Yuanfudao, China's First K12 Unicorn [1/2]

Consumer Discretionary Author: Qasim Khan Editor: Luke Sheehan Sep 20, 2020 01:03 PM (GMT+8)

Since raising USD 1 billion Yuanfudao has clearly caught the world's attention, becoming the first-ever unicorn to come out of the Chinese online K12 field. In this article, we analyze the firm in depth.

Image credit: Kelly Sikkema/unsplash

Yuanfudao took full advantage of the closure of schools during the lockdown period in China caused by the COVID-19 pandemic; it announced free consolidated preparatory lessons and live lessons for primary and secondary school students across the country. This allowed the firm to gain millions of users over a very short period while spending little capital on marketing. 

The firm was established back in 2012, developing smoothly over the past eight years. After raising a total of seven rounds of financing and a staggering valuation of more than USD 3 billion, it is safe to say that Yuanfudao is the first unicorn company in the Chinese online K12 field.

In today's increasingly fierce competition in the k12 online education field, how does Yuanfudao establish its position in the industry? What kind of competitive advantage does it rely on to stand out among its fellow competitors?

This article takes you through the following aspects to give you an in-depth understanding of the operation logic of this company and the entire K12  education industry.


K12 education generally refers to the basic education received by students aged 6-18 from elementary school to high school. The education of children within this age group has always been valued by all sectors of society. Since 2013, various Internet giants and small and medium-sized companies have begun to focus on K12 online education.

Favoring policies

In recent years, the Chinese government has introduced a series of policies for online education to promote the use of information technology such as the Internet to serve the entire process of education and teaching and accelerate the innovation and development of smart education, build a 'Internet + education' support service platform, paving the way for the development of online education.

In February 2018, four ministries and commissions jointly issued the notice on effectively reducing the extracurricular burden of primary and secondary school students to carry out special governance actions for off-school training institutions, and strictly regulated and rectified K12 institutions.

Growing economy

In recent years, the adjustment of the national birth policy has resulted in providing a huge potential user base for the K12 education industry.

With the upgrading of China's consumption structure and the improvement of living standards, the proportion of per capita expenditure on culture, education and entertainment has also increased. According to the National Bureau of Statistics, the per capita expenditure on education, culture and entertainment of urban residents continued to increase in 2018, accounting for 11.4% of consumption expenditure. Hence we may conclude that parents are willing to invest more money in their children's education.

Technological development

The development of science and technology has been at the core of creating space for K12 online education to develop. 

The popularization of smartphones since 2012 has greatly improved the convenience of k12 online education. These devices have made real-time learning without any geographical barriers possible.

The continuous innovation and iteration of big data and processing technology, the use of scientific and technological means to enhance the learning experience, to stimulate learning interest and cultivate scientific learning habits – all of this has allowed students to obtain high-quality educational resources more conveniently.

The above-mentioned factors at all levels have jointly promoted the rapid development of the K12 online education industry in recent years. Can this rapid development and growth continue in the next five year?

According to statistics from iResearch, in 2017, the market size of the K12 online education industry was nearly 30 billion yuan. In the next few years, it will continue to maintain a rapid growth rate of 30%-40%. By 2022, it will reach around CNY 150 billion.

At the same time, the user scale of the K12 online education industry has maintained a steady growth from 2015 to 2020. The penetration rate has also increased from less than 10% in 2015 and will reach about 20% by the end of 2020.

The K12 online education industry still has a lot of room for growth and will likely maintain rapid growth in the next few years.

COVID-19 boost

It is evident that the epidemic has created a window of opportunity for huge tech giants to enter the education industry but at the same time firms which are already are in the business have stepped up to prove the strength and advantages of online education. By providing free online classes, companies such as Yuanfudao, GSX Techedu and Zuoyebang gained millions of users. This has led to a huge decrease in customer acquisition cost for these companies. New customer marketing costs per head in 2020 (winter) was were recorded at less than 5% of the cost for 2019 (summer). 

Fellow Competitors

The online education track is full of competitors, with giants such as New Oriental with rich faculty and years of offline experience looking to grab a chunk of the market share. New companies have emerged as well during the past few years backed by strong investors and huge capital such as Yuanfudao itself, Zuoyebang, 17Zuoye, Onion Maths, VIPKID, etc.

