MARKET WARNINGS FOR THE ENGLISH TEACHING INDUSTRY

For decades, teaching abroad has been a right of passage for millions of native English speaking university graduates. As university life comes to a close, and young adults are expected to make the first real decisions of their lives, so many students find themselves at an impasse. For many, there is an insatiable desire to strike out on a path of adventure, and explore the world you have only read about in books or seen in movies.

The world has done its part, and accommodated these budding ESL teachers. But does the opportunity to strike out overseas as an ESL teacher still exist? Is this still an option for new university graduates, or is the opportunity gone forever?

As the world changes, so too do the industries that are a part of it. And with this idea in mind, let’s look at the state of the ESL teaching industry.

Global English Language Learning Market Size

To set some context, lets take a look at what is happening in the global English language learning market. As we get started with this analysis, please keep in mind that the English language learning market globally is HUGE. The education industry in general is massive. This chart from Holon IQ is showing the 2020 global education industry somewhere between $6 trillion and $7 trillion USD per year. This is fairly in line with the ballpark estimated of global education industry size that we’ve been using, which is around $6 trillion. So, congratulations Holon IQ, you passed the smoke test. Actually, if you check out some of their charts, you’ll see some actual hard work that has gone into their numbers and are worth using as a reference.

Now, in the spirit of full disclosure, I find the global education industry spending estimates to be absolutely meaningless. Actually, to go a step further, the total market size numbers have negative value in quite literally every conversation I have ever had with anyone about the education industry. Why, you ask? Well, it is quite simple. The vast majority of that $7 trillion market size is made up of public education spending. Of public education spending, salaries and benefits account for 80% of the budget. Junior high school level math will show us that 80% of a $7 trillion industry is $5.6 trillion being spent on salary costs and benefits. That leaves $1.4 trillion in education to be spent on non-salary and non-benefit costs. Take away facility costs, and the remaining spending is around $1 trillion or about 14% of total spending. This means that 86% of total education spending is going towards salaries and facility costs. With an estimated 2 billion children in the world. the available discretionary education spending, globally, equates to about $500 per year per child. And that is for everything you can imagine that doesn’t include a teacher, their benefits, or the physical building school is taught in.

Keep this information in the back of your mind, as we’ll come back to it a little later. Drilling down now…

English language Industry Size

Next we will look at the size of the English language industry itself. This is where the numbers and mathematical assumptions get really interesting. Whereas in a $7 trillion number, nobody can really expect any meaningful breakdown of data, since the total size is just meaningless at a working level.

“But just think if we could capture just 1% of the $7 trillion education market…” said every guy who never captured 1% of the global education market. At a more practical level, lets look at the market size estimates for the English language industry itself.

So, how big is the English language industry size? Well, the answer is pretty easy. Nobody has any real idea. We know it is significantly smaller that the global “total” education industry size of $7 trillion. But apart from that, estimates are chalked full of unknowns. Let’s take a look at some of the estimates out there, shall we?

English Language Learning Market to grow at 7.1% to
hit $54.8 billion by 2025 – Insights on Recent Trends, Size, Share, Growth Opportunities, Key Developments and Future Outlook:
Adroit Market Research

So here we have an estimate for $54.8 billion by 2025 for the entire English Language Learning Market. Working backwards on their CAGR (compounded annual growth rate), we have a current 2020 market size estimate of $39.5 billion for the language learning industry. That sounds nice. But maybe we should get a second opinion….

According to Verified Market Research, The Global Online Language Learning Market was valued at USD 12.49 billion in 2019 and is projected to reach USD 25.73 billion by 2027, growing at a CAGR of 10.2% from 2020 to 2027.

Here we have another estimate. This time for Online Language Learning only, and no breakdown by language being taught. Now, you need to be just a little suspicious of a 7 year estimate on any market size. It is just a weird number to use. Just because this group is using a 7 year estimate, I’m going to disqualify them for being weird. Next up…

So here we are looking at the Technavio info-graphic. Info-graphics are great. They are colorful, they have big numbers and arrows, and upon closer inspection…don’t seem to have much information at all. Okay, so looking at this growth number, there is a CAGR of 20%, and a 5-year growth of $14.69 billion. Obviously, everyone is wondering what the number is today, and why they didn’t just add that to the info-graphic using a speedometer or rocket engine icon or something equally powerful. Of course I backtracked the numbers. And considering their CAGR, the current market size for Global Digital English Language Learning is about $7 billion. So, $7 billion plus the $14.69 billion growth, means a $21.69 billion Digital English Language Learning market by 2024.

