MBAs vs the Education Market: The Rise of Education Startups

Here is a guest post from Emma Collins that looks at the growth of education-technology ventures, and what these new models may mean for the future of both learning and business. Emma has recently written a guide to this year’s greatest online MBA schools, and is very knowledgeable about most things impacting the higher ed sphere.  So, I hope you enjoy her piece:

MBAs vs the Education Market: The Rise of Education Startups

Over the past few years, a growing number of education-tech companies have seen a surge in funding from venture capitalists. Even in the midst of a harsh and hyper-competitive economy, investments in the education-tech companies nationwide have tripled in the last decade. In 2011 alone, venture capitalists invested $429.1 million in 82 education technology deals, an increase from $334.3 million and 58 deals the year before. “The investing community believes that the Internet is hitting education, that education is having its Internet moment,” says Jose Ferreira, founder of interactive-learning company Knewton. Knewton secured a $33-million investment in 2011. As the country becomes more accepting of blended and online learning, a growing number of education startups have begun offering cutting edge services and products designed to deliver education to all those who seek it.

Despite a great deal of enthusiasm, some are concerned that the education-tech boom will prove to be a bubble, creating ripples through the economy and negatively affecting millions of customers and students. Silicon Valley veterans cite a similar wave of education-tech companies in the late 1990s that debuted along with the greater online boom. However, like most early internet companies, the vast majority never survived their first few years. Critics have also pointed to the massive rise in for-profit online colleges, many of which have come under fire for focusing on profits at the expense of quality education, student satisfaction and student retention.

In July 2012, a report was released of a two-year investigation of for-profit colleges like the University of Phoenix by Iowa Senator Tom Harkin. The report was highly critical of nearly every aspect of the for-profit college industry. Findings in the report show that students spent $32 billion on for-profit colleges within the past year, though the majority left without a degree, with the median time from start to quitting only four months. Meanwhile, 96% of students who went to for-profit colleges took out loans, compared to 13% of community college students and 48% of students in four-year public schools. Despite the for-profit sector accounting for only about 13% of college enrollment in the US, it comprises nearly half the loan defaults.  “In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation,” Harkin said.

Today’s new crop of startups appears to be avoiding the lure of quick profits in favor of sustainable long-term success by maintaining a business model that maintains open, quality education as the chief priority. Many of the companies, like Coursera and edX, are working with prestigious schools like Harvard, Princeton, MIT and the University of California-Berkeley to offer free online courses taught by full-time professors themselves and using the same materials and coursework as the school’s official courses. Coursera was founded by two Stanford computer science professors, and edX by a collaboration between Harvard and MIT as a way to make education more open and democratic. Within six months of its launch, Coursera has already drawn 1.3 million students and is constantly attracting more university partners who are eager to take part in higher education’s latest evolution. John Doerr, a capital investor and Coursera board member, points out that $1.3 trillion is spent on education annually, meaning these companies hold the potential for significant profits in the coming years.

Jason Lange, founder of BloomBoard, a Palo Alto company that makes teacher-evaluation software, acknowledges that education is “a brutal industry averse to change in every way, shape and form.” Yet, he says the declining prices and increased sophistication of technology make this an “unprecedented time” for change. BloomBoard offers software that allows school administrators to review their teachers, and offers paid add-ons like a dashboard that suggests how schools can improve by pairing up certain teachers. After a year, BloomBoard raised $1.5 million from funders, including Palo Alto incubator Imagine K12, which tries to encourage more start-ups to drive change in the education field.

The startup Noodle is another new company of note. It is a search engine devoted solely to navigating the rapidly growing online education resources, and is itself a sign of education-tech’s growing influence, The influence of companies like BloomBoard, Noodle and their constantly growing number of peers is inspiring a revolution in education that will be nearly impossible to reverse. As millions of people integrate technology into their lives, these start-ups are opening education to a global populace which is proving eager to make the most of these new-found academic opportunities.

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One thought on “MBAs vs the Education Market: The Rise of Education Startups

  1. Reblogged this on raveenb and commented:
    I am not sure of the bubble in the education startup scene, but the VC’s and Angels might have a better picture of it, but there sure are a lot more edu-tech ideas in hackathons and startup weekends. the last startup weekend i attended in Lehigh Valley had 3+ entries that got selected in the first round, and 1 that won. i was thoroughly impressed with their product and showmanship at the podium, i guess some people are very passionate about education.

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