Thread by @lillianmli

1) Let's talk about how the business models of Chinese edtech unicorns Zuoyebang (作业帮), Yuanfudao (猿辅导) and VIPKids were such a success and completed billions in fundraise and hired thousands in 2020 alone.

And also how the methods of their success came back to bite them.

2) There's a whiff of old wine in new bottles with these tech platforms, the B2C business model boils down to paid packages for K12 online lessons with brand name teachers. Covid accelerated homeschooling for these to become a hot 2020 fengkou.

https://twitter.com/lillianmli/status/1399048097863450629

3) The offering (numbers from GSX) there's a trial package for 49 RMB which includes a lecture with a teacher typically from a brand name school and scores of teaching accolades. Followed by 1-to-1 tutoring to go over specific points with the student.

4) 30% of trial students typically convert to paying members, and with a CAC cost of 500 RMB the unit economics breaks even (factoring labour costs) at a package lesson deal of ~2000 RMB. The tech platforms then cross-sell on additional question banks and mental arithmetic apps.

5) This is an operationally intensive business model which scales with the hiring of additional tutors for student supervision. There's also challenges about how to sell non-standardised service that has to be experienced to be appreciated.

6) Why this took off - education is a slow industry - results take a while to show and if you get young students, that's many years of LTV. Starting conditions of Chinese culture (more in this piece) and of course, COVID - the great accelerator.

lillianli.substack.com/p/what-i-talk-…

7) As the competition got more fierce, everyone was focusing on user acquisition(though I wonder how the CAC could afford to get higher from 500 RMB) and the selling methods were questionable, to say the least.

8) There was periods in January 2021 where I could not escape the ads - CCTV, bus stops, elevator posters, and mobile apps. In the ultimate power move, they were all over the spring gala programs. We know where the billions of funds were going.

https://twitter.com/lillianmli/status/1354757968395259905

9) The ads were targeting the parents of kids around 7-8. The entire industry specialised in selling 'educational anxiety' - one infamous slogan was 'Either we'll train your child or your child's competitor'. Anxiety spending of middle-class parents has never been so lucrative.

10) Yuanfudao, Zuoyebang and ByteDance’s education unit had the same actress posing as a teacher on their platforms, saying “It could be parents themselves who ruin their kids" if users didn't buy a livestreamed course.

11) For families that could afford them, the kids would stream these lessons after school and on the weekends (after the hours of official homework they would get - I had 4-5 hours worth of homework from school at age 8 decades ago without any afterschool work)

12) For families that couldn't afford them, this was set to be another barrier for social mobility when their children couldn't test well enough to get into the good middle or high schools.
It's a tax on the well-off and a tax on the poor in different ways.

13) The edtech platforms got big by selling middle-class anxieties using some dubious claims - Zuoyebang claimed it has cooperation with the United Nations, and falsified teacher's teaching experience, Yuanfudao claimed it offered one-on-one tutoring by headteachers

14) The regulations to limit the reach of the edtech companies weren't surprising in the end. For this generation of Chinese parents and kids, education is a necessary consumption but often not a very enjoyable one. And it was already a race to the bottom for a while.