This action might not be possible to undo. Are you sure you want to continue?
New York City Economic Development Corporation
Office of the President Seth Pinsky, President Josh Wallack, Chief Operating Officer Kyle Kimball, Chief Financial Officer Maria Torres, Chief of Staff
Center for Economic Transformation Steven Strauss, Managing Director, Alumni Kristy Sundjaja, Senior Director, Head of Industry Transformation Department Knowledge Partner Bridgespan Group Marketing Peyton Sise, Senior Vice President Public Affairs David Lombino, Alumni This report was authored by Steven Strauss, Managing Director, Alumni Kristy Sundjaja, Senior Director, Head of Industry Transformation Department Andrew Chen, Assistant Director, Alumni Peter Gratzke, Project Manager Jennifer Yoo, Intern, Alumni
We would like to thank our knowledge partner, the Bridgespan Group, for their assistance developing this report. We would also like to thank all interview participants for their time and expertise. (Participating companies listed on page 30.) Disclaimer Any opinions here within are solely the views of the authors and do not necessarily reflect the views of the government of NYC, NYCEDC, or any of the other participants in this project.
As an indicator of economic health, education is not only a crucial contributor to economic growth and competitiveness, but also a thriving industry in its own right. The demand for educational services stems from both the teaching and learning sides, encompassing the preferences of institutions, teachers, parents and students. Considering the student population alone, in fall 2010, nearly 50 million students attended the United States’ 99,000 public elementary and secondary schools, including about 4,700 charter schools, while 19.1 million students attended 2 and 4-year colleges and universities. 1 Edutech, an emerging industry sector that harnesses technology to supplement educational services from early childhood to adult and continuous learning, has the potential not only to improve teaching and learning, but indeed to transform the industry. Based on a research study we undertook in partnership with the Bridgespan Group and discussions with industry leaders, we believe that Edutech presents vast growth opportunities globally, and that New York City has competitive advantages poised to spur the sector’s growth. The Edutech sector is defined as an emerging industry sector aimed at improving educational and learning outcomes through innovative technology applications that provide or enable teachers to deliver learner-centric, personalized approaches with the potential to be more effective, efficient, and scalable than traditional methods. The value proposition of Edutech is that it achieves these objectives with several potential benefits, such as: • • • • Greater and easier access to educational material, providing students with more freedom and better resources to accelerate their learning progress. More effective instruction methods, giving students greater control and promoting collaboration. Individualized curricula based on student progress, allowing students to advance at their own pace. Data-driven interventions based on more objective evaluations of student progress, enabling school administrators and teachers to gain a more granular and evidence-based perspective of their students.
To these ends, Edutech product offerings consist of technology applications that provide: educational content, instruction and collaboration tools, learning algorithms, assessment tools, data and enterprise systems, hardware and professional services. Global Opportunities for Edutech Trends shaping the education industry create a large market opportunity for Edutech, which integrates media, design, software development and high-tech innovations to improve educational outcomes. With expenditures on education at record-high levels, demand for efficient, effective and scalable services is increasing. This demand is further buffeted by a policy environment that in recent years has encouraged a datadriven, personalized learning experience. Edutech is a fast-growing market both nationally and globally: • Educational spending. Accounting for 7.6% of US GDP, educational spending is an important US growth industry. Though still a nascent sector, Edutech accounts for 2.5% of spending by US educational institutions. Higher education. The US is a leader in higher education with 40% of the top 50 universities located in the US. Growing US market. The total US Edutech market was $38.2 billion in 2008: - Adult and continuous learning, at $13.1 billion, is estimated to grow at a rate of 9%. - The K-12 Edutech market is estimated at $5.5 billion. - Early childhood education currently represents the smallest market share at $1.6 billion. English language learning. With two billion people worldwide learning English, there are significant global opportunities in education, particularly around supplemental education and language acquisition in East Asia.
Local Advantages Given the market opportunity and New York City’s attractiveness as a productive Edutech center, we believe investing in the sector at this early stage is crucial to securing New York City’s leadership. Indeed, New York City’s Edutech sector has already established a significant presence, employing 5,000 people in New York City. With specific supports to reduce Edutech barriers, we believe New York City is poised to become a test market for K-12 products, an investment hub, and an Edutech headquarters capital. 5
New York City’s key competitive advantages are: • Proximity to a large customer base of educational institutions and a large student population. New York City has the largest public school system, with 1.1 million students in nearly 1,700 schools. It is also home to the largest postsecondary population, with 626,000 students in 100 higher education institutions in the metropolitan area. New York City has an industry ecosystem that includes established educational publishing companies supplemented by a growing technology corridor. A supportive policy and programmatic environment, given the New York City Department of Education’s pioneering in innovation and measurement-based progress in schools.
