BESA Edtech Special Interest Group

Survey: Perspectives on EdTech

Rupert Barclay, Managing Partner

4 February 2019

This report is solely for the use of client personnel. No part of it may be distributed, quoted, or reproduced without the prior written approval of Cairneagle Associates. This material was prepared
by Cairneagle Associates for use during an oral presentation ; it is not a complete record of the discussion.
“Ditching my interactive whiteboard and going back to using blackboards or overhead
projectors would be like playing tennis with a wooden racquet again”
Primary math teacher, 2004
Battlegrounds in EdTech

EdTech Legacy
vs.
software software

Traditional EdTech
vs.
publishers content

EdTech
delivery
Survey characteristics – respondents background

5% 1%
Other Exit
8% £50m+ 14% 500+ 14%
Maturity
Publisher 17%
£20m to £50m 4%
42% 5% 101-500 11%
>10 years £10m to £20m
£5m to £10m 8%
51-100 10%
EdTech Delivery 23%
Growth 62% 31-50 13%
£1m to £5m 23%

5-10 years 19%

EdTech Software 23% 11-30 17%

2-5 years 25%

£0.1m to £1m 45%
32% MVP1 22% 0-10 35%
EdTech Content
1-2 years 10%
Development 7% <1 year 5%
Type of company EdTech: Length of operation Size Size
Stage in life-cycle (£) (employees)

1. Sample size varies, maximum n = 111 4

It’s all about schools

Respondents` target market Which customer / buyers? Which geographies?

% responses % significant % significant

Nursery 11% Students 20% England 82%

Primary 61% Parents 18% Wales 41%

Secondary 49% Teachers 39% Scotland 35%

Vocational 31% Education Rest of Europe 35%

68%
institutions
HE 29% Corporates 21% North America 31%

Corporates 24% Central and Latin

Corporate 14%
11% America
employees
Other publisher/ China 20%
12%
EdTech business
Rest of Asia 20%

Rest of the World 27%

5
Everyone thinks they will grow faster than the market
How strongly do you think your business will grow relative to the EdTech / Digital Content market in which you operate over the next 3 years?

Somewhat more 64%

Much more

50%

36%
42%
19%

26%
31%

21% 31%
28%

11%
5%
Publishers EdTech EdTech EdTech
Content Delivery Software

6
Publishers think they will be more dominant then EdTech providers do
To what extent do you agree that publishers will dominate the EdTech market in the future?

15% Strongly disagree

25%
36%

46% Somewhat disagree

38%
29%

20% 19% Neither agree nor disagree

36%
11% 15% Somewhat agree
7% Strongly agree
4%
Publishers All EdTech EdTech Content

7
It’s all about top line growth for publishers
What are the main reasons behind your investment in digital / EdTech resources? Publishers only

6% 6% 6%
12% 12%
24% 19% 19% Not important
24% 12%
18%
41%
53% 25%
12% 38% Slightly important
29%
47%
41%

38% 41%
19% Moderately important
53% 41%
41%
29% 29% 19% Very important
19% 18%
6% 6% Extremely important
Increase Ensure long Respond to Capture new Product Compete with Increase brand Reduce costs
revenues term viability customer customers diversity digital / EdTech awareness
demand companies
8
Publishers are heading in the right direction
Publishers responses to various questions …. Publishers only

Digital only Far too little

11% 12%
Significant returns
29%
>+10% Somewhat too little
47% 24%
Blended, >20% digital
42% 0-3 years
70%

Neutral
41%

Right amount
Blended, <=20% digital 59%
<=10%
37%
53% Loss
18% 3+ years
30%
Print only Don’t know
Too much 12%
11% 6%
Print / digital mix Increase in digital proportion Investing Profit making When making returns
(growth rate)

9
Delivery and software outstripping content – even non-print content
How strongly do you think the following product segments will grow over the next 3 years?

