2. • Introduction: China’s education market opportunity
• Education subsectors:
– K12
– Vocational Training
– English Training and Overseas Study
• State of e-learning
• Online distribution and edtech innovation
2
Overview
3. 3
Education market opportunity
($mm)
2012 Revenue Market Cap (08/2013)
New Oriental (NYSE: EDU) $771 $3,644
TAL Education (NYSE: XRS)* $226 $984
China Distance Ed (NYSE: DL) $52 $360
Xueda (NYSE: XUE) $293 $261
ATA (NASDAQ: ATAI)* $59 $121
ChinaEDU (NASDAQ: CEDU) $78 $113
Ambow (AMBO) N/A $69
Total -> $5.6 billion
$115$5.6
Source: The BDA Group, yCharts.com accessed 14 August 2013, *Fiscal year ended 28 Feb 2013 and 31 Mar 2013
China’s largest education players combined still represent only a tiny slice of the market,
leaving huge opportunities for new entrants in all stages of the education value chain
China’s projected 2013 private education market ($USD bn)
4. China’s education system at a glance
Gaokao
4
Source: Wikipedia “Demographics of the People’s Republic of China”, h&p://news.xinhuanet.com/poli8cs/2013-‐02/23/c_114772758_2.htm
~500k students leave the
Chinese system for boarding
school and higher education
abroad each year
6mm+
Annual graduates
26mm+
Post-secondary
200mm
Grades 1-12
24.3mm
High School
64mm
Ages 2-5
The vast majority of students are educated in the public system with little access to personalized attention.
The booming market in private after-school training for families with expendable income seeks to fill the gap.
College entrance exam
5. 5
Understanding the opportunity
• This report seeks to identify the key needs and opportunities in the private
education market for each major sub-sector, taking into account key
players and new innovations.
Government/
public schools
Parents,
teachers,
students
Key players
and
channels
6. • Introduction: China’s education market opportunity
• Education subsectors:
– K12
– Vocational Training
– English Training and Overseas Study
• State of e-learning
• Online distribution and edtech innovation
6
Overview
7. The market
• 150,400 PreK and K schools in China
• Pre-school and kindergartens
typically combined in same school for
ages 3-5
• Public kindergartens and Pre-K
available but quality varies
(government mandated school does
not begin until 1st grade), private
kindergartens on the rise
• Fierce competition driving parents to
start early as possible to give kids an
advantage, driving growth in private
schools and after-school training
services
7
Pre-K and K education
Estimated 490 billion RMB market
for offline education services
Source: Deloitte “中国教育与科技发展思考” March 2013
8. Student #1: Weiwei, 3yo, Shanghai
• 8:30am-5pm Kindergarten
– Weiwei just started this year a private kindergarten chain close
to her home, which costs 6k RMB/month, the local public
kindergarten only cost 1k RMB/month, but her mother is worried
about the curriculum quality and large class sizes
• 5-6PM After-school and weekends
– Wei Wei attends three different training classes, including
pinyin for Chinese study, painting, English, and storytelling. Her
kindergarten teacher recommended the painting class, and
Weiwei’s mother found out about the other schools from
friends and from reading the popular parent online forum 55bbs.
– Her mother hopes these skills will improve Wei Wei’s chances
of passing the competitive interview to get into one of
Shanghai’s best public primary schools
• Evenings and downtime
– Weiwei’s mom regularly visits Yaolan.com and Babytree to
search for new tips on child rearing and new educational
products
– Weiwei often plays Qiaohu 巧虎 games, a subscription service
that sends her new boxes each month full of books and toys,
with online videos that teach life skills like brushing teeth
– Weiwei plays on her mom’s iPad whenever she is allowed, but
her parents limit playtime as they are concerned about effects
on her eyesight
8
Day in the life: Chinese students ages 3-5
Key Players…Kindergartens
…Training Schools
…Products
9. • Mothers are the key decision maker for
educational products and services,
decisions primarily influenced by word
of mouth recommendations
• PreK-K education is focused on
improving chances for admittance to
best primary schools
• Private kindergartens still fragmented
market, few nationally recognized
brands
• Public kindergartens are 3-6x cheaper
than private ones, teachers are paid
less but get good government benefits
and job turnover is lower, public
kindergarten quality varies widely
• Government policy prevents third party
education providers from selling
products/services to public Chinese
kindergartens and pre-schools, making
distribution challenging
9
Pre-K and K market insights
FMCG,
¥1,400 , 33%
Books and
Toys, ¥200 ,
5%Health,
¥100 , 2%
Training
Classes,
¥500 , 12%
School Fees,
¥2,000 ,
48%
Average Monthly Parent Spending (RMB)
Private school and educational product have the chance
