What We Look For in B2C EdTech: 3 Success Dimensions

Key Trends & Winning Qualities of Startups Shaping the B2C EdTech Industry

By Marieke Gehres, Earlybird Digital West investment team

At Earlybird, we value the intersection of education and technology, where we see emergent and innovative solutions for learners. We have taken a keen interest in B2C EdTech over the last few years, looking at numerous startups in this field and developing a playbook to guide our investment decisions.

The way we learn has drastically changed, and EdTech has become increasingly important in providing learners with access to quality education. The growth of B2C EdTech has been impressive, with many startups founded to target a broader and more inclusive demographic of learners. The sector has also attracted significant investment, with many companies raising substantial funding rounds and achieving high valuations.

In this article, we will explore the world of B2C EdTech. We will examine the trends that are driving the growth of the sector and identify the characteristics that make successful B2C EdTech startups stand out.

Join us on exploring the future of education and technology!

How we understand B2C EdTech

B2C EdTech companies prioritize the needs of individual learners, in contrast to traditional education models that focus on institutional requirements. Our understanding of the B2C EdTech market encompasses the student’s entire learning journey, from early childhood education to primary and higher education, as well as lifelong learning (as illustrated in the market map below). We have boiled down the hottest trends in each section in the following:

Pre-School is where the foundation for a child’s education begins, with a focus on language, critical thinking, and knowledge transfer. As the EdTech industry continues to evolve, two exciting trends are emerging that are transforming the way young children learn:

• Top-notch learning resources away from electronic devices: There is a shift towards high-quality educational content that is engaging and interactive, but not solely dependent on electronic devices. By incorporating physical materials like books, puzzles, and toys, young children can develop their cognitive and motor skills while also learning important concepts — two prominent examples are yoto or tonies
• Tailored interactive education: Gamification and personalized learning support are becoming increasingly popular in pre-school EdTech. Using game-like elements and tailoring learning experiences to each child’s unique needs and interests, companies like EDURINO create more effective and engaging learning experiences

In the world of K-12 and Higher Education, consumer-facing products can generally be divided into two categories: content-providers, such as marketplaces like StudySmarter, and those that support content delivery or assist with learning, such as tutoring platforms like GoStudent. However, the EdTech industry is also experiencing notable new trends which disrupt traditional learning structures:

• Virtual peer-2-peer support: With the pandemic forcing many students to work and learn from home, digital study rooms like StudyStream emerged as a way for students to learn together in a virtual space and discuss questions with a community
• EdTech-focused versions of TikTok: TikTok dominates among young users with the highest daily usage rates, outpacing all other platforms (source). In fact, the unique TikTok approach has found a specific application in EdTech with platforms like Knowunity. They have reimagined the pure content marketplace by integrating social components from the outset, just like their content creator influencers on the platform

The importance of lifelong learning education cannot be overstated in today’s rapidly evolving world. Even after completing our institutional education, it is crucial to continue learning and growing. Fortunately, there are two promising trends emerging in long-term education:

• Content curation across channels: In today’s age of information overload, it can be difficult to prioritize and keep track of everything. Fortunately, content aggregator platforms like recently-launched Melon help to stay on top of content lists and have all the important information from many channels in one place. These tools are essential in coping with the constant flood of information that we face on a daily basis, allowing us to filter and focus
• Learning from the best in cohort-based programs: It is no secret we learn better when educational content is embedded in real-world applications. We also learn more continuously when we feel a certain social pressure, as in when we learn together in a group with like-minded individuals. These two attributes are now combined in B2C EdTech platforms that utilize experienced thought leaders as instructors and group sessions into cohorts, so that all learners start and finish together. One such example is US-based Reforge and our portfolio company Junto applying the same approach in a B2B environment (read more about our investment thesis here)

Source: Earlybird Analysis

Our playbook for B2C EdTech — 3 Success dimensions

These key trends offer a glimpse into what’s hot, but the world of B2C EdTech is complex and challenging to navigate. As discerning consumers, we demand the best. That’s why we’ve crafted a comprehensive playbook to guide us when considering investments in the space and to address any potential hurdles.

We follow three crucial hypotheses when evaluating B2C EdTech opportunities:

Source: Earlybird Analysis

1. The importance of content: Standing out with quantity, quality, and format

When examining educational content, it is crucial to consider its quantity, quality, and format.

With multiple learner personas and their respectively unique needs, it’s essential to offer a variety of content addressing their specific requirements. Focusing solely on niche target groups or limited aspects of a learner’s daily schedule can limit the scalability of an EdTech product. By considering quantity, companies can develop a day-to-day learning product that caters to the diverse needs of learners.

