Updated: Jul 4, 2022
As Mark Zuckerberg built and scaled Facebook, he had a bigger vision – Facebook shall one day sit at the helm of everything that’s social media. So, later on it acquired WhatsApp and Instagram, which are today two of the biggest and most influential social media platforms.
Just about on the other side of the world, an entrepreneur, originally a teacher, naturally wiser looking, much less shrewd and very much Indian, carried a similar vision. But this one is about everything Edtech. Byju Raveendran, co-founder of India’s biggest Startup and also the world’s biggest Edtech Startup, likes to reiterate the company’s motto to every new salesperson:
sooner or later everyone in Edtech will directly or indirectly work for the company.
And rightly so, 10-years-old Byju’s now has 16 other companies under its fold (7 acquired in 2021 alone).
Fun Fact: Chan-Zuckerberg Initiative (CZI), founded by Mark Zuckerberg and his wife, is an early investor in Byju’s. No wonder Zuckerberg finds similarity in Byju’s vision!
Okay, let’s dive deeper and ask:
THREE WHYs behind Byju's Rampant acquisitions
1. Backed by deep pockets = Blitzscale!!
The prowess of Byju's is such that equity fund houses from across the world – China, Canada, US, South Africa, and India – have poured in a whopping $4.05 Billion in it over the past 10 years. And what did it do with such huge amount of funds? – Blitzscale!! i.e. grow @lightning speed.
Byju’s has got itself into a very sweet spot, being one of the very few Unicorns in India which is profitable (Indian operations). Which means that the funding it gathers from its investors is not required to necessarily fuel its own business since it is generating its own cash. So, it becomes a no brainer for it to use major portion of its funds to acquire new Startups and Blitzscale. Don’t believe us? Let the numbers speak –
Since 2020, Byju’s has raised $3.07 Billion from investors
During the same time, Byju’s acquired 9 other companies, spending over $2.5 Billion
This means, that as much as 82% of the funds gathered from investors was spent to acquire other companies
2. There is Synergy in Acquisitions
Byju’s The Learning App, i.e. the app developed by Byju’s, focuses on providing learning to the K-12 segment of students (K-12 means all standards from kindergarten to 12th Grade). 14 out of the 17 acquisitions made by Byju’s are Education Companies that cater to students in the K-12 segment. Result?
Varied product offerings- From Coding classes to educational games, from 1:1 Tutoring to Doubt-solving, these 14 companies together have a dozen unique product offerings, catering to the broad segment of K-12. This gives the Byju’s Group of companies the ability to cross-sell different products. For example, the userbase of Epic, which provides digital books for kids, can be targeted for Coding classes of WhiteHat Jr., and vice versa. Plus, since Epic is based out the US, and WhiteHat Jr. is based out of India, both startups can also help each other tap a new market.
3. Byju’s is building something BIG
As explained above, Byju’s, through its acquisitions, has gathered a dozen unique product offerings in the EdTech space. It has masterfully combined the product expertise gathered from all of its acquisitions to build something much bigger – The Byju’s Future School. In April’21, Byju’s announced the launch of this new product, in its bid to expand more aggressively in international markets, targeting US, UK, Brazil, Indonesia and Mexico. Raveendran believes that the cost arbitrage (i.e. the reduced cost of teachers from India vis-à-vis teachers abroad) will bear as much as 60-65% gross margins on this business. In fact, he expects that the international business will contribute 1/3rd of Byju’s total revenue within a year. And if they execute it well, the revenue could “literally be a few Billion dollars” in 2 years.
Okay understood. Byju’s wants to be the one stop shop for Edtech. Good. But...
Are only Edtech Startups acquired?
Out of the 17 companies acquired by Byju’s so far, 15 are Edtech Startups. The other 2 acquisitions, viz. Aakash Institute and WhoDat can be called different. Let’s looks at the WHYs behind both of these acquisitions:
In January’21, Byju’s acquired 30+ year old Aakash Institute, the coveted test prep institute having 200 coaching centres across India. It is by far the biggest acquisition made by Byju’s. You must be wondering, what does a 100% online business have to do with 200 brick & mortar centres? Well, for perspective, look at how Amazon built a $Trillion business by mixing its online businesses with a network of offline stores and warehouses. In an interview, Raveendran said he understands that learning in the future will be blended, and the challenge is to figure out the right mix of online and offline learning.
In August’21 Byju's acquired WhoDat, a Startup that is into Augmented Reality (AR). It provides AR solutions built on computer vision that lets developers build apps which require location accuracy beyond the capabilities of GPS alone. Basically, a lot of complex stuff that sounds cool. But the question is, why would Byju’s acquire a business that is nowhere close to Education? Is Byju’s foraying into other sectors?
