GLOBAL FUTURE

Investment High difficulty

Education Candidate-led case

This case focuses on a client’s investment in an online service to match international students to
university places in the UK and the USA.

The case doesn’t ‘crack’ with a single clear-cut insight, and requires candidates to think carefully and
creatively about how they would proceed in a complex scenario.

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Problem definition

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Our client is Global Future, a UK company that helps British and American universities recruit more
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international students.
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International students are typically very profitable for universities since they often pay higher fees, but
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universities do not always have the marketing reach or expertise to attract them. This is where our client
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steps in. The client works through agents to help find students and persuade them to join their partner
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universities. The client undertakes its work through a network of agents and partners who find
prospective students and recommend university opportunities to them.
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Following a strategic review, Global Future is considering introducing a new platform to allow students to
apply to its partner universities directly. The client CEO has hired us to determine whether to go ahead
with development of this platform.

Should the client launch the platform?

Relevant information
Please share the following information at this stage or later, if a candidate asks for it.
On client economics:
• The client currently works with 13 universities in the UK and 19 in America
• The client’s revenues last year were $97M with EBITDA margin of 17%
• The client makes money by establishing exclusive partnerships with universities, and then earning a
% of tuition fees for every student referred
• The client has ample available capital to invest in a new platform if required

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On the current agent model:
• Agents are normally small business people who will work with a small number of students and
universities, although there are also some ‘super agents’ that are companies in their own right.
Agents are paid in commission as a % of fees
• An agent working with the client would earn a referral fee from our client. The platform would cut this
fee out, and therefore allow our client to make a higher profit and/or pass on some savings to
universities
• The client has been considering the platform solution as a full alternative to the agent model, and
has conducted most of its analysis on this assumption. However, a ‘hybrid’ model could be pursued
if there were a strong case to do so

On the broader market:

• The client attracts students from all around the world. The biggest market is China, with India and

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Nigeria as the next most important markets

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• The client thinks competitors and some startups are already considering direct enrollment using
similar online platforms
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• The other big markets for overseas students in terms of destination are Australia, New Zealand, and
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Canada. Our client is not currently working with any universities there
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 Structuring

Guidance for interviewer

Strong candidates will quickly offer a structure that i) tests unit economics and ROI, ii) considers the
wider strategic impact of the platform, and iii) considers opportunity costs and alternative investments.

Possible answer

1. What are the expected incremental returns on the new platform?

a. Revenue impact:
• Expected # of new students relative to agent model
• Incremental revenue per student vs agent model

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b. Cost impact

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• Initial set-up cost
• Ongoing cost:
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˗ Maintenance cost increase (e.g. digital platform costs)
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˗ Potential cost savings from core platform (e.g. if central overhead reduced)
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2. What risks or potential negative impacts does the new platform pose for the client’s core proposition?
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a. Competitive response: Client’s agents may move their business to competitors, and our university
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partners may follow them

b. Reputational:
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• Families and students may disfavor the decreased personalization of the service
• Universities may disfavor the more automated approach
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c. Implementation: Does the client have the capability to deliver this platform successfully?

3. Are there other, better investments the client could make instead of this?
a. Investments in enhancing the current core offering (e.g. more agents or tools to help them)
b. Geographic expansion (e.g. targeting continental European universities)
c. Adjacent products and services (e.g. tutoring, exam prep)

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 Driver 1: What are the expected incremental returns on the new platform

Relevant information
If asked, please share the below information. Note that once a candidate begins asking about specific
data points (e.g. expected new students, agent fees), provide these by sharing Exhibit 1.
• The candidate has pulled together economic estimates (in Exhibit 1) through its research team and
expert interviews
• The numbers reflect a run-rate economic scenario for the new platform, which the client believes it
can reach in three years
• While there may be ‘hybrid’ options (e.g. run the agent model and the new offering in parallel), the
client has not modeled these. Its analysis to-date compares a “fully direct platform” option versus
their current offering only
• The new platform does require up-front capital investment of $12m. Pursuing the current offering
requires minimal capital investment of $1m (e.g. to renew backend systems)

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• At this stage the client is primarily considering building a platform. It is not aware of available

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acquisition targets to buy
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Guidance for interviewer
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Candidates are likely to begin this section by probing on the economics of the new offering versus the
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existing offering. begin probing on the economics of the new offering. Once they begin to ask questions
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on this, share Exhibit 1.

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The exhibit features revenues and costs associated with the current approach and the potential new
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approach. The candidate should proceed to calculate the unit economics of both scenarios and their
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expected annual profits.