But while quantity is important, quality is equally critical to creating differentiation and sustainable value. Only high-quality educational content can provide long-term value to individuals seeking to learn new skills. This is especially important for user-generated content, where quality management processes must be implemented to ensure that the content meets the highest standards. Leveraging the feedback from learners can also help to refine and improve the quality of educational content.

With the democratization of content, the format of educational content communication is now driving user engagement. The way in which educational content is presented can make all the difference in engaging with the audience and maintaining their interest. The format needs to be user-friendly, visually appealing, and easy to grasp.

What can help you to succeed:

• The magic behind peer-2-peer learning: Peer-to-peer learning platforms are disrupting traditional education models by enabling students to learn from one another. This creates a more collaborative and engaging learning experience and allows for a content flywheel, in which learning content multiplies itself through the participation of users themselves. This model also allows for more personalized learning experiences, as users can tailor their learning to their own needs
• Scalable live sessions over asynchronous learning: There’s a big discrepancy between the scalability of asynchronous learning and the significantly higher learning success of live sessions. That’s why we believe the key is to combine both, but especially to find a way to make live sessions scalable; this might be by optimizing the student-to-instructor ratio while still maintaining the benefits of live sessions, such as interactive exchanges through live chats, etc. Striking a balance between scalability and interactivity means providing the best of both worlds and ensuring that learners have access to the most effective learning methods available

Metrics we look at:

• Student-to-instructor ratio (# of students in class/ # of instructors in class): This ratio is not so easy to navigate since a larger number may indicate greater lesson efficiency (due to fewer instructors required per student) but smaller ratios suggest that there is more room for personalization and interaction within each session. So it’s crucial to analyze each situation case by case and find a balanced approach that considers both factors
• Content-to-user ratio (# of content pieces/ # of total active users): This ratio can be a helpful starting point when determining whether a platform has enough content to serve the needs of its users effectively
• # of weekly sessions per user and avg. session length: Both metrics give first indications of content quality and market fit. It’s the best complement to ratios that measure content quantity, such as the content-to-user ratio, to include a quality pulse check
• Engagement with content (i.e. comments, likes, etc.): A powerful indication that a platform’s content and format are resonating with learners. When engagement is high, it can help to keep the content flywheel spinning, driving even more engagement and growth over time

2. Achieving user satisfaction: Meeting the demands of all user groups simultaneously

EdTech products often bring the complexity of serving diverse user groups (not only diverse persona within one group) with a single product. This presents a unique challenge, as the structure of the product cannot be easily changed to cater to each user group.

• Consumer vs. paying customer: In the pre-school and K-12 space, there is a significant difference between users — learning children or students and paying customers (usually parents). Although they have different requirements, both groups must be satisfied by the same product. At times, one of the groups may not be directly addressable, such as when parents pay for a product but never use it themselves, like content marketplaces or peer-to-peer apps for students
• Demand vs. supply side: EdTech platforms offering content or learning support have to strike a delicate balance between the supply and demand sides. The supply side creates the content, tutoring, coaching or learning sessions, while the demand side requests and consumes the content. These two user groups have entirely different needs, yet both must be satisfied to scale successfully

What can help you to succeed:

• Build a daily learning environment, not a point-solution: EdTech startups can foster stronger connections with learners by giving priority to building a daily learning companion instead of a point-solution. By becoming a long-term, daily resource for users, EdTech startups can create a stronger connection with their audience, resulting in higher engagement, retention and ultimately user lifetime. This level of closeness between the product and learner can strengthen the presence and value perception also among paying users, thus parents, and thereby improve user lifetime value
• Lock-in the supply side first: When it comes to launching a new platform, it can be challenging to decide which side to prioritize first — the demand or supply side. It’s a classic chicken and egg problem — without content, there will be no users, but without users, the platform won’t be attractive to content creators. We have seen that in many cases, the supply side can be a more significant bottleneck. As such, it’s essential to incentivize the supply side to keep creating content, offering sessions, and providing help over the long term. To achieve this, clear levers must be identified to offer sufficient value to the supply side, such as workflow automation features that keep them engaged with the platform. Ultimately, by locking in the supply side first, the platform can ensure that there is sufficient quality content to attract and retain users, creating a positive feedback loop that benefits all parties involved

Metrics we look at:

