The importance of education is undeniable. It has an immense impact on society and the next generation of scholars, leaders, and workers. During the global COVID-19 lockdown, educational content became much more digitally focused, and this shift does not show any signs of slowing down. In this episode, Aviel Lazar, vice president of engineering at the B2C educational technology company Chegg, and McKinsey senior partner Andrew Goodman—who helps lead the firm’s work in Technology, Media & Telecommunications Practice in Europe—explore the Israeli and global educational technology market and offer practical advice for entrepreneurs seeking to either enter the market or scale their current educational technology business.
Peleg Dekalo: I’m a consultant in McKinsey Israel, and the host of our podcast—McKinsey Israel on High-Tech.
Andrew, you’re leading McKinsey’s consumer tech and media work in Europe, and one of your areas of expertise is education and educational technology.
Would you mind telling us about the educational technology market in terms of size, growth, and how do we, in McKinsey, segment this market?
Andrew Goodman: Yeah, sure, very happy to. If you think about education and learning overall, it’s about a $5.5 to $6 trillion dollar market globally. But the thing that’s striking about education and learning is that most of the market is actually government spending—a kind of public spending. So for many people, the experience of education will be going to a government-funded school or going to a government-funded university around the world. And if you look at that market, it is still predominantly publicly funded and also in many areas, the market is still predominantly a B2B business market rather than a B2C consumer market.
What’s really interesting about educational technology—or “ed-tech” as people refer to it—is that it’s a large and rapidly growing part of the overall education market. Depending on how you think about it and how you would count the market, it’s something like $200 billion in revenue today but growing at 15 to 20 percent a year.
When we at McKinsey think about educational technology, we really think about it through two lenses. The first lens we think about is typically, “What’s the age and stage of education that’s being provided?” This spans all the way from the pre-K early-learning education offering and companies to adult learning and workforce space. And then, the second [lens] we think about is almost a stack of provision of that education, starting from the things that touch the consumer or touch the learner.
Those might be offerings like … tutoring or some of the direct provision where the learner is directly interacting with that service all the way down the technology stack to some of the software that, on a B2B basis, powers schools and universities [as well as] learning providers; even some of the big school-information software providers and some of the big learning-management system providers. So we‘re seeing public and private valuations of educational technology [groups] in the ten to 20 times revenue range even for quite mature companies.
Peleg Dekalo: Now it’s time to introduce our second guest, Aviel Lazar. Aviel, you’re leading Chegg’s R&D center here in Israel. Please tell us about Chegg and where is it that you play in the market that Andrew just outlined?
Aviel Lazar: So, I would probably say that Chegg is the largest B2C education technology company, maybe, outside of China. We mostly focus on people at the end of high school, college, and entering the workforce. So, this is the lens that I see in the day-to-day. The biggest play for us is personalization. How do you personalize education? Once there are companies, overall, that get to a large scale, and they now are exposed to not only a specific country, but they have more data, more users, they can offer a more personalized experience for the learners.
Peleg Dekalo: How do you do that in practice, Aviel, and even specifically in your R&D center in Israel?
Aviel Lazar: So Chegg is a company of almost 2,000 people, and we have R&D centers around the world. One of the R&D centers is located here in Israel where we’re a little bit more than 100 people. The way we basically do it here in Israel is we’ve been part of an evolution that we’re taking in the company and providing a more adapted and, as I said, personalized experience, to what the student is coming to do in our product. And we will recommend what to do, what their best next steps [are] in order to have the best rate of investment of their time to improve their skills and their knowledge, and get the best results.
We have developed a new kind of experience for students, specifically on mobile, because we believe this is another trend that we’re seeing students want things in bite-size. They want things much more flexible, on the go. So, you definitely need to create more flexibility and adaptability to the changing lifestyle of the students, so that’s some of what we do here in the R&D center in Israel.
Peleg Dekalo: Tell us a little bit about the story of Chegg Israel. How did it end up having one of its R&D centers here?
