Due to the impact of the pandemic, online education has attracted everyone's attention. Among the divisions in the space, the K12 track has managed to become red hot. This article dissects one of China’s edtech unicorns in complete depth.
On April 17, 2020, the Beijing-headquartered online education firm Zuoyebang’s CEO Hou Jianbin announced (in Chinese) strategic cooperation with the Chinese national women's volleyball team. His company became the exclusive global endorsement partner of the team, attaching their identity to education and vice versa. This helped the K12 online education company once again attract the attention of the people across the country post-outbreak.
Two months later it raised USD 750 million in a new financing round as investors demonstrated their continued trust in — and focus on — Asia’s booming edtech market.
This Series E round of investment came from renowned investors such as Tiger Global, Hong Kong-based private equity firm FountainVest Partners and existing investors, SoftBank’s Vision Fund, Sequoia Capital China, Xiang He Capital and Qatar Investment Authority – after which the total amount raised reached above USD 1 billion.
Since being founded just over six years ago, how has Zuoyebang（作业帮）managed to grow so rapidly? What is the development status of the entire industry? This article will take you from the perspective of analyzing Zuoyebang, together with an in-depth understanding of the operating logic of this company, to a snapshot of the K12 online education industry.
Education is a topic that is discussed in every household, but it has its own particularities that prevent it from being fully industrialized. It requires strong policy intervention. This also makes the education industry one of many industries that are affected more by macro factors.
Online education products were first introduced in the late 1990s, and have been in development for more than 20 years. The current online education products can be roughly divided into early childhood training, K12 and adult training –, and among them, the K12 track has always been the eye-catching choice.
What makes the K12 circuit so popular?
From 2018 to 2019, various national policy documents for online education provided many dividends for the development of online education in China.
The government came up with various preferential policies to encourage offline schools to go online during the peak of the COVID-19 outbreak in China.
As of 2019, the central government's fiscal expenditure on education has increased by each year, and the proportion of fiscal education expenditure in GDP has exceeded 4% for seven consecutive years.
In 2019, the scale of China's online education market exceeded CNY 320 billion, of which 21.3% was in K12 education, that is, the scale of K12 online education market in 2019 has exceeded CNY 68 billion.
With the rapid development of the domestic economy in recent years, people's living standards have gradually improved, and household savings have also increased. Among them, in the K12 education sector, family education expenditures accounted for 20.6% of household expenditures, 52.3% of households let their children participate in off-campus business education counseling, and the proportion in first- and second-tier cities was as high as 67%.
It can be seen that, regardless of the overall economy, market size, or household expenditure, online education has a very good economic foundation and development prospects.
Online education relies on the development of Internet technology. The continuous development of the Internet has made the online education industry develop rapidly. The improvement of hardware performance has brought great improvements to the online learning experience, and higher-performance devices can provide a better-quality experience. The development of big data, artificial intelligence and other such technologies has helped in providing more teaching and learning services for students.
Because it relies on the Internet, compared with offline education, online education has a faster development speed and more innovative business models; in the subsequent technological development and iteration, such as VR/AR, the online education industry will branch into yet more development paths.
The above factors have promoted the rapid development of the online K12 field. For various reasons – such as policy, capital, and market –, the track will continue to develop continuously.
In 2018, the K12 market scale was CNY 400 billion, and the online K12 market scale reached CNY 30.2 billion, with a penetration rate of about 10%. It is expected that, by the end of this year, the online K12 penetration rate will reach 23%, and the market size will exceed CNY 100 billion.
According to iiMedia the growth rate of China's online education market will remain between 19-24% in the next three years. This also represents a bright market prospect for online education.
At present, the level of domestic education and its layout is constantly improving, but high-quality educational resources are still short in supply. Under such circumstances, extracurricular tutoring has become a good tool for improving scores in exams. Under pressure from transportation, teacher qualifications, and teaching supervision, more families tend to consider online tutoring.
Online education gives students in areas with relatively weak educational resources more opportunities to access a wider range of knowledge. It can alleviate the geographical imbalance of educational resources objectively, hence having a broader development space.
In addition, the K12 education stage is longer and has a relatively longer consumption cycle, which also makes the track so popular.
Many firms have emerged in online education over recent years. There are both online and offline players, as well as companies that focus on Internet gameplay. For example, New Oriental Online, Xueersi School, Yuanfudao Series, GSX Techedu (跟谁学), Zuoyebang, etc.
The participants can be divided into three major subdivisions: 1. Those that are committed to optimizing traditional offline education and emphasize the irreplaceable nature of offline education, 2. Those that rely on the Internet platform and emphasize teacher training for students as capturing the essence of education 3. Those that develop new tools/content/platforms, create new open methods and advocate the use of smart applications to replace or assist real teachers.
Being founded in 2014, Zuouyebang didn’t take long for its iOS version to be ranked on top in the Appstore education category.
On January 16, 2015, the new 4.0 version was launched, focusing on the ‘photo search’ function.
On August 18, 2015, the newest version of the app added a synchronous practice function, symbolizing the major transformation of Zuoyebang from a simple topic retrieval tool to a comprehensive and efficient learning platform.
In July 2016, the Zuoyebang live broadcast function was launched, providing online teachers and course services. A month later the firm raised USD 350 million in a Series D financing.
