How to Benefit From a Fundamental Change in How the World Learns and Trains
The digital education business model is on a phenomenal growth trajectory, and COVID-19 is only accelerating its rise. What investors need to know.
Even before COVID-19 ended an eleven-year bull market and plunged stocks and bond markets into turmoil: for months, investors were looking for alternative investment opportunities that could enhance the return of their traditional portfolio, and provide performance regardless if the world economy stopped running like clockwork.
Digital education shows healthy growth rates
For almost a decade now, digital education has been a sector with impressive growth rates. Particularly so-called MOOCs (massive open online courses) have grown in popularity and shaken up the traditional academic, vocational and professional training markets. We will use the term digital education and MOOC interchangeably in this article.
Chart – Growth of MOOCs
Mind you; distance learning has been a staple in education for decades. In the past, students without access to academic institutions nearby, or those who simply could not take time off work, used to complete their assignments and correspond with their faculties by good old-fashioned mail. Those degrees often to significantly longer to complete, and many institutions offering them were not exactly considered first-tier providers.
Digital education is profiting from significant tailwinds
Several secular trends have boosted the digital education business model. For one, the rapid pace of technological transformation in the last couple of decades has rendered traditional skills and knowledge quickly obsolete. With the second advent of artificial intelligence (machine learning is one of its disciplines) and data science, for example, even those who obtained degrees in IT only ten years ago consider large parts of their original education irrelevant when it comes to approaching their next innovation project. And even in traditionally stable fields like medicine, current job descriptions might look mostly different from one career step to the next. This rapid change not only calls for regular brush-ups in skills and new developments. It increasingly means that specialized knowledge for the next inter-company project must be acquired. This is where MOOC-type mini-degrees are providing their money’s worth. By allowing a bank’s compliance officer to get a first-class foundation in data science, enables them to be an influential contributor to their employer’s next digital customer initiative project. Globalisation, and the job mobility that comes with it, is another factor that favors education approaches that are mobile and global as well.
Technology, connectivity, and innovation are fuelling the MOOC revolution
Finally, a fundamental change in the approach to learning has been accelerated through technology, connectivity, and the innovative startups that are being formed in its wake. In the last two decades, the leading economies have changed their education systems from ex-cathedra (where lecturing was mostly a rigid one-way street) to a collaborative case-based approach, where students regularly interact with their teachers, and between themselves using modern technology.
The coronavirus may bring mayhem, but also new opportunities
COVID-19 has impacted the whole world, and some have started questioning the role of globalisation in this context. What we can say with high confidence, however, is that, at least in the last couple of months, digital business models have suffered the least from the fact that people are constricted in their movement and personal interaction. Of course, we wish for all of this to be over soon, and for normality to settle back in. Still, there are plenty of reasons to believe that the MOOC business model is set to thrive even in the current environment. Not only are people stuck at home, but their physical absence from the office opens up the possibility to discreetly brush up on existing skills, and those anticipated for the future. Speaking of anticipated skills: whether we like it or not, many businesses will be fundamentally changed by this crisis. In addition to the conclusion that a home office can be a productivity boost, for some jobs to continue existing will require a radical shift in focus.
How investors can access the MOOC business model’s return potential
There are a few key players in the market that have grown exponentially, profiting from those trends, but also from technology that makes these business models scaleable (one emerging use case is the help of artificial intelligence in creating and grading assignments and exams).
While we believe that there is a solid case for investing in digital education providers, the challenge remains on how to go about it. Relative Market Share five Leading Digital Education Providers; Chinese providers not included; Source: Class Central Given the dominance of certain market players, a traditional venture capital investment might prove to be an overly risky proposition. Other, more predictable avenues are to invest in those providers who are already publicly listed. Finally, a case for Pre-IPO investing can be made, i.e., investing in late-stage venture-backed startups with a high level of visibility into the business model’s robustness, existing cash flows, and, ideally, emerging profitability.
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