• CLV: CLV optimization for EdTech products is particularly tricky because these products often naturally focus only on one part of the learner journey, leading users to naturally churn out of the product at some point. As a result, EdTechs have only two options to increase their CLV: either expand along the learning journey to extend the lifetime of users or expand within a journey section by adding more services to increase the potential value of users. Ultimately, there is no right or wrong, but every EdTech should conduct several tests to determine what works best and develop a clear pathway
• Engagement and retention of creators: Both metrics provide a good indication of how powerful the supply side already is, and how strongly it is bound to the platform
• Creator-to-user ratio (# of total creators/ # total active users): Provides a good indication of marketplace liquidity and whether demand and supply side are balanced. It is natural for the ratio to fluctuate over time, as individual creators may become stronger and require fewer additional ones, leading to a decrease in the ratio. However, it is still important to maintain a certain equilibrium

3. The key to scalability: Strong execution as the driving force

EdTech has a reputation of being challenging to scale due to high customer acquisition costs and fluctuating retention and engagement rates. However, we believe that success lies in execution! We support teams that dive headfirst into development, working hands-on to create and market products with vigor. We advocate for rapid brand expansion and laser-focused product development.

What can help you to succeed:

• The power of PLG: PLG focuses on creating a product that is intuitive, user-friendly, and delivers an exceptional experience. This results in word-of-mouth referrals and attracts new users, ultimately cutting customer acquisition costs — a significant bottleneck in EdTech. By offering engaging and addictive learning experiences, startups can retain a large user base and continue to grow through organic referrals. Duolingo, one of the shining examples of PLG success in EdTech, leverages clever product hacks like learning streaks to increase user engagement and create an addictive learning experience that keeps users coming back for more
• Leveraging the proximity to the user with very dynamic and extensive A/B testing: B2C EdTech startups have a unique advantage in their proximity to their users. By leveraging this proximity and conducting extensive A/B testing, startups can create a highly personalized learning experience that caters to the needs of their users. Duolingo’s data-driven approach and short iterations allow for continuous improvement and ensure that the product is always meeting the needs of its users. This also creates a feedback loop that allows the company to stay ahead of the competition and maintain its market position

Metrics we look at:

• All PLG-related metrics: CAC, MAU, WAU, DAU, K-factor, cohort retention, conversion …

Final words — From founders to founders

Embarking on the journey of creating a thriving B2C EdTech venture is no piece of cake — there are bound to be hurdles along the way. So it’s crucial to cultivate a culture of collaboration within the founder community, as we all stand to gain from each other’s insights. That’s why I turned for guidance to founders who are paving the way. Lo, and behold, the secret ingredient to success lies in understanding your audience and crafting top-notch products tailored to its unique needs. This is how we can create products that stick with users — read it yourself:

“For us it was very crucial to understand that when transitioning from a free to a freemium model, it’s important to recognize that product market fit doesn’t necessarily translate between the two. To successfully monetize, you must reassess your product and go-to-market strategy from scratch. To achieve this, it’s important to identify channels where users are more likely to pay, focus on user groups with higher willingness to pay, and develop content that not only goes viral but also delivers long-term value, resulting in sustained willingness to purchase. Don’t assume that what worked for your free product will automatically work for a freemium model. Instead, approach the transition with a fresh perspective and tailor your strategy accordingly.”

Alex, CEO & Co-Founder of SimpleClub

“Gen-Z yearns for connection in their learning experiences, and at Melon, we recognized the importance of building a sense of community from the very start. We created a Discord server before we even began building our product. By offering a space for community, we could learn from our members and focus on building essential utility in the product to start off with, whilst still offering connection.”

Sanne, CEO & Founder of Melon

“It is crucial to understand that when targeting two different demographics — one responsible for monetization and the other for usage (e.g. parents pay, kids use) — all outward-facing aspects of the business need to underlie the perspective of both stakeholders. To successfully scale, you need to have both: users that are obsessed with your product, but also those willing to enable the users to have it. Don’t assume that what works with the paying demographic will work equally well with the using demographic. Instead, you must stay in permanent contact with both (through testing, focus groups etc.) and tailor your product, brand and overall organizational set-up accordingly.”

Irene, Co-Founder of EDURINO

“EdTech products are traditionally built with more focus on utility rather than entertainment; therefore, retention is a hard problem to solve, especially for B2C. At StudyStream we’re focusing on retention first by making learning fun, community-driven, and less lonely. If you build a sticky product, growth will come.”

Erfan, CPO & Co-Founder of StudyStream

To wrap it up — we think B2C EdTech is hot and with the rise of technology there is more to come! If you’re keen to revolutionize the EdTech industry and shake up the way we learn, let’s chat. Got a unique take on what it takes to succeed or some pearls of wisdom to share? We want to hear from you. Please feel free to directly reach out to Marieke (LinkedIn) — we would love to hear your story and your thoughts.