Fierce competition in China edtech
Competition in China’s edtech sector is fierce, with numerous players. Marketing costs and heavy discounting to attract and retain customers eat into profitability, and only the strongest companies can survive. Differentiation or specialization is key to achieving long-lasting growth and profitability.
51Talk focuses on K-12 grades with one-on-one English-language lessons for Chinese students in smaller cities outside Shanghai and Beijing and relies on Filipino teachers.
The more premium-priced Chinese startup VIPKid also specializes in teaching Chinese kids English, but with teachers in North America. The business, formally launched in 2014 by entrepreneur Cindy Mi in Beijing, has attracted more than 600,000 paying customers but continues to need additional financing to chase the opportunity. VIPKid has raised mega-financing of more than $1.1 billion from leading venture capital firms that include Sinovation Ventures and Sequoia Capital China, as well as Chinese tech giant Tencent.
Another well-funded Chinese edtech startup is Yuanfudao, which started off as a test-prep tool but pivoted into larger classes with multiple tutors, usually led by a primary instructor. Yuanfudao recently raised a massive $1 billion in financing from Tencent, Hillhouse Capital, IDG Capital and Boyu Capital. The round brought the Beijing-based company’s total funding to $1.8 billion, at a valuation of $7.8 billion.
Liulishuo, or LAIX, provides a different model. Founded by Yi Wang, a Princeton PhD in computer science and former Google product manager, his innovative edtech company, which went public on the NYSE in 2018, reported $147 million in net revenues for 2019, a 61 percent increase from the prior year. LAIX is disrupting the online education sector by helping Chinese people learn English through AI-powered, interactive, customized courses accessed on mobile phones. The app, which has cumulative registered users of 161.6 million, has cleverly integrated games and social sharing to make for a fun learning experience.