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Even as the country skidded to a dystopian halt in the first days of the pandemic, Sam Chaudhary and his colleagues found themselves with more work than they had ever seen.

Chaudhary is co-founder of the education technology provider ClassDojo, which enables kindergarten through eighth grade students, teachers and parents to share content, schedules and feedback — an obvious and critical need as education abruptly became remote.

Sam Chaudhary, co-founder of ClassDojo, which enables students, teachers and parents to share content, schedules and feedback. The company’s business model calls for giving its services to schools for free but charging families for them. Credit: Araya Diaz/Getty Images for TechCrunch

“We woke up on a Monday and saw 10 to 15 times” the number of customers the company had served at the same time the year before, he remembered. “It was nuts.”

That ed-tech firms are attracting lots of business in a newly virtual world likely doesn’t come as a surprise. What might is that not all of them are making money from it.

Analysts cite ClassDojo as an exception, with a model that gives its services away for free to teachers but charges families up to $7.99 a month to keep kids learning at home.

That ed-tech firms are attracting lots of business in a newly virtual world likely doesn’t come as a surprise. What might is that not all of them are making money from it.

Other ed-tech companies are running out of operating cash and laying off or furloughing their employees, however, as they contend with higher costs to handle growing numbers of new users who haven’t been paying anything and, in many cases, can’t afford to start.

“Education on the surface in pre-K through [grade] 12 seems to be this amazingly fruitful space” for ed tech, Chaudhary said. But “if you look at the actual performance of companies in this sector, there haven’t been that many successes, even before Covid.” 

While the global disruption of in-person education seemed poised to change that,  it’s largely benefiting the biggest, already-established brands so far, according to analysts and market data. Of the 10 most-used K-12 ed-tech tools tracked by management network LearnPlatform since the start of the pandemic, eight are from Google. Observers fear that smaller startups with promising ideas may be swallowed up in acquisitions or simply fail to survive.

Related: Ed tech companies promise results, but their claims are often based on shoddy research

Investment continues to flow to ed tech, with $803 million injected during the first six months of the year, according to the industry news website EdSurge. But half of that went to just six companies, including the celebrity tutorial provider MasterClass, the online learning platform Udemy and the school and college review site Niche.

The ed-tech players that are cashing in are “mostly the well-capitalized companies that had enough money to make a pivot.”

Sandro Olivieri, founder and president, Productive

“Investors are anxious to make the case that ed tech is blowing up. And it feels new and novel and like there’s a lot of deals to be made,” said Sandro Olivieri, founder and president of the Bay Area consulting firm Productive. But the players that are cashing in are “mostly the well-capitalized companies that had enough money to make a pivot.”

Companies of all sizes gave away their products and services in the spring for free or at deep discounts in the hope of attracting customers — principally school districts, colleges and universities — in the fall. More than 70 percent of 104 ed-tech companies responding to a survey by Productive said they have been giving away or discounting their products

Only about a quarter of these firms reported an increase in paying users.

From the outside, the ed-tech sector may appear as if “there’s a bonanza and it’s like the dot-com boom again and everybody’s printing money,” said Michael Hansen, CEO of the K-12 and higher education digital learning provider Cengage. “That is not the case.”  

The ed-tech company BrainPOP produces short animated videos that explain complex ideas to students in kindergarten through 12th grade. It added more than a million new accounts after offering its products for free in the spring, and has since resumed charging for subscriptions.

Many companies have also seen expenses soar. BrainPOP, for example, which produces short animated videos that explain complex ideas to students in kindergarten through 12th grade, offered its platform for free to families and schools and has added more than one million new accounts since the spring, CEO Scott Kirkpatrick said. Its server costs rose, and it had to hire more people to provide customer support and teacher training.

Related: Another problem with shifting education online: cheating

Kirkpatrick was taking the long view, he said. “This is going to do good things for our business for years to come. It clearly was a big investment for us, and a lot of our peers in the space did the same thing.”

The 21-year-old, privately held company has since resumed charging families up to $159 a year for its products.

Not all ed tech providers had the capital to do what BrainPOP did, however. About two-thirds of those that responded to the Productive survey said they had only six months of runway left, meaning the amount of time before they exhaust their operating cash.