NYCEDC Initiatives Barriers to Edutech include access to early-stage capital, market fragmentation and, as is true of the tech start-up sector more broadly, access to technical and engineering talent. We are therefore implementing initiatives that support this emerging industry sector by promoting innovation and entrepreneurship, facilitating access to capital and attracting talent to New York City: Attracting Talent to the City • NYC Tech Talent Draft: NYCEDC is leading a campaign with New York City’s tech sector in order to attract engineering talent from key academic campuses and city hubs such as MIT, Stanford, Boston, and Silicon Valley. • Applied Sciences Campus: NYCEDC is attracting a top tier applied sciences university to the City, which will provide talent for the City’s start-ups. Improving Access to Capital and Workspaces • NYC Entrepreneurial Fund: A $22 million fund – the first of its kind outside Silicon Valley – managed by FirstMark Capital to provide promising New York City-based technology start-up companies with early-stage capital. NYCEDC contributed $3 million to establish the fund, and FirstMark Capital, a leading New York City-based venture capital firm, will contribute up to an additional $19 million. • Business incubators: Lower-cost workspaces combined with mentoring and networking services aimed to increase opportunities for start-up success.
Facilitating Information and Support • NYC Media Lab: A clearinghouse created in partnership with NYCEDC and a consortium of top universities that connects companies looking to advance new media technologies with academic institutions undertaking related research. • NYC Venture Connect: An informational web portal for New York City entrepreneurs that brings together all of the City’s business resources in one place. • World to NYC: Promotes trade and investment between New York City and the global economy by hosting business delegations from cities and regions around the world. Providing Training • JumpStart Initiatives: A series of programs to retrain City talent to work in emerging industries. Created by NYCEDC in partnership with SUNY’s Levin Institute. • SBIR Workshops: Full-day workshops that cover all aspects of National Institutes of Health SBIR and STTR proposal preparation. • Prepare for Success Workshops: Workshops for technology companies aspiring to launch and grow their businesses in the City. Hosting Competitions and Challenges • NYC BigApps: Annual competition for individuals or companies to develop innovative online and mobile applications that utilize official City data. • NYC Next Idea: Annual business plan competition with top international business and engineering schools. • NYC Venture Fellows: Established with Fordham University to match 20 “rising star” entrepreneurs from around the world with established business leaders to help them scale their businesses in New York City.
Global Opportunities for Edutech
1. Edutech Value Proposition Defining the Edutech Sector Edutech is an emerging industry sector aimed at improving educational and learning outcomes through innovative applications of technology that have the potential to provide or enable teachers to deliver learner-centric, personalized approaches that are more effective, efficient, and scalable than traditional approaches. Edutech aims to increase the effectiveness, efficiency and scalability of instructional and teaching methods in order to improve learning outcomes by providing students, teachers and education managers with better resources, such as learning and instructional materials, assessment tools and data systems. It achieves this objective by offering several potential benefits, such as: • Greater and easier access to educational material, providing students with more freedom and better resources to accelerate their learning progress. For example, Flat World Knowledge provides access to “open use” textbooks, that teachers can tailor to classes and students can access online.2 The company describes its business model as “free online and affordable offline.”3 More effective instruction methods, giving students greater control and promoting collaboration. School of One, for example, uses technology to bring personalized adaptive learning to students and is currently piloting a math program in several New York City public middle schools. The New York City Department of Education estimated that School of One students learned at a rate 50-60% higher than those in traditional classrooms.4 Individualized curricula based on student progress, allowing students to advance at their own pace. For example, Knewton is a New York City-based tech company that provides adaptive learning platforms for GMAT, LSAT and SAT tests. The company’s test prep software customizes content to match the progress and needs of individual students. Knewton recently partnered with Arizona State University (ASU) to develop a college-level math program.5
