For children who grew up watching the Disney movie Aladdin, the bronze lamp was an object of fascination. Give it a few rubs and it released an all-powerful genie, happy to grant you a wish.
A new lamp reminiscent of that magical device has been sitting at desks across China since July. Equipped with a touch screen and two AI-powered cameras, the gizmo is designed to help students with their homework. It gives answers to mathematical questions, reads words in English aloud, and makes it easier to get guidance from parents and tutors.
Starting at Rmb799 ($120), the lamp is Bytedance’s first piece of consumer hardware. Over 5,000 units have been sold since launch, supported by a programme of free lessons that the Beijing-based AI giant is offering through two of its most popular education applications as promotions.
After launching hugely popular brands with its news aggregator Toutiao and short-video app TikTok (or Douyin at home in China), eight-year-old Bytedance is hoping to replicate its successes in the booming online education sector. That ambition is embodied by a Rmb4 billion budget for the creation of a new business unit called Dali Education, according to Chaintruth, a zimeiti. Chen Lin, formerly CEO of Toutiao, will take the helm at Dali, supported by Yang Luyu, co-founder of Musical.ly (TikTok’s predecessor), who has led the development of the smart education devices such as the magic lamp.
Bytedance has been building stakes in the education services sector since 2016. Of the 101 transactions it has struck as of the first half of this year, 23 came from the sector, more than all the other areas of interest, estimates 36Kr, a tech news source. The frenetic dealmaking, coupled with the company’s own research and development effort, has allowed Bytedance to create a comprehensive suite of services, covering B2B and B2C customers.
The B2C category comprises some two dozen offerings, targeting a broad range of age groups. One of its most popular products is GoGoKid, which connects native-speaking tutors of English with Chinese students, competing head-to-head with Tencent-backed VIPKid.
For K-12 students, Bytedance offers Qingbei Online School, a livestreaming platform for small-size classes hosted by celebrity tutors.
For kids under the age of eight, there is the Guagualong app, which provides AI-powered training in Chinese, English and maths, rivalling Zebra AI, which is owned by Beijing-based edtech unicorn Yuanfudao.
For adults Bytedance offers the self-development app Haohao Xuexi, with content ranging through career advice, tips on parenting and wealth management, to audio books.
In higher education, Bytedance is joining TAL Education Group as a backer of San Francisco-based edtech start-up Minerva Project, which sells an online curriculum and technology platform to institutions such as the Hong Kong University of Science and Technology.
In a letter to staff, Bytedance boss Zhang Yiming said that he is taking a longer-term view on China’s education services sector. He doesn’t expect Dali – under which all the company’s education assets are now managed – to turn profitable within the next three years. But he says that Bytedance will plough more resources into its expansion, making 10,000 new hires this year, and offering annual salaries of up to Rmb2 million to lure graduates from elite universities such as Tsinghua and Peking University to work as tutors on its education platforms.
Bytedance’s diversification plan comes at a time when the online education industry has registered explosive growth, with the Covid-19 pandemic forcing millions of students to hunker down at home. Daily active users of e-learning apps surged 46% on the year to 127 million as provinces put lockdowns into action earlier this year, data from Questmobile, a market research firm, suggests. That helped companies such as New York-listed Youdao (NetEase’s online education arm) to increase intake from kindergarten to final-year students by 359% in the first half, and book revenues of Rmb1.2 billion on 112% growth.
The sentiment helped the sector mint a new herd of unicorns. In April, Zuoyebang, an e-learning start-up spun out from Baidu in 2015, raised $750 million from the likes of Sequoia, Softbank and the Qatar Investment Authority on a projected valuation of $6.5 billion. Its archrival Yuanfudao saw its worth double to an eye-popping $15.5 billion within six months of closing $2.2 billion in new funding last October, with the help of DST Global, which backs ridesharing company Didi Chuxing. Tencent led the previous round in March, joined by Hillhouse Capital.
Both companies grew their student followings by offering web-based group classes that operate on a two-pronged approach. Students can expect to receive quality tuition from accredited instructors through livestreams, as well as more personlised micro-tutoring via WeChat after class. Pioneered by GSX Techedu, which went public in New York last June, the model is a scalable one and has also been implemented by Xueersi, the online education unit of TAL Education Group.
At present Yuanfudao has the largest paid customer base of the four leading platforms, reaching 3.7 million people by the end of August. Analysts attribute the achievement to its wider mix of products, which keeps users inside its ecosystem. Aside from K-12 classes, it offers Yuantiku (a database of test and examination questions), Yuansouti (a Q&A app) and Fenbi (a vocational examination trainer).
The company is forecasting that its top-line revenues will surpass Rmb18 billion by the end of this year, with the lion’s share coming from the K-12 segment, and much of the remainder from Fenbi, reports Shanghai Securities News. The pick-up in revenues is unlikely to stop it from running up losses, however, as spending on customer acquisition has shot up again after China’s recovery from the coronavirus outbreak.
What doomed the once buoyant bike-sharing industry – the battle for market share – is a risk for the country’s e-learning sector too, some analysts warn.
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