How Education is Changing with AI Innovation and the Rise of New Business Models
The education sector has long been marked by stability and tradition, but is now emerging as one of the faster evolving industries in the world.
Education Technology, or Edutech, is at the heart of this transformation. Artificial Intelligence (AI) is a key driver, reshaping how learning is delivered, accessed, assessed and monetised. In parallel, new business models are emerging that go well beyond traditional tuition fees and government funding. This evolution is being felt globally, but Australia has its own distinctive innovations and success stories that illustrate both the opportunities and challenges associated with these shifts.
For centuries, education revolved around physical classrooms, a teacher at the front with chalk in hand and a relatively standard curriculum delivered in lockstep to students of the same age. Digital technology began to erode these constraints in the late twentieth century, with computer labs, online courses and distance learning initiatives. But it is only in the last decade that the combined forces of AI, cloud computing, mobile devices and data analytics have begun to truly revolutionise the delivery of education.
One of the side effects of the Covid 19 was that much of the education delivery process was forced online as schools were shut. This had the effect of fast tracking a number of learning initiatives and technologies and bringing remote online learning into the spotlight.
AI technologies enable personalised learning pathways tailored to each student’s strengths, weaknesses and preferences. Machine learning models can analyse vast datasets of student performance to predict outcomes, recommend resources, or even adapt lesson plans in real time.
A clear example of AI-driven personalisation comes from adaptive learning platforms. Products like Carnegie Learning in the United States or Smart Sparrow, originally an Australian startup, use sophisticated algorithms to tailor the pace and content of lessons to individual learners. Smart Sparrow, in particular, has pioneered adaptive e-learning for the higher education market, with technology capable of responding to student input with personalised feedback and branching learning paths. Though Smart Sparrow was eventually acquired by Pearson, its technology has influenced many contemporary offerings that deliver differentiated instruction at scale.
The real promise of AI in education lies in its ability to democratise high-quality learning. Historically, students in well-funded schools or elite universities had access to the best teachers, resources and networks. AI-powered tools can bring expert-level tutoring to students anywhere in the world at a fraction of the traditional cost. For instance, large language models are increasingly being used as real-time, always-on teaching assistants. They can answer student questions, suggest study plans, explain complex concepts in simpler terms and even provide feedback on writing or problem-solving tasks. This reduces dependence on teacher time, expands learning support beyond school hours and levels the playing field for students including those in remote or underserved regions.
Australian startups have been especially active in leveraging AI for scalable teacher support. Vivedus, for example, is a platform that offers teachers AI-based guidance on lesson planning, student assessment and professional development. By embedding a research-based Learning Activation Model, Vivedus aims to reduce teacher workload while boosting teaching quality. Schools can use these tools to track learning progress at the cohort level, identify gaps and intervene early with data-informed strategies. In this model, AI is not about replacing teachers but augmenting them, allowing them to focus on higher-value tasks like mentoring, pastoral care and creative problem-solving.
Assessment is another area being transformed by AI. Traditional standardised testing has long been criticised for being too narrow, stressful and a poor fit for measuring twenty-first-century skills. AI-powered assessment tools can evaluate more complex outputs, such as essays, coding projects, or even design work. Companies like Gradescope, acquired by Turnitin, allow instructors to grade handwritten exams or assignments far more efficiently, using AI to identify common errors or cluster similar responses. This enables faster feedback cycles, which research consistently shows improve learning outcomes.
Business models in education are changing just as rapidly as the technology itself. Historically, education was largely a public good, funded through taxation and student fees in the case of private schools and some universities. The Edutech wave has introduced subscription models, pay-per-course fees, marketplace dynamics and even revenue-sharing agreements between platform providers and institutions. Software-as-a-Service (SaaS) models are becoming prevalent, offering predictable, recurring revenue streams for companies while lowering the upfront costs for schools. This shift is similar to what has happened in enterprise software, where institutions prefer paying a per-user, per-year license fee over making one-time purchases and maintaining complex IT infrastructure themselves.
