As the Ed-tech market becomes increasingly saturated, it has become crucial for existing companies to find new ways to stand out. With an already well-established base of users having little reason to switch over, new models must be innovated for old companies to continue thriving.
This article discusses the novel new business model that has been recently implemented by some ed-tech companies and aims to analyze the effects of this innovative change.
Education Software Industry Trends
The education market is currently worth over $200 billion worldwide, with an expected growth of 12% per year in emerging countries (Cisco, 2014). Despite a general growth in the market, it has been said that there is a strong case that education companies are currently facing saturation (Shaywitz, 2015). There are already several players in the industry with little to no reason for their current user-base to switch over to another program, making it increasingly difficult for them to increase their user-base.
The Changing Model Of Education Software
This is where the relatively new business model comes into play. While established players are still using the old-fashioned ‘software purchase’ model, sometimes even including subscription or pay-per-use options, smaller companies generate profit through different means. One of these methods is through ‘freemium’ models, where certain aspects of the program are free, but if their company wishes to upgrade to a better version, they will likely have to pay.
Companies have not widely adopted this model due to its supposed lack of profitability. Statistics show that only around 1% of users will transition to the premium version (Sullivan, p. 1), which leads to the conclusion that products using this model are not profitable. However, larger companies such as Spotify or Dropbox have proven that this method can be successful and widely adopted if done correctly. The main issue with these apps was their lack of proper marketing, which the smaller companies face as well.
This change in the business model could be considered a positive trend, seeing as the automatically generated revenue from freemium apps has been estimated to be around 4-5 times higher than traditional software purchases (Sullivan, p. 2).
As seen with Dropbox and Spotify, this method also fosters a greater sense of community within the user base, allowing for more potential future purchases.
Market Effects On Education
Implementing this new business model throughout the education sector will promote growth by increasing product visibility and allowing companies to continue generating profit even after they have reached market saturation. With an increased number of small businesses entering the market with a new approach, a greater diversity of products will be available for users.
Products from larger companies such as SAP and Oracle have shown slower growth rates due to their failure to adapt to the modern business model. Implementing this new method is likely to increase their growth rate, allowing these companies to remain competitive within the industry. Showing product users certain in-app features that they cannot access without paying for an upgrade may also lead to more money being generated by the companies who choose to adopt it. As a result, the education market as a whole will see an increase in its yearly growth rate. Although this trend does not apply to all education software, it can be seen as positive for many small businesses currently using the old-fashioned ‘sell and forget’ model.
This new method will thus provide education software producers with a way of creating sustainable growth, allowing them to enter already saturated markets and continue providing their users with valuable services.