Education Tech

Continuing Education Research Note



By Dave Sack

Background

This note follows previous Catalyst research in the broader education technology space and focuses on businesses that educate adult learners to increase workplace productivity or enhance a candidate’s appeal.

Defining the Market

  • Continuing education (“CE”) is the teaching of work-related skills to adults; for the purposes of this project, we exclude typical degree-granting institutions (e.g. colleges and universities) in favor of independent providers of skills training to employees and prospective employees
  • Continuing Education involves 2 key customer types
    • User as customer (“employee-pay”), such as a prospective web developer who signs up for Code Academy or a teacher who seeks salary advancement through courses from Learners Edge
      • Continuing education offers individuals the opportunity to advance their earnings potential
    • Employer as customer (“employer-pay”), as when a supervisor enrolls his employees in workplace safety training; includes broader Corporate Training
      • Companies outsource workplace training because it is not a core competency and the production of engaging content requires technology and skills outside of typical HR departments
      • For employers, CE programs afford greater employee productivity, higher morale, and higher retention, and can expand the hiring pool through training unskilled workers
        • Companies and employees use eLearning solutions throughout the employee lifecycle:continuing-ed-photo1
        • Both types of consumers can face regulatory requirements to provide or consume CE content
    • CE can further be broken into points in the value chain, including content and software infrastructure; this analysis focuses on continuing ed content
      • Content: Companies that create and deliver content, including digital coursework and in-person training, to corporate and individual customers
      • Software Infrastructure: Companies that produce applications facilitating content production and management (Authoring Tools and Content Management Systems), and content delivery and results tracking (Learning Management Systems)
    • Revenue models include pay per course/module and “all-you-can-eat” subscriptions by seat licenses, as well as advertising and lead generation
    • Lastly, the market may be segmented between those who target a specific industry, such as healthcare or information technology, and those who target multiple industries with a broad content base, taking a horizontal approach
      • Most representative of the horizontal strategy are the MOOCs (Massive Open Online Courses), such as Udacity and Coursera, which offer courses covering a broad base of topics, many times free of charge

Market Size

  • According to IDC, aggregate U.S. corporate eLearning revenue was ~$16.8 billion in 2015, and grew at an 11.9% CAGR from $3.5 billion in 2001
    • BMO estimates the segment will grow at a 6.7% CAGR through 2020
    • Technology-based learning is growing as a share of total learning hours to 39% in 2013, up from 11% in 2001
    • eLearning content revenues reached $10.9 billion in 2015, growing at a 12.5% CAGR from 2001 revenues of $2.1 billion
    • According to Training Magazine and BMO, training spend per learner increased in 2014 to $976 after decreasing to $881 in 2013 from above $1,000

Corporate Training Spend Per Employee

continuing-ed-photo2

 

  • In 2014, the average training budget for large companies, medium-size companies, and small companies were $17.4 million, $1.5 million, and $338k, respectively
  • These figures exclude direct-to-user professional development, which for teachers alone reached $4.0 billion in 2015 according to Eduventures

Selected Verticals

  • The below verticals are attractive because they i) represent a large addressable market, ii) are highly regulated industries, and iii) offer aspirational workers a chance for career advancement
  • Healthcare – Represents 17.5%+ of GDP and most patient-facing employees require both an initial degree/certification as well as ongoing continuing education; for some participants, incremental educational attainment allows significant salary improvement, providing clear ROI for individuals
    • For instance, training to become a Certified Nurse’s Assistant requires less than a year of training beyond high school and yields an hourly wage of $15
    • Licensed Practical Nurses, who earn $40K annually, can increase their salaries to ~$70K through additional certification as a Registered Nurse; after further continuing ed, Advanced Practiced Nurses earn ~$100K annually
    • Doctors also must fulfill a minimum number of hours of Continuing Medical Education (CME) credits annually
    • Healthcare employers require ongoing outside training of their allied health professionals (~2/3 of U.S. healthcare workers) as they have difficulty training and retaining these lower-wage employees
  • Education – Within education CE, K-12 teacher development represents the largest segment, and involves school, district, state, non-profit, and individual consumption; teachers in most states must participate in CE classes to maintain their certification, and in many states are able to increase their salary through a “steps & lanes” formula involving tenure and CE credits
    • Teachers are the most numerous professionals in the U.S.
    • Online independent providers compete with universities and community colleges, as well as not-for-profit teacher professional development providers
    • Difficult for private providers to meet standards that can differ across states and districts
  • IT – IT training is marketed to employees and prospective employees that develop, install, or use software and networks; according to IDC, the U.S. IT skills training market generated an estimated ~$6.8 billion in 2015 revenues (~4% growth)
    • Includes coding bootcamps, corporate training, and software program certification
  • Trade Skills – Includes automotive technology, truck driving, plumbing, carpentry, HVAC, oil & gas, electrician training, and others
    • Potential opportunity in veteran retraining programs
    • Includes workplace safety training
    • May require in-person component due to manual nature of work
  • Other – Other target industries could include compliance training, accounting, insurance, finance, paralegal services, or sales

Industry Trends

  • Replacement of traditional paper-based and in-person solutions with digital content and IP-delivered distance learning
  • Persistent “skills gap” in U.S. workforce leading to underemployment, low labor force participation, and decreased productivity
    • As of February 2016, there were 5.6 million unfilled job openings in the U.S., lacking willing or qualified applicants
  • Support from managers and increased demand for training driving corporate investment in eLearning
    • Budget constraints, time constraints, and travel costs among top drivers behind shift to IP-delivered corporate training
  • eLearning allows organizations to control training budgets and reduce the costs related to HR recruitment, screening, and onboarding
  • Millennials more likely to have multiple jobs over the course of their career

Investment Thesis

  • We are looking for businesses with differentiated, premium content, premium pricing, and recurring or repeat customers
  • Solutions still largely in-person and/or paper-based, providing opportunity for tech-enabled solutions to gain market share
  • Compliance and regulatory requirements create built-in demand in many verticals
  • In both corporate and consumer models, the best opportunities will be with companies enjoying strong barriers to entry from:
    • Subject matter expertise (such as maintaining up-to-date materials on complicated regulatory environments)
    • Innovative content production and delivery
      • Delivery mechanism tailored to content
    • Premium, results-driven content
    • Program customization
    • Coaches, mentors, or tutors offering customers on-demand help
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