to build strong brands in a still fragmented market, and
should focus online channels where most 80’s gen
parents discover and pay for education
Source: ZhenFund Survey
10. • 257,400 Primary Schools
• 54,900 Junior High Schools
• 14,058 Regular Academic high schools
(versus 42,412 in the US)
• 14,526 vocational high schools
• 98% of children attend public schools
• Grades 1-9 tuition is free
• Grades 10-12 tuition paid by parents
• Average student to teacher ratio in high
schools is 57 students (US average is 20:1)
• The big filter: Gaokao College Exam,
9.15mm students took the gaokao in 2012
to determine their placement on one of
China’s 2,236 universities
• 2.2 trillion RMB (2014E) market for
private after school education, primarily to
help students prepare for the gaokao
10
Grades 1-12 education
Gaokao
Source: BBC News “China’s students take on tough Gaokao university entrance exam” 8 June 2012, Wikipedia “Chinese university ranking”, PRC
Ministry of Education, US National Center for Education Statistics, Veriapp.org 2012 Report, Deloitte “中国教育与科技发展思考” March 2013
11. Student #2: BoBo, 16yo, 10th grade Beijing
• 6am-5pm School
– Bobo spends most of his weekday in his public high school,
while his first 9 years of mandatory school were tuition-
free, from grades 10-12 his parents must pay 2k RMB/
semester + book, uniform, and material fees
• 7-9pm: After-school tutoring (1 on 1)
– A college student helps Bobo with his more challenging
subjects 2x/week for 50-150/hour, once a month Bobo also
meets with a qualified teacher who charges between
200-500rmb/hour
• Weekends:
– Bobo takes weekend English classes at New Oriental, he has
also taken course specific subjects at Xueda and Xuersi in
the past to ensure high Gaokao subject scores
• Other free time:
– Bobo fills out subject specific exercise books, they are not
assigned as homework, but his parents feel it will help
improve his score on the Gaokao
– Bobo studies a little piano on the side, but this is not a
priority as it does not improve college admittance chances
– Bobo plays online games or chats with friends on WeChat
11
Day in the life: Chinese students ages 6-18
Online homework/study material
Tutor
Training School
Arts-education (for arts exams)
12. • All student energy devoted to test preparation, public high
school’s are ranked by average gaokao scores and encourage
focus on test prep
• Most students attend supplementary academic classes to
prepare for the high school admittance test (Zhongkao) and
college admittance test (Gaokao)
• Students under immense pressure, very little time for play,
lack of individualized learning plans or teacher attention
• The market for after-school training is extremely fragmented
• For training schools, maintaining an extensive offline sales
force is key to acquiring customers
• Parents are reluctant to pay for pure online products
• Only a few publishing houses are licensed by the government
to sell directly to public schools, making sales difficult
• High school is relatively expensive in China; more than 70% of
rural Chinese students will drop out during or after middle
school to find work
12
G1-12 market insights
Accessible
and high
quality
content
Low
quality/
expensive/
fragmented
Demand
Supply
Market
need
Source: Veriapp.org 2012 Report, Rural Education Action Project Research Brief #107
13. 13
Shifts in learning outcome measurements
• Parents concerned about
children’s health and well-rounded
development are starting to pay
for arts and sports after-school
training classes
• Top universities In Shanghai are
expanding admissions criteria
beyond just gaokao scores, with
new application fields to favor
more well-rounded students
Art Dance Basketball
The Chinese education system is only structured to reward good test takers, but the private and public
systems are slowly changing to resemble the Western focus on well-rounded students and applicants,
this is fueling the market for a wider diversity of training offerings for G1-12 students
14. • Introduction: China’s education market opportunity
• Education subsectors:
– K12
– Vocational Training
– English Training and Overseas Study
• State of e-learning
• Online distribution and edtech innovation
14
Overview
15. • After the baby boom of the 60’s
and resulting second wave in the
80’s, the size the of the
workforce is declining
• Blue-collar wages rising 10-15%
a year in the last decade, low-
cost, low-skill jobs gradually
moving to other countries…
• China faces a huge human-
capital challenge in producing
enough skilled workers to take
the place of low-wage factory
jobs
15
China’s need for vocational and professional
skills education
Source: The Economist, “The End of Cheap China” 10 Mar 2010
16. Few Chinese students make it to college
16
In China, enrollment rate decreases
significantly as students go up in the
education system stage by stage….