Aviel Lazar: I’ll start from the beginning of Chegg. Chegg started from solving a specific problem for students, which was that textbooks were really, really expensive in the United States. If you had the chance to try to buy a textbook for your studies when you’re in college, back then it was above $150 per textbook. And there was a great, talented group of people here in Israel who offered to build the first e-reader for Chegg—basically allowing Chegg to sell digital textbooks and building the e-reader for them.
Peleg Dekalo: What year are we talking about?
Aviel Lazar: We’re talking about 2011, probably. And I personally joined half a year after the acquisition where they said, “Okay, we want to do more in Israel.” This is where we started to grow into doing some of the mobile apps for the company, and this is where I joined. Fast forward nine years, it’s one of the main R&D centers of Chegg with around 70 developers, which is doing the mobile apps and also owning some of the most critical systems for Chegg. So that’s a little bit of the background. What happened in this period of time [is that] we understood renting textbooks was a big problem, and it is still a problem. We save money for students by renting them textbooks, but the bigger problem for them was they wanted to get help when they run into their assignments and they need to study for exams. So, we provide basically solutions in writing support, study help, and math instructions. That is the bigger play we‘re doing right now.
We’re [also] moving into helping you after you study to get a job. Chegg has a service that allows you to acquire new skills or relevant skills that are relevant to the job market. And the next thing that we were helping students with is managing their finances.
Peleg Dekalo: What can you tell us about the advantages and disadvantages of leading such an R&D center in our country?
Aviel Lazar: So, I would say the advantage—and I’ll be a little bit cliche maybe—is the talent pool. We are a resilient culture. So, managing through change and basically thinking creatively on problems. All [Chegg’s] companies that have been built in Israel are, from day one, built to be international or global because to the global market, you can get a great talent pool of people who are already doing it, or they know how to do it, and they think globally from the get-go.
Peleg Dekalo: Thank you for this overview, Aviel. Now that we have a rough understanding of the market setup and what Chegg is all about, let‘s talk a bit about the pandemic implications on that market. Like any other, let’s call it, “remote-friendly” market, the education technology sector also achieved great growth throughout the pandemic.
Andrew Goodman: So, it‘s a great question, and there’s been a few different impacts of the pandemic that have happened so far, and also a few I think that are still to come. I think the first thing the pandemic did was, it really accelerated the adoption of education technology in quite a few different ways. In some areas, it changed consumer demand and consumer preferences. A good example of that is in virtual schools—which have historically been a very small proportion of the overall market in most countries—suddenly became things that had not previously been even in the considerations of parents. Suddenly, parents started to consider, “What would it be like to send my child to a virtual school, either during the pandemic or on a long-term basis?” And there are lots of examples of that, but that’s just one where the pandemic has really changed consumer behavior. It also changed adoption of technology by quite a few of the large education providers.
Probably the most striking example of that is, in many countries, it was impossible to deliver in-person tuition for large periods of 2020. And therefore, in many countries, suddenly every university had to have a high-quality, functioning learning management system and had to have materials made available through that learning management system. It also changed policy in quite a few areas. If you look at something like online proctoring—being able to set exams online—a significant uptake of things like online proctoring that beforehand had just not been allowed by the policies of either institutions or of governments, suddenly became available.
The second thing which is equally—frankly, if not more—important, and that I think is often overlooked is there‘s been really very significant learning loss during the pandemic, and that learning loss in education hasn‘t been distributed equally. Typically, students from families with higher and better-off socioeconomic backgrounds have typically experienced less learning loss. Those from more challenging socioeconomic backgrounds experienced more. That’s incredibly important, just as we think about our societies and how we educate children. But it’s also meant that in many countries, governments have decided that they need to step in in at least some way to provide supplemental tuition for those students.
Both in the United States and the United Kingdom, for example, you’re seeing government funding going toward either one-on-one or small-group tutoring and tuition, which is not something that’s really been done on quite as widespread a basis. So you’re starting to see companies either scale or develop around addressing some of the learning loss that’s happened during the pandemic.
