Economies of Scale and the Growth of Online K–12 Learning Platforms

Economies of scale are one of the most critical concepts in microeconomics. The principle states that when you increase the amount of products you produce, your average cost per unit will decrease. This principle has become incredibly important in digital education, especially with the increase of online K-12 learning platforms. Once you have developed your educational materials (content), infrastructure (software), and delivery (learning systems), it is relatively inexpensive to serve an ever-increasing number of students on those platforms.

While traditional education models have physical constraints such as physical facilities (classrooms, school buildings, transportation systems) and limited staffing numbers based on enrollment for each classroom, digital learning platforms can provide educational materials without regard to physical constraints. While there is an initial investment of time and money in creating lessons, quizzes, interactive exercises, and educational videos, the actual cost of serving an additional student after the initial investment is minimal at best.

Understanding the difference between fixed costs and marginal costs is essential for understanding the economics of online education. Building a complete educational delivery platform may require millions of dollars in software development, curriculum design, and content development. However, once you have built a platform, the cost of delivering your educational materials to an additional student requires little more than adding server space and providing customer service. The more students who join the platform, the more fixed costs can be spread over a more extensive number of students, reducing the average cost per user.

Economic forces that drive forward a model such as this are inherently interrelated to advances in technology and increased demand for alternative education formats that can be provided flexibly. Global e-learning markets are growing at a rapid rate, with industry analysts estimating the total market size to be in the hundreds of billions of dollars. The COVID-19 pandemic has had a significant impact upon this trend, demonstrating both the potential for remote learning systems, as well as the limitations of these types of systems. There is now a much greater comfort level among families and schools with using digital tools to support student learning, leading to larger-scale adoption of these tools in the long run after traditional school systems have resumed normal classroom activity.

An example of how economies of scale work in the digital education marketplace is best illustrated by Brighterly and it's platform. Once the curriculum, system of teaching, and learning tools have been developed, Brighterly's platform can provide services to students in many different geographic locations without needing to build a traditional school building. Because of the scalability of online learning providers, online learning can expand at a more rapid rate than traditional education while having a lower cost per student.

Another important dimension related to the economies of scale in online learning is that of how digital goods work. Digital goods used in education (e.g., educational video clips, quizzes, lesson plans) are considered to be largely nonrivalrous, which means if one student uses a digital good, it does not preclude another student from using that same digital good at the same time. Because of this inherent property of digital goods, digital education materials have an enormous capacity for scaling up because many students can receive the same lesson simultaneously regardless of their geographic location and with a negligible incremental cost of distribution.

For example, a teacher can produce one instructional video explaining how to work with fractions and/or algebra. This same video can be viewed multiple times and by a large number of students in several different countries, including those who are in different time zones, without incurring any additional production costs. In contrast, every additional class that a teacher teaches presumes they will put in additional time and personnel resources into each class.

The increasing number of online learning sites has made the competition among them even more intense compared to traditional educational institutions. As digital platforms have eliminated geographic boundaries, educational firms are no longer limited to serving only their local market. Instead, an educational platform developed in one country can offer services to students around the world creating global competition for educational services. This has led to increased innovation in curriculum development, the use of game-like experiences (i.e., using gaming techniques to motivate learners), individualized approaches to learning, and the use of adaptive assessment systems.

At the same time, economies of scale may result in market concentration. Large online learning platforms have already invested capital to build their infrastructure and have extensive libraries of content that allow them to distribute their costs across a larger number of students than smaller firms. Therefore, they will have a significant advantage over smaller players, making it more difficult for new firms to enter the online learning market since competing with an established platform requires a large capital investment in technology and curriculum development.

Consequently, while the broader ramifications of this trend may be felt beyond merely changing business models and driving profitability for larger franchise operators, lower average costs for online education may provide greater access to education since the lower prices for families and schools will increase access to education for all students. In addition, digital platforms that provide access to learning options such as advanced placement courses and tutoring for students who live in areas with limited educational resources will result in a broader distribution of learning resources than would otherwise occur in traditional educational systems.

Digital learning creates concerns about fairness in terms of whether all students will have access to them (e.g., those without dependable Internet access, devices, or a home environment conducive to learning will not be able to use online learning platforms). With economies of scale in the marketplace making education scalable, they also do not guarantee equal access or outcomes within that expanded access.

The continued evolution of digital infrastructures and educational technology can be expected to keep economies of scale as one of the leading economic forces impacting K–12 learning in an online environment. High fixed costs coupled with low marginal costs and global scalability have turned education into a sector operating increasingly under the same economic principles as those that drive software and digital media companies today.