…translating into a very low percentage of
students who make it to college (two or four
year) relative to other countries
93%
82%
59% 57%
48%
23%
Source: PRC Ministry of Education, UNESCO Institute for Statistics, Deutsche Bank research report (www.veriapp.org/report2012)
Primary to middle school
99%
Middle to high school
74%
College entrance exam (Gaokao)
23%
17. • Of the record breaking 6.99mm+ fresh college graduates in 2013, only 35% of
undergrads and 26% of masters have secured a job before graduation
• Millions of graduates live in “ant armies” on the outskirts of big cities,
average pay approaching that of migrant workers
17
But college graduates struggle
Source: Xinhua News “大学生冲刺“最难就业季” 毕业生签约率全面走低”
28
May
2013,
“职教”工学结合“打造”金牌蓝领
“ 26
Oct
2006
,
Source: career.eol.cn “2001年-2013年全国高校毕业生人数” 29 Jan 2013
0
1000
2000
3000
4000
5000
6000
7000
8000
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Annual College Graduates (000’s)
Even college graduates in China will find it difficult to land a job
18. • Results are everything, critical for students to
get high score tests, brands are often diluted as
growing schools cannot maintain outcomes
quality
• High fixed costs to operating the business,
customer acquisition requires large a offline
sales force
• Vocational schools lack transparency in
outcomes, the central government provides
$240 USD subsidy to students enrolled in
vocational schools although there is no evidence
to suggest these schools increase job prospects
18
Challenges in vocational/professional
education
65bnProjected market size of professional
education in China 2011 (RMB)
Source: The Rural Education Action Project News “Evaluating Vocational Schools in Rural China” 5 April 2012, Yi Hongmei et al, “How are
secondary vocational schools measuring up to government benchmarks, China & World Economy, 98-120, Vol 21, No 3, 2013, Deloitte “中国教育与
科技发展思考” March 2013,新浪2011中国教育盛典 《中国家庭教育消费白皮书》
19. • Founded in 2013 as spin-off from
successful offline school for IT
training
• High outcomes transparency,
higher salary or money back!
• Teachers control student progress
and module progression to ensure
course success
• Students can earn tuition back by
contributing to forums and
assisting peers with questions
• Available on PC and mobile
platforms
• Investors: ZhenFund
19
Innovation case study: 51zhichang.com
20. • Introduction: China’s education market opportunity
• Education subsectors:
– K12
– Vocational Training
– English Training and Overseas Study
• State of e-learning
• Online distribution and edtech innovation
20
Overview
21. • English required for Chinese domestic
tests (gaokao, zhongkao, graduate
tests) & overseas studies
• English language ability strong
determinate of salary and job
advancement opportunities
• Chinese public schools prepare “mute”
English learners, reading and writing
levels are high but oral English is weak
• Native speaker teachers are in short
supply
21
China’s English training market
22. Pearson (Wall Street English and
Longman Schools)
• Strategy driven by acquisitions and
complemented by existing massive
content library
• $155mm 2011 acquisition of Wall
Street English, 45 centers in China
• Acquired Longman English training
for kids, 21 centers in China
22
Offline English training: foreign premium
English First
• 130+ schools in China
• Widespread network of kid’s
English training schools in
China
• Children’s education centers
function as loss leader to drive
more customers to adult
education centers
Disney English
• 44 centers in 10 cities across
China
• Native speakers teach children
oral English
• Goal of 148 schools, 150k children,
and $100mm in revenues by 2014
• Educating a future consumer
base for Disney media brands,
can function as loss leader
Best Learning
• Subject specific curriculum
(math, science etc) in English
for kids 2-12
• 27 centers nationwide set to
double by 2013
• 1:8 student teacher ratio with
only North American native
English speakers
Rise English
• Subject specific
curriculum (math,
science etc) in English
for kids 2-12
Competition featuring foreign teachers is eating away New Oriental’s market share, foreign teachers for
English and academic training command hourly course premiums of 2x+ that of local teachers, the key
barrier to entry is recruiting and retaining foreign staff members
23. VoIP online English instruction platforms
increasing access to English teachers:
• Traditional bottleneck in availability of
native English speakers in China
• New platforms are offering low-cost
classes to expand access (51talk.com,
teachers from Philippines) or targeting
high end users who want more
convenience and choice
• (VIPABC.com and TutorGroup, North
American teachers)
• Investors: DCM, Qiming, ZhenFund
23
Online language study market growth
• Grassroots online community of influential online
English teacher-netizens with freemium content for
all age and skill levels for multiple foreign languages
• 40mm registered users
