GXS stands for Gen Shei Xue (跟谁学), whose literal Chinese meaning is ‘To learn from Whom’. Even almost all online education companies in China who went listed are in deficit, it is the first one that is running a profit.

Yuan Fu Dao (猿辅导, or ‘Monkey Tutoring’) may play a big part in GSX going listed.

The core revenue of GSX comes from ‘Gaotu Class’ (高途学堂), the K12 live-streaming big-class product whose Chinese name literally means ‘high road’ or ‘promising future’. Gaotu Class kicked off right after Yuan Fu Dao proved himself successful with 2 years operation of the big-class live streaming business model.

Yuan Fu Dao is not going public maybe because its founder Li Yong’s ambitions don’t end there.

However, GSX and its founder Larry Chen can’t wait to prove themselves.

1. Larry the Teacher

In 1999, Larry Chen joined the New Oriental, another K12 giant who was listed in NYSE, when he was studying for his master’s degree at the Beijing People’s University. Since then, he had been serving as a teacher, CEO assistant, and school principal and 7 years as vice president and 3 years as CEO at New Oriental. He was a leading role in the early years of New Oriental’s expansion.

Perhaps because he has hit the bottleneck, and working for someone else is not his ultimate goal, Larry Chen raised the idea of leaving New Oriental to Michael Yu (the founder and then CEO) in 2013. In the following year, he decisively gave up his ten-million annual salary and left, even though there was no clear direction for his next entrepreneurship project at that time. But that’s a time when Didi (Chinese version of Uber) and WeChat’s ‘red packet’ (monetary gifts in the form of virtual ‘credits’ to other users) were just beginning to catch on.

One day Larry Chen was wandering at Zhongguancun Software Park and looking to buy a house, and he met Gu Kai from QF Capital. These two people have never seen each other. But because both from Henan Province, they started to chat after exchanging business cards. Not long after going out, Gu Kai tried to ring Larry, but he missed. Gu Kai then sent a text message saying he’d like to meet and chat. After meeting Zhekuan Fu, another partner of QF Capital, GSX’s angel round was finalized.

Larry Chen raised three requests for his angel investor and one of them is: Don’t ask me what I’m doing and don’t interfere. It is Larry Chen’s background that has convinced his angel investor.

Born in 1971 in the county of Xin’an, Henan Province, Larry Chen often joked that he comes from the poorest family in the poorest village in the poorest town in this poor county.

Larry Chen was very clever from childhood and had always ranked top one in his class. Not just the good grades, Larry is also very eloquent.

Larry wanted to go to university, but his family didn’t allow him to do so because they had to pay for his sister’s education first. His father secretly changed his application to a teacher-training college, because a teacher-training college does not cost money.

In 1985, at the age of 14, Larry went to Luoyang №1 Teacher Training College. The principal said that the top 1 student in the school could be recommended to a university (uni’s degree is more valuable than a college’s). Larry won the first place in every final exam, however, when he graduated, the recommendation system was cancelled. His dream of going to university was shattered, and he had to return to Tiemen №1 middle school in his county and started his 10 years journey of being a teacher.

In 1998, at the age of 27, he graduated from the on-the-job bachelor degree of Henan Institute of Education and Zhengzhou University and admitted to the Master’s program of the Beijing People’s University — one of the top 5 universities in China. This is the first time he came to Beijing.

Larry Chen’s life is proof of ‘education changing destiny’. After joining New Oriental as a teacher for three years, Larry Chen was appointed by Michael Yu in 2002 to build the first new oriental branch school in Wuhan. Half a year later, Wuhan New Oriental school expanded from 0 employees to 300+. It is said that Larry Chen only slept 3 hours every day.

For 11 years, from an ordinary teacher to the CEO of New Oriental, Larry Chen indeed has been fighting his way up. His background is attractive to most of the investors — highly educated, president in an industry giant, successful experience expanding from 0, and the most part: self-motivation.

2. Starting a startup

After securing its angel round, Larry Chen brought in other 5 partners: Huaiting Zhang, Gangjiang Li, Yuxiao Song, Bin Luo, and Wei Su. With himself, that’s 3 from the education industry and 3 from the Internet industry.