“Those companies that have market share will say, ‘Okay we gave you your six-month discount, time to pay up.’ Those that have been undercapitalized will have to make some really tough choices, even as they’ve never been busier.”

Michael Horn, Clayton Christensen Institute for Disruptive Innovation

“This moment feels a little like earlier recessions in other industries, which is to say there’s often a shakeout,” said Michael Horn, co-founder and distinguished fellow at the Clayton Christensen Institute for Disruptive Innovation, a nonprofit think tank, and co-author of “Blended: Using Disruptive Innovation to Improve Schools.”

“Those companies that have market share will say [to customers], ‘Okay we gave you your six-month discount, time to pay up,’ ” Horn said. “Those that have been undercapitalized will have to make some really tough choices, even as they’ve never been busier.”

Related: An online program for preschoolers expands because of coronavirus

Though almost every school and college went online in the spring, analysts and market data suggest that there were mixed results for the education technology sector. Credit: Virginie Lefour/Belga/AFP via Getty Images

Even if they want to buy more ed-tech tools, meanwhile, schools and colleges are short on cash. Expenses for measures to deal with Covid-19 are up, while budgets are expected to be down. The average school district faces close to $1.8 million in pandemic-related costs this year, according to AASA, the School Superintendents Association, while their budgets are projected to decline by from 16 to 18 percent. Universities and colleges are bracing for similar big hits to their bottom lines.

So inundated were she and her counterparts with sales pitches from ed-tech providers that one school superintendent in Washington State sent out a tweet begging them to stop. She hit a nerve. “I’m making a list and keeping it so we know who NOT to buy from later,” another superintendent responded. The National Superintendents Roundtable started a campaign called “Just Stop It!” 

More than 70 percent of ed-tech companies in a survey said they have been giving away or discounting their products. Only about a quarter reported an increase in paying users.

For superintendents, the flood of sales calls came “amid all the problems they were dealing with from people yelling at them for not closing the schools fast enough or closing the schools too fast, not to mention the political and economic pressures,” said James Harvey, the roundtable’s executive director. “And here we are dealing with additional costs while we’re likely to face smaller budgets. That was the frustration.”

Without the time to vet every offer, most buyers appear to be sticking with the brands they know.

“The truth is there are going to be a lot of districts who say, ‘Let’s just buy that product with the logo that we recognize,’ ” Chaudhary said.

Related: They helped all schools get good internet, now they’re focusing on homes

Coursera provided every student in the world free access to the university and college courses it makes available online, attracting a 500 percent increase in enrollments. Its free offers are scheduled to end September 30.

Among the winners so far is Coursera, which provided every student in the world free access to the university and college courses it makes available online. Since mid-March, the company reports, it has had nearly 40 million enrollments, a 500 percent increase over the same period last year; the free offers are scheduled to end September 30.

Cengage provided free subscriptions to its online textbooks, and says 290,000 students took the company up on it, a 70 percent increase from last year. It has returned to charging $69.99 per semester for its 14,000 digital textbooks and study tools.

Analysts and industry insiders now expect a wave of acquisitions as already-dominant brands like these seek to corner even more of the market by snatching up smaller players that provide services they don’t.

“If you look at the actual performance of companies in this sector, there haven’t been that many successes, even before Covid.”

Sam Chaudhary, co-founder, ClassDojo

“We’re seeing people with capital be opportunistic, who say this is the time to buy a company in a different subject area to round out their portfolio,” said Morgan Battle, managing director at Tucker Capital, who focuses on educational technology. “On the flip side, there is likely to be a willingness of companies to sell who feel they need to be part of a larger platform to survive difficult times. Some unfortunately won’t make it.”

Among those will be startups with promising innovations, said Olivieri, of Productive.

“We tend to look at ed tech as another tech sector that functions as a market where the best products win,” he said. “I don’t think that’s true. When the investment is going to the usual suspects in the space, we’re not tracking the best ideas.”

This story about ed tech companies was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for our higher education newsletter.

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Jon Marcus, higher-education editor, has written about higher education for the Washington Post, USA Today, Time, the Boston Globe, Washington Monthly, is North America higher-education correspondent for...

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