China Consumer

Rich kids

Online English teaching firm VIPKID becomes China’s latest unicorn

VIPKID-w

Your kids are our VIP clients

In South Korea, parents who want their children to learn English well may go so far as to send them for an operation to elongate the tongue. The Daily Mail says they believe that it will make pronunciation easier. “Korean mothers have a fervour for education and think it will make their children fluent in English,” says Dr Jung Do Kwang, an ear, nose and throat specialist.

Even though the Chinese have not gone to the same extremes, more affluent parents are sparing no expense when it comes to giving their children a leg up in speaking English. VIPKID, a company that targets anxious parents, is so successful that it recently raised $200 million from investors including Sequoia Capital and internet behemoth Tencent. The education firm is now valued at over $1 billion (putting it in unicorn territory) and counts former NBA superstar Kobe Bryant among its early investors.

The company, founded in 2013, connects Chinese children aged between five and 12 years-old with native English speakers for one-on-one online language lessons. According to its own statistics, on average, parents spend between Rmb15,000 ($2,250) and Rmb20,000 on the platform a year. At the moment, VIPKID boasts over 200,000 students and 20,000 teachers. Having already hosted more than 20 million online classes this year, it expects to bring in over Rmb5 billion in revenue in 2017.

While many rival firms recruit local tutors who have studied English at top universities in China, VIPKID’s overheads are lower because its instructors are typically teachers based in the US and other professionals who are already teaching English online as a way to make a little extra cash (they are required to pass a set of relatively stringent tests in order to qualify). TechCrunch reports that foreign teachers on VIPKID make from $7 to $11 per half an hour.

VIPKID adds value by bringing in education experts to develop a proprietary learning plan so the company has control over what is being taught. And instead of relying on internet phone and video services like Skype, VIPKID has its own video-conferencing platform for one-to-one sessions, which usually last around 25 minutes. It also integrates other innovations like video games to encourage learning.

To expand its revenue streams, VIPKID doesn’t merely target Chinese children who want to learn English. It has also launched a new service called Lingo Bus, which caters to children abroad that want to study Chinese. At the moment, there are over 1,000 users that have registered for classes, says Qilu Evening News.

“Through the technology of the internet, we are able to connect educational resources globally, turning what was once impossible possible,” says Cindy Mi, the founder of VIPKID. “Meanwhile, with the help of Big Data, artificial intelligence and other new technology applications, we can personalise each child’s learning on a large-scale.”

Education is viewed as a priority for personal and professional success in every country, but in China even more so. No surprise then that learning English online has become big business. In 2016, the number of children doing so on the internet reached 3.2 million, an increase of 40% from a year earlier. Market research firm iResearch believes that the market will continue to grow at a rate of 30% to reach 8 million students by 2019.

Needless to say, competition is already fierce. In late May, a rival provider, Yuanfudao, also raised $120 million, giving the Beijing-based start-up a valuation above $1 billion as well. Baidu also took a stake in Zuoyebang, a similar start-up. Alibaba has invested in online teaching service VIPABC too.

Still, despite the massive growth, profits for these companies can be elusive, says Jiemian, a portal. Look no further than one of VIPKID’s biggest rivals 51Talk. Listed on the New York Stock Exchange, 51Talk said in its most recent quarterly report that operating expenses were up 67% due to higher cost of sales, as well as increased marketing spending and product development. It ended the quarter with a net loss of Rmb140 million.


© ChinTell Ltd. All rights reserved.

Brought to you 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.