Introduction

The advent of generative AI is opening new, exciting horizons in how we approach education. There are never before seen opportunities to help educators work more effectively and efficiently, for learners to receive personalized tutoring or for management teams to make more data-informed decisions on their learning programs. However, while the potential applications of new technologies could usher in an era of more effective and equitable learning, VC funding for EdTech companies is nearing rock bottom in 2024.

In this article, we look at key factors that define today’s EdTech landscape, and provide five tips to help you build great EdTech products that stick in today and tomorrow’s market. 

Great Potential, Great Challenges - The EdTech Market of Today

The EdTech market is expected to be worth USD 549.6 Billion by 2033, growing at a CAGR of 14.2% over the next nine years and most newly established EdTech startups are building AI-powered products. However, EdTech companies are struggling with lead generation and conversion and despite the growing potential, 2024 has been a challenging year for Educational Technology companies. 

There are several factors behind this trend and it is important to understand them in order to be able to build not only impactful but also successful EdTech products.

1. Slow legislation 

The widespread application of Artificial Intelligence raises various pressing ethical and data privacy questions with a potential to impact the very fabric of how our societies operate. Regulating the market is especially important in sectors like education or healthcare, where sensitive information could be leaked, compromising the rights, safety and wellbeing of individuals. However, legal systems tend to move slowly and as of now, there is no binding AI legislation in the United States. The European Union is more ahead - the EU AI Act is set to come into effect in 2026.

The lack of binding legislation means that companies and organizations, including school districts have to come up with their own interim guidelines. This takes time, resources and a skill set that is often not available - as of June 2023, less than 10% of schools and universities had AI guidelines globally, 40% of which were verbal only. So, while interest is growing for AI-powered education solutions, purchasing decisions are slow to follow.

2. Economic pressures

The current economic downturn and the larger political landscape all have a bearing on purchasing power for EdTech products. In the corporate sector, Learning and Development teams have drastically reduced budgets to spend per employee compared to seven years ago and while demonstrating a substantial return on investment on learning initiatives is more important than ever before, most L&D teams still struggle to measure their impact, further exacerbating their funding problems.

When it comes to public education, total education spending as a percentage of GDP fell in most countries after the COVID-19 pandemic. Further, the 2023 GEM Report states that when it comes to purchasing EdTech solutions, “in the short- to medium-term, such investment would basically displace other necessary investments, such as making classrooms conducive to learning”. Spending on public education in the largest market for EdTech solutions, the United States, also falls short of global benchmarks and lags behind economic growth. 

Economic pressures will likely pass in a few business quarters in the corporate sector, ushering in new hiring waves and an increased need for upskilling and reskilling employees. However, making a mark as an EdTech provider in public education will likely remain a challenging feat in the years to come.

3. It’s still early days

The educational technology sector holds lots of promise but still has a long way to go in building products with robust, sustainable impact. Before the generative AI boom, adaptive learning, gamification, microlearning and many other methodologies and technologies had their moment over the years - all of them holding lots of potential in their own right, when used for appropriate goals in appropriate settings. However, few related early solutions applied them in a thoughtful, impactful manner.

When new technologies emerge, there tends to be an exploration phase in their possible applications, capabilities and limitations. These are exciting times, but few products will hit the mark in the long run partially because technologies and solutions evolve at a pace that impedes proper research and evaluation on real impact. As Tory Patterson, the managing director of a leading edtech VC firm, Owl Ventures, suggests, “it’s important to continue questioning how all this technology is being used, and to what end”. 

Not only is the market too noisy right now, there is also a significant skills gap that prevents potential buyers from accurately assessing and implementing EdTech solutions, especially those powered by AI. In fact, a recent IBM report found that lack of AI knowledge and high data complexity are the two top inhibitors of moving beyond the exploration phase of AI tools at corporations. A recent survey across 50 US states has also found that lack of AI skills among teachers and school management, as well as a limited awareness of available tools and AI capabilities are top barriers to more widespread adoption of EdTech tools. 

In many cases, poor physical and technological infrastructure can also slow down adoption and delay the uptake of EdTech solutions. For startups and organizations striving to create more equity in learning, unequal access to basic infrastructure like electricity or internet connection still prevent educational technology products from reaching lower income communities. 

4. Need for trust and simplicity

One added challenge in taking a new EdTech product off the ground is a significant wave of market consolidation, where larger companies gobble up promising startups and invest in large-scale in-house development. Slow legislation, economic pressures and the AI skills gap all fuel individuals’ and companies' desire to work with unified ecosystems and already established, trusted entities. 

Trust in particular is a significant issue, especially during times when resources are scarce. The British Educational Suppliers Association (BESA) found in a recent survey that only 8% of teachers believe the efficacy claims of EdTech providers, while 85% of educational tools were reported to be either poor fits or poorly implemented. After an unprecedented spending spree during the pandemic, schools are now evaluating the efficacy of the tools they purchased and are pruning their subscriptions. On the corporate front, the pandemic fuelled strong buying intent for tech tools, as well. The current economic downturn has pushed many companies to reevaluate whether and which of these tools they need, leading to an era of tech-stack consolidation at large companies, too. 

Even when tech-stack cleaning efforts come to an end, schools and companies will likely remain cautious about purchasing new tools. There will be demand for great new solutions but more stringent evaluation processes will likely be put in place. However, Josh Bersin predicts that large incumbents will slowly fail at delivering impactful and flexible new digital learning solutions, gradually opening the way for emerging startup companies.

