ChapterIILiteratureReview II.2LiteratureReview II.2.1UserRetentionandLifetimeValueinEdTech UserretentionisacriticalfactorinthesuccessofEdTechcompanies.Retainingusers overanextendedperiodischallenging,asevidencedbythelowretentionratesobserved withintheindustry.ResearchconductedbyAlchemer(2021)highlightedthealarming statisticthateducationappshadaretentionrateofonly4%inannualretention,significantly lowerthanthemacroaverageof35%.TripathiS(2022)mentionedthatstudentretentionmay representachallengefortheseEdTechplatforms.Retentionisanimportantkeytothe sustainabilityofEdTech.Furthermore,TripathiS(2022)alsostatedthatwhenEdTechisable toadapttotheonslaughtofschools,universities,orothereducationalinstitutionsby stabilizingitsstudentsorkeepingstudentsinEdTech,itiscertainthatEdTechwilltendtobe sustainableandabletoscale.upsignificantlyinthispost-pandemicperiod. SeveralfactorscontributetotheissueoflowuserretentioninEdTech.Onekeyfactor istherelevanceofthecontentprovidedtomeetusers'ongoingeducationalneeds.Sikandar& Rahman(2020)emphasizedthatEdTechcompaniesmustcontinuouslyprovidenewgoalsor valuepropositionstokeepusersengagedandretained.Thisrequiresadeepunderstandingof users'evolvingpreferences,learningobjectives,andaspirations.Forinstance,inK-12 education,studentsprogresstothenextgradelevel,renderingthecontentlessrelevantover time.Similarly,individualsseekingcareerpreparationmayfindthecontentlessvaluable oncetheysecureajob.Consequently,EdTechcompaniesmustcontinuallyadapttheir offeringsandprovidepersonalizedlearningexperiencestocatertousers'changingneeds. Conditionsdirectlyimpactthelifetimevalueofusersontheplatform. Bydefinition,lifetimevaluereferstothetotaleconomicvaluethatastudentor customergeneratesovertheirentirerelationshipwithaneducationalinstitutionoranEdTech company.Itrepresentsthenetrevenueorprofitthatcanbeattributedtoanindividualstudent throughouttheireducationaljourney,includinginitialenrolment,ongoingpurchases,and potentialreferrals.Therefore,Lifetimevalueisanimportantkeytothesuccessofacompany, especiallytheEdTechindustry.Thehighertheuserlifetimevalueontheplatform,themore profitableitwillbeforthecompany,andviceversa.ThisissupportedbyEdTechAsia's 23 explanation(2022)thatwhenacompanyhasalargelifetimevalue,theycandirectlyreduce themostcrucialcosts,namelysalescosts,wherethishasimplicationsforthecompany's profitability. Sikandar&Rahman(2020)mentionedthatinthecontextofIndia,theEdTech offeringsneedcustomization,andcompaniesmayincurmorecostandcompletionfromthe regionalplayers.MostofthecompaniesfocusonlyonK-12ofTest-Preparationsegmentsof themarket,leavingthehighereducationcompetition.Thereisalackofdifferentiationinthe marketofferingduetowhichcostcouldnotdeterminecost.Thereisanincreasingneedfor theplayerstofocusondifferentiationbesidesscale-up.MostEdTechstart-upscannotkeep thecustomertostay,whichleadstofailuresintheoffering.Thereisalackoffundstoacquire high-costdigitalinitiativestofacilitateonlinelearningandsustainability.Highadvertisement reducestheprospectusoffundingfromtheinvestorsandgovernmentgrants.Companies spendmoreononlineadvertisingandpromotionstothetuneof200to400percentoftheir operatingrevenueswiththehopeofachievingthedesiredscaleofgrowth. II.2.2CustomerAcquisitionCostsinEdTech CustomeracquisitioncostsposeasignificantchallengeforEdTechcompanies, impactingtheirfinancialsustainability.Comparedtootherindustries,theeducationsector tendstohavehighercustomeracquisitioncosts.ResearchconductedbyAlchemer(2021) foundthattheaveragecustomeracquisitioncostintheeducationindustryis$862.Thesehigh costscanstraintheprofitabilityofEdTechbusinesses,makingitessentialtodevelop effectivestrategiestoacquireandretaincustomersinacost-efficientmanner. Sikandar&Rahman(2020)explainedthatEdTechstart-upsfacetoughchallenges likelowcustomerbase,inabilitytodeterminethecorrectpriceofofferings,lackof diversification,lackofproductdifferentiation,andhighcustomeracquisition.EdTech