And then the third thing that’s happened is obviously in many countries, people during the pandemic lost their jobs, or in countries that had employment support or furlough programs, people ended up on those programs. And that really, I think for many people, provided a stimulus but also, in some cases, provided the time to think about what that reskilling might look like. So you’ve seen real uptake of some of the kind of skill offerings that Aviel was talking about in terms of being able to kind of build your skill set either within your existing industry or to acquire a whole new set of skills.
Peleg Dekalo: Thank you for providing us with this macro overview, Andrew. Now, let’s go to a bit more of the micro implications, and let’s use Chegg as a case study. How did the pandemic affect Chegg’s trajectory?
Aviel Lazar: So, I think it will really resonate well with what Andrew just articulated. Basically, we’ve seen students lose the services they were getting from the campus for their universities. They went back home, and the universities didn‘t have the right resources or the right methods to provide the same services to them. Students needed to figure out the assignment and no longer had the study hours from the campus or even their study group to figure out things. So, they started to Google, and then they got into Chegg’s world.
Peleg Dekalo: Let’s switch gears and talk about the future. Let’s start with you, Andrew. A lot of our work in McKinsey is helping our clients to better prepare for the future. Tell us a little bit about how we do that in educational technology.
Andrew Goodman: So, we broadly serve three types of clients in the education work. We help quite a few of the largest education providers—but also the largest education companies in the world—and significantly improve the performance. That’s everything from how to significantly increase the cadence and speed of your product development cycle so you can get products out to market very rapidly, and it can be figuring out how to be most cost efficient in the delivery of your provision or in the acquisition of your students and your customers so you can reinvest in quality and reinvest in provision.
The second, we do quite a bit of work with what I would think of as fast-growing, earlier-stage education and educational technology businesses. For those businesses, the questions are typically around growth: “How can we grow as quickly as possible?” And really, one striking truth about the education market, particularly outside of China, is that there’s now a relatively large number of education companies that have a market capitalization of more than $1 billion, but very few education companies still have revenues of more than $1 billion.
The last category is actually companies that are not education and learning companies at all. I lead our consumer media and consumer technology work in Europe, and I would say, of clients in the telecom and media and technology space more broadly, probably the sector we get asked the most about growing into an adjacency in is education and learning. So quite a bit of the work that we do is for companies that are not education and learning companies, but are trying to figure out how to grow in education and learning, and what a compelling offer looks like, given their distinct strengths.
Peleg Dekalo: You mentioned one growth lever, which is internationalization, which is expansion. Aviel, what kind of work is being done in Chegg on that aspect?
Aviel Lazar: I think we’re experiencing a globalization. So basically, even a company in Israel that wants to help education in Brazil or something like that, it is something that is much more possible, and penetrating those markets is easier, especially with the help of bigger companies or a bigger platform of educational technology, maybe like Chegg and others like Coursera, or something like that.
Peleg Dekalo: When we think about pockets of growth or even growth levers, I would really like to get your perspective on what are the new solutions that we see the most?
Aviel Lazar: From my perspective and from the lens of the B2C—I would say from the student perspective—where I’m most excited about to see the growth coming from is this hybrid-learning experience, meaning you don’t have to be in class to study. It’s much more flexible, and what we need is to reinvent the classroom.
The same way that we’re seeing some companies trying to reinvent the workplace with augmented reality and other stuff. For me, it’s kind of, “Okay, the universities have to understand that having an in-person experience in class is no longer the only way to teach and to learn new skills and get knowledge.” For me, over a five- to ten-year horizon, it‘s a completely new classroom experience. As I said, maybe on-the-go, flexible, bite-sized, or personalized.
Peleg Dekalo: Andrew, what are the solutions we can expect to see?
Andrew Goodman: I really like Aviel’s framing of the situation, and I think there is a debate within the educational learning community as to what the next 20 years look like. There are definitely some people who are at the techno-optimist end of that spectrum, and they basically argue that we‘re at an inflection point that can blow up the conventional provision of education.
