Darshan Somashekar
More posts from Darshan Somashekar
Now that COVID-19 has accelerated the adoption of digital education tools, edtech has become one of the hottest areas of investment.
As someone who has been in edtech for nearly 20 years, this sounds like the precise moment to capitalize on all the newfound interest. Which is why what I’m about to say might be surprising: I’m leaving edtech for the world of gaming with my new company, Solitaired.
I first got into edtech in high school, when a friend and I founded EasyBib, a website that helped students cite sources for their papers. At the time, we were just students who felt there had to be a better way than formatting tedious citations for research papers by hand. But as we dove into the business further, we realized there was a lot to like about bibliographies and education technology in general.
For one, the education market is large. There are more than 56 million K-16 students in the U.S., and over 1.3 billion globally. Federal, state and local governments spend an aggregate of 5% of GDP on education, and that doesn’t even include what students and parents spend on content and technology.
Secondly, it’s structured. Students generally all go through the same curriculum together. That means most students have the same problem in the same way; if you solve a problem for one group of users, you’ve probably solved it for most users.
The citation problem was just like that. When we sold our company to Chegg, we were already reaching four out of five students that needed bibliographies, or over 30 million students in the U.S. Edtech companies that help students with math, chemistry, homework help, tutoring and other curricular needs can build massive audiences quickly.
Edtech that’s part of the curriculum also has high engagement. EasyBib users stayed on our site for nearly ten minutes per session, creating one citation after another for their bibliographies. For direct-to-consumer edtech companies that are ad and subscription driven, this behavior creates many monetization opportunities.
While we grew fast, our endemic market opportunity was limited. Why? The strengths of edtech can also be its downsides, especially for a startup. On the user growth front, we focused on school relationships, marketing and SEO. But once we reached four out of every five students in the U.S., there wasn’t much more room to grow.
To increase engagement even further, we tried a number of things: encouraging more citation creation, adding research and note-taking features and building a Chrome extension to be more ever-present in the user’s research journey. Those efforts fell short too. Ultimately, the school calendar dictated how often students needed to use us, and we were constrained by the number of research papers teachers assigned.
These challenges can certainly be overcome. But as a startup, we had to decide if we wanted to pursue adjacencies and expansions ourselves. Ultimately, this realization was one of the reasons we decided to sell our company to Chegg, which had a wider user base and product synergies that we couldn’t achieve on our own. As anyone who follows Chegg might know, they’ve been very successful in accelerating the edtech digital transformation.
When we began thinking about our second business, we had these lessons in the back of our mind. That’s when we discovered gaming.
Edtech startups find demand from an unlikely customer: Public schools
The metrics of gaming looked not just similar to our EasyBib edtech experience, but in many cases better.
- It’s a massive market: In the U.S., there are 56 million students, but over 150 million people who play casual games.
- When people play games, they play for a long time. While EasyBib’s eight-minute time on site considerably exceeds that of the average website, studies show gamers play on average six hours a week.
- It’s evergreen: There’s no school calendar restricting when and how often someone wants to play a game.
- It’s resilient: As we’ve unfortunately witnessed over the last year, industries that are location agnostic and tech driven are more easily adaptable.
Of course, we also discovered the downsides in gaming too.
High CAC: CAC costs are rising year over year, as more gaming companies launch and spend on paid acquisition. In 2019, mobile gaming CACs were $4 per user on average, and have risen 16% YoY. In aggregate, gaming companies spend more than $7 billion on user acquisition annually.
The entrance of Big Tech: Apple, Amazon, Microsoft and Google have all recently made moves into the cloud gaming space. We’re in the early days of this transition, but cloud gaming presents real risks to game companies, as it shifts the balance of power even more to the platform owners.
The dark underbelly: Gaming companies have often resorted to sketchy revenue generating tactics. In-app purchases in mobile games have long been known as vehicles for abuse, taking advantage of kids’ desires to progress in games by overcharging them. These days, every major tech company has ways of enabling parental controls to prevent this activity, but mobile games are often chock full of interstitials, casino games and other distractions.
That said, we decided to take the plunge anyway, by combining our edtech backgrounds with the market opportunities of gaming. While there were risks to gaming, the large and growing market size, resilient economic model and high engagement rates were compelling enough to look past them. As a serial entrepreneur and TMV Venture Partner, I’m keenly aware at how unique of a combination this is.
Earlier this year, we launched Solitaired, a casual gaming platform that ties card games to educational experiences and brain training. We’re still early, but signs are encouraging: Our average time on site is 30 minutes, more than three times that of our earlier business. Even better, users come back often, on average returning more than five times per month. Since we’re now in the gaming space, we should have expected these metrics, but they still blew our expectations away.
We’ve also found that the downsides can be mitigated. For example, high engagement has led to strong virality, driving down our CAC and increasing our growth. In-app purchase abuses can be tempting for game developers, but by focusing on user growth KPIs, we don’t have the desire to go down those routes. Lastly, the threat of Big Tech is there, but at present most of their attempts have yet to strike a chord among users. More importantly, that’s why choosing a market so massive that even individual Big Tech players can’t dominate is key: With a market this size, you can shoot for the stars, miss the moon and still do well for yourself.
As we continue to grow, we’ve realized gaming has characteristics that make it incredibly attractive, but also serves as a model on what to look for when evaluating a new business opportunity in any space.
Gaming rules the entertainment industry, so why aren’t investors showing up?
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