Traditional print (e.g. textbooks, assessment products) -1.4% 1.1% Publishers

EdTech
EdTech focussed on educational content 2.4%
5.3%

EdTech focussed on assessment 5.9%

5.9%

EdTech focussed on courseware 3.9%

5.1%

EdTech focussed on teacher resources 5.0%

5.2%
EdTech focussed on delivery 5.9%
(e.g. online tutoring, e-learning provider) 6.9%

EdTech focussed on services or software 4.1%

6.4%
Software products predating ’EdTech era’ 1.7%
(e.g. school information systems) 2.2%
Other services to educational institutions not 1.1%
included above (e.g. classroom furniture, stationery) 1.0%

AI and Adaptive Learning are the most significant emerging technologies

10
Higher and Further education are the strongest growth prospects
How strongly do you think EdTech and digital will grow in the following customer segments over the next 3 years?
Publishers
EdTech

Nursery schools 2.9%

2.8%
Primary schools 4.3%
5.1%
Secondary schools 5.9%
5.9%
Vocational and further education 7.1%
5.1%
Higher education 7.9%
5.7%
Corporates 5.7%
6.4%

11
Asia is where the growth is
In which geographies do you think EdTech and Digital Content will show the strongest growth over the next 3 years? (Decline, little growth, moderate growth, significant growth, high growth)

Europe: 4%

UK:
North 3.5%
America:
5.5% China: 10%
Rest of Asia: 8.5%

Central &
South America:
4.5% Rest of the
world:
5.5%
Ease of use and value for money are critical
How important are the following for purchasers buying your digital / EdTech products?
Publishers EdTech Not important Somewhat important Important Very important Extremely important

3.9
Reliability / ease of use
3.5

3.3
Value for money
3.0

3.3
Quality of education content
3.0 Main constraints
3.2 on EdTech adoption
Quality of presentation, UI and user experience
3.2
• School / institution budgets
3.1
Customer support • Teacher inertia
2.8
• Cost / lack of funding
Provable / measurable impact on users
3.1 • Organisational resistance
3.0 • Unproven efficacy
2.3
Company / provider relationship
2.6

2.1
Reference customers
2.7

1.9
Adaptiveness / user customisation
2.0

13
 Global tech companies – friend or foe?
Hardware most frequently used (US)1 Preferred for achievement improvement (US)1,2

N#1 reason for Google, ease of use,

trumps lower product quality

52%
42%

28%
18%
13% 11% 13%
8% 9% 6%

Chromebook PC iPad Apple/Mac Other Google Apple Scholastic Microsoft Traditional

laptop/desktop laptop/desktop Gsuite / Education Education Education publishers
Classroom

1. Results based on the following multi-choice questions: “Which of the following school-provided tools do educators and students use most frequently for instructional purposes in your district or in your
classroom?”, “Imagine that you have been asked to hire one of the following companies to help improve student achievement in your district. Which one would you hire?” 2. Amazon Education: 1% Source: EDWEEK
Publishers worry about commercials, EdTech about funding
What are the main drivers of uncertainty in the EdTech market?1
Publishers EdTech

79%

64%
57% 58% 57% 57%
53%
50%
45%

36%
32%
27%
24%
21%
19%
14%

Unproven or undefined Price sensitivity Free / user Actions of large Reduced budgets for Product Government policy Actions of large
revenue models generated content technology companies education institutions development costs and regulation publishers
(e.g. Google)

1. As the question allows multiple selections, the results for each driver are calculated as a percentage of the total selections made on this question 15
Publishers concerned about digital culture, EdTech about customer acquisition
What are the main challenges in developing your EdTech / digital offer?
Publishers EdTech No challenge Some challenge Major challenge

Lack of digital culture 1.7

1.2
Proving / demonstrating efficacy 1.3
1.0
Strength of competition from EdTech companies 1.3
0.9
Keeping up with technology innovation 1.3
0.9
1.2
Customer acquisition costs 1.7
Strength of competition from publishers with print heritage 1.0
0.7
1.0
Building a customer base / sales channels 1.3
0.9
Market growth 1.3
Cannibalising traditional business (e.g. print content) 0.9
0.5
0.8
Availability of capital / funding 1.3
Access to real-world users for product development 0.7
0.6
Availability of developers 0.6
0.8
0.5
Cost-effective distribution to help scale 1.0

Top challenges for EdTech content
1. Availability of capital / funding (1.3)
2. Customer acquisition costs (1.3)
3. Proving / demonstrating efficacy (1.2)
4. Building a customer base / sales channels (1.1)
Top challenges for EdTech delivery and software
1. Customer acquisition costs (1.5)
2. Building a customer base / sales channels (1.3)
3. Availability of capital / funding (1.2)
4. Lack of digital culture (1.1) 16
Publishers are constrained by the lack of management and digital culture
What are the main factors that constrain publishers in the digital / EdTech marketplace?
Publishers
EdTech Not a big constraint Somewhat a constraint Constraint Significant constraint Very significant constraint

