The Indian educational market can prove interesting for private businesses, even in these times . India has a large population (more than 500 million) in the age group 0-24, the government spending on education is spent (nearly 97%) on meeting operational expenses and not for capital expenditure and for the average Indian, education for the kids, forms the second largest household expenditure item. Two equity research reports one by CLSA and the UDFC SSKI makes the case well. The CLSA report is very comprehensive and is the source of the often quoted assertion of the Indian education market to be USD 40bn.

Manipal K-12 profiled in my blog is a new player in this industry. It competes with Educomp, NIIT and Everonn among others. The key element of the business model is to offer specialized hardware and multimedia-based learning content to schools that would make teaching more effective in the classroom.

The scope of growth in this market is large over the next few years. As you will read in my post, the market penetration of all the players is a small fraction of the immediately addressable market (that is the private schools for the more privileged members of the society).

However, content for the K-12 educational market is likely to be an extremely competitive market. The United States for instance has several players in this business: Plato Learning, Renaissance Learning, Scientific Learning, and Discovery Education. Plato’s revenues has actually decreased from USD USD 142 million in 2004 to USD 68 million in 2008. The revenue of Renaissance has remained static in the USD 110 million range and that of Scientific Learning in the USD 40 million range over the last few years.

Why should be the Indian market be different? There are two reasons why it could be so. First, most Indian players have a subscription model which leads to recurring revenue. Second, the scope of expansion in the underserved public school rural market is immense. To take the advantage of this market, however, costs of content will have to come down sharply. Development using standards based learning objects and delivery using scalable Internet/satellite/television based delivery is probably the answer. Equally private players will need to partner with public organizations (state and local governments) and NGOs.

Manipal K-12 is also trying to develop its own brand of schools, like I suppose are all other players. Globally, this model has been a disaster. Edison Schools, went public at the beginning of the century, to set up a chain of private schools. Edison’s stock was publicly traded for four years and the company reported only one profitable quarter! I checked the website recently and it said the company was “growing and improving”.

Again, why should India be different? For the same reasons, corporate hospitals in India, have taken root: the Indian public sector has effectively vacated this space. Having said that, reaching scale building schools is a tricky, not least because Indian parents judge schools by how students perform at the Board level.

The Indian K-12 education market might provide far more opportunities for the private sector than the developed markets have. I do hope so for the sake of our country.

I would love to know your views on this market and find out if you are building any businesses in this space.