Horizon 2010 http://www.nmc.org/pdf/2010-Horizon-Report.pdf Flat World Website. 4 http://www.schoolofone.org/resources/so1_final_report_2010.pdf 5 VentureBeat: http://venturebeat.com/2011/01/06/test-prep-company-knewton-takes-online-courses-to-next-leveluniversity/
Data-driven interventions based on more objective evaluations of student progress, enable school administrators and teachers to gain a more granular and evidence-based perspective of their students. By leveraging performance data of individual students and teachers, school districts can significantly improve performance and direct resources to the schools, teachers and students that need them most.6
The Edutech sector sits at the intersection of education, media, design, software development and high-tech, and encompasses a wide range of technologies and applications. In the most general terms, the sector covers innovative technology applications that are used for an educational purpose. Edutech applications can be grouped into six broad categories: • Content: Learning content is at the core of education. Technology is revolutionizing how educational content is delivered and consumed, by making it more engaging and interactive, and by increasing access to it through online and mobile applications. Instruction and collaboration tools: Social tools open new possibilities for teachers and students to interact and collaborate in learning environments, including online market places and social learning platforms. Edutech aims to maximize teacher instruction value and peer-production learning. Learning algorithms: Adaptive software tailors content to students based on their progress. Edutech solutions in this area aim to personalize learning and meet students’ individual learning needs. Assessment tools: Data-driven assessment tools introduce objectivity and clarity into the process of assessing learning outcomes and make it easy to accumulate, query, and share results amongst students, parents, and teachers. Data and enterprise systems: Increased data-processing power allows teachers, schools, and school districts to leverage large amounts of information to assess and subsequently design targeted actions to improve learning outcomes for students. Hardware: Hardware is the enabler of all applications described above. It includes servers and wiring in schools as well as tablets, laptops, and desktops used by students in classrooms and at home.
Professional services: Integrated Edutech solutions in large institutions, such as universities and schools, are exceedingly complex, covering all aspects of hardand software. Helping institutions navigate to avoid technological pitfalls is a critical service of the Edutech sector.
Edutech targets the entire spectrum of educational settings and is not limited by content, teaching methods, or timing. As a result, Edutech solutions are found in all educational settings (Figure 1). Multimedia learning tools can be used from early childhood; social networks serve students throughout their entire K-12 and postsecondary education; corporations use online tools to facilitate continuous learning amongst employees; and senior citizens experiment with tablets to learn new languages. Early-stage success stories provide insight into how Edutech’s transformative potential can disrupt the education industry. While some observers caution against potential risks of technology in education,7 others believe the education sector is on the verge of a tectonic shift in which technologies that have already revolutionized media and publishing will transfer power from teachers to students.8
Figure 1: Product types across educational settings and technology applications
Albert Wenger of Union Square Ventures, an Edutech thought-leader, expects that technology will drive a transition “away from the existing educational institutions and towards empowering individuals and newly-formed groups.”9 As a result, Edutech could move education towards learner-centric, personalized, and collaborative approaches that could be more effective, efficient, and scalable than traditional methods.
7http://drupal6.allianceforchildhood.org/sites/allianceforchildhood.org/files/file/pdf/projects/downloads/frontmatter.pdf 8 9
Albert Wenger: http://www.usv.com/2008/09/power-to-the-pe-1.php Albert Wenger: http://www.usv.com/2008/09/power-to-the-pe-1.php
Several disruptive trends are already emerging, including personalized and self-directed learning; peer production and increased student collaboration; greater teacher empowerment in setting curricula and tailoring instruction to specific students; and increased engagement10 of students and parents in school decision-making. The potential pay-offs for companies driving transformation in the sector are substantial.
