Edtech startups have great products. Their sales? Not so great

By Erin Griffith , written on May 31, 2013

From The News Desk

If you thought monetizing social media apps was difficult, you have not witnessed the bizarrely impossible act of selling education technology into schools. It is, from what I can tell from a startup's perspective, a bitch.

Take Derek Lomas, the founder of Fraction Planet. He started out with a noble goal: building eight-bit educational games fit for a low-tech $10 computer that's popular in emerging and third world countries. As he began thinking about ways to financially support the project, he realized educational games weren't really monetizable. In the US, teachers weren't going to pay for games. Principals were difficult to access. And the procurement process at the district level was an impossible-to-navigate nightmare. "It's like enterprise sales, except you're selling to enterprises that don't have a clear bottom line," he says.

The best option, Lomas decided, was to sell to parents. So now his company's latest project, Fraction Planet, targets the opposite market of its original mission -- he's selling to first world parents willing to spend money on an app for their kids.

That business model decision may have been why Lomas wasn't eagerly pitching principal Ann-Marie Henry-Stephens on a recent tour of her year-old high school, the Brooklyn Institute for Liberal Arts. Many of the other founders in the group, including the founders of Chalkable, Mathalicious, Woot Math, Algebra Touch, LiveSchool, KnowRe, and Hapara, were eager to trade business cards with her in hopes she might adopt their technology in the upcoming school year.

The tour, which I tagged along with on Thursday, was organized by Innovate NYC Schools, a government initiative, as a way to help startups building edtech companies learn from teachers, students and principals. The tour was as much about the way schools use technology as it was about the way they buy it. Listening to Principal Henry-Stephens, it became clear she doesn't have a ton of leeway in her technology decisions. She's part of New York's iZone network of 250 public schools funded in part by Race to the Top and the Gates Foundation. Because of that, her school is given things like laptops and money for software, but there are strings attached.

To get the 90 or so laptops her school received, Principal Henry-Stephens had to choose software from a menu of options provided by iZone as a way to demonstrate the laptops would be used. She had to pay $110 per student per year to license software from Empower Student Information Systems, which was just okay, and she had pay $75 per student per year to license a clunky reading program her teachers hated. She was stuck with these things, because if she didn't agree to license a certain amount of educational software from a checklist, the iZone would take the school's laptops away. That much was clear -- Macbook Pro laptops each had a giant stamp that read "Property of the New York Department of Education." (She didn't get to choose between Mac and PC, either.) Henry-Stephens mentioned she was considering adding the word "technology" to the school's name to be considered for more technology-related grants and funds.

As a new school, she was open to and excited about discovering the best technology for her students and teachers, but was limited in what she had funds for. She could have hired nine teachers in her first year, but she chose to hire seven to free up budget for more investments, including those related to technology. Next year, even though her school will double in size as it adds tenth grade, she won't get more computers.

As Principal Henry-Stephens described the layers of bureaus and departments and non-profits she has to navigate to get funding for her public school, it made me think about the charities that spend half of their resources jumping through hoops to prove they are worthy of donations. Yes, the schools get money to invest in technology, but they aren't trusted to choose the best kinds of technology. It's this sort of top-down decision-making that ultimately hurts schools -- they aren't given the trust and autonomy to choose what's best for their teachers and students. This also hurts small edtech startups trying to get even the tiniest bit of early traction to sustain their operations. They have no idea how to get into iZone's list of recommended technologies, let alone get in front of a principal or tech buyer.

And the iZone is supposed to be one of the country's most forward-thinking school projects. Steven Hodas, a director at Innovate NYC Schools, says the group is moving, at least philosophically, toward a more teacher and school-friendly model, pointing to the group's latest Gap Apps challenge as an example. Indeed, the tour group was made up of Gap App's recent winners. Founders of the contest's winning startups toured two Brooklyn schools for an in-depth look at innovation (and its challenges) in urban schools. They also got a small chunk of prize money.

Question marks swirl around even the biggest success stories in the latest wave of edtech innovations. Edmodo has gained the most traction with teachers, now reaching 18 million end users. The company, backed by $40 million in VC investment, is convinced it will be able to monetize with premium apps and tools it sells at the school and district level, but it has only begun this process. Meanwhile smaller companies like Chalkable (a Gap App winner) are working on partnerships with the big legacy ed-tech companies that already have ties to the school systems. Others, like Schoology, are just buckling down and using data to target the schools they're most likely to score a contract with. And yet others have defied conventional wisdom from the schools and dove straight into a freemium model, risks be damned. 

When the tour bus full of hopeful entrepreneurs departed Tweed, the massive courthouse which is home to the Department of Education in downtown Manhattan, there was a middle-aged man in khakis and a button-up shirt standing on the sidewalk. He stood silently in the morning sun, holding a professionally printed sign that said "Why don't we just teach the kids to read." (No question mark, strangely.)

I had to wonder if he, like many edtech startups, had years ago started out with lofty, naive ambitions about making a difference in kids' lives. Then somewhere along the way he became so disillusioned with the miles of red tape and bureaucracy involved that he felt he had no choice but to wage a quiet one-man protest. His message seemed silly to anyone in the building. Teaching kids to read is the point, buddy. We are trying here. Who says we're not? But it also held a subtle lesson to the startups in the bus -- it'll never be as simple as just teaching the kids to read. You're in for a difficult ride.

[Image Credit: x-ray delta one on Flickr]