There’s been a programming education gold rush in China during recent years. Often called “the 21st century’s English,” coding classes are now overtaking English lessons and mathematics Olympiads as an after-school activity for Chinese kids.
Companies raced to expand, hoping to secure an early lead. But after two years, many have already gone bankrupt—and those that survive face serious questions about quality. Analysts warn that, in their rush to expand, companies have resorted to a loosely-managed franchise model that treats lessons like cups of milk teas, hiring unqualified teachers, and delivering subpar experiences.
Investment craze
When the State Council’s 2017 Next Generation Artificial Intelligence Development Plan (in Chinese) mentioned “gradually promoting programming education,” money rushed into children’s programming education.
In 2018, venture capitals (VCs) flooded about RMB 1.1 billion (about $157 million) into the sector in about 40 deals, according to a report (in Chinese) from GuangZheng Hang Seng.
With this backing, the industry is snowballing.
Baidu’s search frequency index for “coding for kids” didn’t break 100 until November 2015. It is now consistently above 1,000—comparable to “sharing bikes” or “online ride-hailing”—after bursts of interest in 2017 and 2018 peaking at nearly 3,000 in April 2018. “The industry is hot at present, compared to the past,” said Liu Fengfei, a course developer at XiaoMa. Wang, an education company that provides coding courses specially designed for young children and teenagers.
Geek Star, ranked among the top eight companies in the industry by Analysys (in Chinese), was founded in 2016 and now has more than 100 branches located in 26 provinces or municipalities in China, according to its website. Codemao, another top company in this sector, has already spread overseas, with branches in over 20 countries.
For now, the coding for kids market is still relatively small, with an approximate market size between RMB 1 billion and RMB 10 billion. Nevertheless, Jingdata (in Chinese) predicts that the market will grow to RMB 50 billion in five years.
Risky franchise model
In their rush to expand, many coding educating companies have adopted a franchise model. But critics say franchises do not guarantee quality, and are not suitable for education—and may even be illegal.
Guangzhou newspaper Southern Weekly (in Chinese) writes that some companies are running coding schools the same way as rapidly expanding milk tea shops. In China, milk tea shops have boomed during recent years, many growing by franchising—and even in that field, the model is questioned.
In the coding education field, the franchise model is used by small players as well as leaders like Codemao. But it’s risky: more than 20 companies went out of business between the end of 2018 and last April, of which half were using the franchise model, according to a report by Chinese tech outlet iyiou.
Chen Bin, chief executive at coding education platform Chengxuyuan, has repeatedly warned against buying franchises in this sector on his Weibo account. “The franchise model is an easy way for companies to gather money, but education is too complex a business to develop it,” he told TechNode. “Thus the merchants who pay franchise fees to join the business of coding education are likely to struggle for years to get their money back.”
“The risks are all ours; the profits are all theirs,” Liu, a previous Codemao franchise-holder, told Yilunkeji (in Chinese). Furthermore, the platform also “poaches” students from its offline partners for its online platform, he claimed. In fact, Codemao doesn’t have a franchise license, which means it’s not qualified to run such a business.
Teacher shortage
Class quality on these platforms is also uneven. A lack of qualified teachers is one of the reasons.
“It’s hard to find a teacher who is really qualified,” said Zhou Yu, a coding teacher based in Linyi, Shandong province. She told TechNode that teachers who graduate from teachers’ colleges typically don’t have a command of the material, while those who transfer from programming focus too much on technology rather than education.
There are almost no teachers who are both qualified enough and willing to focus on teaching—and companies seem to have given up looking. Recruitment ads for teachers on Codemao’s website don’t even request a coding or teaching background.
Teaching kids is not an attractive job for graduates of computer-related majors. On Bosszhipin, a Chinese recruitment platform, salaries for coding teachers in Beijing, one of the most expensive cities in the country, range from RMB 6,000 to RMB 15,000 per month, less than the average of RMB 16,303 for IT practitioners in Hangzhou, a second-tier city.
Red ink
“Besides franchise issues, another pain point for coding education is that the profit model remains unclear,” said Chen Bin.
Last month, Miaocode, a coding education company which had already raised more than RMB 100 million, paused its online coding classes, asking parents to wait for compensation for remaining paid class time as well as fees. After failing its Series B, the company is running out of money. The Beijing News speculates (in Chinese) that it could either cease operating or be purchased.
Xigua City, another leading player in children’s programming education, just closed an RMB 150 million Series B this August, joined by New Oriental Education & Technology and star investors like Matrix Partners China and Sequoia Capital China. But it was revealed in November 2019 that it too is cutting jobs cut. The company responded to Iyiou (in Chinese) that the layoff of about 15 percent of staff was just a regular adjustment.
Other issues like homogeneous coding classes and blind competition are also considered as major pain points.
“I’m positive about the programming classes for kids; however, parents should be more cautious when picking organizations,” said Zhou Yu.
Potential and risks
In general, investors became more cautious in 2019. However, major programming teaching companies still attracted a large amount of investment. In November, Codemao closed a Series C at RMB 400 million, its second round of 2019. By the end of October, another firm, HeTaoBianCheng, closed a $50 million Series B.
None of companies providing coding classes have talked publicly about profits yet. Zeng Pengxuan, CEO at HeTaoBianCheng, admitted in March 2019 that the company hasn’t been able to turn a profit. CodeMao CEO Li Tianchi has said that his company would continue to develop rapidly and reach break-even in 2019. Yet no good news about profitability has been heard since.
In 2020, Chen Bin predicts, more companies may close their businesses, unless they can get a large amount of investment or manage to earn money.