its overall, marketing at 20%. I would expect sales is another 20% – putting S&M at ~50% of revenue. In 2018, the company did 500 Cr ($80MM) of revenue, likely spend 250Cr ($40MM) on sales and marketing and added 450,000paid users. That puts CAC at ~$88. With the company selling courses for the entire year via SD cards or streaming at ~$400, and the only per “unit” (i.e. customer) cost being content which is spread across 5 years and many students we could assume a high gross margin. The company is profitable on CAC even at an 88/400 = 22% gross margin, and I would reckon the gross margin is close to 75%. BYJU’s covers both CAC and cost of delivery with a high margin right on its first purchase!
This is where you begin to realize BYJU’s the content tech company is all about making the first purchase, while true education is anything but. India has roughly 71MM students in coaching classes and ~250MM students. BYJU’s needs to only sell 1% of the market once to reach a billion dollars (2.5MM students). You now begin to see why it is such a clever business model, given the size of the market. The company calls it a subscription, it is actually an annual purchase which forces a larger ticket size. Even if the customer purchases just once, BYJU’s is already profitable on the customer. If the customer does not renew, the market is big enough to acquire a lot more customers. Additionally, the nature of natural churn in the market i.e. students who graduate from classes will not need BYJU’s actually helps it. New customers keep coming in, and the market has little “memory” on product quality. Feedback on a “bad product” is also fuzzy because the user is different from the customer, and bad learning could also be attributed to a “bad” student. Evidently, engagement is not even necessary – all the business needs to do is make that first sale. For the short term, very good marketing can make the company grow rapidly. In the long term, we are all dead.
It still begs the broader philosophical question, though – will BYJU’s evolve to truly change India’s education?
I guess companies like doubtnut(which was recently funded by Surge) will give Byju’s a run for it’s money in the long run.
Moreover, websites like PhysicsGalaxy offer free content as well as test-taking softwares like QueGrid for free. I would definitely rate PhysicsGalaxy to be a better platform(content-wise) appropos prepping for competitive exams. I think it’s just a matter of time before such platforms pop up for other subjects.
So, I think Byju’s will have to double down on it’s personalization efforts to stay relevant.
This is where you begin to realize BYJU’s the content tech company is all about making the first purchase:
Word of Mouth is very effective in K-12 segment – Parents end up doing aggressive research and usually follow toppers or take the senior recommendation. So isn’t it a pure content business and not limit to the first purchase. The better the content – higher retention and easier acquisition. Similar to OTT
I beg to differ here, out of the 40 million subscribers only 2.8 million are paid and we are seeing pathetic renewals due to increased competition, trend is to pay for tutor based learning and get the recorded lessons for free, ofcourse Byjus is also migrating to it but as of now that isnt on offer, they have also realized this so they are moving to even the B2B space by typing up with schools – over 500 schools pilots is already on, we had approached them 2 years back for a b2b2c model which they rejected at that point… Read more »
Also have a look at this infographic which shows Indian spending capabilities on Edtech! https://timesofindia.indiatimes.com/india/why-most-indians-cant-afford-higher-education-without-aid/articleshow/73045708.cms
Assuming Byju’s cheapest $400/yr subscription is ~20% of household education spend, implies a HH ed spend of ~$2k, and an annual HH income of >$15k (assuming ed is ~15% of HH income). That would narrow the target market <1% of 71M students in tuition/test prep – 5L students at best, and Byju's already has ~1.5-2L students($75M rev, $500/student fee), and around 40-50% of the addressable market. I believe Byju's will have to do one of the following to justify it's valuation: a) Lower price products to target HH with <$15k income. My TAM est on this segment is: ~70M students… Read more »
[…] and sustaining a paid model has been a sticky slope for many players who have tried and tested. Byju’s is probably the only example with 2.8MM paid subscribers and 30MM+ users at last […]
I think the current crisis has made even B2B ed-tech a good opportunity for the investors. Many schools/colleges have now been forced to go online which wasn’t the case earlier as their is a lot of resistance that also comes from the teachers’ end since they are not as tech savvy and are set in their ways. Once they realize how convenient and useful these B2B platforms are, they would probably pivot to a “hybrid” approach in the post COVID world. I believe it is still a large addressable market which has been relatively untapped.
[…] details here ( Is BYJU’s Really an EdTech Company or Good Business?), BYJU’s is a terrific business, but will it change […]
Hi – read the article and seems to be very well articulated with well presented facts. I just have one question about the prospects of acquiring new customers. You said that they just need to attract 1% of the market to make revenues of 1 Billion dollars in a year. I think we should also provide the details about the students in the urban and rural areas. As BYJU’s content will only appeal to the urban students. So I believe as you have mentioned that India has approximately 250 MN students, the number further needs to be drilled down to… Read more »
Yes, byju’s is cashing on parents weak point. Myself bought the product as my kid is not siting more than 10 minutes at home for studies. Thought vedio lessons will create interest in him. So Called them, that idiot forced me to buy for entire five years even tried o push me for plus2 but I rejected. If you call them mean you did grave mistake that the nature of their sales team. It happened three years, but my still not concentrate on studies. My entire investment in vein now. Yes you rightly said it is content management company only… Read more »
[…] Is BYJU’s Really an EdTech Company or Good Business? Can Unacademy Crack India’s Online Learning Riddle? Posted in Aggregator, B2B, B2C, Education, Explainer, Platform, Series E-G, Series H+, Technology Aggregator, B2B, B2C, Education, Explainer, Platform, Series E-G, Series H+, Technology […]
Wow, I just came across this post 2 years after it was written, and it is wonderfully accurate in the current context. So much of allegation and stuff are going on for Byju’s and its sub WhiteHat Jr. But again, as you mentioned the short “memory” of customers will keep churning new students to this domain.
Thank you for this article, was truly worth the read.
Accorfding to me, byjus has the wind of ocean in the direction they want to go. As the wind will not work they will sail it with other method. what i mean to say is as parents need good education for the kid and many indian parents have no idea what is a good education. and that to in tier 2,3 cities and byjus 70% sales come from tier2,3 cities. They are not even selling a produt. They are selling dream. Thats why they need huge money for marketing to create vibe of education in their ads. Byjuis is playing… Read more »
This is very on point. Byju’s is not a replacing traditional education avenues, but adding to it. With its Disney Early Learn App, it has managed to add cartoon characters, interactive elements and personalised adaptation (again, focussing on content). It also bundles a tablet into the purchase (when in reality, the product could have just been the suite of content) taking the purchase price to Rs 40,000 per class. I think the ed-tech ecosystem right now can be perceived in terms of what is the end goal these companies are looking at. While in an ideal world this should be… Read more »
Its amaZing to see such great in depth study of Byju
Love your content
I am working on edtech product and very much inspired by byju growth and tactics but want to create true impact in society with business sense as well