The $7 billion market for tutoring services is in the midst of a transformation, driven by new technology. And it's not just nonprofits like Khan Academy and for-profit online schools like University of Phoenix that are making it happen.
"Tutoring tends to be a very labor intensive business. But you don't need tutors in every city to be a national business anymore. Now, thanks to technology, it's easier to scale than ever before," says BMO analyst Jeff Silber.
In the first half of the year, $423 million was invested in 53 different education-based companies, according to the National Venture Capital Association. If the pace of investment continues, 2014 will be the highest annual investment in education companies ever.
Some recent examples: In July, Barry Diller'S IAC bought Princeton Review—which connects students to 3,000 tutors in 40 subjects—for about $40 million. Digital textbook provider Chegg bought online tutoring center InstaEdu for $30 million in early June. And education publishing company Pearson Education bought out the remaining stake in online company TutorVista, another online tutoring company. Meanwhile Graham Holdings is pushing to bring more of Kaplan's business online.
Some of tech's biggest companies are also getting into the space.
Last October, Amazon bought math instruction company TenMarks, which provides personalized online math practice and programs. Google and Apple are both trying to sell their tablets to schools, hoping to make their systems the default for teachers. In May, Google announced "Classroom," integrating Google Docs, Drive, and Gmail for teachers. Apple recently updated iTunes U and promotes the app store's 75,000-plus education apps.
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Tutoring has traditionally been dominated by elementary school-focused tutoring companies, like Sylvan and Kumon, and test prep, with Kaplan and Princeton Review.
One important new growth are ongoing tutoring services for middle and high school students. Now technology allows students to access one-on-one tutoring help anytime of day, through Skype-like online video chat.
Revolution Prep is one of those companies, with $15 million in annual revenue from online tutoring, and 50 percent to 100 percent growth a year.
"Technology enables us to have the highest quality tutors, who can tutor students anywhere in the world. We have a platform that's very similar to Skype, with a two-way webcam, a shared whiteboard with the curriculum is embedded," said Revolution Prep co-CEO Jake Neuberg.
While Revolution Prep's tutoring starts at $50 an hour, the price goes as high as $700 per hour. Neuberg says he has a number of clients who pay over $50,000 a year for tutoring, and those types of clients are on the rise.
"If you're a highly successful professional—a hedge fund manager, an entrepreneur—and you've accumulated a significant amount of wealth in the tens of millions of dollars, $100,000 is not a significant investment, if you've spent half a million dollars on your child's K-12 education," Neuberg said.
"So another hundred to two hundred thousand to change how they think about learning and about themselves is the best money they can spend. Those families come back and say they'd have spent 10 times that."
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While Revolution is focused on online tutoring, another company, Wyzant is a technology platform that functions as an online marketplace for students to connect with over 75,000 tutors in-person. It's raised over $20 million from Accel partners. Whether the tutoring is in person, or online, there's no question that all sorts of technology is changing the game.
—By CNBC's Julia Boorstin