According to the latest statistics from Qimai data, in the monthly activity ranking of educational apps, the three apps of Yuanfudao, TAL owned Xueersi Online School, and Zuoyebang Live Class have long occupied the top three positions. The parent companies of these three educational products are the absolute leader in the industry in terms of user scale, company valuation, and market revenue.

The following is an analysis of the development history and business models of these three companies, which will help us to understand the differences between different companies in the industry.


In 2013, Xueersi Education was renamed as TAL. In 2015, TAL acquired full shares of First Leap launching gaokao.com, kaoyan.com and 'Lewaijiao,' a new online education product which was created to be the first brand for children's education delivered by foreign teachers.

In the early stage of the K12 online education market, Xueersi Online School was launched in 2009 when K12 online education was in its infant stage. In the beginning, it accumulated a large number of user traffic, and its development has been relatively stable since then.

Xueersi aims to provide children aged 6-18 with all-subject extracurricular teaching, small class live broadcast + personalized tutoring, and AI technology-assisted teaching.

The launch of the dual-teacher mode of live broadcast + tutors in 2015 triggered a new round of performance growth.

In Q1 of 2019, the operating income of Xueersi Online School accounted for 9% of the overall income of the future, about 50 million US dollars.

Xueersi was founded and developed earlier and got involved in online education earlier. Its advantage lies in his rich teacher resources and management experience. In the first-tier and second-tier cities, there is a large amount of offline education foundation. With more than ten years of accumulated reputation, users have a high degree of recognition for 
their education products. 


Being founded in 2014, it didn’t take Zuoyebang long for its iOS version to be ranked on top in the Appstore education category.

The firm is dedicated to providing full-discipline learning and guidance services for elementary and middle school students across the country. Its user base exceeds 800 million, with a 170 million MAU rate. 

Zuoyebang independently develops a number of learning tools, including photo search for questions, live lessons, ancient text assistant, and composition search. Students can access 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.


Yuanfudao started off as a search tool product called ‘Yuan Question Bank,’ back in 2012, and then shifted its business model to online class education. Since then, the firm has managed to raise a total of eight rounds of financing from renowned investors such as Tencent, IDG Capital, Warburg Pincus, Hillhouse, etc.

As of March 2020, in addition to the Beijing headquarters, the company had established teaching and research centers and branches in 11 cities across the country, including Wuhan, Shenyang, Nanjing, Xi'an, Zhengzhou, Chengdu, Jinan, Changsha, Tianjin, and Chongqing, with over 15,000 employees.

After nine years of continuous investments from well-known investors, the cumulative number of users of different products of Yuanfudao has exceeded 400 million. Among them, ‘Yuan Question Bank’ has provided 800 million problem practice services for students nationwide, ‘Xiao Yuan Search’ has provided 36 billion homework tutorials, and ‘Little Yuan Corrector’ has over 250 million daily corrections.

As the renewal rate of core product courses raises the scale of users and revenue of the firm is expected to hit a new high.

According to market research firm App Annie, from January to mid-March this year, Yuanfudao ranked first in ‘educational’ in-app purchases in China's app stores. In February, Alibaba developed DingTalk, which became the most downloaded free application.

To sum it up, compared to the other two, Xueersi was established earlier and has the advantages of teachers and teaching content. The brand dividends accumulated by its parent company TAL also allowed Xueersi to accumulate a large user base in first- and second-tier cities.

On the other hand, Yuanfudao and Zuoyebang were established at a similar time, and their development history relied on the traffic accumulated by their products to divert new teaching products and finally forming their own product matrix. The two are similar in terms of user scale and business model, hence they are direct competitors.

The core businesses of all the above companies is online live teaching module. But at this stage, it can't be said which one is the most dominant.

Other than that, there are more other startups catching up with the leaders trying to get a chunk of the market share. In the table below we've shortlisted top 10 education firms with the highest amount of funding raised in 1H, 2020.


To find out more about Yuanfudao's business follow the updates on the second part of this article by clicking here.