The Ed-tech Conundrum: Horizontal diversification - Boon or Bane

Ed-tech industry in India is a ~USD 5 Bn market in 2024. While it has historically grown at ~20%,the past few years have been slower growth in terms of new funding due to a wide range ofreasons such as investor skepticism.

Ed-tech startups always start with a very focused problem for one specific student group with awell-defined solution. As users show interest and the startup gains eyeballs, the team’s choicesfor revenue growth are one of the 2 options below:

1. Increase in customer base – Expansion to new customer base i.e different student group.
2. Average revenue from customer – Through price increase (not the focus for early-stagestartups), or vertical integration and add-on services to the existing users.

Founders often chase growth by expanding horizontally—new exams, ages, or subjects—because TAM jumps look irresistible. In practice, only low-distance adjacencies create value.High-distance moves impose a focus tax (Rising content costs, sales-heavy go-to-market, andweaker cohorts).

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Levers supporting horizontal expansion: Key factors influencing/ supporting horizontalexpansion:

• Internal factors - Existing tech and product team: Early-stage products are usually builttech-heavy with no/ less dependence on manual operations. This helps in readilyavailable validated resources for expansion.
• TAM increase: While the initial set of student group can be small, horizontal expansioncan easily result in fast TAM increase supporting the business case and viability.
• External factors - Existing brand name/ reputation: With success in first student group,expansion further to leverage the brand name and credibility developed in market.

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Loss of focus: Initial approach started with a specific problem that you are solving for a studentgroup, but in the journey of horizontal expansion startups lose focus on finding a problem andstart becoming generic in nature i.e., start competing with coaching institutes, schools, tuitions,offline institutions. This loss of problem-centric approach, results in the need for focus on largersales teams and increased focus on sales competing with this new competition, turningorganizations to sales machines from ed-tech companies

This shift from product-led learning to sales-led expansion typically shows up in metrics.LTV/CAC ratios compress as CAC raise 40-60% with no sudden bump in LTV. Content cost perlearner often inflates because building credible depth across many exams/subjects requiressignificant underestimated effort. Together, these signals the ‘focus tax.’ in discussion.

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Indian history: 2 case studies from Indian market showing diversification:

• Byju’s:
  • Initial focus: Offline classes + early online modules in CAT preparation.
  • Adjacency/Horizontal moves: Move to JEE, NEET, CAT, UPSC, early learning / kids,coding, offline coaching through several acquisitions (Aakash, Osmo, WhiteHat Jr.,Toppr etc.,) and internal builds.
  • Key risks resulting: Having a very broad portfolio with rapid expansion resulted inintegration complexities, increased focus on sales.
• Unacademy:
  • Initial focus: Free content for UPSC aspirants.
  • Adjacency/Horizontal moves: Added other competitive exams (CAT, JEE, NEET, statePSCs, banking, SSC, etc.,).
  • Key risks resulting: Multiple horizontals brought execution complexity (layoffs in2022-23 along with leadership/strategy resets in 2025).

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Key learnings from across the world:

US ed-tech market is estimated at USD 50+ Bn market as of 2024. Below are a few key learningsfrom ed-tech companies from US:

• Duolingo: Started in 2011, as a free gamified language learning app, with Spanish andGerman. Expanded to multiple languages (40+), multiple geographies with the continuedfocus of language learning for casual learners. AI is used as lever to increase ARPU.
• Coursera: Founded in 2012, with focus on MOOCs (Massive Open Online Courses) inpartnership with top universities (Stanford, Princeton etc.,). Continued focus on MOOCswith professional certifications, online degrees. Growth driven by partnerships.

We notice similar models evolving in India as well:

• Khan Academy: Started as free math tutoring content (K–12 focus), with simpleexplanations and practice problems. Sticking with K–12 curriculum platform (math,science), expansion driven by partnerships with schools and teachers, leveraging of AI,expansion to global languages/localization (Spanish, Hindi, etc.).
• Embibe (acquired by Reliance Jio): AI-driven test prep platform (JEE/NEET focus), withdeep analytics and personalized feedback. Post acquisition still continues to focus onproviding AI-driven learning, doubt resolution, and its core test-prep + analytics identity.

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Decision of horizontal expansion: Founders have to take a rationale and analytical drivendecision to horizontal expansion to dodge the ‘Focus Tax’.

Key factors to evaluate adjacency distance:

• Customer overlap: same learner & payer?
• Problem overlap: same outcomes/assessments?
• Channel overlap: same acquisition & delivery (online, centers, B2G)?
• Capability reuse: content engine, faculty model, data/AI stack reusable?

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New-age ed-tech expansion models:

Beyond horizontal or vertical expansion, edtech startups are also experimenting with alternativerevenue levers that preserve focus on core learners. While reckless horizontal expansion createsa focus tax, these new-age models offer more sustainable monetization pathways.

• Outcome and career-linked:
  • Pay-after-placement: CTC-linked fees (Masai School – pay after job placement).
  • Employer-paid events: Sponsored hackathons/ other events (HackerEarth).
  • Placement services: Staffing and hiring adjacency (upGrad Rekrut).
• Institutional partnerships:
  • Corporate upskilling: B2B contracts for training (upGrad for Business).
  • School licensing: Per-student SaaS (LEAD School – licensed curriculum & tools).
  • Government tie-ups: State-level curriculum integration (Khan Academy India).
  • Assessments SaaS: Proctoring and exam platforms (Mercer | Mettl).
• Community and Content Monetization:
  • Certifications: Co-branded or NSDC backed certificates (Scaler).
  • Ads and sponsorships: Audience monetization via content & community(GeeksforGeeks – ads + sponsorships).
  • Publishing: Books and study material (PhysicsWallah – PW Store).

Cohort-based professional programs (e.g., Metvy’s VC/CMO fellowships) monetize communityand network effects, offering outcome signaling and peer access as much as curriculum

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Key growth trends and what to expect in India:

While India does witness focused plays occasionally, investor pressure, drive for rapid expansionhas pushed most big names (Toppr, Doubtnut) towards exits or acquisitions resulting in loss offocus.

The survivors (Embibe, Khan Academy India) show that:

1. Deep tech/product differentiation (Embibe’s AI) can sustain their core focus.
2. Unique expansion models as listed above can allow scale without just horizontalexpansion.

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Summary:

‍Looking at India (BYJU’S, Unacademy) and global comparables (Duolingo, Coursera), the patternis clear: AI-amplified vertical depth and institution-led distribution are more sustainable. TAsIndia’s ed-tech sector matures, startups should evaluate alternative avenues of expansioncompared to rapid horizontal expansion with a mid-path being focused and controlledhorizontal expansion in medium term.

In the years ahead, one should expect more startups leveraging AI while anchoring on clearlydefined student group.