Before joining GSX, Huaiting Zhang was one of the core members in Baidu’s ‘Phoenix Nest’ project which is the main source of Baidu’s revenue. Huaiting’s team has greatly improved the precision of Baidu online advertising and marketing technology. He focused on this one thing only in Baidu for 9 years: monetization of the user traffic.

Gangjiang Li was the director of Baidu big data department, previously also served as CTO at Sohu video and a senior technology manager at Google. He’s also an expert on online live streaming.

Bin Luo also comes from Baidu ‘Phoenix Nest’ project. He and Huaiting Zhang together set up a tech team with 80+ people, most of whom are from Baidu.

Wei Su is an online education practitioner, originally hoping Larry Chen to invest in his own project, but joined GSX after they met.

Yuxiao Song is the old subordinate of Larry Chen in New Oriental Wuhan school, who was also the finance director just before New Oriental went to public.

Here it started, a team where tech meets education.

3. Taobao style of education

Since June 2014 when GSX’s business license was approved, the team quickly expanded to 100 people in 2 months, mainly in the technology department. They launched their product in the third month. In the fourth month, the team grew rapidly to 200 people. After about nine months of running, the operation data started to look pretty good.

In March 2015, the somewhat ‘inflated’ team held a grand product launch conference at the National Convention Center in Beijing, announcing the release of its 2.0 product with Taobao style (Chinese version of e-Bay or Amazon, a product of Alibaba) in the education sector.

The product logic behind GSX 2.0 is very simple: by transferring the concept of Taobao to online education, or in the fashionable words, to “occupy the user’s mind”, GSX provides an online learning platform with one end being the students and one end connecting all after-school learning centres and teachers. GSX would get commission fee out of each transaction. But what Teacher Larry and his friends didn’t know at that time is that all online education companies who adapted this O2O (online to offline) model have died few years after — these platforms do not create any true value to both teachers and students.

Soon after the stock market crash in 2015, the whole online education industry fell into a ‘capital winter’. Fortunately, GSX raised $50 million of Gaorong Capital just before the winter came and did not freeze to death immediately.

Still, Larry was quite anxious — the only result of spending more on advertising is to acquire students who found the teacher but no longer use GSX platform afterwards. By the end of the year, he realized they needed to change the business model, ASAP. They knew a lot of K12 institutions and their founders had many pain points, e.g. it’s hard to find a good online live-streaming platform, or it’s always a headache to train a person to be a school principal. Maybe doing toB services to K12 institutions could be a good way to make good cash flow?

In early 2016, GSX quickly launched its five major business departments. Except for its original O2O business, others are all toB businesses.

• GSX (the O2O platform linking teachers and students together)
• Tianxiao (an administrative Saas providing tech services for K12 institutions)
• Baijiayun (an online live-streaming SaaS)
• Chengxi Business School (training principles)
• U League (a customer acquisition tool).

In hindsight, this was a decision that is strategically unclear, but sufficiently safe.

4. Cutting off toB and Focusing on toC

These five business departments had been operating for a year which is, as you can imagine, a big mess. More importantly, it is very difficult for toB model to achieve high growth, hence not a high valuation which is not good news for GSX, who was valued very highly in its first round. The growth and revenue brought by its toB services cannot support half of its valuation.

Now it was May 2016, a key point in GSX’s milestone. The K12 question item bank Yuan Ti Ku (猿题库) changed its name to Yuan Fu Dao, and it was estimated that its live big class business already achieved nearly 100 million RMB revenue then. Not very sure if GSX got its inspiration from Yuan Fu Dao, but this was also the turning point when GSX pivoted to its toC business model — the K12 live-streaming big class brand, Gaotu Class, was launched in the second half of 2016.

In China, K12 training and tutoring is a 100 billion dollar market. And the offline big class model was already proven by New Oriental 20 years ago. With such a big enough addressable market GSX is bringing this model online. In 2017, after a one-year operation of Gaotu Class, Larry Chen made a big decision to cut off all of its 2B businesses so his team could focus on one thing.

And this is also what Larry is good at — the big class model that New Oriental, his old employer, is famous for. In a New Oriental’s offline class, one teacher lectured to a few hundred students. Now in a Gaotu’s online class, one teacher can address to a few thousand students with the help of teacher assistants.

Not only the business model, New Oriental and Gaotu Class have other similarities: Self-motivated students and charismatic teachers.

