There is none really. Sure it has flaws and there is always room for improvement but overall there is no problem with it.
It is up to the virtual schools, the online providers, and even the regular brick and mortar schools (and charter schools) to learn how to exist with Khan Academy. And, in doing so, their offerings can become better - both academically and experiential.
There will even be some who incorporate Khan into the mix by embracing what it has to offer rather than try to simply overcome it. This is called cooperation.
Author and blogger Seth Godin says it much better than I could, "The problem with competition is that it takes away the requirement to set your own path, to invent your own method, to find a new way."
The real problem therefore is not with Khan Academy, rather it is that too many see it as competition instead of opportunity. Change your perception and a world of potential is opened up to you.