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Strong candidates will go beyond this to highlight some of the sensitivities of the modelling. For example,
the platform scenario implies a significantly higher cost base. This makes it a more risky move if the
projected growth numbers do not materialize or fluctuate over time.

Possible answer

We can assess the economic implications of the new platform versus the firm’s current offering in detail,
given we have data on both. Let’s compare the potential annual profit of each offering and determine
whether the investment required in the direct platform makes sense.

Current offering:
- Total revenue: ~$97m (27,500 students * 28,000 university fees * 12.5% fee commission)
- Total costs: ~$81m ($28.1m central + $7.8m marketing + $0.8m web + $8.7m customer service +
[{$880 agent fee + $420 processing fee} * 27500 students])

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 - Total profit: ~$16m ($97m - $81m)

Direct platform offering:

- Total revenue: ~$100mm (34,500 students * 27,500 university fees * 10.5% fee commission)
- Total costs: ~$79m ($30.9m central + $23.7m marketing + $2.4m web + $11.8m customer service +
[$305 processing fee} * 34500 students])
- Total profit: $21m ($100m - $79m)

Based on these calculations, the platform is expected to be around 30% more profitable than the current
agent model, with a nominal increase in profit of ~$5M. This is mainly driven by the expected increase in
volume per year and the removal of the fee to the agent.

The new platform would however require an $11m capital outlay above the current approach. Based on the
incremental profit in the direct platform model, this is likely worth it on a standalone basis – the client would

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reach a break-even point after two years at run-rate, and a strong ROI overall.

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There are concerns we should consider. In particular, we should be careful around the demand estimates.
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Due to the high increase in fixed cost, if the volume estimate is reduced by just 2,000 students the profit
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benefit is wiped out. We should therefore stress-test these demand estimates to be confident of them.
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That said, from an initial economic standpoint this analysis suggests the client should move towards setting
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up the direct platform offering.

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 Driver 2: What risk or negative impact does it pose for the core offering?

Relevant information
If asked, please share that:
• Operationally, the client believes it can deliver the new platform with the help of external software
development consultants. The client has limited technical capability itself, which carries with it some
risk
• The client does not foresee any significant reputational impact among universities or
families/students applying to universities through the platform. However, certain students may not
find the direct platform appealing (share Exhibit 2 for more information)
• Competitors are likely to be strengthened if the client moves fully onto the platform. Many agents will
attempt to move to work with competitors and drive traffic to them. The client’s models suggest that
this will be offset by a boost in new customer traffic to a direct platform, however.

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Guidance for interviewer

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This section covers a diverse array of potential content. A candidate should realize quickly that this
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driver is not clear cut: the client does face some risks, particularly on implementation, and the client will
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need to be comfortable the potential benefits exceed this.
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During the discussion, the candidate may ask about the expected response from the agents, students,
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and universities. If the candidate does so, share Exhibit 2. If the candidate seeks more information on
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the agents today and their likely behaviour, share Exhibit 3. This exhibit suggests there are some stand-
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out “super agents” who bring in a large amount of revenue.

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Some combination of the agent information, the regional- and class- differences in likely response to the
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platform, and the operational risks, should prompt the candidate to consider a ‘hybrid’ model where
some proportion of the agent model is retained even while the platform is developed.

When the candidate begins to consider the value of the agents to the business, share Exhibit 3 showing
the correlation between length of tenure at the company and annual revenue. The data suggests there
are some stand-out “Super Agents” who bring in the majority of the revenue, and many others who make
a minor contribution.

Possible answer

It looks like there are some practical concerns that could affect our client’s decision to move entirely onto the
direct platform.

To begin with, the client has limited capability to build out an end-to-end technology platform and will need to
partner with third-parties. While the platform does not appear like a complicated application, any technology
project carries some risk with it.

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Second, our current customers typically value having interactions and a relationship with an agent before
enrolling in an international degree. Customers in markets representing 80% of our revenue (China, India,
Vietnam) expressed this in client interviews. We also see a strong correlation between agent tenure and
revenue, which is likely to reflect a slow sales cycle relying on strong relationships.

This suggests that abruptly removing the agent model would lead our client to lose the current business,
which is too much of a risk to bear. We should therefore consider implementing a hybrid model:
– testing a platform in the most attractive geographies (e.g. Nigeria)
– establishing a different relationship with our agents (e.g., applying a lower commission when leads are
generated by the platform)
– focusing the platform on middle classes while keeping the agent model for high-net-worth families who
value personalization and tailored advice and support

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Before implementing our model, we should ensure that our most successful agents are on board. We see

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that less than 10% of agents bring the majority of our revenue, so keeping them happy will be critical.