2.8
Lack of innovation / digital culture
2.4

2.3
Lack of management capability
2.2

2.2
Lack of vision
2.4

2.2
Perception of lack of demand by customers
2.2

1.9
Lack of investment to develop in-house capabilities
1.9

1.2
Insufficient M&A investment
1.5

17
It’s customer, customer, customer!
What do you consider to be the main success factors for providers in the digital / EdTech marketplace?
Publishers EdTech Not relevant Not so important Important Very important Extremely important

Customer understanding 3.7

3.5
Business model / value proposition 3.3
3.0
Agility / flexibility 3.3
2.9
Direct sales capabilities 3.1
2.8
Channel / indirect sales relationships 2.8
2.3
School / institutional partnerships 2.8
2.7
Leadership 2.8
2.7
Curriculum mapping / alignment 2.7
2.7
Funding / level of investment 2.7
2.8
Education content production 2.5
2.3
SEO / online marketing 2.4
2.3
Partnerships with other providers 2.1
2.2
M&A capabilities 2.1
1.8
Unique technology advantage 2.0
2.4

18
Companies are positive about the benefits of partnering but…
How important to you are the following advantages of partnering with other companies in the Digital Content / EdTech marketplace?
Publishers EdTech % of “Quite important” and “Very important”

92%
Access better market knowledge
92%

92%
Innovation potential
88%

92%
Quicker expansion / product diversification
86%

83%
Access better technical capability
80%

75%
Increase in productivity
86%

75%
Reduce costs
84%

67%
Spread the risk when accessing new markets
82%

Survey participants recognised the above advantages to partnerships, but were also keen to
avoid brand dilution, retain control, and develop new capabilities of their own
19
…but in practice publishers don’t seem to be willing to partner
Publishers only
How important to you are the following advantages of partnering with other companies in the Digital Content / EdTech marketplace?

Approach to closing the gap

Product importance Current capabilities
% staying in-house % partnering

1. Digital assessment Poor 58% 17%

2. Digital platforms Good 50% 0%

3. Digital teacher support material Good 67% 0%

4. Knowledge maps / curriculum Good 67% 0%

mapping

Other less important capabilities e.g. video and interactive tools/games will be outsourced or
developed through partnerships
20
EdTech most willing to partner for the development of sales/channels
EdTech only
Existing capability
+
Technology

Capacity not lacking,

not to be developed
Education Partnering with schools / institutions
Curriculum or to be built in-house
content
mapping/ Various approaches:
production
alignment in-house, outsourced
Direct sales or partnership
Channel / indirect sales relationships
SEO / online marketing Build in-house or
buy/outsource
Build in-house
or partner

-
0% 5% 10% 15% 20% 25%
Propensity to partner or license
Assessment and platforms are highest focus for investment
What are your main areas of investment over the next 3 years?
Publishers EdTech Investing less Low investment Moderate investment Significant investment

2.3
Digital assessment content
1.9

2.3
Digital platforms
2.4

2.0
Teacher support material
1.4

1.9
Knowledge maps / curriculum mapping
1.3

1.7 Although adaptive learning is recognised

E-books
0.5 as one of the most important emerging
1.7 technologies, predicted investment of
Adaptive learning participants remains moderate
1.7

1.6 Publishers still plan to increase their

Physical / textbooks investment in physical books
0.2

1.6
Video resources
1.6

1.5
Interactive tools and games
1.2

22
Publishers want to acquire, EdTech companies want to exit!
Publishers EdTech

Exit
Exit
Other

New customers Other

New customers
New geographies

New products
New geographies

Acquisitions
New products
Acquisitions
Strategic partnership Fundraising
in 2 years in 5 years in 2 years in 5 years

EdTech time to profitability

50% > 5 years
EdTech is in it for the long haul, but positive about value expectations
How do you see valuations of, and / or multiples for EdTech companies What do you believe is the average time frame for an EdTech company to
evolving over the next 3 years? reach profitability from inception?

