Global investment in online education corporations has fallen to its lowest level in a decade because the industry comes under pressure from the rapid rise of free generative artificial intelligence tools that undercut their products.
According to data from PitchBook, edtech corporations that provide services like online tutoring and exam practice received just $3 billion in investments in 2024, in comparison with $17.3 billion at the peak of the pandemic in 2021. This is the least amount since 2014, when edtech corporations attracted $2.3 billion.
The huge decline comes as edtech corporations, which grew in popularity through the pandemic and mass school closures, struggled to keep up subscriber growth after the Covid-19 emergency ended.
This has been exacerbated by the rapid development of generative AI over the past two years, which has further driven up demand for paid online learning tools from edtech corporations and caused their valuations to plummet.
“While edtech offers the potential to shut the talents gap, many investors and learners feel that the platforms haven’t truly delivered on that promise,” said Sabah Baxamoosa, director of business development at entrepreneurship platform OneValley.
However, investments in generative AI are booming. According to PitchBook, investors have poured $51.4 billion into development technology this 12 months, up from $16.5 billion in 2021.
Chegg, a California-based edtech group, was one in all the primary corporations to report a decline in business from the launch of OpenAI's ChatGPT, causing the stock to fall abruptly from its pandemic high.
Since then, the corporate has continued to struggle. In November, the corporate announced it could cut one other 21 percent of its workforce, just six months after the last layoffs. In the third quarter, a year-on-year decline in subscriber numbers was reported by 13 percent to three.8 million. Chegg shares have fallen about 84 percent this 12 months.
“Recent advances within the AI search experience and student adoption of free generative AI services have created challenges for Chegg and other direct-to-student learning services,” said Nathan Schultz, CEO and president. “Instead of developing critical considering skills, students often depend on AI to get quick answers, which harms their long-term understanding.”
He added that Chegg has a “deep heritage” and a “resilient brand” and that next 12 months it’ll “further strengthen the educational experience for college kids who wish to learn, not only get a take-home answer.”
Coursera, which offers online courses, certifications and degrees, also saw its share price decline greater than 56 percent this 12 months. Shares of Udemy, an analogous online learning platform, have fallen greater than 43 percent this 12 months.
However, language learning app Duolingo is one in all the few to buck this trend: its shares have risen almost 60 percent this 12 months after increasing the variety of users and paying subscribers attributable to latest features. Some features are supported by OpenAI's GPT-4 for personalized feedback.
Competition from AI corporations has increased this 12 months as OpenAI and Google expand their educational offerings. OpenAI launched ChatGPT Edu in May, a version of its popular chatbot utilized by London Business School and Arizona State University. This 12 months, Google developed LearnLM, a family of models specifically tailored to be used in educational environments.
Edtech corporations at the moment are rushing to integrate AI into their products, arguing that the technology has the potential to enhance their services.
The Khan Academy and Coursera platforms have built-in generative AI assistants for interacting with users. Speak, a language learning platform, uses OpenAI's Whisper language model to show through conversation.
“AI will impact the best way people learn greater than almost some other area of human activity, especially considering that education is a rare area where software has not yet significantly modified things,” said Connor Zwick, CEO of Speak.
The San Francisco-based startup recently raised $78 million at a valuation of $1 billion, led by Accel and with participation from OpenAI's startup fund, Khosla Ventures and Y Combinator.
Zwick said individuals are willing to pay for a more specialized experience, but added that Speak doesn’t define itself as edtech. “I just don't think investors are excited in regards to the edtech industry and you’ll be able to't blame them after last cycle's performance. These days, edtech is sort of a meaningful word.”
Some edtech corporations are attempting to generate latest revenue by helping teachers detect when students have used generative AI to cheat on tests.
Last 12 months, Turnitin introduced AI-generated text recognition as a part of its offering and has since reviewed greater than 200 million articles. Annie Chechitelli, Turnitin's chief product officer, said the tool has an 86 percent accuracy rate while keeping the variety of false positives – where the tool mistakes human-generated content for AI – below 1 percent.
“We were capable of respond quickly because we've been working on this since 2020 (but) since school began, students have been inventive and inventive in terms of infiltrating systems (and) latest threats proceed to emerge,” she said.
Many within the education sector are skeptical that these changes will help improve the outlook for edtech corporations.
OneValley's Baxamoosa said using high-quality AI models in edtech products is dear and comes with bias, privacy and security concerns. These obstacles, in addition to the pace of change within the industry, have dampened investor appetite, she added.
Jared Cooney Horvath, a neuroscientist and education specialist, said “the fashionable hype” of generative AI has led edtech to “incorporate this word into every aspect of their products – even when, or especially when, it doesn't belong.”
“Edtech corporations are largely made up of engineers, business people and economists,” he said. “Very rarely do you see a practicing teacher or educator somewhere in the combo. Their failure to meaningfully impact education is because they don’t understand the sphere they seek to advance.”
