How Indian Tutors Make Millions From Anxiety
The country’s highly competitive college entrance exams have turned tutors into superstars, while the companies that employ them have achieved unicorn status
By Andy Mukherjee/Bloomberg Opinion
16-year-olds go crazy for their favorite Bollywood actor, that’s one thing, but teenagers behave hysterically when they see a science teacher on stage? It’s the kind of superstar that Alakh Pandey, the 30-year-old co-founder of Physics Wallah, has built in small Indian towns and villages, starting eight years ago with nothing more than a whiteboard and a YouTube channel, which has since been viewed 1.4 billion times.
With more than 5 million downloads on the Google Play Store, Pandey’s low-cost tutoring app – known as PW – became a unicorn last month with a $1.1 billion valuation. It raised US$100 million in its first round of institutional funding from WestBridge Capital and GSV Ventures.
Pandey needs the cash to replicate his online success in the chaotic world of Kota, the hub of India’s test prep market.
Kota is a city of 1.5 million people in India’s northwest state of Rajasthan, where high school students congregate from across the northern Hindi-speaking belt and spend two grueling 18-day years hours with a single objective: to pass the very competitive entrance exams for engineering and medical schools. .
PW’s booming entry with its own campus to teach up to 20,000 children in two shifts is forcing the industry to cut high fees. When Pandey showed up in his brand new classroom, screaming teenagers took over online stardom – at least according to the YouTube promotional video, which has had 3 million views in three weeks.
The Indian test prep market has always been about turning anxiety into money. More than 1.5 million hopefuls are jostling for just over 100,000 medical and dental internships across the country. Meanwhile, the competition at the prestigious Indian Institutes of Technology (IIT), among the fiercest pre-college competitions in the world, involves a brutal two-stage effort – a ‘main’ test followed by an ‘advanced’ exam. The 23 campuses of the IIT only open their doors to 16,000 aspiring engineers per year.
However, right now, the industry based on monetizing teen angst is itself in a frenzy. With the Indian economy fully reopening, COVID-19 pandemic-era investor enthusiasm for online problem-solving is giving way to a renewed preference for physical conferences.
PW’s biggest rival, Unacademy, backed by Singaporean state investor Temasek Holdings among others, has also ditched mobile device limits and entered the “Kota Factory”. (There’s a Netflix Inc series by that name — a coming-of-age story about greasy food, budding romance, and frustrations with inorganic chemistry — set against the backdrop of industrial-scale tutoring.)
Teacher compensation becomes parabolic. Allen Career Institute, which is expected to enroll 125,000 students this year – 70% of the market in Kota – is unhappy that Unacademy poached about 40 of its tutors, he said in a recent Livemint article.
“We hear that annual salaries of more than 20 crore are being offered,” Allen’s manager Naveen Maheshwari told the newspaper, using the local agreement for 200 million rupees. That’s $2.5 million, a princely sum for a Tier 2 city.
Not all tutors get paid the same, but the business case definitely shifts offline.
Continuing the profitability of its core online offering, Unacademy laid off approximately 1,000 employees in April; the app now cuts food and travel expenses, the Economic Times reported.
With COVID-19 lockdowns no longer bolstering distance learning, expect change to accelerate.
PW, which offered online courses for as little as US$45, can earn nine to 17 times more in a real classroom, according to a profile of Pandey by the Ken news site in May.
Traditional tutoring has a faster path to profit, as its success is rooted in India’s post-socialist demographics and economic structure. The industry took off in the early 1990s, just as India was beginning to free private industry from the shackles of licensing and trade barriers. The responsibility for providing jobs has shifted from the public sector to the private sector.
However, there was a lag. The more industrialized western and southern regions monopolized private investment. Outside of the capital, New Delhi, and its outskirts, good jobs are scarce in the Hindi-speaking north, where, thanks to a slower decline in fertility, the population is much younger than in the aging south.
Which explains the unlikely success of a place like Kota which has nothing to offer but teeming multitudes of desperate young people. While some of them really want to become engineers, most simply want to stand out – in the job market, in social prestige and in marriage – from the hordes of unemployed university graduates.
Last month, Vedantu, another online tutoring unicorn, set up its first offline test preparation center in the boondocks of Muzaffarpur in the impoverished and crowded eastern state of Bihar, where the fertility rate is expected remain superior to population replacement until 2039. When it comes to producing a steady supply of teenagers, Bihar has a 40-year “advantage” over Kerala in the south.
These regional differences are significant.
While the national unemployment rate among university graduates is 18%, it is 54% in Rajasthan and 34% in Bihar, the Hindu Business Line reported last week, citing data from the Center for Monitoring the Indian Economy .
The worse the job scene is, the greater the exam stress in middle-class families, and the more opportunities start-ups like Byju’s, Unacademy, PW, and Vedantu have to compete in the classroom. But then, brick-and-mortar institutes like Allen can also build apps and retain their best-known teachers with stock options.
In May, Allen sold a US$600 million stake to a new investment vehicle founded by media mogul James Murdoch and Uday Shankar, the former Indian chief of 21st Century Fox Inc. The competition for hybrid tutoring – a mix of online and offline tutoring – is only going to intensify.
In the first episode of Kota Factory, the protagonist’s father has second thoughts about uprooting the 16-year-old from his family, school, and town, and transplanting him to an alien environment. The chances of success are low: although Kota produces one in five IIT entrants, only one in 50 applicants in the city manages to secure a place.
“But your child – he only needs a seat,” says the boss of the coaching institute.
The parent makes the check, a bet the global private education industry hopes career-minded Indians will continue to take for decades to come.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
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