Strongly increase 12%

48% 50%
Increase 38% 63% 1 to 5 years

Stable 42% 43%

52%
31% 5 to 10 years

Decrease
Significantly decrease 5% 7% 6% 10+ years
3%
Edtech EdTech EdTech
Content Delivery Software

24
 Investment in EdTech in the UK is tiny

Investment in EdTech, 2016-2018

c. $9bn
2018 Top 10 China EdTech Rounds
1. $500m - VIPKid
2. $350m - Zuoyebang
3. $270m - Zhihu
4. $250m - Yuanfudao
4. $250m - Sanyu
4. $250m - 17zuoye
c. $2.5bn 7. $150m - Peilion
8. $120m - Zhangmen
9. $100m - Knowbox
c. $150m 10. $100m - Dada ABC

UK USA China
Note: Estimated investment by country, not exhaustive and sources definition of EdTech vary. Source: Cairneagle research
 The 4 most funded EdTech companies took 40% of UK funding 2016 - 2018
Cumulated fundraising - top UK EdTech companies
Memrise $21.8m
Pi-top $20.0m
SAM Labs $11.2m
MyTutor $11.0m
VR Education $7.6m
Arbor $6.4m
Perlego $5.8m
SmartUp.io $5.5m
Matr $5.4m
Cogbooks $5.3m
Firefly Learning $5.1m
Bibliotech $4.9m
Zzish $4.5m
Learning Possibilities $4.4m
Third Space Learning $4.2m
Aula $4.2m
Whitehat $4.0m
Twig World $3.9m
Boclips1 $3.4m
Gojimo $3.1m
Satchel2 $2.7m
Fluentify $2.6m
eSafe Global $2.5m
Learnerbly $2.0m
Lingumi $1.9m Software
Pobble $1.7m
Sumdog $1.6m Content
Curiscope $1.1m
Tootoot $1.0m Delivery
TeachPitch $0.7m
Gooseberry Planet $0.7m Hardware, software
Tutora $0.3m and content
Bright Little Labs $0.2m
1. Formerly KnowledgeMotion 2. Formerly ShowMyHomework
 UK EdTech companies’ fundraising is concentrated on K12 and B2C
Software:
Software Content Delivery Hardware
Channel Content platform

Pi-Top
Pi-Top

Planet Gooseberry
K12
Smartup.io SAM Labs Bright Little Labs Sumdog

Pi-Top

HE
Aula BiblioTech
Learnerbly
B2B

Perlego
B2C

Value 2016-2018: c.$150m Average invested per company: c.$5m

Note: Many companies hinge different categories and have been classified on their main focus. Exchange rates as of 29 November 2018 Source: Cairneagle EdTech database
Recent UK Acquisitions & Investments

Target Acquirer / Investor Investment type Product segment Customer segment

Curious World1 Sandbox & Co. Full acquisition Content B2C

Gojimo Telegraph Media Group Full acquisition Content K12

KSM Online WCBS Full acquisition Software K12

TopTrack Collins Learning Full acquisition Software K12

Boardworks GL Education Group Full acquisition Software K12

EduKey TES Global Minority Stake Software K12

GroupCall CommunityBrands Full acquisition Software K12

Diagnostic Questions Maths Doctor Minority Stake Software HE

Light Blue Optics Promethean Full acquisition Hardware Education, Corporate

Emerge Education OUP Minority Stake Other (incubator) -

1. Previously owned by Houghton Mifflin Harcourt (HMH)

Is EdTech focused on where it can make most impact?
Number of pupils 1b people all of the time
1b
S
L
• Content vs support / platform
100m
? E
E • Internationalisation
P • Institution-led
10m
• Schools & universities
&
• Governments
10k F
Current U
focus N
1
0h School time 1,500h
one person, one hour
 Don’t forget Africa!

