Microsoft backs a start-up looking to challenge Google in the 'edtech' market

Key Points
  • London start-up Kano, which is focused on teaching kids how to code, has raised more than $1 million from Microsoft.
  • The deal sees Kano join the ranks of large IT players like Lenovo and Dell in obtaining OEM licensing from Microsoft.
  • Kano CEO Alex Klein hopes the deal will help his company compete with Google in the multi-billion dollar edtech market.
The Kano PC, built by London-based startup Kano in partnership with Microsoft.

Microsoft is betting that a British computing start-up can take on Google in the educational technology industry, which has thrived during the coronavirus pandemic.

London-headquartered Kano, which is focused on teaching kids how to code, raised more than $1 million in an investment from Microsoft, with the tech giant taking a minority stake. The company has raised a total of about $45.5 million to date from investors including Salesforce CEO Marc Benioff.

The deal, announced Tuesday, expands on an existing partnership with Microsoft on Kano's bright orange Windows-powered PC. It also sees Kano join the ranks of large IT players like Lenovo and Dell in obtaining original equipment manufacturer licensing from Microsoft.

That means Kano is now able to ship its PCs with Windows 10 Pro — a premium version of Microsoft's operating system — to schools and has also formed a co-selling agreement with Microsoft.

Kano has received a tender from the Japanese government to sell 3 million of its devices in the country and is in talks to sell thousands of units in the United Arab Emirates. The firm's PC retails at $299, cheaper than Microsoft's Surface Go hybrid PC and on par with some of Google's cheaper Chromebook computers.

Growing demand for 'edtech'

It comes as demand for educational technology, or "edtech," has surged amid the Covid-19 outbreak. Lockdowns across the world caused nationwide school closures in 190 countries at the peak of the pandemic in mid-April, impacting 90% of the world's pupils.

Meanwhile, the global PC market has recently returned to growth after suffering its worst decline in sales since 2013. According to Gartner, worldwide PC shipments grew 2.8% in the second quarter, as demand for laptops and tablets increased and vendors recovered from coronavirus-related supply chain disruptions.

Kano using Harry Potter to help teach coding to kids
Kano using Harry Potter to help teach coding to kids

Kano started out in 2013 as a venture aimed at teaching kids how to build their own computers and code. It gained traction selling easy-to-build computer kits based on compact Raspberry Pi circuit boards that came with the open-source Linux operating system. 

While it hasn't retired the Raspberry Pi kits altogether, CEO and co-founder Alex Klein told CNBC that the company has increased investment into the PC it built in partnership with Microsoft. 

Klein said the Linux-based computers created an "accessibility barrier" for some users but stressed his firm hasn't forgotten the "punk rock spirit" it embraced in its early days of existence.

Competing with Google

A big part of the deal, Klein said, is helping his company compete with Google in the multi-billion dollar educational computing market.

Google's Chromebooks have swiftly become the top-selling computers in U.S. schools over the years. In 2018, they made up 60% of all laptops and tablets in K-12 classrooms, up from just 5% in 2012, according to data from consulting firm Futuresource. Microsoft accounted for 22% of the market in 2018, while Apple trailed behind on 18%.

"We shouldn't be putting Chromebooks in the hands of kids," Klein said, referring to a warning from international non-profit Electronic Frontier Foundation that the devices enable spying on students. "They're catching your data all the time."

For its part, Google has said it's committed to maintaining students' privacy and doesn't use their data for advertising purposes.

Speaking about Kano's deeper ties with Microsoft, Klein said he was "inspired" by Microsoft CEO Satya Nadella's commitment to open-source technology. In recent years, the tech giant has bought the software development platform GitHub and built its Edge browser based on source code from Google's open-source Chromium project.

As well as PCs, Kano also sells motion-sensing coding kits based on AT&T-owned Warners Bros' "Harry Potter" franchise and Disney's "Star Wars" series. Once assembled, the devices allow users to create code and interact with Kano's software.

But Kano has yet to turn a profit. It racked up losses of £11 million in the 12 months to March 2018. The start-up also laid off around 15 employees late last year, though Klein says it hasn't had to make any redundancies or furloughs during the coronavirus pandemic.