Education will look totally different in 20 years. It will not be the same types of institutions we have today: it will be fully personalized. And there’s probably another end of the spectrum, which is for structural and societal reason. And the core of education provision in 20 years’ time will not look that dissimilar to today. We will still have schools. We will still have universities, but the impact of technology will be to change each layer of that provision in a few different ways.
I think the first of those is just really ubiquitous access to really high-quality content. I think we all probably remember our own educational experience and thinking there was some content that we got taught that was both amazing in its quality, but also amazing in its pedagogy and teaching, and that really stuck with us. But we probably also remember some content that wasn‘t as good, that wasn’t as high quality. And the pedagogy may also not have been as high quality. I think one really powerful impact that technology is having is really making that very high-quality content and very high-quality delivery ubiquitous in its access.
I think the second thing that’s really going to change is access and the range of different ways of accessing and of modalities and timings of accessing learning. We have universities, but I think people will not just access post-secondary, post K-12 learning through universities, but also through a range of the kind of former kind of massive, open online course providers through their employers in a variety of different ways, be that from fully bite-sized in the way that Aviel was talking about, through to much more modular, through to kind of full provision.
One of my favorite examples is—it’s a very niche example but I think it shows you what you can do—is Leiths [School of Food and Wine], which is a cookery school in the United Kingdom. And obviously, if you were at a cookery school in the United Kingdom during COVID-19, it was a particularly challenging time, right? It‘s an in-person activity. You’re typically in small groups in very close proximity with other people. You’re preparing food.
Leiths was able to effectively transition to a digital and very immersive offering, with great asynchronous content that was recorded by really high-quality teachers. But also, to make the assessment and the video assessment much more totally online, totally digital, and much more interactive. So, I think you’re going to see, in my mind, the structures of education will persist, but the content will become dramatically better.
Ben Evans, [who is] I think, one of the most interesting kind of technology analyst out there, also says that at the time that you had 3G and mobile smartphones, it wasn’t clear what the killer app for 3G and mobile smartphones was because it was just hard to envision it at the time. And while it’s a different context, I think the same, to some degree, will be true of educational technology. It’s easy to understand what the impact on traditional systems will be. I think it’s harder when content is modular, liquid, and distributed to understand what some of the killer applications beyond the next ten to 20 years are going to look like.
Peleg Dekalo: Andrew let’s talk about the entrepreneurs: the ones seeking growth and coming to McKinsey for our teams to assist them with identifying those pockets of growth that we talked about. Focusing on the innovation side of things, what do you see from your wide perspective that’s missing in this market?
Andrew Goodman: I think the main answer is probably scale. That sounds like a little bit of a trite answer, but I think education and educational technology is still an astonishingly fragmented industry if you compare it to any other technology-enabled industry. There’s no Facebook or Amazon or Google of education and learning. Oh, and by the way, all of those players, and particularly Google, do have significant presences, but the problems that educational technology entrepreneurs are trying to solve have lots of parallels in the problems that other entrepreneurs have tried to solve over the last decade.
Peleg Dekalo: Aviel, do you have any advice to young entrepreneurs? Maybe you can identify some shortages, something that is missing, a specific thing that is untapped, or even more on the macro level?
Aviel Lazar: In the past, educational technology companies, especially around B2C, were more like do-good kind of companies. And now we are seeing educational technology companies going to the high-growth side, and there’s more money in the market, and investors are much more interested in educational technology than ever before. So for entrepreneurs who are thinking whether to start an educational technology company, that’s like: hell, yes, it‘s that time.
And this is to the entrepreneurs which—the field that I’m most excited about, as I said, personally, is reinventing the classroom—this is having everyone able to access a great, great quality of content. In the end, for all of us in the educational technology industry, we want to do good. I believe when you do good, you bring value to the world. And it translates in the right kind of setup to hypergrowth. So that is kind of my advice—now is the time to open an educational technology company.
Peleg Dekalo: Andrew and Aviel, it was a true pleasure having you on. We heard a lot of insight, from you. Thank you very much for being on the show.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.