Global population (b) % secondary

CAGR
attendance (2014)
11
1 +0.2% 97%
1 -0.2% 100%

7 A lot of pupil
Americas 1 4 +1.6% 48%
growth!
Europe 1
Africa 1

Asia & 5 +0.1% 75%

4
Oceania

2015 2100

Source: Factfulness, Hans Rosling

Agenda

APPENDIX
EdTech offerings are typically focused on niches

Product Type Companies Invested in Examples of companies surveyed

LMS Learning possibilities EYFS admin, communication and parent curriculum app
MIS and specialised support software Arbor Education, Firefly, eSafe Global
Software

School communication, school-home

Aula, Tootoot
link
Content creation tools Pobble (writing teaching app)-
Content platform Bibliotech, Futuure Learn, TeachPitch, Satchel, Smatup.io, Zzish, Perlogo,
(for e-books, video, etc.) Boclips, Learnerbly
E-books
Courseware Cogbooks, Sumdog
Content

Revision and low to mid-stakes

Gojimo
assessment
Other educational content (incl. Twig (video content), Bright little labs (coding- gamified stories), Curiscope
Cross-curricular educational content
specialised) (augmented reality T-shirts), Enuma (SEN and EY), SAM Labs (coding and STEM)

Language teaching Fluentify, Lingumi, Memrise

Other e-learning Matr, VR Education

Delivery

Online Tutoring MyTutor Web, Third Space Learning, Tutora

Teacher Professional Development - Teacher training and recruitment

Specialised learning and support Gooseberry Planet, WhiteHat

Much of the EdTech innovation that impacts at scale may be driven by institutions

• Over 500 schools in • 54 schools in Peru • 2 schools in San • 2 schools in the UK

India, Kenya, Liberia, Francisco and 2 in
• Blend of technology and • All learning online
Nigeria and Uganda, Brooklyn
guided self paced study
etc. • Classes flexible in length
• Personalised learning
• Modular school and level of attainment
• Integrated curriculum of and streamlined school
buildings built to
learning operations • Physical mentors
accommodate blend
• Originally private, now • Building a network of
public sector tech-savvy K-8 “micro-
schools”

1m by end 2018 >35,000 >1,000 <500

 Survey characteristics – respondents background – split by company type
Publishers and other respondents All EdTech respondents

£50m+ 6% 500+ 6%

£20m to £50m 5%
101-500 10%
£10m to £20m 5%
>10 years 31%
500+ 42% £5m to £10m 9% 51-100 10%
£50m+ 47%

31-50 14%
£1m to £5m 21%
>10 years 79%
5-10 years 20%

101-500 13% 11-30 16%

£10m to £20m 6%
£5m to £10m 6%
51-100 8%

31-50 8% 2-5 years 31%

£0.1m to £1m 54%

£1m to £5m 35%
0-10 43%
11-30 21%

5-10 years 17% 13%

1-2 years

<1 year £0.1m to £1m 6% 0-10 8% <1 year

4% 5%
Length of operation Size Size Length of operation Size Size
(£) (employees) (£) (employees)

34
Everyone is aiming for subscription
Which monetisation strategies are you pursuing?1
Publishers
EdTech Not used Relevant Significant Intended / future

1.7
Subscription
1.8

1.6
One-time fee or pay-as-you-go
0.8

Freemium (free product/service + 1.2

additional payed premium features) 0.9

0.8
Licensing / white labelling
1.1

Technology provision (selling a platform or 0.7

specific technology to a content provider) 0.7

0.5
Paid access to users, or sale / licensing of user data
0.4

0.4
Credentials (selling awards or certifications)
0.5

Advertising
0.3

1. Scoring of 0-3 has been allocated to the responses (0 being “Not used” and 3 being “Intended / future”) and a weighted average has been calculated to rank the monetisation strategies 35
Half of publishers charge for bundled digital / print
What are the main reasons behind your investment in digital / EdTech resources? Publishers only

24% We charge more than 15% more

6% We charge up to 5% more

29% We charge the same (0%)

41% We don’t bundle print and digital products

Bundling

36
 Where is the growth coming from?
Sector Product Region

University Online tutoring China (10%) and Asia (8.5%)

Corporate Assessment North America (5.5%)

AI and Adaptive Learning are the most significant emerging technologies
Source: Cairneagle survey
 Top 4 challenges

Publishers’ challenges EdTech challenges

1. Lack of digital culture 1. Customer acquisition

2. Proving efficacy 2. Sales channels
3. Competition from EdTech 3. Market growth
4. Keep up with innovation 4. Funding

Source: Cairneagle survey

Cairneagle Associates LLP | 6 Heddon Street, London W1B 4BT | Telephone: +44 (0) 20 7036 9400 | www.cairneagle.com