What ails Byju's?

Sir Isaac Newton once said: “what goes up must come down.” The phrase, perhaps, aptly captures the many tribulations currently gripping the edtech space — layoffs, funding crunch, business headwinds emerging from the threat of curtailed growth in the post-pandemic world. True, an unsettling macro-economic environment has touched start-ups of all hues, but edtech players, especially those operating in the K-12 space have the daunting task of weaning students away from classrooms and playgrounds and sustaining their interest in online learning. The sector is different from food delivery or e-tail businesses that continue to ride on consumers’ knack for the convenience of having doorstep deliveries. The edtech segment did deliver a unicorn, PhysicsWallah, amid all the gloom, but when the market leader is mired in a spate of discouraging developments, it doesn’t bode well for the space, at least in terms of assessing the sectoral credibility.

Byju’s, the most valued Indian start-up with a valuation of $22 billion that went overboard on acquisitions over the past couple of years, helped by heavy investor funding to the tune of over $2 billion since the start of the pandemic, laid off about 500 employees working with group companies WhiteHat Jr and Toppr. The Bengaluru-based firm is also fighting allegations of having association with investors with questionable identities like Sumeru Ventures and Oxshott Capital Partners, who are yet to infuse some $250 million into the company committed months back. Byju’s has attributed the delay to ‘macroeconomic changes’. It is understood that the investment in Byju's is the only transaction Oxshott Capital Partners has made thus far. Quite along similar lines, Sumeru Ventures, which was launched in 2018 has reportedly made three investments only in 2022, having been inactive for the best part of its existence. Recently, Congress MP Karti Chidambaram pointed out these anomalies in a letter to the government's serious fraud probe agency seeking an investigation into the start-up's finances.

Conversations with the start-up’s past and present employees indicate that certain business verticals may be staring at a subdued growth. A technical support executive at WhiteHat Jr who got laid off in the recent downsizing exercise says that company (WhiteHat Jr) sales have dipped. Besides, with the reopening of schools and return of students to offline coaching classes, children are finding it difficult to accommodate additional online classes. “Most of the students are now occupied. Also, a large proportion of learners who can afford WhiteHat Jr courses have already been covered during Covid,” says the past employee who did not wish to be identified. He also says that a lot of the processes have been automated, leading to job cuts.

WhiteHat Jr that was acquired by Byju’s in a $300 million deal in August 2020 offers online courses in coding, mathematics, music, art, animation and video. The firm’s website shows that a music curriculum under the novice level comprising 48 classes costs as much as ₹49,999. A Pune-based couple who had enrolled their eight-year-old daughter for coding classes at WhiteHat Jr during the lockdown did not renew the three-month subscription package once the learning tenure got over. For one, the child’s mother feels that coding as a subject has limited scope for regular application. Also, reopening of schools made it imperative to prioritise school education. “During lockdown, my daughter had time but now she needs to focus on her studies. She is anyway being taught computers in the school and soon she will commence her practical classes. So, I don’t see much value in coding,” says the child’s mother on condition of anonymity.

“The extra-curricular education segment, which includes activities like say teaching piano, learning art and craft, dance will not acquire scale in a pure online format. Such businesses flourished in the past two years because they were pandemic-induced,” says an analyst with a VC firm.

An employee currently working with WhiteHat Jr claims that the firm has switched to a recurring scheduling format from the flexible scheduling format that was in place before. A flexible scheduling mode basically allowed parents to schedule their wards’ classes based on their availability. “Parents had so much flexibility that they used to take say one class and then leave for a vacation of a month resulting in a long gap between classes at times. Eventually, many such parents lost interest in the programmes they initially signed up for and claimed refunds. Now they have moved to a recurring schedule wherein a child has to take at least two classes a week,” says the employee. The shift to such a scheduling format also impacted some jobs in the department.

Byju’s did not respond to specific employee claims. A company spokesperson, however, said that the company remains a net-hirer. "In order to reduce redundancies across our organisation after multiple acquisitions, we had to let go of nearly 1% (less than 500 people) of our 50,000+ strong workforce. This retrenchment was a result of a strategic decision to improve business efficiencies throughout Byju’s and its group companies. Byju’s remains a net hirer. With over 50,000 employees and growing, we take immense pride in our role as India’s largest job creator among start-ups. Byju’s continues to hire across levels for various businesses, departments and functions,” the company said in a statement.

“Byju’s is restructuring the business. People from the core Byju’s team are being moved to various Toppr and Aakash (Aakash Educational Services) projects. Companies have to undertake cost-cutting measures to maximise profits. Edtech firms had hired blindly during the pandemic. During the work from home period, employee salaries and incentives were the only major expenses most companies had to bear,” says another employee at the firm.

Sensing the importance of offline learning in India, a market where a large portion of the population is still very much receptive to the idea of classroom education, edtech players are going hybrid. Byju’s for instance, has launched brick-and-mortar tuition centres which co-founder Divya Gokulnath claims has been well received in the market. These physical centres are tech enabled and offer a hybrid or blended learning format to students of classes 4-10. “There are two separate cohorts of parents. One which totally believes in online learning and another which seeks some sort of a physical intervention. Byju’s Tuition Centres match their requirements,” chief operating officer Mohit Mrinal had earlier told Fortune India.

The pricing is affordable, at about ₹3,000 or so per month. But the catch here is that students will have to pay for the online course (they have subscribed to) as well as for availing mentorship at physical centres. To be sure, the primary learning mode remains online, the physical centres will only add to students’ learning by addressing their queries and providing personalised guidance. Pricing for the start-up’s online courses in the classes 1-10 segment varies, ranging from ₹3,000 to ₹35,000, according to the website.

“The price points and the type of solutions will have to change because people have to afford them,” says an analyst. Education is a service on which people across the country are sure willing to spend on, and more so in the non-metros many of which have a dearth of quality teachers. But the point is how big the addressable market is in those regions. “Tier-III consumers can pay as much as their tier-I counterparts but the question is how large is the TAM (total addressable market) and what is the growth that one can expect. If the TAM is only so much, you can’t grow 100-150% month-on-month,” say experts.

Also, all parents are not happy with the quality of teaching at Byju’s. A Delhi-based professional had enrolled her son for a Byju’s maths and science course during Covid but was not satisfied with the quality of offering. “My son is quite bright and asked a lot of questions but most of the time, the teacher was unable to answer his queries adequately. He now takes coaching from an individual,” says the disgruntled mother.

There is currently a lot of clamour around the future of edtech and the future growth prospects of the sector are shrouded in a cloud of uncertainty — how far the players will be able to build a formidable play in a post-pandemic world is yet to be seen. “The efficacy of online learning is yet to be proved and it remains peripheral to the main learning method. Players will have to build mainstream solutions in order to succeed,” says an analyst with a VC firm. Digital will continue to grow but not at the pace seen in the last two years. “That I think was an aberration. The pace of growth and demand will keep in line with larger macro-indicators,” says an analyst with an investment advisory firm.

The upskilling segment is, however, an outlier of sorts and seems attractive to investors. “Upskilling as a space has the potential to offer better career prospects and employability. There is also the factor of purchasing power at play as professionals can pay from their own pockets. Improvement of career prospects is something that everyone looks forward to, even a 30-year-old for that matter. This is a viable market, one will just have to identify the unemployability gaps,” say analysts.