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Education

All work and no play for Chinese kids this summer

Online tutoring platforms in advertising war to win business ahead of break

Education Ministry statistics show that China has 200 million children between the ages of five and 17.   © Reuters

BEIJING -- Chinese online tutoring platforms targeting children from five to 17 years old are embroiled in a fierce advertising battle ahead of the summer holidays. 

Industry leader, New York-listed TAL Education Group, and its two main rivals, Yuanfudao and Zuoyebang, are all investing hundreds of millions of yuan to advertise their summer courses, with the daily ad spend for each reaching 10 million yuan ($1.45 million).

TAL-affiliated Xueersi Online School ran a large trial of its summer course late June. The company said it had not in its 17 years of operation ever invested so much in soliciting business. On top of 4,000 tutors already assigned to the summer season, the company is looking for 1,000 university students to work as part-time tutors.

Platform operators are placing ads online and offline. They are putting out ads on public transportation, outdoor signboards, on social media such as WeChat and TikTok and even commercials on TV, hoping to capture some of the 10% of the target group of children who take such courses.

Throwing their hats into this advertisement battle are tutoring platforms run by unicorns, such as Zhangmen, 17Zuoye, Knowbox, VIPKID, NetEase Youdao, Fudao QQ and Genshuixue. These 10 operators are said to have spent a total of 3 billion to 4 billion yuan on promotional activities of their summer courses. Some have attracted more than one million students.

Analysts said that the online tutoring industry has potential to spawn a super-unicorn, a startup valued at over $100 billion.

Education Ministry statistics show that there are 200 million children between the ages of five and 17. Applying the 10% figure mentioned above, the online tutoring service industry has at least 20 million potential customers.

With annual tuition fee for group tutoring priced at roughly 3,000 yuan and assuming that each student takes 1.5 courses, parents will pay 4,500 yuan for each child per year. This simple calculation shows that the market could reach 100 billion yuan.

According to one analyst, group tutoring is the most ideal form of online education services in terms of profitability and corporate finance. Its gross profit margin is between 50% and 70%. The ratio of cost-to-earnings is low, and economy of scale can turn it into a cash cow.

Online tutoring services are fast driving out the conventional hot houses. TAL initially achieved growth with its so-called cram school and other offline business, which still form its core operations. It now has to focus on not losing business to its online competitors. 

Other tutoring platform operators are facing their own challenges.

For Yuanfudao, Zhangmen and Knowbox, they need to move onto a fee-charging service, now that their free services have helped them to establish their credentials. Zhangmen, which prides itself on hiring elite instructors, faces a secondary problem in the form of a government regulation that requires online tutors to obtain teaching qualifications.

VIPKID aims to turn a profit next year and relist its shares in 2021. It now provides one-on-one tutoring, but it needs to find other ways to make its business profitable.

Yet, splurging on advertising is making profitability even harder to achieve. "For companies that provide individual tutoring, the rise of group tutoring platforms is a blow. Costs to solicit customers has doubled for two months in a row," said the CEO of an online tutoring company. Many rivals have gone out of business, the CEO added.

Others said that these businesses can reach out to regional cities and towns to find greater opportunities, just like the bicycle-sharing industry where latecomers that focused on second-tier cities caught up with and ultimately overtook the sector leader that had dominated the metropolitan markets.

For online tutoring businesses, instead of investing lavishly to take on rivals in urban areas, low-key operations in regional cities may be the way forward. In order to do that, they need to choose direct management and adapt their operations to meet local demands.

36Kr, a Chinese tech news portal founded in Beijing in 2010, has more than 150 million readers worldwide. Nikkei announced a partnership with 36Kr on May 22, 2019.

For the Japanese version of this story, click here.

For the Chinese version, click here

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