Investing in EdTech, the megatrend challenging conventional thinking

Technology has become a critical global force since the turn of the millennium. Whether it’s banking, shopping, or even healthcare, almost every area of our lives is now digitally driven.

Against this backdrop, one particular sector has been a notable defector from the rise of digitisation - Education.

As recently as 2019, global expenditure on education technology, or “EdTech”, sat at US$163 billion,[1] yet that accounted for less than 3% of the total amount invested in schools and universities the world over that year.[2]

Today, this is changing. Traditional models of education are struggling to accommodate rapidly rising numbers of students. They simply weren’t built to handle the scale being demanded of them and the speed at which expansion is required.

Against this backdrop, EdTech is becoming a critical lifeline.

A growing suite of digital solutions is streamlining and enhancing every aspect of the learning and teaching journey to ensure every learner gets the quality of education or training they deserve. And with the 2020 pandemic serving to fast-track the rate of EdTech adoption globally, this vast frontier growth market is now opening up at record pace.

Given the low, underutilised base from which this megatrend is unfolding, early backers potentially stand to be rewarded substantially.

What is “EdTech”?

Given the global pandemic, the phrase “EdTech” likely conjures the image of a class of children being taught algebra from their living rooms over Zoom. But the reality is that this space has become far more wide-reaching.

The shift towards online learning does, of course, form part of the equation, but today, EdTech encompasses any digital hardware, software, or platform redefining the way education and training are accessed, resourced, and consumed. This includes workforce training which is ever more important in a world of rising automation.

For those learning, this could be anything from virtual and augmented reality systems used in corporate training to services, games, and software used to engage very young children in learning.

On the flip side, the sector also covers offerings such as student tuition, homework assessment and student review platforms for education providers. Online Program Managers (OPMs) are becoming much bigger today, with off-line universities seeking to go on-line with new and innovative digital offerings that can be scaled globally, reduce the cost of education and access more students virtually in the face of lower student intakes precipitated by the pandemic.

An unfolding megatrend

Whichever area you focus on, the amount of money going into EdTech is expected to rise by multiples in the next few years alone.

Let’s look at a few specific examples.

The market for online degree-focused higher education is expected to more than double in value to US$74 billion by 2025.[3] Meanwhile, investment into augmented reality and virtual reality solutions in education is slated to grow from a mere US$1.8 billion in 2018 to US$12.6 billion by 2025 as it is integrated into core learning delivery.[4] Likewise, AI learning expenditure is expected to rise from US$0.8 billion to US$6.1 billion over the same period,[5] while a forecast US$3.1 billion will be spent on robotics in education by 2025 from US$1.3 billion in 2018.[6]

Covid has been a significant catalyst here. Lockdown conditions around the world have forced us to find ways of making out-of-classroom learning work for both ourselves and our children almost overnight. In doing so, the limitations of traditional models of education have become clearer than ever.

The forecasts alone paint a picture of how much our attitudes have changed.

EdTech expenditure is now expected to be US$63 billion higher by 2025 than it was before Covid, achieving a market size of US$404 billion versus previous estimates of US$341 billion, representing a compound annual growth rate or CAGR of 16.3% for the next five years.[7]

The long-term EdTech opportunity

The multiples of EdTech returns on offer by 2025 are already compelling. But the reality is that forecast expenditure on educational technology by this point will still only represent 5.2% of total expected spending on global education and training.[8] It is for this reason that the real opportunity lies in the sector’s long-term potential.

Many countries around the world are getting wealthier and larger at a relentless pace and studies forecast the enrolment of some 500 million more students in schools and universities around the world over the next five years alone.[9] We need to find a way to harness this demographic dividend.

Conventional teaching methods simply cannot achieve this – as the tutor-to-pupil ratio is stretched, quality of education will inevitably suffer. And whether it's online learning, more effective forms of classroom learning, or even support software, EdTech can provide critical relief.

The capacity problem is no longer limited to nurseries, schools, and universities, either.

With many jobs now becoming automated, swathes of people of any age are learning new skills to give themselves a critical edge in a job pool becoming more specialised and competitive. A flexible, digital approach to learning is often the only feasible option in achieving this.

Cashing in on the EdTech boom

Expenditure on education and training from governments, parents, individuals, and corporates is now on track to reach a record US$10 trillion by 2030.[10] The smart institutional money has already spotted the opportunity on offer.

Venture capital investment in the sector alone has hit US$8.3 billion in the first three quarters of 2020 compared to US$7.0 billion throughout the entirety of 2019.[11]

The sector is approaching an inflexion point. EdTech stocks have leveraged this year’s lockdown to swoop up huge market shares, and there are many IPOs on the horizon.[12]

As the future of many investment sectors continues to look uncertain, the widely varied world of EdTech is pushing forward at speed and with confidence. We see this sector as a key driver of outsized returns for many years to come.

References

1. HolonIQ, “Global EdTech Market to reach US$404B by 2025 – 16.3% CAGR”, August 2020. Available at: https://www.holoniq.com/notes/global-education-technology-market-to-reach-404b-by-2025/
2. HolonIQ, “10 charts that explain the Global Education Technology Market”, January 2019. Available at: https://www.holoniq.com/edtech/10-charts-that-explain-the-global-education-technology-market/
3. HolonIQ, “US$74B Online Degree Market in 2025, up from US$36B in 2019”, May 2020. Available at: https://www.holoniq.com/notes/74b-online-degree-market-in-2025-up-from-36b-in-2019/
4. HolonIQ, “10 charts that explain the Global Education Technology Market”, January 2019. Available at: https://www.holoniq.com/edtech/10-charts-that-explain-the-global-education-technology-market/
5. IBID
6. IBID
7. HolonIQ, “Global EdTech Market to reach US$404B by 2025 – 16.3% CAGR”, August 2020. Available at: https://www.holoniq.com/notes/global-education-technology-market-to-reach-404b-by-2025/
8. IBID
9. HolonIQ, “10 charts that explain the Global Education Technology Market”, January 2019. Available at: https://www.holoniq.com/edtech/10-charts-that-explain-the-global-education-technology-market/
10. HolonIQ, “Global EdTech Market to reach US$404B by 2025 – 16.3% CAGR”, August 2020. Available at: https://www.holoniq.com/notes/global-education-technology-market-to-reach-404b-by-2025/
11. HolonIQ, “$8.3B Global EdTech Venture Capital after Q3 2020”, October 2020. Available at: https://www.holoniq.com/notes/8.3b-global-edtech-venture-capital-after-q3-2020/
12. HolonIQ, “EdTech Unicorn Mega-Funding Evolution”, October 2020. Available at: https://www.holoniq.com/markets/edtech/edtech-unicorn-mega-funding-evolution/