TAL Education Group, a Chinese private education company conducting research in China’s online education market, has seen fewer educational startups founded throughout this year than in 2013. There were nearly one thousand online education startups in China through to November 2014, according to TAL, with just 180 (19%) being created in the past six months.
While most Chinese online education startups were creating online content or migrating educational materials to digital in the early days of the industry, the recent trend is to build online and mobile services to improve efficiency or complement offline education. The category saw a 90% growth in the number of startups founded in the past six months while 45% of total investment went to service providers. Classes which include online content are cost-intensive as Chinese sites have not yet found ways to reach large audiences.
Of the total startups added in the past six months, 53% were business-to-customer while the rest are customer-to-customer, business-to-business or others.
While a considerable percentage of the early education startups in China copied Western models such as Skillshare, Coursera and Lynda, recent efforts are tackling practical problems or improving the efficiency of both China’s state-run education system and private education market. TAL found that most startups founded in the past six months focus mainly on two sectors, K-12 and professional qualifications. Previously these categories also included pre-school and adult foreign language training.
Yet venture capital has primarily gone to adult English training and professional training rather than online services for K-12 in this period. Some online K-12 startups secured early stage funding this year. By contrast, the recent funding rounds for online adult English and professional training services are Series B or C.
A total of US$910 million of venture capital has been injected into 149 Chinese online education companies since 2013, with US$470 million (52%) raised in the past six months, according to TAL research.
A number of K-12 related online services emerged in the second half of last year. Chinese authorities are promoting reform of Chinese- and English-language learning in primary and middle schools. They want Chinese kids to spend more time learning Chinese than English. This is considered a good opportunity by the private education industry, for they believe Chinese parents will spend more money on after-school training, as they’d neither want their kids to learn less English nor for them do poorly in Chinese-language exams, which must be more difficult after the reform.
But when it comes to the online market, investors and many else in China think it’s hard to build sound business models for the state-run K-12 sector, at lease in the near term. Second-time entrepreneur Gong Haiyan, founder and former CEO of Jiayuan, has launched three sites in online education in the past year or so: an online English learning service, an interactive platform and a live educational course site. Two months ago, she decided to suspend the latter two sites (targeting K-12 education) and refocus on the English learning service, according to an open letter by her. The two K-12 sites had burned through the funding she raised without gaining any traction, while the online English teaching service had at least had been generating revenue.
It is strongly believed that online education will be huge in China, not only because of hopes for internet-enabled services to improve efficiency or education quality, but also due to the confidence of the fast growing private education market, thanks to educational reforms, economic restructuring and the increasing disposable income of Chinese parents who always want the best education for their kids.
Apart from K-12, TAL Education Group concludes that pre-school, overseas education and professional training education markets will also grow rapidly. Their respective reasons: (1) the new generation of parents born under the One Child Policy are now allowed to have a second child (2) more and younger Chinese students study abroad, and (3) while more Chinese students can receive a higher education, what college students have learned by graduation doesn’t meet the professional requirements of business and society.
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Editing by Mike Cormack (@bucketoftongues)