Albert Wenger: http://www.usv.com/2011/03/innovation-in-education.php
2. Expanding Market for Edutech Edutech is a fast-growing global market. In 2008, the global institutional market for Edutech was estimated to be between $51 billion and $103 billion.11 This figure is based on a broad definition of Edutech, which includes content, instructional material, and teaching platforms, as well as hardware and data enterprise systems. With public institutional expenditure on education at almost $2 trillion internationally, the potential future global market for Edutech offers enormous opportunities, particularly around the supplemental education and language acquisition space in East Asia.12 Educational spending. In 2007, the US spent 7.6% of GDP on educational institutions. This is high compared to an OECD average of 5.6% and reflects a steep growth in expenditure over the last decade, from 6.6% in 1995. Most of the difference compared to other OECD countries is due to US higher education spending, which comprises 3.1% of US GDP, compared to a 1.5% OECD average. The US has the largest ratio of higher education spending to primary, secondary and post-secondary non-tertiary spending in the OECD. The US spends around $14,000 annually per student across all education categories, compared to an average of $8,000 across other OECD countries. At approximately $27,000 annually, US higher education is the most costly per student.13 Even with such high expenditures on education, the US is losing its edge in educational competitiveness and many countries are surpassing the US in educational attainment. In Canada, for example, 15-year olds are on average one school year ahead of 15 year olds in the US in educational attainment. 14 Forty-one percent of the US adult population aged 25 to 64 has completed higher education. This is above the OECD average of 28%. However, it ranks tenth amongst 25 to 34 year olds, reflecting a stagnant US growth rate and significant improvements across the OECD. Leading countries such as South Korea and Canada achieve a rate of almost 60%. With regard to high school education, the United States has, at 77%, the sixth-lowest upper graduation rate in the OECD. By contrast, in Greece, Germany, Japan, Korea, Norway and Ireland the graduation rate is above 90%.15
NYCEDC and Bridgespan analysis, based on UNESCO etc. Bridgespan analysis for NYCEDC based on expert interviews. 13 http://www.oecd.org/document/52/0,3746,en_2649_39263238_45897844_1_1_1_1,00.html#d 14 http://www.nytimes.com/2010/03/10/education/10educ.html 15 http://www.oecd.org/document/52/0,3746,en_2649_39263238_45897844_1_1_1_1,00.html#d
In recognition of education needs, the US education sector is currently in the midst of its greatest transformation in decades. The federal government’s “Race to the Top” has unleashed reforms in the K-12 market that would have been inconceivable just a few years ago. Meanwhile, colleges and universities are increasingly embracing online curricula and new instructional models. The emerging Edutech sector has begun to develop and build possible solutions to improve educational and learning outcomes. Higher education. The US is a leader in higher education, possessing 40% of the world’s top 50 universities. Indeed, at approximately $18 billion, post-secondary education is the largest segment of the US Edutech market. Online and campus learning comprise post-secondary Edutech offerings, and of the two, online postsecondary expenditure represents almost two-thirds of the market. It is also the fastest growing segment with an estimated 20% growth rate. Online learning takes a $11.7 billion share of the total, while in 2008 the average estimate for the campus Edutech market was $6.3 billion. Edutech definitions vary and subsequently result in widely differing market size estimates. The lowest estimate of the campus Edutech market, by SIIA, sizes it at $5 billion. This estimate is more conservative as it focuses on technology products and services for “on-campus use.”16 By including infrastructure hardware supplied by major technology companies, Eduventures, a research and consulting firm for higher education institutions, arrived at
SIIA Postsecondary Market Report Executive Overview (2009). Estimates based on survey data from association membership. Limited to no capturing of distance learning.
an estimate of $7.8 billion in 2009, projecting the market to grow by almost 40% by 2014. Eduventures estimates that the K-12 market for online learning, already the largest segment of the post-secondary market, will more than double by 2013 to a size of $26 billion.
Growing US Edutech market. In 2008, the total US Edutech market was $38.2 billion, of which the institutional market for early childhood, primary, secondary and postsecondary education contributed $25.1 billion.
Average Estimated Market Size 2008
After post-secondary education, corporate e-learning is the second largest segment and is estimated to grow at a rate of 9%. The size of the K-12 market is on average estimated at $5.5 billion, while Edutech in early childhood education represented a market of $1.6 billion. While the average estimate for the K-12 market is $5.5 billion, estimates range between $3.2 billion and $7.4 billion, depending on the selected Edutech definition and scope. Narrow definitions of Edutech focus on instructional technology used for classroom purposes and size the K-12 Edutech market at just over $3 billion.17 Broader definitions include supplemental technologies and hardware, and therefore trend larger, between $6.4 billion and $7.4 billion.18
NCES financial tables; Compass Intelligence analyst report “Education Snapshot: Learning with Technology” (2008); Estimates based on publicly available data that is supplemented by survey data; Limited capture of hardware used to support instructional technology. 18 Education Market Research “K-12 School Market Outlook” (Resnick, 2008) and “Adoption/ Open Territory States: Textbook Usage” (Resnick, 2009); Eduventures press release; Estimates based on national surveys that broadly define education technology (e.g., includes SMART boards); Sample set may reflect upper bound of technology purchasing; Sample includes test prep markets.