Okay, to recap on Market Size estimates from the “experts” in the field:

$54.8 billion total English Language Learning Market by 2025
$25.73 billion Online Language Learning Market by 2027 (all languages)
$14.6 billion Digital English language learning market by 2024

What does it mean?

So what do these numbers mean? Well, for starters, the people making them have no idea what the even ballpark numbers are for the industry. The forecasting methods are pretty close to those a transient witch-doctor you meet stowing away on a freight train car would make using a bag of chicken bones he keeps under his top-hat.

So, if the numbers are not accurate, what is the point in analyzing them? Well, let’s look at two numbers in particular:

$54.8 billion total English language learning market
$14.6 billion Digital English language learning market.

Using our old Junior High school mathematics, we can estimate that 26% of the English Language Learning market will be Digital English content (14.6/54.8 = 26.6%). The remaining $40 billion market size (73.4%) of the English Language Learning market will be in the more traditional language teaching supply chain. Of that $40 billion, we can assume that around 85% ($34 billion) will be spent on salaries, benefits, and facility costs, as identified earlier. So, that leaves roughly $6 billion to be spent for all other materials and services related to the English Language Learning market.

Economic opportunity in a mature market lies in improving inefficiencies in the existing structure. If a $40 billion market segment only has $6 billion available to spend after accounting for fixed costs (salary, benefits, facilities), then you can bet the invisible hand of innovation will find ways to “unlock” revenue opportunities from those fixed costs.

Cannibalization: Why The “Experts” Are Wrong About Market Size

Just to be clear at the start, the English Language Education Industry is NOT getting larger. It is not getting larger in Western countries, it is not getting larger in Asian countries, and it is not getting larger in European countries. In short, it is NOT getting larger.

Graph, Pie Chart, Business, Finance, Data, Market

So, you might be asking how I can be so confident that the English Language Learning market is not growing, when all the “experts” have predictions of 7% or higher CAGR. Well, it is quite simple, actually. The market growth estimates do not appropriately factor in the impact of cannibalization on market size.

What is Cannibalization in the Language Industry?

Cannibalization in the English language teaching industry occurs when the purchase of one product or service from one segment of the total industry causes a larger loss of total value from another segment of the industry. Let’s take a look at how this works with digital products.

With digital language education products, we are seeing significant annual growth rates of 10%+ per year. So how does this cannibalize the market? Here is a basic model of how cannibalization occurs:

Let’s say that 100 current language school students all buy the same digital language learning app that costs $20.
Those 100 students just added $2,000 ($20 x 100) to the total market size for English Language Learning.
Now, let’s assume that of those 100 students, 5% of them decide that the app is sufficient for their personal language learning goals, and they no longer need to attend lessons at a school
The 5 students who stop taking lessons remove their contributions from future market revenue. If the average student spends $500 per year on lessons, then the loss of these 5 users is $2,500 per year.
So, the 100 students who added $2,000 in industry revenue to digital app purchases actually end up reducing the total market size by $500
In this example, 5% is being used as a conservative number. It very easily could be 8% or 10% of users who replace their lessons with digital products entirely.

So, the faster the digital language learning market grows, the faster the cannibalization occurs. The “industry experts” do not properly account for that cannibalization, probably because people only buy research reports for industries that have strong future growth rates.

So, if growth in digital education resources results in disproportionate loss to the traditional language teaching industry, what is going on with Education app downloads now these days? Following the COVID-19 global shutdown, App Annie released some very interesting data on Education App Downloads worldwide. The average increase in education app downloads globally was 90%. Essentially, the shutdown accelerated user adoption of digital resources by likely a 2-3 years.