Students who enrolled in New Oriental’s class are often very motivated as they have a clear goal such as studying overseas or passing TOEFL. Same with Gaotu Class, now its students are those who face high school entrance exam and college entrance exam. They are very motivated to work hard on high stake exams.

Teachers are very charismatic and can attract the attention of thousands of students. Of course, the disadvantage is there as well — how do you scale celebrity teachers and how do you prevent them from leaving.

5. Why it’s GSX who made it?

It took Gaotu Class only two years to accomplish to be the leading player in K12 live big class model and achieve IPO from a close-to-failing company. First reason GSX can make it because, as mentioned above, it is a mature model achieved by New Oriental 20 years ago, and Gaotu is led by Larry, New Oriental’s former president.

Secondly, GSX spent a lot to compete for the best teachers, those celebrity ones addressing to and attracting thousands of students. GSX’s New Oriental background and first few years’ efforts to become the Taobao/Alibaba style of education has not succeeded but paid off now by building up a strong supply of teachers for its live big class.

The third reason is that they streamline teaching assistants with the help of its technology and operational advantages. GSX has 500+ teaching assistants, and what they say/do every day have been homogeneous and standardized.

In addition, GSX can efficiently acquire online traffic of student users. Larry’s technology partners from Baidu ‘Phenoix Nest’ project, know better than their competitors on how to do digital marketing and online advertising. They achieved better targeting and cheaper user acquisition. At the same time, it is said GSX has more than 70 million users. If they can convert 100k students, at its 2000 RMB/subject average price point, they are looking at 200 million RMB revenue.

6. What’s ahead for GSX?

The model of Gaotu Class has already been attracting tech giants’ attention. Tencent’s Penguin Tutoring now has already operated for a year and a half. Netease/Youdao announced in 2018 that they will be “all-in K12”. It was reported that in 2018, Youdao’s K12 live large class business has grown five times by user growth and 3 times by revenue, becoming the largest revenue contributor in Youdao Class. Yuan Fu Dao’s K12 live big class is estimated to achieve 200–300 million RMB back in 2016 and probably 1 billion RMB in 2018.

After one week of GSX’s IPO, its stock price dropped to 9.56 RMB, below the initial pricing. However, at this price, its PE ratio is 272, 58 times higher than TAL and 15 times higher than normal private school groups. But of course, Larry achieved his milestone of IPOing the company. But what’s next?

Live big class is a competitive market already. Apart from tech giants like Tencent and Netease Youdao, edtech unicorns like Yuan Fu Dao, Zuoyebang, 17zuoye, and VIPkid, are also competing in this segment, as well as newcomers like Ban Xue You Ke, Le Xue, and other independent celebrity teachers.

It will be interesting to see who can attract ‘celebrity teachers’ in the short-term, which ensures the initial success of big class model, and who can then ‘de-celebritize’ its teacher supply to ensure its long-term success with its curriculum development expertise, technology, data usage, assessment, pedagogy, service standardization and branding, etc.

Now it’s beginning of summertime — the key battlefield for user acquisition in K12 training and tutoring. GSX’s IPO is a turning point in Chinese online education history, and it will be interesting to see where it will go.

In the next piece, we will look deeper into GSX’s financial and business data to further explain China’s online education industry, live big class model as well as the company. Welcome to follow us on Medium and share this piece to your friends!

Winter came early for China’s overall capital market in the second half of 2018, and since then the pace of investment in almost all industries has slowed down, with a lower level of capital flow produced. Under cold currents, however, children coding education became one of the few hotspots. According to the disclosed information, Codemao (编程猫), Subject Code (和码编程) and PipaCoding (核桃编程) have each won a deal worth over 100 million RMB (approx. 15.26 million USD) respectively last month. So far, all these three companies have been funded with around 2 billion RMB (approx. 305.25 million USD) in total. In a broader context, in recent years startups in children coding education have been paid particular attention by investors, and as competition is getting increasingly competitive, enterprises winning multiple large investment deals stand out with the great potential to grow into industry leaders.

China’s children coding education was developed relatively late, not drawing great interest until 2015. In spite of the investment surge during the past two years and support from government policies, this industry remains in a rudimentary phase where investors appear fervent while consumer market gives a cold response because of low public recognition. Nevertheless, major players have made considerable progress in product development and marketing with the boost by capital and government policies. Overall, children coding education sector is growing rapidly.

It takes a good blacksmith to make good steel. An education company’s success should depend primarily on quality products and efficient operation and management. There are in this industry three types of product, or business formats: coding tutoring, coding tools and service platform.

1. Coding Tutoring

Coding Tutoring is the business format adopted by most startups due to factors such as relatively low entry threshold and quick profits. This business model can be further divided into online tutoring and offline tutoring. The former is the mainstream model, and Codemao, PipaCoding and CodePKU etc. are the major players in this field. Xiaoma Wang now is a leading enterprise in offline training, placing a particular emphasis on teacher-student interaction and feedback for learning.

A major challenge perhaps both online and offline models now face and will for a long time is that the teaching faculty training and establishment struggle to keep up with the business expansion. Most leading players have started taking actions in the recruitment, cultivation and management of faculty members, trying to lay a solid foundation in talent for long-term growth. Moreover, they also recognized the importance of teaching research with continuous efforts in upgrading courses.

B2C model is prevalent in coding tutoring, leading players now achieving 10-million-RMB-or-above (approx. 1.53 million USD) monthly revenue. Considering its current low penetration level, the consumer market is far from being developed. Besides, some startups also adopted a B2B model by carrying out non-profitable publicity and promotions in schools for access to potential consumers.

2. Coding Tools

Software and hardware tools including coding languages like Python and C＋＋ cannot meet the practical needs of different stages in children coding education, teaching effects hardly satisfactory. World-widely, products such as Scratch and Blockly have been developed, winning market share internationally. In China, because of a high technical threshold, the large capital investment required and relatively long profit cycle, only a minority of companies dare make a bet, among which Codemao is taking a leading role with products including Kitten, Kids and Nemo in compliance with the specific needs of a various student group.

B2B model is primarily employed by these tool providers. Codemao has built partnerships with over 3000 schools, establishing its status as an industry leader. With parents’ increasing recognition and the gradual universalization of coding education in compulsory education, demands for coding tools by government, schools and learning centres will embrace a boom.

3. Service Platform

Service platform, usually derived from tool development or tutoring, bears tools、education products and even a whole community. Codemao, with its intensive layout in both other business patterns, has unmatched advantages in building platform.

Throughout the market of children coding education, rigid demand has not come into being, and users’ consumption consciousness and habit have to be further cultivated. In this stage, the bulk of capital flows into the pocket of several leading startups, shaping them into high-barrier top players. Besides, potential competitors from the industries of education, game, and hardware and the like are waiting for opportunities to move. Real competition has yet to come. Beneath the picture of vigorous growth, however, are serious homogenization of curriculum, uneven teacher quality and unbridled competitions. The majority of all these over 100 startups in China’s children coding education industry have no disclosed investment. No matter how well each player is doing now, they all have opportunities. But time is limited.

by Yiwei Zhang, Xiaojian Pan, Sophie Chen

Last time we introduced some of the hottest businesses in China’s edtech field, including a children’s online thinking class, online accompanied piano practising, live-streaming small classes, AI live classes, and punch cards.

Today we will continue with our story and hope that learning about these edtech businesses will shed a little more light on China’s education market and household consumption behaviours. This week we will highlight businesses doing:

• Educational Real-estate Complex
• Introductory English for Young Kids
• Pay-for-knowledge
• Two-teacher Classroom
• Connected Microphone Learning

— — — — — — -

• Educational Real-estate Complex

‘Educational real-estate complex’ refers to a whole building or a few layers of a building (usually a large shopping mall) that aggregates many educational learning centres or early childhood education facilities, covering up to 10,000 square meters of space. Learning centres inside could cover subjects like English, musical instruments, sports, drawing, dancing, Chinese traditional culture learning or even facilities for 0–3-year-old babies and 3–6-year-old children, ‘Baby Cafe’s’.

The main reasons these type of complexes exist:

• Shopping malls need this for household traffic to prolong the duration a family can stay at the mall, therefore increasing consumption. Parents can drop their children off to one of the learning centres and easily go shopping, have an afternoon tea, or get a facial while waiting for the kids finishing their classes. Not only the shopping malls benefit, but nearby residential property developers want this too in order to establish a higher package/premium value for their own residential properties to drive housing prices up.
• Parents need this as well. Typically, a child may have 3–5 afterschool learning subjects per week (exam-prep ones as well as competency-based ones) but it’s time-consuming to drop kids off in different places for all these subjects. Therefore, these complexes/aggregators can serve as a good one-stop shop for educational courses.
• For each learning centre who joins the complex, they gain a great benefit too; the complex usually chooses non-competitive neighbours for the learning centre, i.e. if you are a piano education provider, all your neighbours (drawing, Taekwondo, English learning centres) will bring foot traffic of potential customers to you. Stats show that within an education complex, a kid chooses 2–3 subjects on average.

Sounds like a win-win-win business!

An example is Rayee ACE (睿艺), which has launched two complexes by March 2019: at Wuhan (capital of Hubei Province) and Shenzhen (in Guangdong Province). Their business model is to act as an agency, linking the property developers and top players in each education sectors. This startup has gained 3 rounds of funding including TAL (好未来, largest K12 tutoring provider in China), Vtron (威创股份, owning 5000+ kindergartens) and VIPKID (largest online English tutoring provider).

• Introductory English for Young Kids

Peppa Pig, since its entry to China’s market in 2015, has accumulated over 60 billion views in China’s online video platforms. Many parents in China use this popular animation for their kids to learn English.

The children’s English market is estimated to exceed USD 10 billion in market size this year. Just five years ago, children’s English tutoring was mainly for children 6–18 years old; now the portion of parents of 3–6 year-olds paying for introductory English learning has substantially increased.

In the past, parents in 1st and 2nd tier cities would use English animations and picture books to teach their kids English, whereas parents in 3rd and 4th tier cities on average did not have the ability to teach their kids English themselves or access quality learning resources. Now, with the fast growth of China’s edtech industry, parents can spend around USD 10–15 per month to gain rich and interactive content for their 0–6-year-old kids. This new market of surging demand also attracts a lot of attention from venture capitalists.

Jiliguala (叽里呱啦), an online introductory English learning app launched in 2014 by two former Google PMs, helps parents to expose their toddlers to an English environment via animations and instruction videos. In 2018, Jiliguala is said to have 16 million users, having grown from 7 million in 2017. In November 2018, they raised USD 10+ million from Sequoia China and BAI Fund.

• Pay-for-knowledge

Many Chinese middle-class individuals are developing a new habit — listening to podcast or audio courses, either when commuting to work or before going to bed at night. For only USD 15–30 per course, you can listen to a course delivered by an expert in a field — such as an economist or psychologist telling you about cutting-edge knowledge in their field.

This new business model already has a unicorn with a valuation of nearly $1 billion — iGetget (得到). Founded in 2016, they started by publishing one 1-minute audio messages every day on WeChat from 2012.

There are already 115 courses on the iGetget APP homepage. The most popular one is an economics course consisting of 366 classes with each lasting about 10 minutes. The course costs about 30 dollars, and the APP indicates that 390,000 people have already studied it.

Authors of these pay-for-knowledge courses are usually people who have a certain influence in the online world, such as a KOL on Weibo (Chinese version of Twitter), or a psychologist who often appears in the media. Of course, they are not delivering their content alone. Often, they have a team behind the scenes in charge of the editing, packaging, marketing and so on. Or, a company like iGetget will provide such a team to serve these authors/speakers.

Just a few weeks ago, one such pay-for-knowledge company announced that it was acquired by a Chinese listed company for $220 million. Some people argue that the decision to sell indicates that the pay-for-knowledge industry has slowed down. This makes sense, because new creative content and influential KOLs are always limited and the total amount of attention of users is limited too.

• Two-teacher classroom

The two-teacher classroom is a blended learning model that has witnessed explosive growth in the last two years. While the online tutoring or mobile learning sectors are led by newly-founded companies like VIPKID or Yuantiku, this blended learning model is pioneered mainly by the two industry giants, New Oriental and TAL, followed by top regional afterschool players.

The basic model is that a remote high-quality teacher livestreams to 15 or potentially more classrooms simultaneously with local teachers physically on-site. The remote teachers are experienced in teaching, while the local teachers in managing the classrooms. Additionally, the technology can enable the remote online teacher to collect classroom performance, to get instant feedback of students, and to have interactions with the students in the classroom.

This model, compared with purely online learning, allows for more interaction and engagement. At the same time, it solves the issue of a lack of quality teachers in certain areas. New Oriental uses a self-run model where it builds its own two-classroom learning centres, recruits students, and develops its own technology, etc. TAL now has opened its two-teacher classroom to small and medium-sized after-school centres, where they provide the curriculum, technology and high-quality teacher, while the small and medium-sized after-school companies recruit the students themselves and provide the local on-site teachers.

• Connected-Microphone Learning

Social elements are always considered important in learning. In the old times, we formed study groups and went to friends’ home to work on assignments. Now, that happens online.

A typical scenario is, student A, working on law school final exam, connected online by video with 2 or 3 other students working on the same tests remotely. Sometimes they are strangers, and most times they don’t even speak a word. You just know that there is somebody else learning as well, and it motivates you to keep on studying.

This is called Connected-Microphone Learning. “Connected-Microphone,” is commonly used in gaming, video messaging, singing and now is also a new form of learning for students aged from 10 to 30 years old. Timing is one of these learning apps which now has more than 1 million users.

You are super welcome to chat about the Chinese education market with us — either if you are looking for business opportunities or would like to request content you’d like to see in our future articles.

You can find us by:

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Or email us: tangeduer@gmail.com

We are often asked about the trends in China’s edtech development when numbers like 1.86 Billion USD in 2019Q1, 500 million USD mega-round, hit the headlines. Sometimes it is hard to explain in just a few sentences. The latest innovation in China’s edtech is all rooted in the combination of the fierce competition of education resources, and later social economic status, the emergence of young generation of parents and their new perspectives and deeper pockets in education, the heritage of a well-developed after-school system coexisting with the public school system, and increasingly ubiquitous social media and its ever more convenient digital payment.

We hope this piece can help you learn some of the top trending themes in China’s edtech investment. We try to explain what each theme is about, why it emerges, what are some concerns and opportunities and also a top company in the segment. For the first part, we select the following five themes that attract investors’ attention. Another five will come in the second piece.

1. Kid online “thinking” class
2. Online accompanied (piano) practicing
3. Live small class
4. AI live class
5. Punch cards

Kid Online “Thinking” Class

The craze of Chinese parents to enroll their kids in English learning boosts investors’ confidence in companies like VIPkid. And it won’t be just English. Now could kid online “thinking” class be the next kid online English learning?

When we talk about Kid online thinking class, essentially you can understand it as kid math learning. The reason it doesn’t has “mathematics” in its name is to differentiate itself from the more exam-prep, memorizing-driven, and practice-heavy traditional math classes. And the thinking class states that they focus on critical thinking, logical thinking, and computational thinking.

There are a couple of reasons for this new focus to emerge since 2 or 3 years ago. The new generation of Chinese parents who are exposed more to the Western education system believes that it’s more important to learn how to think and how to solve problems, rather than memorizing all the facts and formulas. Yet critical thinking, logical thinking, and computational thinking are taught little in schools. At the same time, the government has issued a number of policies to heavily regulate and discourage the traditional K12 afterschool exam-prep. Therefore, a better-put alternative is made: I’m not teaching you Maths; I’m teaching you how to think logically.

The original purpose may have been to help kids think more critically, innovatively, and creatively. But the fact is that not all parents are educators — it might be difficult for them to understand. Therefore, to have a better ‘market-product-fit’, startups position themselves as logical thinking education providers: the direct result is that your kids can increase his Maths grade. It’s a dilemma — what the parents want and what they think they want may not be the same. But ‘logical thinking’ is after all the first step from exam-prep to competency-based education.

A top player in this field is Spark Thinking (or Huohua), who have secured 3 rounds of funding, the most recent in this March, with the total volume of 35 million USD from investors like Hike Capital, GSR Venture, IDG Capital, Sequoia Capital, Lightspeed Venture, etc.

Online Accompanied Piano Practicing

It may seem the technology can’t be involved with musical instrument education. But several companies have found a creative way to do it online and turned it into a billion-dollar business.

When a kid takes a piano lesson, which is usually once a week, one third of the time is spent to review what has been taught last week, one third of it is to correct any skills that you may have been wrongly practicing for a week, and then the left one third can be used to learn something new. Then you are sent home to practice at home for a whole week without knowing if you are doing it right or wrong (unless you have a parent who can guide you professionally).

Now imagine you have a tutor that could guide your home practice maybe twice a week and the best of it, it’s online! So, it’s cheap, you can do it any time you want, and can just stay home comfortably. Yes, some hardware is required: a tablet, cameras pointing at your fingers and a very stable WIFI.

One of the investors’ favorites in this sector is VIP Peilian (Peilian means Accompanied Practice). It has over 500,000 users over 33 countries and its monthly revenue has exceeded 80 million RMB (approx. 12 million USD). Its last round of funding is from big name such as Tencent, Tiger Global, Orchid Asia etc., with 150 million USD.

Live Small class

For many online learning innovation, you can see a clear heritage from offline learning. So just a bit history on 3 most popular class-delivering formats in China.

Before 2003, after-school training and tutoring, then offline, is either in the format of 1-on-1 tutoring or big class (1 teacher to more than 50, even hundreds, students), which suffers either low margin or low interaction. TAL education group popularized the small class model (1 teacher to around 25 students) in after-school training space, and now revenue comes from the small class accounts 50% for New Oriental and 80% for TAL. Small class enhances the interaction in the classroom and becomes less labor intensive. However, it is hard at the beginning to acquire students and to recruit qualified teachers, as 1-on-1 can use younger and less experienced tutors. And small class doesn’t enjoy a high margin like a big class.

Online education repeats the history of offline: 1-on-1 and big class became mainstream first. And then the advantage of a small class is increasingly recognized. Now small class (1-on-4ish) model can meet the balance, which is good news against the unprofitability of online education.

To support this trend, technology providers like Classin was born to support online interactive class (3–15 students). TAL and New Oriental both invested in Classin, which was founded in 2014. At the same time, companies, started with 1-on-1 model, like VIPkid and ABC360, are also incubating small class products. In Nov. 2018, Dr. Yang, founder of iTutorGroup, stated publicly that online 1-on-1 will become history and online small class will turn mainstream.

AI Live Class

Similar logic described above, but here the solution is artificial intelligence. On the one hand, the most acceptable online learning form for kids now in China is online one-on-one tutoring and native-English-speaking teachers for kids English learning. On the other hand, the high cost of teachers is a burden for both parents and companies. And here comes AI Live Class.

For kids, the interface and experience are very much like one-on-one online tutoring. The foreign teacher explains words and sentences and asks the kid to repeat, and then gives feedback. But in fact AI Live Class is not live streaming at all, rather it is a highly interactive video-based class. By using facial recognition, speech recognition, and adaptive technology, AI live class is trying to deliver live tutoring experience.

The products now are in the piloting stage. Most of them are teaching kid-level English with most of its content in simple words and dialogues. But how far can it go? And is it only able to teach fairly simple English? or can it actually be much broadly applied in learning?

The concept of AI Live Class is brought to the spotlight by Putao ABC, which raised 21 Million USD Angel round last December. Other players are aiKid, incubated by Bytedance, world’s most valuable VC-backed startup, and Dingdong Class, raised 10+ Million RMB Series A also last December.

Punch Cards

As people spend a large proportion of time on the social media platform, it becomes a major way of information input and output. An increasing number of people are posting their own learning behaviors on social media, in China, mostly on wechat moments. (WeChat is China’s largest social media platform with a DAU exceeding 1 billion.)

How can edtech companies take advantage of this perfect portal with a large number of potential users? Chinese netizens have gradually developed the habit of paying for content and knowledge. At the same time, online education companies are also in urgent need to turn free users into paid users. Some have launched a WeChat-based ‘punch cards’ service. For example, if there is a $20 English vocabulary learning product which you need to practice 10 minutes every day, and if you continue ‘punching cards’ in your WeChat Moments (meaning to post that ‘you’ve done today’s practice’ to your WeChat friends) every day for 100 days, you will get some gifts or some refund. This card-punching function not only improves completion rate and user stickiness, adds social elements in learning, and generates revenue, but also is a great growth hacking strategy.

The English vocabulary learning app, Baicizhan, is a typical case. This is a free app with 80 million users, but in the past few years, its only source of income is selling branded stationery products. The online small class package + card-punching function is a very good way of monetization and can be easily spread among friends in WeChat. In this way, Baicizhan earned more than $20 million of revenue in 2017, about 5–10 times more than before. According to data disclosed in 2018, the valuation of Baicizhan is near $700 million.