Using a broad definition, Eduventures estimates the K-12 market for Edutech reached $6.4 billion in 2008 and expects it to grow to $7.3 billion by 2014. According to this estimate, computing hardware comprises the majority of demand, with software and services capturing around a quarter of the market.
English language learning. Beyond increasing demand for education services in the US market alone, there is an enormous untapped opportunity in the global market for English language learning services, especially around the supplemental education space in East Asia. Using technology and online-based learning, local, New York Citybased companies can utilize technology to meet market demand. For companies that are building Edutech solutions, the size of the education market combined with the scale of looming change creates enormous opportunities. From upgrading hardware in schools to developing test prep software for college students, Edutech is playing an increasingly important role in each and every educational setting. In this environment, Edutech has grown to approximately 2.5% of US institutional education expenditure.19 While the industry is still nascent, its potential to disrupt and transform the entire education landscape could yield significant future growth.
3. Edutech Buyer Dynamics Across the US, the market for Edutech products is far from homogeneous and each market segment has its own unique set of opportunities and challenges. Table 1 illustrates the need for Edutech companies to target very specific market segments and exploit niches within specialized educational settings – each with different buyer dynamics.
Table 1: Buyer Dynamics in the Edutech Sector
Edutech companies targeting early childhood education sell their products directly to parents, which makes marketing and sales significantly easier and less dependent on individual sales. Customers for the K-12 segment are typically educational institutions, whether schools or entire school districts. This implies a number of specific challenges associated with servicing this market, including:
• • • •
State-led education funding tends to focus in non-Edutech areas; Educational institutions, in particular public schools, school districts and state education departments, have lengthy procurement cycles; Procurement decision-making is often decentralized and requires Edutech companies to pitch to each school individually; Teachers are often conservative about instructional methods and are slow to adopt new technologies in the classroom.
The post-secondary customer segment, meanwhile, is made up of students and providers. This market is therefore easier to penetrate. However, the presence of wellestablished players in the field, as well as the reputational challenges this segment is facing, make it expensive for start-ups to develop brands. Lastly, the increasingly global, knowledge-based market environment requires workers to continuously advance their skills and knowledge to stay competitive. For Edutech companies in the adult and continuous learning field, this opens significant growth opportunities. However, the high fragmentation of the market poses a challenge to the scalability of business models in this segment.
4. Challenges For Edutech Start-ups Start-ups and tech companies with new products in the Edutech sector face very similar challenges as start-up and tech companies in every other industry. Those challenges include breaking into markets with new products, securing funding, and attracting talent. However, beyond those, the Edutech sector adds two additional factors for start-ups to navigate. Early stage capital access. Capital access is a challenge for all start-ups. The Edutech companies, however, face three additional difficulties: • For non-profit Edutech ventures there is no significant innovation funding. Without the potential of a high return VCs and angels lack the incentive to invest in risky new technologies. Many VCs are wary of the K-12 market because of sales cycle and scale issues. VCs identified “friction” of K-12 systems and processes, including key issues such as: long sales cycles, lack of buyer familiarity with technology, and the politics of school districts, teachers, and administrators. Therefore, it is difficult for VCs to gauge underlying buyer value propositions given strange market patterns.20 For many for-profit Edutech ventures, the “best innovations die in the middle stage” (particularly for K-12 segment). While challenges exist throughout the pipeline, late early stage and early middle stage investments attract the least capital. In some cases, the potential for capital investment at middle stage tends to be too big for VCs.21
Accreditation. Accreditation is a system to provide quality assurance for educational programs. For an educational institution to be accredited, it must meet the standards of accrediting agencies, which are private educational associations of regional or national scope. Accrediting agencies develop criteria and conduct peer evaluations to assess whether or not applying institutions meet them.22 While the US Secretary of Education recognizes 57 accrediting agencies,23 it is not necessary for an agency to be recognized in order to operate.