• 40-50 free learning apps with courses that synch
across mobile and PC platforms
• Unique revenue model:
– Advertising
– Books and other educational materials
(buy.hujiang.com)
– Online courses, 2,000 offerings including 200
Hujiang in-house productions
(buy.hujiang.com/kecheng)
• Recently completed Series B funding
Other content sites for language learning:
Source: http://tech.sina.com.cn/i/ec/2012-12-12/00297876938.shtml
English language training represents one of the fastest growing segments for online education, with
new entrants attracting significant investor capital
24. 24
Study abroad market in numbers
English is a priority, with top
study destinations in order of
popularity:
1. 47% United States
2. Britain
3. Australia
4. Canada
5. Singapore
Source: Eastwestconnect.com “How Chinese students choose a foreign university to attend” 20 Nov 2012, US, British, Australian, Canadian,
Singaporean Embassy data , Veriapp Survey, Wall Street Journal “Chinese students struggle for returns on education in US” 27 March 2013
Roughly 490,000 Chinese students will study abroad in 2013, representing a small but lucrative
market for private education
$4,182/student – Estimated baseline
expense for studying abroad including
tests and application fees
$14,182/student - Estimated expeses
for students who also opt for test prep
training courses and engage agencies for
extensive application assistance, fees
may range depending on quality of
school tier counselors promise for
admission
New Oriental Education and Technology Group
(NYSE: EDU) is the largest player in study
abroad, caters to 2mm+ students each year, but
new entrants focused on small verticals in the
overseas study market pose competitive threats
25. Study abroad market opportunities
Cheating
• Startups are offering overseas schools and
Chinese students document verification
services (Veriapp) and video interviews for
applicant verification (Vericant)
• Test prep services provider New Pathway Education
standardizes teaching quality and outcomes by
augmenting instruction with individualized learning on
computers; teachers tailor classroom content to
student needs based on practice test results
Source: Xueda Fiscal year ended 31 Dec 2012 SEC Form 20-F, Zinch China, “White Paper No 4”, May 2010, survey of 250 Chinese high school seniors
Counselor/teacher talent bottleneck and turnover
Customer acquisition
• Juesheng.com, founded by former VP at Qunar, offers
portal for students to search for counseling consultants
and offline tutors, splits tuition revenues for each
student referral with service provider, generated 30mm
RMB in revenues for 2012
• Cheating on overseas applications is a huge problem,
often facilitated by expert private counseling
services, among Chinese applicants to US schools, a
Zinch China survey estimated 90% provide false
recommendations, 70% did not write their personal
essays, and 50% forge transcripts
• High turnover in counselors and variability in
counselor quality, market leader Xueda for
K12 tutoring experiences ~25% attrition rate
in tutors each year
• College consulting is hard to scale; hundreds
of consulting firms are chasing an
addressable market of the <5mm students
considering seeking study abroad services
26. 26
Emerging trend: “domestic” study abroad
www.sinocampus.cn
3rd party services platform
for creating dual degree
programs:
• Founded in 2002 with the mission
of bringing international higher
education to Chinese students
• Works with 80+ international
universities and local universities
to create joint degree programs
approved by the Chinese MOE
• Degree completed at Chinese
university, no study abroad
required
• 16 programs and 15k+ students
graduated to date, with an
additional programs in the pipeline
Summer courses taught by
foreign professors in Chinese
universities
• Founded in 2009, for
Chinese students studying
abroad who want to
complete course credits
during the summer closer to
home
• Relatively low-cost, only
$3,500 for 3 courses, 11-12
transferrable credits
• Shanghai, Beijing,
Guangzhou Nanjing
Summer.sieschool.org
Foreign universities coming
to China:
• Duke Kunshan University sponsored
by Wuhan University, will offer liberal
arts degrees from Duke for Chinese
students starting 2014, will be first
major US University to do so if
approved from MOE
• Chinese law requires foreign
universities partner with Chinese
university for domestic campus
• While more convenient and
affordable for Chinese students, joint
programs often have difficulty
recruiting foreign professors
• University of Nottingham and
University of Liverpool offers
joint-,MOE-approved degree
programs with Chinese Universities
• Stanford, Harvard, USC and others
have centers in China
www.dku.edu.cn
The cost of overseas study is prohibitive for many students, so foreign education providers are coming
to China
Source: “British Universities in China: The Reality Beyond the Rhetoric”, Agora Discussion Paper, 2008
27. • Introduction: China’s education market opportunity
