In the past two years, the pandemic has driven the business and stimulated a variety of ideas. But having a quality product is only one component of success. The business model for edtech startups should be sustainable.
And it’s not just about making more money than you spend.
As per CBS Insights, 42% of startups fail due their solution does not address a real issue.
There are numerous startups with confusing revenue strategies. The majority of them ran out of money before their product was complete. Others achieved advantageous stability. But if you want to attain long-term success, you must choose something that people truly desire. Then, consider: how can I build a sustainable business with this valuation?
1. Freemium (Coursera business model),
Give users something for free and let them upgrade to a better plan. How could it be easier?
It’s a good model for new businesses because it lets you build trust in your brand quickly and become the leader in your niche.
At first, Coursera offered free courses on a wide range of topics, with the option to pay for a certificate. With more than $210 million in investments, the company grew quickly into a leader in edtech.
Coursera got more than 30 million new users in 2020.
Introducing a free-market tier brought in $22 million and attracted more than 4,000 institutions. The company plans to make money from these institutions in the future.
Here are the two biggest problems with the freemium model:
- Obtaining and supporting a large number of free users will cost you a lot of money.
- You’ll have to find a way to get these free users to pay (and this can be more difficult than it seems).
So, can you do anything to improve your chances of succeeding?
First, you can charge a small one-time fee for your basic plan (also called “Cheapium”) to weed out freeloaders and convert users who are tired of paying for subscriptions. You can also go for a free trial.
2. Advertising + subscription without ads (Duolingo business model)
When Duolingo started in 2009, software to help you learn a new language cost hundreds of dollars.
But the app used a very different way to make money. Duolingo was going to offer the service for free and charge businesses for texts that were translated by users.
In its early years, the company worked to get more people to use it. They tested everything, watched how people used the app, tried out gamification, and made changes to make the app as fun as possible.
The number of users kept going up, but the new company wasn’t making any money.
In 2013, the company worked with CNN and BuzzFeed to translate more than 600 articles a day.
Over the next few years, Duolingo made TinyCards, a flashcard app, and paid language tests, which make up about 20% of the company’s revenue.
But these ways of making money were not enough to make the app profitable.
Rather than focusing on the B2B service that was making money, the founders went back to the original idea, which was to offer the best, free way to learn a language.
They started putting ads at the end of each lesson, but you could pay to get rid of the ads. This brought in almost $180 million for the company in 2020.
The best way to make ads work for you is to make them as customizable as possible. User experience is still what matters most.
Duolingo shows that no matter what model you choose, it’s important to test all your assumptions with real users, experiment in quick steps, and change direction if you need to.
3. Paid membership + free trial (Mystery Science business model)
This method is a lot like “freemium.” The only difference is that you offer everything right away, but only for a short time.
When the trial is over, people either stop using your app or pay for an upgrade. This means that most users will be paying customers at any given time. This is especially true if the trial automatically turns into a paid subscription.
Some users might forget to unsubscribe, and others might be too lazy to do it. But if you offer a good service, most people will stick with you.
The company takes a different approach to the free-trial model than most.
4. The market for edtech (Udemy business model)
Several startups have enough money and resources to make a lot of educational content. This is one reason why the edtech marketplace is a popular way to run a business.
The idea is simple: make a platform where educational content creators can make money and give you a portion of what they make.
Udemy platform hosts thousands of third-party courses from businesses and individuals and gives them a full set of tools to create, market, and make money from learning materials.
Putting up a course is free, but Udemy takes 50 percent of the creator’s income.
You can also charge an upfront fee to host a course or take the first $50,000 you make on a platform like edX. These are other ways to share revenue.
But the marketplace model isn’t just good for the big names in edtech.
There are now many leadership, time management, communication, and professional skills courses on the platform. It has both B2C and B2B models, with one-time purchases and business training programs.
5. Institutional model (selling to school and district administrators)
This is a common model for K–12 schools.
The idea is simple: tell schools, university administrations, and other people who make decisions about things about your product.
This model can work well if your product helps businesses more than it helps people. Or if it needs to be added to district-level data systems.
Schoolzilla provides interactive dashboards to over 140 school districts in the US. Principals and district administrators like it because it helps them make better decisions. So the top-down method was a natural way to make the product better.
But it’s not a one-size-fits-all answer.
But for this model to work well on a large scale, a lot of people might need to do the groundwork all over the country.
Another problem is that your end-users, like teachers and students, are not always your customers (people who pay for your product).
6. Enterprise/B2B sales (aka Udacity business model)
If you work in the B2B or association management niches, you can use the same top-down method.
In enterprise models, you sell your product to the people who make decisions in large organizations. Most contracts have a set length of time, a set value, and an option to renew at the end of the term.
There are two kinds of benefits: big deals that bring in money right away and long-term partnerships that you can use to make high-quality content for the B2C market.
Udacity is a “unicorn” company worth $1.1 billion that sells educational courses to both businesses and individuals. Companies like Google and Amazon work together to make these so-called nano degrees. This makes them more appealing to the students and enables the company to stand out from the crowd.
The company also has a successful B2B model, where corporate clients can get training at their offices.
Udacity was able to increase its revenue by 260 percent in 2020 by combining different B2C and B2B models.
We built them a self-service portal that can be easily changed to fit the needs of any organization, whether it’s a professional group, a political party, or a business.
The price of the subscription depends on the modules you choose and the number of people in your system.
The majority of edtech models resemble those from other industries. However, there are things you should be aware of before beginning your firm.
Therefore, these are the seven best business models for the EdTech sector to rock.
7. Grants, business sponsorships, and bringing in new business
In addition to having the main business model, your startup can try out other ways to make money to help cover costs and speed up growth.
One popular choice is to work together with governments, schools, or nonprofits.
Some startups even make most of their money from corporate sponsorship.
In exchange for sponsoring an event, partners get a chance to build their brand.
You can also branch out into recruitment as a second way to make money.
Both edX and Udacity charge companies if they want to hire promising course graduates.
The business model is a variation on freemium: offer free tests and charge for one-on-one counseling sessions and career advice.
The only way to know if this model works is to wait and see.
There are many chances in edtech. Still, if you want to do well in this niche, you should try to build a business model for an edtech startup that can last. This is only possible if people need what you are trying to build. So, here’s a simple list you can use to see if your idea for a business that helps people learn is a good one.