Bridgespan analysis. Bridgespan analysis. 22 http://ope.ed.gov/accreditation/ 23 http://www.chea.org/pdf/CHEA_USDE_AllAccred.pdf
Accreditation is particularly important for higher, continued, and adult education, especially for institutions that grant bachelor’s and associate degrees. It benefits students by providing transparent information on the quality of education at a particular institution, enabling transfers of credits between institutions and signaling the reputability of a program to prospective employers. In this environment, Edutech companies offering educational services face a trade-off between obtaining accreditation and providing informal services. While accreditation opens access to a new set of students, the informal market has shorter sales cycles and greater appetite for innovation. Therefore, Edutech companies must choose between a potentially costly accreditation process that promises new customer groups and relative regulatory freedom with less inhibition to growth.
The future growth of Edutech hinges upon the sector’s ability to identify and commercially exploit demand in the education industry, by combining educational advances with technology, design, and media expertise. New York City offers an environment that caters well to those needs. This puts the City in an excellent position to drive forward and benefit from the growth of Edutech. Proximity to a large customer base. The New York City school system is the largest system of public schools in the United States, serving about 1.1 million students in nearly 1,700 schools.24 For the school year 2009-2010, the New York City Department of Education (DOE) had an operating budget was $18.5 billion and employed 139,000 people. The DOE also has a $11.3 billion Five-Year Capital Plan Budget, running from 2010 to 2014, which covers new school buildings, renovations and investments in other new assets within school buildings, including technology.25 New York City also possesses the largest university and college town in the US, serving 626,000 students enrolled in over 100 institutions. Higher education accounts for 115,000 jobs and $6.8 billion in payroll. With regards to corporate and adult education, the City is the global capital for corporate headquarters and as such offers unique access to some of the world’s largest companies. For the Edutech sector, proximity to its customer base is a significant success factor, given that working with school districts and becoming an official partner is an enormously difficult challenge that often requires substantial labor and legwork. Opportunities • New York City has the largest K-12 and single metropolitan area post-secondary education systems in the country. Therefore, the NYC K-12 system offers opportunities to experiment at sufficient scale to serve as a proof point for other districts. Additionally, school-based authority over purchasing has fostered a boost in innovation and entrepreneurship in the City. Industry ecosystem. In any industry, the ecosystem is a key determinant of success and growth in any particular location. Innovation-driven companies depend on critical
resources such as talent, capital, knowledge-networks, and sophisticated customers to grow. New York City’s cluster of Edutech companies, publishers and media houses, access to funding, and concentrated education environment make it a strong and unique testbed for Edutech companies. The Edutech sector in the New York City metropolitan area currently employs an estimated 5,000 workers26 and is expected to reach 8,000 by 2015.27 The City Edutech scene includes leading SIIA award-nominated companies such as Pearson,28 BrainPOP,29 Rethink Autism,30 and SchoolNet.31 With such a concentration of companies and talent, New York City is among the global leaders in the Edutech space. The City has already produced some of the most innovative companies in the sector to date and its growing cluster of Edutech companies is flourishing due to three distinct positive factors: the City’s industry ecosystem, proximity to a large and innovative customer base, and a supportive policy and programmatic environment. The research conducted specifically identifies these assets and explains the following associated opportunities. Opportunities • The City has an extensive talent base that spreads across all critical skills for Edutech, including incumbent skill sets (e.g., education publishing, content development), a growing talent base in education-related “high-tech” (e.g., Knewton, Wireless Generation, 2Tor, Kaplan University) as well as relevant ancillary industries (e.g., media, creative/design). • There is strong emerging interest in the sector from City-based venture capital firms and large corporations looking to acquire Edutech companies. Recent deals include a $33 million Series D investment in Knewton from Founders Fund, Accel Partners, Pearson, Bessemer Venture Partners, and FirstMark Capital.32 • Additionally, other players are emerging that focus in the Edutech space (e.g., Revolution Learning, Union Square Ventures). • Large companies, for example in the publishing industry, are investing heavily in the City’s Edutech sector.
Startl analysis based on LinkedIn data. Startl analysis based on LinkedIn data. 28 Startl analysis based on LinkedIn data. 29 Startl analysis based on LinkedIn data. 30 Startl analysis based on LinkedIn data. 31 Startl analysis based on LinkedIn data. 32 Startl analysis based on LinkedIn data.