start-upplayersmustadoptmultiprongedstrategiestosurviveinthecrowdedlandscape. Theyhavetorelyheavilyonscalingup,innovating,integrating,enablinglearneroutcomes, anddiversifyingintoalliedsegments.TheEdTechstart-upshavetouseAugmentedReality (AR)andVirtualReality(VR)extensivelytoprovideabetteruserexperienceanddeliver physicalaspectsoflearningthatcannotbedeliveredinatraditional,offlineclass environment. Toovercomethechallengesassociatedwithcustomeracquisitioncosts,EdTech companiescanemployvariousstrategies.Targetedmarketingcampaignscanbeimplemented 24 toreachthedesiredaudienceandoptimizeadvertisingexpenditures.Referralprogramscan beintroducedtoleveragetheexistinguserbaseandencourageword-of-mouthmarketing. Partnershipswitheducationalinstitutions,suchasschoolsoruniversities,canfacilitateaccess toawiderpoolofpotentialcustomersandreduceacquisitioncoststhroughcollaborative marketingefforts.Additionally,leveragingdataanalyticsandartificialintelligencecanenable companiestoidentifyandtargethigh-potentialcustomersmoreeffectively,optimizing customeracquisitionprocessesandreducingassociatedcosts. II.2.3ScalabilityChallengesinEdTech ScalabilityisasignificantchallengeformanyEdTechcompanies.Whilestrivingto meetuserneedsandprovidehigh-qualityeducationalexperiences,somecompaniesadopt businessmodelsthatarenotinherentlyscalable.Thisisparticularlyevidentintheprovision ofliveclasses,whetheronlineoroffline,whichoftenrequireaminimumclassquotatorun thesessions.Failuretomeetthequotacanresultintheneedforrefunds,creatinguncertainty andrisksforthecompany'ssustainability. Toaddressscalabilitychallenges,EdTechcompaniescanexplorealternativebusiness modelsthatleveragetechnologyandautomation.Emphasizingself-pacedonlinecoursesor pre-recordedvideocontentreducesthedependenceonaminimumclassquotaandallowsfor greaterscalability.Investingintechnologyinfrastructure,suchasrobustlearning managementsystems,canfacilitatetheefficientdeliveryofeducationalcontenttoalarge userbase.Automationofadministrativetasks,suchasregistrationandcourseenrolment,can streamlineprocessesandoptimizeresourceallocation.Byfocusingonscalablesolutions, EdTechcompaniescanovercomethelimitationsoftraditionalmodelsandexpandtheirreach andimpact. Simpsonetal.(2021)mentionsEd-techproductsarehardtogrow,evenwhenthey're free.Theeducationmarketisgeographicallysiloed.Asanearly-stagestartupthatjustfound product-marketfitinoneregion,weareunlikelytobeabletoscaleitbyreplicatingour modelasventure-backedbusinessesusuallydo,becausedifferentregionshavewildly differentmarkets.InterestingarticlebyGiansegato(2022)whichexplainsthatmonetizingan ed-techproductseemsimmediateonthesurface,butgetsstupidlyhardwhenwegetdeep intothewoods.Tosolvethisissue,wecantargetuserswhocanpay—asin,adults.Wethen getcaughtinanotherproblem:thetimehorizonismisaligned.Weneedhighefforttolearn now,butthebenefitswillcomemuchlater.Customersmustactivelyengagewitheducation 25 productsinaneffortfulway,whichlimitsthepoolofprospectsinaseverelydistractedworld. Startupsfoundnovelwaystogetaroundtheseintrinsiclimitationsofhowwestructurally (andbiologically)learn.Allofthemhavedrawbacks.Nonechecksalltheboxesthatmake ed-techcompaniesscalemassivebusinesses(Giansegato,2022)II.2.4BusinessModel ThemajorityofEdTechcompaniessurveyed(62percent)adoptafreemiumpricing strategyorofferfreetrialperiodstoexpandtheirreachandattractnewusers(Bhardwaj& Yarrow,2020).Thisstrategyinvolvesinitiallyprovidingbasicfeaturesorcontentforfreeor offeringfullaccessforalimitedtimebeforeimplementingcharges.However,thispractice oftenproveschallengingintermsofgeneratingrevenue,asasignificantportionoffreeusers failtoupgradetopaidaccountsafterthetrialperiodconcludes(Bhardwaj&Yarrow,2020). AccordingtoBhardwaj&Yarrow(2020)InIndonesia,themajorityofEdTechfirms haveyettoreachthestageofprofitability.Amongthe35firmsincludedinthestudy,89 percentgeneraterevenue,butonly27percentareprofitable.Interestingly,around60percent ofEdTechfirmsinIndonesiaemployacombinationofthreebusinessoperatingmodels: