I spotted a wonderful article by Graham Witcomb in Intelligent Investor a couple of weeks ago about IDP and the language testing industry in general.
In it, Witcomb notes:
“In theory, there’s still choice. In practice, language testing operates as a cartel with tremendous pricing power. For their own convenience, governments typically pick just a few companies to run tests for immigration, so exam takers can’t shop around as they would for other goods and services.”
Sure, there may be a cartel, but stiff competition has eroded the profitability of individual testing firms in recent years:
“IDP would be a fantastic business were it not for one major weakness in its business model — its gatekeeper status isn’t earned, it’s ordained. Governments decide who its language gatekeepers will be, and they can take that privilege away in a heartbeat, or dilute its value by offering other companies the same deal.”
This is what I’ve been saying here for most of the past year. Competition has finally arrived. More competition is en route. The old monopolies are dead or dying. A lot of individuals whose livelihoods are affected by the ebb and flow of the IELTS monopoly might pile in to object, but it’s true.
Regarding Canada in particular, Witcomb notes:
“The new testing options will erode IDP’s market share. If the company’s SDS share slips from 100% to 70%, it would mean 80,000-110,000 fewer tests; at $300 per test, a 2-4% drop in total revenue would be the result and a slightly higher fall in net profit due to fixed costs. But with four new competitors, market share losses over the long term could be much higher than we’ve assumed here. We wouldn’t be surprised if IDP’s market share eventually settles below 50%.”
Witcomb astutely points out that lowered language requirements for Canada will also reduce the number of repeaters in the years ahead.
Despite all of this, Witcomb seems more bullish on IDP’s prospects than I am. He suggests that cartel-like pricing will keep profits high despite market share losses. He may be correct. But as I have noted here before, DET is coming, and they aren’t going to charge $300 per test.
It is only a matter of time.
Witcomb doesn’t touch on it, but as I have noted here before IDP’s long-term viability is somewhat dependent on its ability to create a “next-gen” IELTS which can compete with DET. The three-headed nature of the IELTS program may complicate that.