Supportive policy and programmatic environment. A supportive policy and programmatic environment is the last critical factor in spurring the growth of the Edutech sector. Policies and regulations can make or break the industry in the City – particularly given that the City’s schools themselves are amongst the largest customers of the sector. Opportunities • The NYC Department of Education is seen as market leader in terms of innovation, reform orientation, and willingness to experiment with technology. • There is also broad interest in and commitment from the City to help develop a technology sector (e.g., NYC Entrepreneurial Fund, Big Apps). The reasons for the City’s success to date in attracting Edutech start-ups lie in its unique combination of essential assets. The City boasts an exceptional industry ecosystem, proximity to a large Edutech customer base, and a highly competitive policy and regulatory environment. This shows that there is enormous potential for the industry in New York City. That said, these factors alone will not guarantee Edutech’s growth in the five boroughs. For any new, entrepreneurial sector, dedicated leaders, entrepreneurs, and talent will be key to the pace of progress and success.
High Potential Edutech Profiles for NYC
Our analysis indicates that, for interested companies pursuing Edutech in New York City, the greatest opportunity lies at the intersection of content production and K-12 education. Four key factors determine the City’s potential in this segment: • There is a strong presence of incumbent content players (e.g., publishers) with robust distribution channels; • Existing players show potential to expand down verticals; • The K-12 system is viewed as an ideal testing and scaling market; • Key players attracting attention and VC funding are operating in K-12. Based on this analysis, New York City’s emerging Edutech profile could take three distinct shapes: as a test market for K-12 products, an investment hub, and a headquarter capital. New York City’s High Potential Edutech Profiles • New York City has the largest K-12 and single metropolitan area post-secondary education systems in the country - New York City’s K-12 system offers opportunities to experiment at sufficient scale to serve as a proof point for other districts New York City Department of Education is seen as a market leader in terms of innovation, reform orientation, and willingness to experiment with technology - School-based authority over purchasing has fostered innovation and entrepreneurship Emerging interest in sector from New York City-based venture capital firms and large corporations looking to acquire Edutech companies - $30M+ investment in Knewton from Founders Fund, Accel Partners, Pearson, Bessemer Venture Partners, and FirstMark Capital - Emergence of other players focusing on space (e.g., Revolution Learning, Union Square Ventures) - Large companies investing in Edutech (e.g., Pearson spending $1B since 2005) 24
Test Market for K-12
Broad interest in and commitment from the City to develop the technology sector (e.g., NYC Entrepreneurial Fund, Big Apps) Extensive talent base in relevant market and supporting industry segments - Strong presence in incumbent skill set (e.g., education publishing, content development) - Growing talent base in education related “high-tech” (e.g., Knewton, Wireless Generation, 2Tor, Kaplan University) - Cluster for relevant ancillary industries (e.g., media, creative/design)
Conclusion and Next Steps
Edutech has a real opportunity to grow in the City of New York. In order for progress to be made, a number of things must be considered. Trends Several emerging trends require close monitoring as Edutech evolves and grows in New York City: • • Edutech is still at an early stage of development – the best ideas are still in the labs and have not hit the market yet. Some players consider education, particularly K-12 education, a public service and seek to challenge fee-based models; Open movement (and Internet models in general) threaten content premiums currently earned by publishers. Access to early stage and mezzanine capital has sector-specific barriers. There is a trade-off between accredited and informal educational offerings. Accreditation appears to be distinct benefit for customers, but informal markets have shorter sales cycles and greater appetite for innovation.
• • •
Implications and Needs In order to develop initiatives tailored to the needs of Edutech entrepreneurs, it will be crucial to move quickly to identify and exploit opportunities in the sector. For those people and organizations interested in the Edutech sector in the City, this means that: • • • The time to invest in Edutech is now – getting out in front of the competition is critical at this stage. Scaling pilots quickly is critical to taking advantage of global opportunities. Beyond technological issues, there is significant scope for business model innovation – the most successful start-up might not be the one with the best technology, but with the superior commercial skills. Access to capital will play an important role in financing disruptive innovations that do not have immediate short-term revenue streams.
For Edutech start-ups themselves, three key needs must be met, needs that are not uncommon to most start-ups: • • Start-ups and tech companies need engineering talent to keep developing technologies that drive innovation in the Edutech sector. Access to early stage funding is critical to scale innovations. 26
Links to sophisticated and experimentally-inclined customer networks are important to piloting innovations and demonstrating their effectiveness.