• Education subsectors:
– K12
– Vocational Training
– English Training and Overseas Study
• State of e-learning
• Online distribution and edtech innovation
27
Overview
28. Online education currently < 10% of the market
28
Source: ChinaEDU fiscal year ended 31 Dec 2012 SEC Form 20-F, *leading civil service exam training provider
Online degrees and distance learning are still rare for universities in China
• Only 67 universities of the more
than 2,000+ in China have
accreditation from MOE to offer
online degrees
• Online degree students must often
still take courses and tests in
remote learning centers affiliated
with the university
• Diplomas mark students as
graduates of the online branch of
their university
Renmin University online bachelor degree diploma
29. 29
Xueda NYSE: XUE
• Private personalized tutoring services to primary and
secondary school students in China, subjects covered
including Math, English, Chinese, Sciences, serves 138,000
students
• 2011 saw huge push to establish online English teaching
presence, cited as main factor driving Q4 2011 losses of
$9.9MM
• H1 2012 fired 200 employees in online department,
including 1 Chairman, 1 CIO, and 1 Vice-Chairman,
eventually shut down the new online/tech departments
Noah Education NYSE: NED
• Privately owned kindergartens and primary schools,
English training for children ages 3-12
• 2007: #1 in sales of digital learning devices in China
• April 2011: Sold off electronic learning products at 100MM
RMB due to several years of deficits, popularity of smart
phones and tablets cited as reason
Traditional players struggle in online
Source: iMeigu, iChinaStock, Financial Times, NY Times Dealbook,,*leading civil service exam training provider
Offline education companies adapting poorly to online education, online provides only a fraction of
income for most major offline players
0% 3% 10% 10%
80%
% revenue from online services for China’s
largest private education companies
Online Offline
30. Online education: innovator’s dilemma
30
New Oriental’s Koolearn.com NYSE: EDU
ü Founded 2002
ü Recorded online lecture content with little
added functionality
ü Provides students with choice of teacher and
comfort of studying from home
ü 2,000 courses offered, no price difference with
offline courses
ü 7.8mm registered students and 245k paying
students
ü Courses purchased with pre-paid cards or sold
through online platforms like Hujiang.com
ü Contributes <10% of New Oriental’s
revenues, has yet to leverage full potential of
education delivered online
Source: New Oriental SEC Form 20-F Fiscal year ended 31 May 2012
31. • Introduction: China’s education market opportunity
• Education subsectors:
– K12
– Vocational Training
– English Training and Overseas Study
• State of e-learning
• Online distribution and edtech innovation
31
Overview
32. Online players disrupting content distribution
32
Traditional
Online players are revolutionizing the way private education is distributed and delivered in China
• Case study: ChinaEDU 101 Online
School for test prep and tutoring
for high school students, which
generates $4mm a year and serves
38,600 paying students and 1.7mm
registered users
• 60% of revenue is generated
through 220 offline distributors
who pre-buy subscriptions and
resell to parents offline
Emerging
• Search engines are primary
customer acquisition channels,
Baidu alone rumored to generate 5
billion RMB per year for educational
keyword ad spending, Qihoo, the
2nd biggest search engine in China;
released edu.360.cn for education
product search
• Alibaba reports millions of RMB in
transactions for educational
products, including courses, on C2C
platform Taobao and B2C platform
Tmall
Source: ChinaEDU fiscal year ended 31 Dec 2012 SEC Form 20-F
33. 33
Online course platforms
MOOC’s
• Guolairen: working with
EDX and Chinese
universities to launch own
MOOC platform
• Netease: translated
American MOOC courses to
draw traffic to their portal
• Tencent, Sohu, and Sina
also offer overseas MOOC’s
with Chinese subtitles, but
none are monetizing the
content
Real-time teaching marketplaces:
• YY (NASDAQ: YY) most popular online learning
market-place in China for real-time lectures, YY
does not take commission, supports ~10,000
teachers with some earning 1mm+ RMB in
course fees per month
• Real-time platforms have slight advantage, as
the educational value of live teachers is
perceived more highly by consumers
• Chuanke - $10mm investment from Baidu, online
marketplace for teachers to connect with
students and deliver lectures online;
• Duobei - $3mm investment from Xuersi, online
platform and information infrastructure for
teachers/instituations to create online courses
• Xsteach.com, 15mm RMB investment from
YY.com for one of their most popular course
channels, teacher Xing ShuaI offers basic IT and
skills training, student primarily from Tier 2 cities
targeting income of 3,000-5,000RMB/month
after 2-3 months of study, generated 30mm
RMB revenue in 2012, projected 100mmRMB