An example of this in Australia is Education Perfect. Originally focused on language learning, it has expanded to cover multiple subjects and curricula. Its SaaS model sells subscriptions directly to schools, which then give access to thousands of students. The platform offers auto-marked activities, curriculum-aligned resources and data dashboards for teachers and school leaders. Its success demonstrates how well-executed SaaS models can achieve scale while delivering measurable improvements in learning efficiency and outcomes.
Beyond SaaS, there is also a growing interest in direct-to-consumer (DTC) models, where learners or their parents pay directly for access to courses, tutoring, or supplementary materials. The proliferation of smartphones and internet connectivity has opened these markets even in traditionally less-served regions. Australian parents are increasingly willing to pay for online courses, tutoring services and enrichment activities delivered through slick digital platforms, especially since the pandemic normalised remote learning.
A particularly interesting business model evolution is the rise of education marketplaces. Rather than producing all content in-house, these platforms connect educators with learners in a model similar to Uber or Airbnb. Outschool in the United States allows teachers to design and sell their own online classes to children globally. This model lowers barriers to entry for teachers who want to run micro-education businesses, while offering parents a vast array of niche learning experiences that traditional schools might never provide. While there is no direct Australian equivalent at scale yet, there are local initiatives experimenting with marketplace dynamics for tutoring or extracurricular learning.
Another emerging trend is the unbundling of higher education. Universities historically sold expensive, multi-year packages culminating in a degree. Today, students are questioning the value of this model in light of soaring tuition fees (and the resulting student debt) and uncertain job outcomes. Micro-credentials, short courses and stackable qualifications are increasingly popular. Platforms such as Coursera and Udemy offer thousands of short, career-focused courses taught by industry experts or university faculty, often at a fraction of the cost of a traditional degree. Australian universities themselves are adapting, partnering with these platforms or launching their own online micro-credentials to meet this demand and tap new revenue streams.
Financing models for learners are also evolving. Income Share Agreements (ISAs) are a notable example, where students pay no upfront fees but agree to share a percentage of their future income with the education provider for a set period. This model aligns incentives between educators and students, who are less likely to take on debt for courses with little career value. While ISAs have primarily been seen in the United States with companies like Lambda School (now BloomTech), there has been interest in piloting such models in Australia, especially for vocational training and tech bootcamps.
Corporate partnerships are another fertile area for new business models. As employers face growing skills gaps, they are increasingly willing to sponsor employee education directly. This can involve co-designing courses with universities, funding short courses for staff, or even running in-house training academies. Australian firms such as SEEK have invested heavily in online education marketplaces and short-course providers, recognising the demand for continuous, flexible and job-relevant learning. These partnerships blur the traditional lines between education providers and employers, creating a more integrated approach to workforce development.
Edutech innovation is not without its challenges. Equity remains a central concern: while AI-powered tools can democratise access in theory, in practice they often rely on reliable internet, expensive devices, or paid subscriptions that can exclude disadvantaged learners. Data privacy and security are also critical issues, especially when platforms collect vast amounts of sensitive student data. Regulators are paying increasing attention to how Edutech companies handle data, with GDPR in Europe and similar moves in Australia ensuring that privacy is baked into system design.
There is also a cultural dimension to Edutech adoption. Teachers may feel threatened or burdened by new systems, especially if poorly implemented. Change management, training and buy-in are critical for successful integration. Edutech firms need to invest not only in technology but also in partnerships with schools, professional development for teachers and robust support services.
Despite these challenges, the momentum behind Edutech is undeniable. In Australia, government policy is increasingly supportive of digital education initiatives, recognising their potential to address teacher shortages, regional inequities and the need for lifelong learning in an economy that is rapidly digitising. Investment flows into the sector are growing, with both venture capital and government grants supporting local startups and research.
Ultimately, the rise of AI in education represents both a technological and a business model revolution. AI enables highly personalised, scalable and data-driven learning experiences. New business models — SaaS subscriptions, marketplaces, micro-credentials, ISAs and corporate partnerships — offer more flexible and sustainable ways to fund and deliver these innovations. For educators, students, investors and policymakers, the key challenge will be to harness these changes to build a more inclusive, effective and future-ready education system. The stakes are high, but so too is the promise of a world where high-quality learning is truly accessible to all.
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