VIPKID announces new products and strategic partnership with Microsoft

VIPKID, a Chinese English study startup, has announced a strategic cooperation with Microsoft. The moves imply that the company is now cultivating a comprehensive education market that is holding greater premium and growth potentials than just English learning.

Cost margin and growth bottleneck

According to VIPKID’s official data released during the press event, they have over 60,000 native English-speaking teachers. Its paid teenager members hit 500,000. 180,000 classes that make up 4.5 million minutes are held every day.

Its current designs of products intend to cover Chinese kids and youth who are below 18 years old, including a package targeting kids who are below 4 years old. The company also announced to launch a new VIPFamily product allowing family members to learn English with kids. A program for overseas-born Chinese children who are between 5-12 years’ old will debut in August this year.

The intention is very clear – shifting the business from a simple English learning one to a more complex and comprehensive learning system and discovering new customers.

“1 teacher to 1 student, or 1 teacher to a few kids, is common in the industry. But you should know the cost margin will increase hugely if you want to sustain profitability, keep growing, and control teaching quality all the same time. There’s no unlimited qualified native speakers available, and everyone, both students and teachers, only have 24 hours a day,” said Fan Hao, Director of Product Design at Smart Study Education. The company is a language and smart learning startup which received $10.6 million for Series A from Baidu and RMB 400 million in total for Series B and B+.

As a language learning startup which also adopted the model mentioned by Fan, VIPKID’s past solutions include allowing native speakers working remotely (sometimes in their home countries) to teach English via video calls. The approach has expanded VIPKID’s supply of teaching staff but also increased management costs and operational complexity. Adding premium value service then went onto priority list.

VIPKID didn’t specify financial results during the event. An expectation of VIPKID’s 2017 revenue of RMB 3 billion – RMB 5 billion went around the education market, but no final confirmation is made in the end.

Local media (in Chinese) reports VIPKID’s class purchase retention rate is around 90%. Customer loyalty and the big student base will allow VIPKID to build up more development-oriented services.

Partnerships: textbooks and product design 

Another 2 interesting highlights TechNode spotted during the event is VIPKID’s cooperation building in textbooks and product design tech.

According to Mi Wenjuan, founder and CEO at VIPKID, the company has become partners with leading global textbook publishers and content producers including Oxford University Press, National Geographic Learning, and Collins Education, the third-largest educational publisher in the UK.

According to a source familiar with the issue, an increasing number of educational startups are in talks with global educational publishing houses including Pearson to evaluate all possibilities for cooperation.

The source says textbooks can bring extra revenues. One of China’s earliest and strongest educational institution New Oriental, for instance, reports an unaudited $127.7 million net revenues for Books and Others for the three months ended May 31, 2018. The figures account for 18.2% of the total net revenues.

Meanwhile, textbooks and exclusive learning materials allow the establishment of thinking frameworks, a strategy that would strengthen user stickiness and increase market influence.

Speaking of the product design and tech collaboration between VIPKID and Microsoft, the 2 parties are both very explicit about their expectations.

Mi believes Microsoft would allow VIPKID to leverage more joint capabilities to tailor fast-changing but lucrative market needs.

A representative from Microsoft says they are confident with its solutions, and a near future plan is to expand partners in a diverse range of industries, to consolidate a leading position in AI-infrastructure service market for the next 10 and more years.

The representative also says they are willing to pour in resources including its own R&D, product, and sales personnel to support the cooperation with VIPKID. The participation of sales team makes the joint effort interest-intimate. Neither VIPKID or Microsoft unveiled any details of the sales collaboration, but the announcement would mean close ties of business revenues.

On June 21, VIPKID announced a $500 million Series D+ funding led by Coatue Management, Tencent, Sequoia Capital, and Yunfeng Capital. The financing boosted VIPKID’s valuation up to RMB 20 billion.