NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Today, I read with interest an article from the Business Standard entitled “TutorVista Readies Indian Rollout; [Firm] To Raise $15m to Address Bottom of the Pyramid.” Perfect for the NextBillion Newsroom, right?

Perhaps not. TutorVista, a leading online education firm, matches India-based tutors with students in the U.S. and U.K. For $100 per month, students have unlimited access to certified, trained tutors in subjects ranging from Calculus to Geography to GMAT test prep. Just over two years old, the company has over 10,000 registered students, 850 employees, and an estimated annual run rate of $5 million. Not bad for a start-up!What caught my eye is the report that TutorVista is expanding back into the Indian market. According to the Business Standard,

Around 300 learning centres will be set up in B and C class towns, mostly on a franchisee basis, with TutorVista managing them and controlling quality. This will seek to address the gap in such towns for quality tutoring which cannot be accessed by those who do not have a PC and Internet connection at home…The rates have not been frozen yet but Indian students are likely to be charged Rs 25,000-40,000 per year, for eight hours of coaching a week.

As I read the article, I wondered to myself, “Is this really a ’bottom of the pyramid’ business model?” Curious, I did some calculations – based on today’s exchange rates, Rs 25,000-40,000 equals USD $636-$1,015. With such a high price point, can BoP households afford TutorVista?

Based on our research in The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, the answer is easy: no, it is not. Not even close. Take a close look at the expenditure data for India, which can be found on page 17 in Appendix B. (PDF) For India, per household spending on education for the BoP averages $77 per year. (Reminder: the BoP is defined as those whose income is less than $3,000 USD per year, in PPP terms.)

Even in the highest BoP income segment – those households with incomes between $2,500 and $3,000 (PPP) per year – education spending is $248 per household per year. That’s less than half of $636, the lower range of TutorVista’s projected cost point per student.

(Writer’s note: after the fact, I realized that I too have made a serious mistake: comparing USD figures to USD PPP figures as if they are the same.? They are not.? Unfortunately for TutorVista and the Business Standard, this only further enforces my argument – that services costing Rs 25,000-40,000 are far out of the range of the typical BoP consumer.? That $248 per household figure is actually much less when converted to USD terms: about $50.)

Of course, prices are not yet set. But if they remain the same, calling itself a ’bottom of the pyramid’ business model with such a price point is simply misleading on TutorVista’s part (or the journalist’s).

Of course, I applaud TutorVista for wanting to expand back into India, and for wanting to bring high-quality tutoring services into new, emerging markets. But neither TutorVista nor the Business Standard should characterize this as a ’bottom of the pyramid’ play. It is not. The emerging middle class Indian might be able to afford Rs 25,000 to Rs 40,000 per year per student, but it is simply out of the price range of even the most well-off members of the BoP.

Now, TutorVista can – and hopefully will – revisit its pricing and its business model to better suit the BoP. Perhaps they will explore pre-paid tutoring, or group lessons – something that will help keep the price point down without sacrificing quality and access.

If there is a lesson in this article, it is this: just because something costs an Indian customer half as much as it costs a U.S. or U.K. customer does not make it a BoP product. Lower price does not equate to appropriate/accessible price. And the emerging middle class does not equate to the bottom of the pyramid – even if the latter is a better buzzword.