revenue for 2013
B2C and C2C platforms are reducing barriers to customer acquisition for sales of online courses, may
hurt business of offline schools as individual teachers are empowered to monetize content directly
from students, MOOC platforms not making money…yet
E-commerce platforms
• Taobao reported $32mm
USD in educational content
transactions on singles day
alone in 2012
• Recently announced new
vertical market “Taobao
Classmates” for
organizations or individual
teachers to publish content,
potential to become the
“Udemy” of China
• Tmall offers B2C platform
for content providers like
Hujiang, New Oriental, and
other schools
34. 34
Leap-frogging to SaaS
Key Challenges
• Breaking into the public school
system requires creative
marketing and government
partnerships
• Schools are sometimes
restricted by law from
purchasing services from third
party private companies
• Hard to identify purchasing
decision maker in schools
New Services
• iClass – classroom management tool for
teachers; invested by Gobi
• Zxxk – exam creation tool for teachers;
acquired by Fenghuang Media
• 17zuoye – homework management platform,
starting with English, presence in thousands
of public schools and 2mm+ students signed
up; invested by ZhenFund and Shunwei
• Gikoo – Mobile platform and content
development tools for employee training,
1000 person team and offices throughout
China, investors include CBC Capital
With little adoption of traditional systems like Blackboard in China, schools and corporates are rapidly
adopting online tools for learning management
35. Apps and games: popular but hard to monetize
35
Source: PEDaily.cn “Yuantiku completes its US7$mm Series B Financing”, finance.yahoo.com “Taomee reports unaudited first
quarter”
• Netease (Youdao)
• Released 2009
• Total users from web/
mobile dictionary hits
200mm, with 2.5%
monthly active users
• Poor monetization, some
revenue from
advertisements
Unless part of a larger online education ecosystem, even the most popular apps and games have had
difficulty monetizing
• Taomee (TAOM) once leading kids
gaming platform for ages 6-12
• Paying accounts down from 1.9mm
in Q1 2012 to 1.5mm in Q1 2013
• ARPU and conversion to paying
users relatively low compared to
adult market (RMB 33)
• Children tend to use games for
short periods of time before
moving on to the next thing,
parents perceive games negatively
• Educational game developer
Babybus (Series A led by Shunwei)
and vocabulary app for kids
Wukongshizi claim profitability,
but long-term potential still
unclear
• Yuantiku.com- mobile test prep
apps for popular vocations,
including civil service, accountancy,
judicial, and construction
examinations
• Preparing to release app for
Gaokao exam
• Launched March 2013, founded by
former 163.com President Li Yong
• 400k registered users
• Not yet profitable
• Series A led by IDG ($3mm), Series
B led by Matrix China ($7mm)
36. 36
Conclusions
• China’s education market is hugely fragmented, leaving room for growth and new
entrants
• After-school training schools will need to innovate around teacher supply and quality to
scale their business
• English training will continue to present huge opportunities, businesses with foreign
English teachers or who can offer low-cost English online have an advantage
• Private schools, particularly those offering foreign education in China, is a rapidly growing
segment
• Traditional players have not been successful in online education, leaving room for new
models and entrants
• Online platforms and marketplaces are democratizing access to customers, individual
teachers and content providers can now gain access to huge markets without offline
sales resources
• Chinese customers are more and more receptive to paying for online education
• Public schools face regulatory barriers in paying for third party services, so services
platforms and LMS’s need to seek innovative monetization strategies
• Apps and games are hard to monetize unless they are part of a larger educational
services ecosystem
38. 38
About ZhenFund
• One of China’s leading angel funds
• ZhenFund believes in one principle above
all others: Integrity
• Founded by Xu Xiaoping in 2006
• Recent fund a collaboration with Sequoia
Capital China
• Fund size: US $30MM fund (RMB/USD)
• Investment size: Up to $500k USD
• Over 100 angel investments in China, over
20 in the education sector
• www.zhenfund.com for more
• Contact: zhenfund@zhenfund.com
38
40. 40
Venture backed online education startups in
China by industry
Source: IT桔子“在线教育2013年创业投资盘点” Aug 2013 (ITJuzi.com Startup Database)
39%
9%
4%
25%
6%
6%
4%
7%
Kindergarten/ECE
K12
Higher education/
entrance exams
Language
Overseas Study
IT Vocational
Interest/Hobby
• The online education market
is still young. For the funded
companies represented in the
IT Juzi startup database as of
Aug 30, 2013, 52% had only
been funded at the angel
stage (representing 60
companies), only 13% were
Series B or later stage deals.
