Dissecting Online Tutoring

A number of businesses have cropped up that claim to provide online tutoring. It is a multi billion dollar market opportunity with incumbents such as eSylvan, and upstarts such as Growing Stars and Tutor Vista.

My thesis: the service is only effective in a one-on-one mode, and the P&L, then, is only interesting if off-shore tutors are used (i.e. tutors from India, China, Eastern Europe). India may the best solution, because language problems may be more of an issue elsewhere.

Here are some questions to ask in analyzing a tutoring business:

– How many students are they tutoring?
– How many hours on average do the students use the service?
– Who are these students? Public school students? Private school students?
– Any ethnic bias towards kids of Indian/Asian parents?
– Any geographical bias? Which school districts are adopting the service?
– Experience with home schoolers? Is that a segment they serve? What percentage of the business is home schoolers?
– What subjects do they receive the maximum number of tutoring requests for? Algebra I? Calculus? Biology? Physics?
– Do they ever have missed appointments, whereby students skip their scheduled session?
– What kinds of skill-gap assessments do they do? How do they zero in on what to focus on?
– What content/syllabus do they follow in tutoring the students?
– How do they reconcile state-to-state and school-to-school variations in course material?
– What is the user experience like? Hardware? Software?
– What is the pricing model?
– How much have they benefitted from NCLB certification?
– How do they market the service?
– Do they have experience with advertising using the MySpace/Facebook communities?
– Do teachers recommend/use the service to help their students?
– What are the primary drivers of the business? Test-preparation? Homework help? Other?
– Any issues dealing with teacher’s unions (NEA, etc.) due to off-shoring?

Here are some facts to keep in mind on this market:

While the tutoring TAM is very large ($5 billion), online tutoring TAM is likely to constitute of students who are quite motivated, and omit the ones who are not. This may limit the market substantially, and precise segmentation is necessary to tap into the right set of customers for efficient scalability. In my assessment, Growing Stars, one of the earlier entrants to this market, is doing a miserable job of strategic marketing, and hence will have difficulty gaining any traction whatsoever in terms of growth financing. The one thing they do right, however, is have a 1:1 service, which positions them well against the 1:2 and 1:3 offerings like eSylvan. Personalization is key. They understand that.

There are a number of VCs looking at deals in the area, gauging from the questions I get. It was not so two years ago; this is a good sign.

I haven’t seen the “right deal” yet, though, that warrants financing.