Five Best Practices for Building EdTech Products that will Last

While the EdTech market has been challenging in recent years, in the long run, there is growing potential in making a lasting impact on people’s lives through educational technology while building thriving businesses. Legislation will eventually catch up, economic pressures will ease, the skills gap slowing down decision making will gradually close.

It is important to note, though, that markets and their requirements will likely be different than in previous years. The initial frenzy of the COVID-19 pandemic and the groundbreaking technological advancements in the years since then created an opportunity for relatively easy access to funding and abundant opportunities for exploration. As legislation is passed, and AI and data literacy skills improve, the barriers to entry into educational technology will rise. 

However, there will be tremendous demand for high-quality, sustainable solutions and we have gathered five tips to help you build stellar EdTech products that will not only survive, but also thrive today and tomorrow.

1. Verify the need with all stakeholders 

Depending on the segment you are targeting, there may be multiple stakeholders involved in the life cycle of your product. In the K-12 space, for example, your solution needs to engage students, be easy to use for teachers, show impact and provide great value so that districts are willing to buy it, and introduce content or methodologies that, largely speaking, parents are also on board with.

Be sure to understand who your buyers and users are and take this into consideration throughout your product development and business planning journey. Before jumping into building, it is a good idea to see whether your buyers are actually ready to pay to solve the problem you are addressing and if so, how much? 

There are many impactful ideas and great methodologies that we could bring to the world. However, a scientifically sound, even outstanding approach, or a fancy application will not necessarily equal success. We need to make sure that our solutions are embedded in the context of our world and take into consideration the motivations, needs, resources and dispositions of all of our stakeholders. 

2. Focus on impact

Building any product without proper validation is usually quite an expensive endeavor, rarely leading to a truly impactful and viable solution. This is true across the board but maybe even a bit more so in EdTech, where you often need to cater to multiple stakeholders with different motivations and needs and compete with a variety of existing solutions.

While during the pandemic, many organizations were ready to buy EdTech solutions quickly, often at face value, a more consolidated market will bring a more thorough decision-making process. There are some cases, mostly in the B2C space where an enjoyable experience may be enough to keep customers and even to grow, but in the majority of cases, especially when we consider higher ticket solutions, it is your impact, or at least a credible promise of thereof that will make or break your business. 

Invest in heavy user testing and if your team doesn’t have the necessary expertise, be sure to upskill yourselves on conducting high-quality testing, eliminating as much of your biases as possible. Having an honest understanding of the quality of your offering early and as often as possible in the early stages will save you a lot of grief in the later stages of development.

When it comes to solutions that involve longer-term curricula or learning programs, proving impact can be quite costly and you likely won’t have the time and resources to wait for the end of your first promising study. Consider establishing a research partnership with a reputable university or organization and invite leading subject matter experts to your advisory board. Such seals of initial approval will make it easier to start pilot projects and be able to bring in some revenue even before having a fully validated solution.

3. Be passionate about the problem, not the approach or technology

The EdTech space is particularly vulnerable to technology-first solutions. Since everyone in the developed world has been through an education system, it is relatively easy to develop product ideas inspired by a particular technology or methodology. However, when you try to fit an end to the means, as opposed to finding the right means to a particular end, you risk not putting your customers’ true needs first, usually leading to a failed product.

EdTech solutions that are inspired by a technology or a trending methodology, such as gamification or generative AI are often not built on a strong, scientifically sound foundation, either. For example, a recent study found that developers of gamified experiences are often not aware of the potential adverse effects of game elements in certain contexts.

So, be sure to address a real problem and prioritize understanding its roots. Then pick the methodology and technology best suited to address this problem and make sure you are aware of any potential risks or disadvantages associated with your choice. Use technology intentionally and sparingly - less is often more.

4. Think in terms of ecosystems 

In an era of market consolidation and wide-spread EdTech-stack pruning both at corporations and schools, siloed solutions will no longer stand a chance at survival. As our world becomes increasingly interconnected and interoperable, thinking in terms of technological and relevant social ecosystems is simply non-negotiable.

Product teams will increasingly benefit from embedding themselves into the context of the solutions they are developing, too. Having at least one team member on the ground, experiencing the problem space with all its constraints, opportunities and stakeholders will provide crucial opportunities for testing and validation at a fraction of the cost. While an outsider’s perspective may produce fresh, and even viable ideas, insider experience will be increasingly necessary in order to be able to design solutions that fit into complex, interconnected ecosystems.

5. Build a team of experts and business pros

There are many talented education-expert-turned-entrepreneurs. However, while impact-driven, expert founders may be able to build outstanding EdTech products, the world of venture capital, sales and marketing are often quite foreign to them. Unfortunately, the old adage that great products sell themselves is no longer true in today’s overcrowded market, while funding is also gradually drying up. This means that strong financial planning, business and sales skills are even more important in founding teams than usual.

So, even if you’re low on financial resources, make sure to invest in upskilling yourself, or a savvy founding team member in business, sales and marketing strategy and practices from the very beginning. This doesn’t need to be in the form of expensive courses, you can carve out time to educate yourself by reading, following relevant experts on social media or even practicing your sales pitch with Chat GPT.

In the current economic climate, planning for the long run and being prudent with your finances will be crucial for most EdTech companies’ survival. 

Conclusion

While the barriers of entry into the Educational Technology market may seem low at face value, successful and truly impactful solutions often require a complex, comprehensive approach. However, while many factors suggest that developing great, sustainable EdTech products may become more and more challenging, demand is set to grow for high-impact solutions. Keeping the above tips in mind will help you navigate the journey and if you need additional help, don’t hesitate to reach out to us. Walturn’s subject matter experts and technologists have a great deal of experience in developing high-quality educational technology tools.