• Active investors for online
education in 2013 include:
– VC’s: DCM, Shunwei
Capital, Weitoulu, Gobi,
ZhenFund, Qualcomm,
Matrix, IDG,
Bertalsmann
– Corporates: Xueresi,
Baidu, Netease
43. 43
Key Educational Services/Products
Age Group Early/growth Mature-‐Public
Content Distribution Tool Content Distribution Tool
Interest/
Hobby/Skill
吉他世界网、花艺在
线、几分钟、
ISPIANO
音乐堂、师徒网、油
菜花、第九课堂、艺
术巴士
icanmusic 帮我学 纪明德教
Other
星宝教育、知知、勤
学网、好知网、同问、
益趣课堂、粉笔网、
喜知网、视频课堂
教学邦、骑士互动、
面对面、72人拜师、
91成才、Peixunnet、
5课网、微社网、学
都、淘教中国、过来
人教育、悠课、网校
网、传课网、多贝网、
皆学问、学活儿、1
号教室
魅课网、此时此课、
必听网、268教育、
爱海豚、速学、快课、
友学、掌中宽途、云
腾教育、若云兄弟、
至善在线教育、唧唧
堂、墨齐科技、义方
教育、捷库动力、佰
分云
AiSchool 博乐网、嗨学 优阅、云学堂
* Represents physical school brand offering offline services, all others online/digital businesses unless noted
44. Key sales/ad channels for education
44
Language learning sites
ü High traffic site,
most expensive ad
space
ü Completely focused
on IELTS prep
ü Kingsoft Product
ü High traffic, but few ads,
expensive to buy space
Search Engines
E-commerce platforms
Social
Mobile
ü Netease Youdao
ü 200mm users
ü Large reach amongst middle and
high school students in China
45. • Founded in 2003 by two Beida grad students Bangxin Zhang and Alan Cao
• 15-35 student tutoring classes, private tutoring “Zhikang” brand, online
tutoring courses (www.eduu.com)
• Mathematics, English, Chinese, physics, chemistry, biology, history, political
science and geography as well as preschool classes
• 255 learning centers and 237 service centers in 15 cities throughout China
• 77% of revenue derived from Beijing and Shanghai customers
• 816,110 enrolled students fiscal year ending Feb 2013, CAGR 29.5%
• Tutoring classes last 2-3 hours at 40-80RMB/hour, private tutoring
100-250RMB/40 minutes, online classes 15-50RMB/50 minutes
• Call centers in 6 cities, 170 operators to receive inquiries and drive sales
• 80 FT writers and 200 FT teachers develop content in house based on public
education system and national exams
• 2,787 FT teachers
• 12.2% of revenues go to sales and marketing
45
Profile: TAL Education (NYSE: XRS)
Source: TAL Education SEC Form 20-F Fiscal year ended 28 Feb 2013
46. Xueersi’s online strategy
46
Draw traffic with 11 content sites
covering the most popular G1-12
subjects in China (similar to
MegaStudy in South Korea)
Engage parents on
online forum
Convert traffic to sales
for online K12 tutoring
courses, which are
30-50% cheaper than
their normal group
classes and up to 90%
cheaper than their
private tutoring courses
Source: TAL Education SEC Form 20-F Fiscal year ended 28 Feb 2013
Despite offering some of the most popular online content and parent forums for K12 in China,
Xueersi still derives only 3% of annual revenue ($6.78mm) from their online schools
47. Website Domain Name Topic
• www.eduu.com Main webpage which has links to the websites listed
below
• www.xueersi.com Online courses
• www.gaokao.com College entrance examinations
• www.zhongkao.com High school entrance examinations
• www.jiajiaoban.com Personalized premium services
• www.aoshu.com Mathematics for primary and middle schools; specialized
training for competition mathematics
• www.yingyu.com English language
• www.zuowen.com Chinese composition
• www.youjiao.com Preschool and kindergarten education
• www.liuxue.com Study abroad
• www.speiyou.com Small-class training
• www.mobby.cn Preschool training under Mobby brand
• www.yuer.com Raising infants and toddlers
47
TAL Education Online Properties
Source: TAL Education SEC Form 20-F Fiscal year ended 28 Feb 2013
48. • Founded in 1993 by three Beida classmates, Yu Minhong, Wang Qiang, and Xu Xiaoping
• 2.4mm student enrollments fiscal year ended May 2012 (50% English language and 50% test
prep), CAGR 41%
• Known for a one to many lecture style where teachers lecture to 50-500 students at a time
• Largest provider of private educational services in China based on the number of program
offerings, total student enrollments and geographic presence
• Services: English and other foreign language training, test preparation courses for admissions
and assessment tests in the United States, the PRC and Commonwealth countries, primary
and secondary school education, development and distribution of educational content,
software and other technology, and online education
• Margins decreasing due to decreasing class sizes
• 45.4% total net revenues from operations in Beijing, Shanghai, Wuhan and Guangzhou
• Language and test prep represent 86% of revenue
• 55 schools, 609 learning centers and 32 bookstores operated by us, over 5,000 third-party
bookstores and approximately 17,600 teachers in 49 cities as of May 31, 2012
• 360 FT staff involved in curriculum development
• English training: 214k adult students, 305k middle and high school students, and 620k children
English students (100-3,5000RMB/course)
• Test prep course students: 340k overseas test prep, 414k PRC test prep, 352k gaokao test prep
(150-25,000RMB/course)
48
Profile: New Oriental (NYSE: EDU)
