Bytedance’s online education platform Gogokid has reportedly laid off hundreds of employees, in the latest example of Chinese edtech firms tightening their belts in order to stay afloat.
Rumors circulating on Chinese professional networking site Maimai earlier this month reported that at least 50% of its employees would be slashed, including reducing its sales team 70% to 200 employees. AiKID, another online tutoring service owned by Bytedance, has reportedly suspended it business for four months.
A Bytedance spokeswoman confirmed the company layoffs when contacted by TechNode on Tuesday, though she declined to provide details on headcount. The company said the reduction was part of a broader push to stabilize the company and achieve higher efficiency, as it moves further into the online education sector which “takes more patience and effort” (our translation).
Gogokid is the second major edutech player in the past two months that has been forced to lay off employees to survive. Hujiang said in March its recent round of reorganization was focused around some of its loss-making businesses and would benefit shareholders and users in the long term. The Shanghai-based edtech firm filed paperwork for its initial public offering (IPO) on the Hong Kong stock exchange in July, which appears to have stalled, based on Chinese media reports.
Tencent-invested Vipkid sufferred net losses of RMB 459 million (around $68 million) in 2017, which increased to RMB 1.5 billion in 2018, Chinaventure reported, citing a person familiar with the matter.
High user acquisition costs are a known factor in the Chinese online education market. In a report by National Business Daily, an industry insider said the average acquisition cost per customer can exceed RMB 1,000 (around $150) for some educational companies, and that more than 80% of companies in the market remain unprofitable.
While edtech platforms invest in sales and marketing efforts such as incentive programs and celebrity endorsements, general sales costs tend to be high, as sales staff have to woo parents over extended periods of time, driving low conversion rates and significant user acquisition costs, according to National Business Daily.
These costs may be poised to increase even more amid tightened regulations. In a document released in August by the state council, Chinese tutoring service providers, online or offline, can only charge tuition fees for a maximum period of three months at a time. This legislation has had significant impact on a sector known to be difficult to achieve profitability, according to Chinese media reports.
Gogokid has been struggling to gain customers as the high cost of doing business contributes to ongoing losses, China Entrepreneur magazine cited an anonymous employee as saying. The company is now barred from selling one-year courses to parents, the employee added, which used to be a common practice and major revenue source for online teaching institutions struggling to stay afloat.