Language Schools: What Got You Here, Will Not Get You There…

Teaching English was commonly known as the “Gateway to Asia” for young people looking to relocate abroad. And as the demand for English teachers grew, so did the supply. An entire industry of global teacher recruitment grew out of the demand for ESL teachers. As the industry matured, the process became streamlined. Teachers were recruited, their visas were processed, accommodations were provided for, and teachers went through what many considered “cookie-cutter” training programs.

The bedrock of the English teaching industry has always been the language school.

Unfortunately, while the process of recruiting and processing new teachers became increasingly sophisticated and efficient, the expectation for teachers and learning outcomes delivered to students did not evolve at the same pace. While there are always exceptions, by and large the language school industry that developed throughout Asia, South America, and Europe fell under a few simple business models:

Large language school chains that employee lion’s share of new teachers. Usually young teachers provide “authentic” native English atmospheres for adults and children. The large chains are prevalent in major cities and rely on strong marketing and site location to attract students.
Mid-size boutique language chains that limit total offerings and compete based on teacher quality, student personalization, and course specialties.
Mom and pop schools that are run by a few people and are most common outside of major population areas.
Online lesson schools conducted lessons through video conferencing platforms. These models because popular with the rise of free video conferencing options beginning around 2010. In general, teacher sourcing for online lessons come from lower-GDP countries with high English language skills.
In recent years, there have been hybrid models developing that attempt blended learning strategies, by combining traditional lessons with digital contents.

While some of the new models legitimately may have staying power for a few years, the long term trends are working strongly against them. At their core, these schools all share the same core cost structure of 85% of money going towards salaries, benefits, and facilities. That is a crippling weakness for one major reason. The salary costs are not being spent on Product Improvement. The costs are being spent on Operations.

Product Improvement in Ed-Tech

Obviously, in the Digital Language Education segment of the market, ed-tech companies also require salaries. And, similar to the traditional schools, 80% of ed-tech company costs are going towards salaries and benefits. So at the basic cost structure level, there is not much difference between traditional schools and education technology companies.

The big difference between the two models is what the salary costs are being spent on. In the cast of ed-tech, the salary costs are being spent mostly on product improvement and content creation. Ed-tech companies have increasingly adopted Silicon-Valley style agile development methods, which allow them to quickly iterate on their products, get market feedback, and then iterate more. The salaries are being spent on making the product permanently better for all users. And in ed-tech, the product never sleeps. See our article on Defining Your Problem Statement in Ed-Tech for more on this process if you’re interested.

Now, ed-tech companies have some challenges that they need to overcome to survive. For ed-tech companies, there is a race to become cash-flow positive by improving the product as quickly as possible, and attracting enough paying users before the company’s money runs out. It is a frantic race.

Professionalism Will Survive

Is there any future for the language school industry as it has been for the past 30 years? No. Definitely not. The traditional language school industry will never recover. As the shutdown from the global pandemic recedes, there will be a wave of language school closures. The market for those schools is not coming back.

The children’s language teaching industry will survive longer and potentially have on-and-off periods of growth as English continues to grow as a global language. But following the impact of the COVID-19 pandemic, it is not clear how willing parents will be to put their children in group lessons. So, while there will remain opportunities for teaching children in a traditional school setting, those opportunities will likely require adaptation by schools and teachers to fit the new needs of parents and students.

Schools and teachers who want to survive in the adult language education industry will need to make a serious pivot to becoming Language Service Providers. Language Service Providers will need to be professional, and function in a variety of capacities, similar to how business consulting firms work. Schools and teachers who don’t commit to professionalism will not have a stable future in the industry. That is difficult news to hear, but the sooner it is embraced the better the chances for survival.

The unit of business will also need to change or become more flexible. The concept of a student paying large sums of money up front for future delivery of lessons with teachers will see a rapid decline in demand. As the industry reshapes, there will certainly be emerging opportunities to fill needs with language education and language services. It is not clear what those opportunities are right now. However, as the market contracts and the number of language schools and teachers decrease, new business opportunities will begin to surface.

Every problem is an opportunity. And while there are a lot of problems facing the English Language Teaching industry, there will also be significant opportunities to grow and thrive in this new environment. It will require adaptation and flexibility to survive, but there will be opportunities for professionalism in the industry. It’s just a matter of finding ways to reach the market with skills in demand.