The firm is dedicated to providing a full-discipline learning and guidance service for elementary and middle school students across the country. Its users have exceeded 800 million, with a 170 million MAU.
Zuoyebang independently develops a number of learning tools, including photo search for questions, live lessons, ancient text assistant, and composition search. Students can get the steps needed to resolve each problem and the answers to the test sites by taking pictures and voices notes, interact with the teachers through the live class, find their knowledge weaknesses and supplement them with accurate practice, watch the live broadcast of the course, connect with teachers online for one- on- one session, communicate with students of the same age across the country.
The firms’ own learning tool matrix basically meets the independent learning needs of K12 students. In the early days, it used the advantage of Baidu system traffic to quickly accumulate a large number of users. At present, it still has an absolute advantage in similar tools.
Zuoyebangs’ direct competitor is the USD 7.8 billion- valued Yuanfudao. They both use tool products and online education courses to transform users. Yuanfudao has a slight advantage in model attempts and market operations, while the Zuoyebang is built around the community and user traffic.
These pure online education companies and players such as New Oriental are potential competitors. These opponents have a better user base offline with less focus on online.
It is not just about moving offline classrooms to online, nor is it more about providing better auxiliary tool optimization – rather, how to explore better education models and business models, and play a differentiated competition with offline education and training, are the problems online education players need to consider and solve.
In the K12 online education market, there are three main parties: parents, students, and the platform. If the platform wants to gain recognition from more users and increase the number of users, it must meet the needs of parents and children. Let's explore the needs of the participants and how Zuoyebang meets the needs of its users.
In the context of the current relative shortage of high-quality educational resources, and as the majority of K12- stage parents don’t have the educational ability to help their children with their homework, it has almost become a rigid requirement for students to participate in extracurricular tutoring.
Parents’ appeals to students’ participation in extracurricular tutoring are mainly because of its high -quality and efficiency. High -quality mainly refers to high-quality teaching methods, high-quality classroom experience, visible achievement improvement, etc. High -efficiency mainly refers to the improvement of student quality and achievement within a time period.
At present, parents adopt more learning methods – mainly including on-site tutoring, nearby trusteeship or education institutions, and online school platforms.
For students, interest and deliverable stage results are the things they care about most. Starting to like learning, good course experience and the teacher's style are all factors that attract students to participate in tutoring and learning. Whether it is online education or offline education, students' academic performance and growth experiences are the most critical factors and the best feedback to parents.
The traditional online school platform is more convenient and can solve the problems of time and regional transportation teaching resources. The courses are mostly recording and broadcasting, and more are providing universal learning skills, which cannot be well solved and improved for specific student problems.
The existing K12 students are basically those born after 2000 or even after 2010, and the Internet has a high penetration rate in their lives. They are also more able to accept online education to receive information and learn knowledge. Personalized learning, gamified learning, and how to use the advantages of the Internet to compete with the offline education industry in the differentiated competition are issues that the current education platform has been working to solve.
From the above analysis, we can know that parents and children in the K12 stage have their own needs and the current solutions have not met their needs well. As a platform operator, how can one meet their needs and attract them to this platform?
As mentioned, Zuoyebang provides a photo search function and a package of student learning tools (Chinese composition, word query, ancient text assistant, English composition, correction book, etc.), which can solve the problems of students' self-study improvement after class and homework for most of the parents.
Classes are graded according to students’ own levels, which can provide students with better-personalized learning rhythm. Teachers’ personal tags, audition courses, college evaluations and other information also provide more personalized options for parents of students.
Zuoyebang’s core business is live classes. The important indicator for judging whether a business can be healthy is revenue. Here we use the GMV model to analyze whether the core business of the operation is healthy.
GMV = number of users * conversion rate * customer unit price. The improvement of any one of the indicators – such as the number of users, the conversion rate, and the unit price of customers – will have a positive impact on the growth of the overall revenue, so next, we focus on analyzing the means by which the Zuoyebang improves these three key indicators.
• Increasing number of platform users
The continuous registration of new users is the most basic guarantee for the continued increase in revenue. How does Zuoyebang attract new users to register?
Payment channels include advertising, public welfare, offline agency and other methods. Precise user promotion on Internet platforms (such as Douyin, Weibo, WeChat public account, etc.).
Free channels include tool matrix and word-of-mouth drainage. The tool matrix of Zuoyebang is relatively good, which can attract and accumulate new users to join. After users like their experience on the platform, they share and recommend it to users around them.
• Improve user conversion rate
After users enter the platform in various ways, the platform needs to guide users to convert their consumption into paid users.
Improve the user experience of the experience class. Zuoyebang provides high-quality free experience classes and low-cost regular class experience packages.
Dispel consumer concerns and promote consumption. Provide a refund method and customer service hotline in the App.
• Raising the unit price of customers
For online education platforms, the main way to increase customer unit prices is to repurchase. In addition, Zuoyebang has also developed VIP services and other modules.
In the Internet industry, the working relationship between products and operations is extremely close. The following is a list of the main operating activities of Zuoyebang:
• Star endorsement activities
• Cooperation with and sponsoring TV and Film Programs
• Cross-border cooperation and advertising
• Public welfare assistance
On the whole, the advantages of the Zuoyebang user scale, user experience, technology development, etc. are obvious with weak marketing and other aspects comparatively. Policy support and market development have given opportunities to the platform to develop continuously, but high traffic and competitors is a very strong threat.