In ancient China, the ranks of the imperial bureaucracy were filled with students who had excelled in a series of imperial examinations, testing their knowledge of Confucian classics and their wisdom with regard to just governance. In this modern age, Chinese still view education as holding the key to success. Getting into a top university, improving language skills and, for some, studying abroad, have become the main goals for many upwardly mobile Chinese youth.
But while the continued emphasis on education may be the same, today’s places of learning are increasingly different from the classrooms and imperial examination halls of yore.
Thanks to a flurry of investment, China’s leading educational service providers are tearing up their textbooks and going wireless. With lifestyles changing and technology advancing, educators are increasingly investing in mobile and internet services that offer students the opportunity to learn on the move. Some of the biggest names in education and technology, from New Oriental (新东方) to Nokia, are getting in on the act, while dozens of start-up content providers are also trying to break into the market.
The fusion of education and technology in China is an extremely lucrative one. China’s education market was worth an estimated USD 143 billion in 2007 and, in spite of the economic downturn, is projected to grow at around 12% a year until 2010. The average Chinese family spends between 18%-20% of their disposable income on education. In terms of technology, China this year surpassed the US to become the world’s largest internet market, with an estimated 210 million users at the end of 2007, while it also has the largest number of mobile phone users in the world, with the number of subscribers breaking the 600 million barrier earlier this year.
In addition, unlike in many Western markets, students of private education institutions tend to be young professionals with day jobs looking to acquire skills or qualifications such as the GMAT, IELTS or TOEFL to enhance their career prospects, or to qualify themselves for post-graduate studies abroad.
However, as the market becomes ever-more crowded, and e-learning users become increasingly sophisticated, many companies, especially smaller start-ups, are finding it difficult to locate stable revenue streams. Those trying to ride the e-learning wave could be in for a rough ride.
LUCRATIVE LESSONS
You don’t have to look too hard to spot the money flowing into China’s e-learning sector. So far this year, two Chinese e-learning firms, China Distance Education Holdings (正保远程教育) and ATA, have launched IPOs on the New York Stock Exchange (NYSE), while another leading e-learning firm, Ambow (安博), which provides online teaching for middle-school students as well as vocational training, received a USD 103 million capital injection from private equity firms Actis, Avenue and Macquarie Group. This followed a USD 54 million injection into Ambow from four private equity investors in 2007.
Private education market leader New Oriental, whose successful IPO on the NYSE in 2006 helped bring the Chinese education industry to the attention of global investors, has also jumped on the e-learning bandwagon.
Last summer, it inked a deal with Coca-Cola to jointly develop vocational modules and an e-learning platform through which Coca-Cola will offer all of its employees in China advanced training using New Oriental’s online platform, Koolearn. This will allow Coca-Cola management and human resources professionals to keep tabs on employees’ knowledge and assess their progress throughout the course, functionality which goes a long way towards addressing the personnel concerns of multinationals in China.
NOKIA CALLING
Technology firms have also spotted the potential rich pickings on offer in China’s e-learning sector. Mobile phone giant Nokia launched its Mobiledu (行学一族) website in 2007, heralding it as “China’s first interactive mobile learning service, integrating teaching material from a variety of educational organizations.” Mobiledu delivers educational content through its website, as well as through software for smartphones.
Angela Long, sales and marketing manager at Nokia’s Emerging Business Unit, has seen Mobiledu grow from its inception in 2005 with only two employees to 20 employees and over four million customers in China today. While Mobiledu started out focusing on the English language teaching market, Long says it is now looking to branch out across a wider educational sphere. “The goal was, and still is, to grow into a large platform for education in China, including K-12 and vocational training,” she says. The market potential is enormous, Long adds, with “upwards of 200 million users being a liberal estimate.”
Nokia is facilitating the process with tech support aimed at creating and maximizing the potential functionality of smartphones. The mobile phone manufacturer has assigned software developers to format access to web portals, as well as modify pre-loaded and downloadable learning content.
In addition, Nokia has paired up with content providers from both China and overseas, including New Oriental, BBC, ETS and the British Council. These agreements have meant that Nokia’s courseware-based Mobiledu program covers the highly marketable vocabulary for the TOEFL and GRE tests, in addition to providing practice exams, and even cultural content on subjects ranging from fashion to cosmetics, sports and health.
CONTENT CONUNDRUM
For Nokia and the various internet companies hoping to cash in on delivering high-value educational content, the development of a robust community of content providers is the most surefire way to ensure that their “channels” expand to include the largest possible market segment.
The June 2008 issue of CIB highlighted the case of one such content provider, Praxis Language, creators of the popular Chinese language e-learning service Chinesepod, a community geared towards teaching Chinese to foreigners via downloadable audio dialogues.
The company has been able to entice a large number of subscribers to its service, with its website now attracting more than 100,000 visitors a month. The business model chosen by Chinesepod was a subscription-based formula, with different free and subscriber-only sections of the website – a subscription buys extra materials, such as the accompanying text for downloadable audio and other premium content. This is the most stable, but perhaps most difficult revenue model for an educational content provider. Founding trio Ken Carroll, Steve Williams and Hank Horkoff were coy about releasing precise financials, but acknowledged that their revenues were healthy.
REVENUE CHALLENGE
Others attempting to follow a similar business model have found the going far tougher. Establishing a stable revenue model in the sector can prove to be a challenge, especially for startups. While new channels to get product out to large groups of people have developed, the revenue models have not.
The standard answer for where to find revenue streams for internet companies existing in the Google era is advertising – after all, anyone can get Google-sponsored ads on a website. However, margins are low and banner ads alone may not do the trick. Also, because content is often hosted on third-party sites such as Mobiledu or Sina.com, there is no way to guarantee that traffic will be directed to the actual startup’s domain.
Peter Lazar found out just how tricky it can be to tap into the e-learning market. He helped to found an educational content provider called Guojigemen (国际哥们) in the summer of 2007, which offers entertaining and educational online video content.
Peter and co-founder David Barrutia had worked together on a CCTV show, David Teaches English, specializing in sports vocabulary elaborated through amusing skits, and were confident that their new venture would prove an instant hit. But, lacking a big-name backer for their service, they quickly ran into problems with production costs and investment.
“Without an established brand-name in China, subscriptions are harder to secure and the advertising model’s low overheads make it unviable for covering anything but the most shoestring production costs,” said Lazar. “Brand names are very important in education in China. This is why certain brand names are able to predominate, and content groups like New Oriental and BBC appeal to Chinese students,” he added.
EYES ON THE PRIZE
As the market matures and results-focused consumers have a wider selection of e-learning providers to choose from, breaking into the market, or maintaining market share will become increasingly difficult.
Nevertheless, with investment continuing to flood in, further development of mobile education platforms appears inevitable.
For those still eager to break into China’s already crowded e-learning market, the challenge is enormous. But, for companies with the right backing, revenue model, platform and brand name, the students and money are out there waiting.
[Published on China International Business Magazine]