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 Driver 3: Are there other, better investments the client could make instead of this?

Relevant information
If asked, please share that:
• There are only limited potential incremental investments to the client’s current offering (e.g. improved
back-end processes), which are not expected to yield large benefits
• New geographies such as Europe are potentially attractive, but they have entrenched competitors
who will be difficult to overcome
• The client seeks to remain a business focused on university applications. It has not appetite at
present for additional, “non-core” services (e.g. exam prep, tuition)

Guidance for interviewer

If a candidate hasn’t done so previously, briefly encourage them to think openly about potential

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alternative investments if this topic is touched on. After this, however, share that these alternatives likely

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won’t be more attractive than the platform offering under consideration.

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Possible answer
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There are a number of potential alternatives the client could be considering:

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- Restructuring its central team, which represents 35% of our overall cost base
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- Enhancements to its current offering

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- Geographic expansion, such as considering European or South American universities

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- New verticals entirely, such as tuition or exam preparation options

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For a variety of reasons, none of these are as practical or attractive as the direct platform option, and so
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should not provide any reason to pause on the latter.

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 Conclusion

What’s your overall recommendation to the client?

We were asked to determine whether our client should launch an online service that matches international
students to university places in the UK and USA.

I do not recommend that the client go ahead with the investment at this stage.

Although the client’s projection would result in a profit increase of around $5m per year, we’d put around
80% of our revenue at risk should we abruptly switch to a pure online business model.

Instead, we would recommend that the client proceeds with a hybrid model, such as using the platform to
generate leads for the agents or focusing the platform on middle-class customers that we don’t target

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currently. I would also recommend to proceed in a staged fashion: launching only in Nigeria before

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As a next step, I recommend looking at the economics of the hybrid model more carefully, and enlisting the
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support our top agents, before making a final decision.

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 Exhibits

Exhibit 1: Unit economics of the platform versus the current offering

Comparison of revenues and costs using the current recruitment approach (via agent recruitment) and Direct
recruitment (via platform).

Category Via agent recruitment Direct Recruitment

Expected volume, per

27,517 34,396
annum

Average fee charged by

28,200 27,700
partner Universities ($)

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% of Fees commission from
12.5% 10.5%

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Universities per student

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Central admin costs, per
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28,130,000 30,943,000
annum ($)
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Marketing cost, per annum

7,760,000 23,668,000
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($)
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Website & digital cost, per

800,000 2,400,000
annum ($)
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Customer service cost, per

8,730,000 11,785,500
annum ($)
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Agent fee, per student ($) 881 -

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Post sale processing cost,

423 305
per student ($)

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Exhibit 2: Attitudes of agents, families, universities to our team

Results from client interviews with their longest serving agents, some target families, and the relevant team
in partner universities (e.g., those who lead on China, Nigeria, etc.). The opinions here can be interpreted as
representative of general opinion among the target group.

Client Revenue Target customer University country

Market Agent view
(growth %) view team view

“If someone is trying “We would still want “Long overdue! We

to cut me out of this to speak to a need to reach the
market, good luck. representative - we middle class but
$58M I’ve known these need real expertise can’t get there - it
China might let us charge
(3.2%) families for on this, not internet
generations and rumors” a bit less too”
help them with
schools too”

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“You should talk to “Interesting if it was “We get lots of

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me if you do this. much lower cost. inquiries online.

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$18.5M how we work is so expensive” savvy”
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Nigeria
(2.4%) together to build the
platform. It’ll be
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hard without local

help”
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“This is one for the “This is good, and “Good idea. Should
middle class. The will help families allow expansion into
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$20.1M rich will want Rolls with less than us. middle class.
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India Worried about

(3.8%) Royce, but this is a We might still want
good option for to talk to someone fraud/false inquiries
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newer families” though” though”

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“We aren’t doing

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“I still think this “Not for our family I

might be expensive think, for poorer much there yet, but
$0.9M get a surprising
Vietnam and too new for people. You don’t
(20%) number of online
Vietnam. It might online shop for
need some time” education!” inquiries”

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Exhibit 3: Revenues received ($) from agents vs months of partnership

A sample of 100 agents who work with the client from all markets. Shows the relationship between how long
an agent has been partnering with the client and the amount of revenue they create per year.

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