NYCEDC Initiatives The Center for Economic Transformation is at the heart of NYCEDC’s effort to support entrepreneurs across all sectors in the City. Created in early 2010, CET conceives and implements policy and programmatic initiatives that address complex challenges faced by tech start-ups and technology companies in New York City. During the past year, CET has launched more than 60 groundbreaking initiatives. Attracting Talent to the City • NYC Tech Talent Draft: NYCEDC is leading a campaign to attract computer science and engineering students from key academic campuses and city hubs such as MIT, Stanford, Boston, and Silicon Valley to work in New York City-based tech start-ups. • Applied Sciences Campus: NYCEDC is attracting a top tier applied sciences university to the City, which will provide talent for the City’s start-ups. Improving Access to Capital and Workspaces • NYC Entrepreneurial Fund: A $22 million fund – the first of its kind outside Silicon Valley – managed by FirstMark Capital to provide promising New York City-based technology start-up companies with early-stage capital. NYCEDC contributed $3 million to establish the fund, and FirstMark Capital, a leading New York City-based venture capital firm, will contribute up to an additional $19 million. • Business incubators: Lower-cost workspaces combined with mentoring and networking services aimed at start-ups and designed to increase their opportunities for success. Facilitating Information and Support • NYC Media Lab: A clearinghouse created in partnership with NYCEDC and a consortium of top universities that connects companies looking to advance new media technologies with academic institutions undertaking related research. • NYC Venture Connect: An informational web portal for NYC entrepreneurs that brings together all of the City’s business resources in one place. • World to NYC: Promotes trade and investment between New York City and the global economy by hosting business delegations from cities and regions around the world. 27
Providing Training • JumpStart Initiatives: A series of programs to retrain City talent to work in emerging industries. Created by NYCEDC in partnership with SUNY’s Levin Institute. • SBIR Workshops: Full-day workshops that cover all aspects of National Institutes of Health SBIR and STTR proposal preparation. • Prepare for Success Workshops: Workshops for technology companies aspiring to launch and grow their businesses in the City. Hosting Competitions and Challenges • NYC BigApps: Annual competition for individuals or companies to develop innovative online and mobile applications that utilize official City data. • NYC Next Idea: Annual business plan competition with top international business and engineering schools. • NYC Venture Fellows: Established with Fordham University to match 20 “rising star” entrepreneurs from around the world with established business leaders to help them scale their businesses in New York City.
Appendix 1: Edutech Companies & Start-ups in NYC
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • "Can Do" Street 15SecondResume 2Tor Aithent ARTstor BRAINFUSE BrainPOP Brainscape BrandGames Chai University CommonWise cuStudentLoans Curious Brain Dream Village, Inc. Easel eChalk Ednak eHigherEducation E-Line Media eSchoolData Examville Factor Tree FledgeWing Gabble On Get Linked Global Nomads Group Gotta Mentor Grovo HelpWithAssignment.com i-Itch, Inc. Kaleidoscope Learning Knewton, Inc. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Knowledge Delivery Systems, Inc. Kognito Interactive LearningExpress, LLC Learnosaurus Inc LessonWriter LiveCareer Neuronic Games Noodle Education Online Tutelage Project Noah Rethink Autism Salient, Inc. Scholastic SchoolNet Schoology ScrollMotion Sessions.edu Sugar Labs Startl Tabula Digita TestingMom The Q Group The Riverside Company The World Education Endeavor TutaPoint.com Tutor.com Tutors2Day Tutorspree Unigo VocabSushi, Inc. Wimba Zoologic
Appendix 2: Organizations Interviewed for Edutech.NYC.2020
• • • • • • • • • • • • • • • • • • • • • Bill and Melinda Gates Foundation Carnegie Foundation Carnegie Mellon City Light Capital Columbia University Curriki Harvard School of Education Kaplan M.I.T. MacArthur Foundation Massachusetts Department of Education NYC Department of Education Pearson Education Rosetta Stone Scholastic School of One Stupski Family Foundation Teachers TV The College Board Urban Assembly Wallace Foundation • • • • • • • • • • • • • • • • • • • • • Bronx Science First Mark Flatworld Knowledge Institute of Play Interactive Learning iSchool Joan Ganz Cooney Center for Digital Learning Knewton McGraw Hill Museum School of New York NYU Games for Learning Center Quest to Learn Redpoint Ventures Revolution Learning Startl Stuyvesant High School Time to Know Tutor.com Union Square Ventures Wireless Generation 2tor
110 William Street New York, NY 10038 212.312.3600