NetDragon Websoft - Education Value Chain

What's the best business model?

This is our continual thoughts on NetDragon Websoft (NetDragon) as we move on to ponder on the online education part of their business.

For the longest time, we have been interested in putting some money to work in online education business. The early stage online education business do have some inherent characteristics that appeals to us as an entrepreneur and operator.

We also come to appreciate that as we put ourselves in different position (entrepreneur, VC or public investors), we would have invested in different type of online education due to the different characteristics. We will divide them as below.

  • direct to learner (D2L),

  • powering the educational institution or

  • ownership of educational IP.

Direct to Learner:

We could understand D2L through the view of an early stage venture capitalist (VC).

  • Ability to build a niche and then scale rapidly

  • Very capital efficient as you do not need to carry a lot of staffs or inventory

  • The company directly own the client making the LTV easily comprehensible

  • Customer paid upfront for the courses making it a cashflow positive business

  • The tech barrier is low but the network effect is actually high as you will need to gather the teachers and the students forming a platform.

  • An early stage VC who had seen many possible variation of an idea would be able to judge if a concept would work or not

Since the model allow you to scale quickly, providing cashflow, this business model is ideal for an early stage VC, budding entrepreneur or a venture builder. In my earlier article, we talked about our plans to build a EdTech company and our initial concept had been on the premise on this model.

The education platforms which teaches various skills are like Codecademy, Duolingo, and Outschool.

Powering the Institution/country:

We could understand D2C through the view of a late stage venture capitalist (VC).

  • The powering of the education institution is a costly model.

  • First, on boarding a school is tough as you need to get pass the school administrators and the teaching staffs.

  • If you are tackling the public school sector, god bless you. Talking to one public administrator is tough enough, just imagine trying to convince the whole ministry.

  • If you manage to get a couple of contracts, just imagine the work your competitors will need to put in to take your contract.

We could see how hard it is to get rid of an existing platform powering an institution/country. Nobody will like to use a new platform unless the existing platform is totally broken. We could see the SAAS education platform to continue powering ahead and the moat of replacement is very high for a platform powering a whole country.

Ownership of educational IP:

The last part is to ownership of the IPs, digitise them and/or licensing it out. We wonder if the IP for textbooks and storybooks would be as valuable like music IP. The companies under this list would include companies like McGraw-Hill Education, Pearson Education and Scholastic Corporation.

Pearson had just inked a collaboration with NetDragon to license some of their IP. For now, we think the balance of power still rest with the platform such as Edmodo which NetDragon owns. The beauty of the platform technology is that the customers has to use the platform and it is basically a gateway.

Just imagine the scenario that Edmodo is the “official” education platform powering all the young learners in Turkey and Pearson only chance of taking any significant market share would be through a distribution agreement with Edmodo. We believe that NetDragon opportunistic licensing of IP from Pearson is a good start for Edmodo to build a credible educational IP within their platform. We could see the same possibility with NetDragon licensing IP from companies such as Scholastic as well.

A platform could easily monetise by getting customers to pay for better content. So IPs from Pearson and Scholastic would be like an add-on bundle on top of a platform. We believe that Edmodo ultimate business model would be akin to an Apple Appstore. For now, we will prefer to own the platform than the content thou the content will also be key going forward.

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Disclosure: At the time of publishing Wee Hiang has a position in the above company. Holdings are subject to change at any time. This report, and disclosure, should not be considered to be a recommendation.