Boosted by the federal stimulus, these virtual learning companies are fighting to keep their new place in US education

The two biggest remote learning providers -- or, more officially, "learning management systems" -- became household names as schools scrambled to help students learn online at home, but they're now fighting to keep their foothold as most districts plan to fully reopen for in-person learning in the fall.

School districts nationwide licensed the platforms so that their students could log in to virtual classes, communicate with their teachers and submit schoolwork from home.

Usage surged immediately. Interactions with Schoology's platform jumped 400% at the start of the pandemic for Schoology, followed by another 600% increase after the state of Texas contracted the company to service all its districts for two years. Last summer, Canvas struck deals with at least 10 states, including Nevada, New Hampshire and Iowa. It says its website has been one of the top 20 most visited websites in the United States in recent months.

The rapid adoption was fueled in part by the billions of dollars in federal stimulus money approved by Congress to help school districts continue operating during the pandemic. Over the past year, three different federal aid packages sent a total of $192 billion of taxpayer money to schools that could be used for a variety of things including masks, cleaning supplies, improvements made to ventilation systems, summer school programs and virtual learning platforms.

Both companies are trying to keep the momentum and are even set to go public in the coming months after seeing revenue jump more than 15% in 2020. Instructure, Canvas's parent company, took in $43 million more than the year before and PowerSchool, which owns Schoology, saw revenue rise by nearly $70 million, according to SEC filings.

"The K-12 market saw 10- to 15-year growth over a 12-month period. Who's doing best? From a paid perspective, that's Schoology and Canvas," said Phil Hill, an education technology market analyst and co-founder of MindWires Consulting.

Federal funding will eventually run out

A lot more school districts are paying for a learning management system now than there were before 2020. Hill estimates that both Canvas and Schoology added between 6 and 8 million new K-12 students during the pandemic, based on private data and his reading of the IPO documents. That's a 78% increase for Instructure, according to its filing.

But it's unclear how long the boost will last. Districts have about two years to spend the latest -- and biggest -- round of federal funding that was authorized in March and amounts to roughly $2,600 per pupil.

Instructure and PowerSchool -- neither of of which could comment for this story because of the SEC-mandated quiet period that precedes an IPO -- warn investors in SEC filings that there's no future federal aid guaranteed, a risk factor for future growth.

"Such increases in customer acquisitions and renewals may not be sustained or may reverse at any time," PowerSchool says in its filing.

Betting on never returning to pre-pandemic normal

The US Centers for Disease Control and Prevention has said it's safe for students to return for in-person, full-time instruction in the fall, but fear of sending unvaccinated children back to school lingers for some as the Delta variant continues to spread.

While many families were frustrated with the challenges of online learning, others found it better supported children with different learning needs. An increasing number of parents are seeking out remote-only instruction, and their options appear to be growing.

Most schools were offering some form of in-person instruction by the end of the 2020-2021 school year, but a lot of students remained in a hybrid model. Just 52% of fourth graders and 46% of eighth graders attended full in-person learning in May, according to the Department of Education.

Instructure and PowerSchool are betting that schools will continue to offer virtual learning options in some form and learning management systems will be needed well beyond the pandemic. Plus, there will always be homework -- and more teachers and students have now embraced using technology to submit it.

"Schools and students no longer have to decide between in-person or online -- we expect there will be a combination of both options to support various needs and various times," Instructure says in its filing.

Both companies already serve schools around the globe and see growth opportunity internationally and they offer more than just their K-12 platforms. PowerSchool owns a suite of other services including systems for school HR and student registration and Canvas also serves colleges.

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