Silicon Valley has been enthusiastically throwing money into education companies in recent years, leading to a boom in the so-called ed-tech sector. But those investment dollars have slowed down this year, leading some to wonder whether higher education will now face fewer attempts at “disruption” from the business sector.
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Silicon Valley has been enthusiastically throwing money into education companies in recent years, leading to a boom in the so-called ed-tech sector. But those investment dollars have slowed down this year, leading some to wonder whether higher education will now face fewer attempts at “disruption” from the business sector.
“The numbers certainly show a decline” in the number of deals and the amount of venture-capital investment in education technology this year compared with last year, says Deborah Quazzo, founder and managing partner of GSV Advisors, a financial-consulting company.
An analysis last month by EdSurge, an education-technology reporting website, also showed that the “number and value of U.S. edtech investment deals” had dipped since last year.
Whether this is just a blip or the beginning of a long-term trend is hard to tell. Investment analysts point to plenty of ambitious new ed-tech companies still bringing in substantial backing. A few new entries have grown so large that they seem in no danger of collapsing.
But Audrey Watters, a critic and close watcher of the ed-tech sector, calls this “a real slowdown.”
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“All of these start-ups are burning through money at an extraordinary rate,” she says, “and I think a lot of them are going to go away.”
Richard Garrett, a higher-education consultant at the International Graduate Insight Group, sees the recent numbers as evidence of the “investment community getting real with higher education” as it looks more closely at the business fundamentals of new companies rather than their potential.
Richard Garrett, a consultant, sees evidence of the “investment community getting real with higher education.”
Change comes slowly in education, so people looking to get rich quickly may lose patience. “However promising the new tools might be,” Mr. Garrett says, “it’s going to take some time and effort to see the kind of efficacy returns” in classrooms that lead to widespread adoption.
In the short term, colleges and professors may see fewer new tech companies pop up to offer novel services. Free or low-cost trials of new products may be harder to find. “Ed-tech companies are likely to be focused on making sure that they can survive,” says Michael Staton, a partner in the venture-capital firm Learn Capital. “So they may want to give less away for free, and they may want to charge more.”
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Many college-technology leaders are less enthusiastic than before about rushing to use new technologies anyway, says Greg Jackson, an IT consultant on higher education at Fortium Partners LLP. “You just don’t hear that much talk about all of these nifty new ideas” by chief information officers, he says. “All of the sources of funding are tighter than they used to be,” he adds, so technology leaders at colleges aren’t as able as in the past to afford to try new things.
Disruptions Continue
Despite the broader ed-tech slowdown, at least two areas are still growing fast: career services and learning analytics.
An analysis by Tyton Partners found that the career-services segment grew by 80 percent from 2014 to 2015. Ms. Quazzo says she is seeing several innovative new companies trying to work on career services, describing it as “an area of higher education that really needed some attention.”
A report this month by Research and Markets predicts that the demand for learning analytics will grow by about 25 percent by 2020. The term refers to tools that can track how students move through digital textbooks and other online learning materials, either to detect patterns to improve the materials’ design or to predict when students need more help.
Ms. Watters describes one learning-analytics company, Knewton, as effectively “too big to fail,” because it has so many licensing deals with publishers using it for their latest products.
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Some companies that pose competitive challenges to colleges also seem to have staying power. One example is Udacity, which offers low-cost nanodegrees online in computer-science fields and has grown into one of the best-funded technology companies of any kind. It has become what is known as a “unicorn": valued at more than $1 billion.
Colleges can’t afford to ignore big changes in ed tech, even if the number of new companies drops.
In fact, the companies that weather a slowdown, argues Mr. Staton, “are likely to be here for the long run.”
Jeffrey R. Young writes about technology in education and leads the Re:Learning project. Follow him on Twitter @jryoung; check out his home page, jeffyoung.net; or try him by email at jeff.young@chronicle.com.
Join the conversation about this article on the Re:Learning Facebook page.
Jeffrey R. Young was a senior editor and writer focused on the impact of technology on society, the future of education, and journalism innovation. He led a team at The Chronicle of Higher Education that explored new story formats. He is currently managing editor of EdSurge.