business-to-business(B2B), business-to-consumer (B2C), and business-to-business-to-consumer(B2B2C)(Bhardwaj&Yarrow,2020).TheB2Bapproach isthemostcommonmodel,whileonlyafewfirmsengagewiththegovernmentaspartof theiroperatingmodel.ThisindicatesthatEdTechfirmsgenerallyhaveagilebusinessmodels butcouldpotentiallyimproveoperationalefficiencybyfocusingonaparticularmodel. AccordingtoChuang,Burnett,&Robinson(2021)severalEdTechfirmshighlighted theimportanceofcostconsiderations,specificallycustomeracquisitioncosts(CAC),when decidingonahybridbusinessoperatingmodel.BasedonBlumeVentureobservationresults (2020)thatEdTechgetssignificanteconomiesofscalewiththeB2Bmodel,particularly whentargetingschools,asitallowsthemtostreamlineoperationsandmanagefixedcosts effectively.Ontheotherhand,focusingsolelyonaB2Cmodelandindividualstudentswas foundtobemorecost-intensiveintermsofbothfinancesandtime.Tominimizebarriersfor EdTechusers,thesurveyedcompaniesemphasizedtheneedfortheirproductsorservicesto haveabasiclevelofdigitalliteracyrequirement. AlargemajorityofEdTechfirms(90percent)changedtheiroriginalbusinessmodels inresponsetoidentifiedgapsinthesectorandtoenhancecost-efficiency.Theinterviews revealedthatmanyfirmsalteredtheirbusinessmodelandofferingsfromtheirinitialplans. Thisshiftoccurredbecausemarketresearchconductedbythefoundersuncoveredadditional 26 gapsthatneededaddressingbeforeresolvingtheinitiallyidentifiedproblems.Forinstance, whileinitiallyfocusingonstudent-centeredsolutionssuchasexampreparationand vocationalskillsenhancement,firmsrealizedtheimportanceofaddressingsupply-sideissues relatedtoeducators.Toovercometheobstaclesassociatedwithadoptingdigitaltechnology intheeducationsector,manyEdTechcompaniesexpandedtheirproductsandservicesto catertotheneedsofeducators,includinglearningmanagementsystems(Bhardwaj&Yarrow, 2020). Thedecisiontochangebusinessmodels,products,andserviceswasdrivenbyvarious factors,includingmarketdemand,customeracquisitionstrategies,investorrequirementsto improveuniteconomics,andtoenhanceattractivenessasaninvestmentopportunity (Bhardwaj&Yarrow,2020).Forinstance,manyEdTechcompaniesinitiallyadopteda business-to-consumer(B2C)modelbutlatertransitionedtoabusiness-to-business(B2B)or business-to-business-to-consumer(B2B2C)model.ThisshiftoccurredbecauseB2Cmodels tendtobemorecost-intensive,whileB2BorB2B2Cmodelsofferconsistentrevenuestreams byleveragingpartnershipswithschoolsoreducationalinstitutions.Althoughitmaybe initiallyeasiertoacquireindividualend-users,targetingbusinesscustomers(B2B/B2B2C) offersgreaterpotentialforimpactandoutreach,makingitamoreviablebusinessstrategy. EdTechfirmsevaluatethecostsofacquiringindividualcustomersversusacquiring businesses,consideringthepotentialimpactandreach,toprioritizetheirbusinessstrategies (BlumeVenture,2020).ThisshiftfromB2CtoB2Bisacommontrendobservednotonlyin theIndonesianstart-upecosystembutalsoamongimpact-focusedtechnologystart-upsand othersocialenterprises.Oneofthemainreasonsforhighercustomeracquisitioncosts(CAC) inB2CmodelsisthenoveltyoftheEdTechsector,whichrequiresadditionaltimeand resourcestoinfluencebehaviouralandpedagogicalshifts(Bhardwaj,2022).II.2.5ResearchGap Throughtheliteraturereviewabove,thereareseveralpointsthatcanbedrawnasa commonthreadrelatedtoEdTechproblemswhichhaveanimpactongrowthandprofitability issues,includinghighcustomeracquisitioncosts,lowlifetimevalue,andhighoperational costs.ThedefinitionofthisproblemhasbeencomprehensivelydiscussedbyBhardwajand Yarrow(2020)bydividingtheseproblemsintotwothings:thefirstisthesupplyside consistingofissuesofmonetizationmodels,accesstofundingandhumancapital.Thesecond isthedemandsidewhichincludeslowwillingnesstopay,digitalliteracyanddigital infrastructure.Furthermore,BhardwajandYarrowalsostatedthattherightbusinessmodelin 27 acompanygreatlydeterminesthesuccessofabusiness,includingcompaniesintheeducation technologysector(BhardwajandYarrow,2020).