Source: New Oriental SEC Form 20-F Fiscal year ended 31 May 2012
49. • Founded 1999
• 400,000 students and $63 million in income (~80% of revenue) for online
programs in 2012
• 27 partnerships with public universities to offer online degree programs,
30-50% tuition share
• Services include content creation, LMS, marketing, student recruitment (via
122 offline centers), and student retention/support
• Top 5 universities account for 50% of revenue
49
Profile: ChinaEDU (NYSE: CEDU)
Source: ChinaEDU fiscal year ended 31 Dec 2012 SEC Form 20-F
50. • Founded March 2001 by Zhengdong Zhu, local engineering graduate, all
work experience in China
• 2.2mm enrolled students for online education programs in 2012
• Core business is professional education and test prep for accounting,
healthcare, and construction
• Online programs represent 77% of 2012 revenues (~$40mm )
• 642 lecturers who create online content
• Selling and marketing represents 22% of revenue
• Rely on a combination of regional and online sales agents, referrals and
cross-selling to acquire students
50
Profile: China Distance (NYSE: DL)
Source: China Distance Learning Fiscal year ended 30 Sept 2012 SEC Form 20-F,
51. • Largest computer-based testing services provider in China
• Primarily for corporate training and professional certificate test taking
• As of March 31, 2013, ATA's test center network comprised 2,804 authorized
test centers located throughout China, testing takes place on computers
but students must physically go to a test center
• 366mm in revenues fiscal year 2013 ($59USD), test taking services accounts
for 91% of their revenue
• Delivered and provided technological and operational support for more than
400 test titles sponsored by government ministries, industry associations,
enterprises and public institutions.
• Assisted clients establish 15,000 client-owned test centers installed with
ATA technologies
• Can accommodate more than a million candidates being tested concurrently
51
Profile: ATA (NASDAQ: ATAI)
Source: ATA fiscal year ended 31 Mar 2013 SEC Form 20-F,
52. • Founded in 2001 by Xin Jin and Rubin Li (both undergrad degrees from Beijing
local universities)
• 383 learning centers serving 138,000 students, presence in 73 cities
• Provides private personalized tutoring services to primary and secondary school
students in China, subjects covered include Math, English, Chinese, Sciences,
and others
• $293mm USD in revenue in 2012, CAGR of 37.9%
• 12% of 2012 net revenues were generated in Beijing, with Xi’an, Shanghai,
Guangzhou, Nanjing, and Tianjing contributing 31%
• Average hourly course fee is $28, gross margin of 25%
• Performance-driven salary structure for teachers, focus on maintaining teacher
quality
• Teacher attrition rate currently at 24.8%, 13,000 full time instructors/
counselors
52
Profile: Xueda (NYSE: XUE)
Source: Xueda Fiscal year ended 31 Dec 2012 SEC Form 20-F,
53. 53
Xueda tutoring services
Source: Xueda Fiscal year ended 31 Dec 2012 SEC Form 20-F,
54. • Operates private kindergartens, primary and secondary schools in China, also offers
supplemental English language training for children aged 2-18
• Originally developed and marketed interactive learning tools designed to supplement
existing Chinese textbooks, and was involved in electronic learning products. These
segments have now been largely discontinued or sold off to focus on direct education
services, which Noah believes provides more opportunity and higher margins
• Brands include: Noah诺亚舟, Wentai Education 文泰教育, Little New Star, Yuanbo
Education 渊博教育
– Acquired 100% of Little New Star in 2009, 70% of Wentai in 2010, and 80% of
Yuanbo in 2012
– Little New Star provides English training in over 500 learning centers in China,
Wentai and Yuanbo operate private kindergartens, primary and secondary schools
• Went public in 2007
• Revenue $25.7M USD in 2012, Wentai and kindergarten segment account for the largest
portion of revenues
• Their overall network as of June 30, 2012 consists of 34 kindergartens with over 9100
students and 1100 teachers and faculty
54
Profile: Noah (NYSE: NED)
Source: Noah Fiscal year ended 30 Jun 2012 SEC Form 20-F, http://ir.noaheducation.com
55. • Founded 2000 by overseas returnee Jin Huang, spent 10 years in Silicon
Valley, Berkeley Computer Science PhD
• K12 tutoring centers, several K12 schools, career enhancement centers, 2
private colleges
• As of December 31, 2011, the company operated 150 tutoring centers and 5
K-12 schools; and 25 career enhancement centers, 2 career enhancement
campuses, and 1 college
• Revenues of $265M for fiscal year 2011, almost 1 million enrolled students
over the course of FY2011
• Went public in 2010 (NYSE:AMBO), lost 90% of its market cap before being
delisted in March 2013.
• Did not file 20-F for fiscal year 2012, unknown how the company is faring
since then.
55
Profile: Ambow (NYSE: AMBO)
Source: Ambow Fiscal year ended 31 Dec 2011 SEC Form 20-F, www.sec.gov