No. Byju’s is most likely going to use the innovative AR solutions of WhoDat for its own product development, in its bid to provide immersive educational products to its students.
So basically, Byju’s purchased what it could not build. Brilliant!! What a unique idea. Or is it really unique?
Is Byju’s the only Startup that has adopted the strategy of making widescale acquisitions to grow bigger?
Honestly, this strategy is more commonplace than cows on Indian roads. Here’s some insight into how other startups have adopted the same strategy:
There was a time when the Indian e-commerce space had several players until Flipkart started shopping. Jabong and Myntra got engulfed by Flipkart, and Snapdeal almost got acquired too.
The listed gaming behemoth Nazara Technologies has acquired over half a dozen other gaming Startups in its bid to enter every possible gaming segment.
The other two big Edtech players upGrad and Unacademy are not stopping either. Both continue to make new acquisitions and sweep smaller Edtech players in a bid to expand their product offerings.
But other Edtech Startups are much smaller as compared to Byju’s. Are they getting bullied?
wouldn’t it be difficult for other Edtech Startups to cope-up?
We have mixed feelings for this question. Let’s take it one by one:
The Upside – Other Edtech players can in fact look at this as a lucrative exit strategy – Build an Edtech Startup catering to a niche segment. Scale it up to establish solid proof of concept and also attract Byju’s attention. Wait for a sweet deal and when you get it, don't ask twice! Don’t believe us? Let’s look at WhiteHat Jr.:
Started in 2018 as an Edtech Platform providing coding classes for kids
In just 15 months, it achieved an annual revenue run rate of $150 Million and a user base of 4 million subscribers
In Jul’19, Byju’s acquired WhiteHat Jr. at $300 Million, giving over 50x return to its founder – Karan Bajaj
In India, the age-old education sector has endless room for innovation – in terms of the product offering OR the targeted age group OR the geographical focus OR the manner of delivery OR the language of delivery. Take for example an EdTech Startup based out of North-eastern India, teaching to students up to class 12 in that region in their regional language and according to their State Board syllabus. Even though its offering is same as that of Byju’s, its use of regional language and geographical focus makes it unique and sets it apart from Byju’s. So Byju’s may be an EdTech behemoth, nonetheless, this North-eastern Startup will unflinchingly continue to flourish in its sweet spot, because of its USP.
The Downside – Let’s accept it…no matter how unique your offering is, if tomorrow Byju’s decides to disrupt the same niche segment that your Edtech Startup is catering to, it has all the resources in the world to set up and scale in no time. In times to come, Byju’s is only getting bigger and stronger, which could be a huge entry barrier for new Edtech players.
Okay, so is Byju’s ever going to stop?
How many is Too many?
As explained earlier, since the Edtech space is so vast, there can literally be no end to the number of Startups out there that Byju’s can acquire. But, as Byju’s grows and spreads its wings across segments and markets, maintaining the synergy among these acquisitions and the management of their respective operations will become the biggest challenge to the Parent Company. Functional overlap and repetition of product lines are examples of problems in synergy that Byju's might face if it has too many Startups under its fold. Especially because, each of these Startups continue to operate independently post acquisition.
Another challenge will be the retention of the founders of these Startups, who know the ins and outs of their business. Founders of these acquired Startups need be given enough autonomy to have their own growth strategies and to be motivated enough to keep innovating and growing. However, if the founders’ sentiment is mismanaged, or if they're forced to alter their vision, there are high chances of a fall out:
In August’21, exactly a year after the acquisition of WhiteHat Jr. by Byju’s, founder Karan Bajaj announced his resignation from the Company (reasons unknown). Karan Bajaj was also heading Byju’s Future School – Byju’s big bet in international markets.
Ironically, Instagram's co-founders had quit the team on grounds of lack of autonomy, 6 years after Facebook acquired it.
Finally, as Byju's grows bigger, very soon it might attract the attention of the regulators, particularly the Competition Commission of India (CCI). The CCI is responsible for curbing restrictive trade practices in the country. A Company may be booked under the Monopolistic and Restrictive Trade Practice Act (MRTP) on grounds of abuse of its dominant position.
After acquiring 17 other Companies, Byju's has certainly built itself a dominant position in the Edtech sector of India. It also recently acquired Toppr, which was a direct competitor. But as long as the Company's larger vision remains intact and it does not indulge into abusive practices (like keeping its prices very low or limiting supply), it will likely fend off possible litigations.
This article is a part of the August'21 edition of our Startup Newsletter. Here's the complete publication: