Internet & Tech

Learning new tricks

Internet firm YY wants to revolutionise online education

Board w

The Financial Times calls YY “one of the hottest tech companies you’ve never heard of” and Forbes says there’s “nothing quite like it” in the United States. Investors in YY probably agree. The live broadcasting platform’s stock has more than quadrupled since listing on Nasdaq in late 2012.

As WiC reported in issue 175, YY started out in 2005 as an online portal for China’s gamers. Three years later, it developed a voice-based service allowing gamers to chat over the internet as they slayed monsters or coordinated their Navy Seal missions. The company then added video streaming.

With more than 100 million active users, YY now provides voice and video sessions for a wide range of audiences in music, fashion, sports and personal finance. Tens of thousands of people participate concurrently in some of these online sessions.

But one of the most popular uses of YY is for karaoke, where one person sings and others follow along or chat together as a group. The best of these amateur singers can actually make money. One of the site’s largest revenue streams is selling virtual roses. Fans can purchase the flowers (Rmb1, or 16 cents, per rose) for the performers they like the most. The roses can then be cashed in for real money, with YY taking a share of the flower fee.

Singers thus have even more incentive to deliver stirring performances. And it can be lucrative. After building up expansive fan bases, some singers have scheduled live concerts on the site. According to YY, the most popular musicians can make $20,000 a month (although admittedly, most people just earn pocket change).

Now YY has a new mission – to teach Chinese to speak better English.

Last month YY announced the launch of 100 Education (, a dedicated portal that focuses on education. The company says it will spend as much as Rmb1 billion on the platform over the next two years. Part of the investment will go towards attracting instructors to take their lessons online, while some will fund video lectures (predominantly English language classes) which will be offered for free at beginner level.

“The investment is to lure the best teachers and to cultivate users’ habit of turning to YY for free content,” an industry insider told Century Weekly.

Analysts say the move makes sense. YY is already operating an online platform for singing shows, so it has an opportunity to connect other performers (in this case, teachers) with audiences (students). People are already doing it. Previously, a college student who taught Photoshop skills in a virtual classroom on YY built a business that’s now worth Rmb100 million, says magazine China Entrepreneur.

YY’s expansion into online education could pose a threat to existing bricks-and-mortar education businesses like New Oriental, Xueda Education and China Distance Education, which have also been making efforts to boost their presence in online education. Traditionally these firms charge about Rmb3,000 for a beginner TOEFL test preparation class – in order to help students with their language skills and get into American universities.

By comparison on YY the basic language courses are free.

Some investors are evidently worried about this new type of competition.

After the launch of 100 Education, New Oriental saw its shares drop more than 13% on the New York Stock Exchange. Xueda, too, has seen its stock drop over 16% in the past month.

Yu Minhong, chief executive of New Oriental, says that he’s not worried by the news. “What YY is doing I tried 20 years ago,” he told New Financial Observer, adding that trying to capture users with free lectures is not a viable tactic over the long run.

“Let’s look at the results in a year’s time,” Yu added.

Other observers were also sceptical. “YY’s 100 Education is more hype than substance,” says Li Ting, a marketing director at Up&Up, an online English language centre.

It remains to be seen whether YY can monetise the educational platform that it is proposing and the company admits that it doesn’t expect 100 Education to make a meaningful contribution to its bottom line in the near future. New Oriental, which started its online business 10 years ago, only generates 3% of its revenue on the web.

That’s not to say that online education in China isn’t a big business. The sector is expected to reach Rmb160 billion in sales in 2015 from Rmb92.4 billion last year, market research firm iiMedia told Nanfang Daily this week.

Investors are taking heed, with private equity fund SAIF Partners China putting $10 million into early childhood education platform, a subscription-based business targeting children aged six and under.

The internet giants are also gearing up for action in the education market. Last year e-commerce giant Alibaba launched Taobao Classmates, a marketplace for teachers and educational organisations to sell pre-recorded or live video courses and other materials for traditional class formats. Alibaba also joined Singapore’s Temasek and Qiming Venture Partners in ploughing $100 million into TutorGroup, an English language tutoring service.

Search giant Baidu has also come up with a digital content marketplace where service providers can sell video courses and other educational content. The search giant has invested in a marketplace called Chuanke which was founded in late 2011 and offers courses online.

Not to be outdone, Tencent operates Tencent University, another online education platform, and is rumoured to be partnering with New Oriental to expand its footprint in the market, says Nanfang Daily.

“For Tencent, a joint venture [with New Oriental] is a great way to catch up with rivals Baidu and Alibaba, which have already entered this market with their platforms,” says Liu Dongmei, an online education analyst with iResearch.

Everyone’s learning, it seems.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.