At 9:30 am on March 28th, Koolearn, an online education company under New Oriental Education and Technology Group, has been listed in HKEX at an opening price of HK$10.2, making it the first online education service provider to IPO in HK stocks. The net amount raised was about US$20 million.
However, more than 50% of investors shifted focus on its 2-year independent subsidiary startup called DFUB.
DFUB aims to bring in top-notch teaching resources from Tier-1 to Tier-3,-4 and -5 cities to achieve education equity. It covers all subjects in K-12 curriculum for all age groups.
Does it perform well?
Founded in 2016, DFUB has caught the trend from the very start — livestream online education. Its 300% growth rate in 2019 has indicated an early success and exciting prospect in China’s education industry.
From 2016 to 2019, DFUB has entered 67 cities, gathering loads of qualified teachers to develop targeted products. The Tier-3, -4, -5 cities have substantial demand for education upgrade.
How did it stand out in the market early on?
1. Highly interactive live streams
Each class is designed for 15–25 students, which is the maximum capacity to maintain high class quality.
Through ClassIn, one instructor engages face-to-face communication online with selective 6–8 students, while the rest could choose to “go on stage”. This class mode is vastly effective, in that students would stay alert and focused, for fear of being called out to show their face on camera.
Most children still learn in a passive fashion, therefore supervision and management are necessary especially for young kids.
2. Customized Online Small Class
Big class and one-on-one class are most well-known. However, forerunners in these two models make it difficult for new players to get clients, investment, and low cost. DFUB realized that small class is a new market getaway.
Plus, only small classes can effectively activate students’ active learning skills, and increase class participation rate. At DFUB, an instructor is matched with an assistant. One is focused on teaching, while the other on administrative issues to keep class running smoothly.
As a result, parents are impressed with the degree of customization, because every single student in a group will get adequate attention and care all along.
3. Scale and Service Localization
At DFUB, course design is based on location. The company has been refining course content to fit into each local standard. For example, students from Datong only join the Datong class group with their own study plan. Different cities will have their own version of textbooks.
Physical service centers in every city serve to gather and recruit students. As a point of contact, service centers provide thorough information about programs, and online instructors fly there to engage with students on a regular basis. It is worth noting that this two-way interaction builds a strong foundation for word-of-mouth marketing.
This unique way of both online and offline presence makes us wonder:
Why to make big investment in building on-site infrastructure?
Much to our surprise, the total cost of offline business is much lower from 40K — 60K RMB in a year including furnishings, rentals, hires and marketing expenses.
Moreover, local service centers have two remarkable benefits according to DFUB.
- Brand Trust
“Our target audience is from Tier-3 and Tier-4 cities. Although locals have access to the Internet, they are still very alert to new functions such as online payment. Local parents are familiar with Wechat and Taobao, but it is misleading to compare us as a Micronet. On-site service centers inform potential clients of our services and prove with registered business licenses. As a result, parents would trust us and pay tuition.”
- Chain Reaction
“This is like atomic bomb explosion. Only when it reaches a certain density, will it lead to nuclear fusion. If 10K students were dispersed over 15 cities, word of mouth marketing would be hard to take place, but the strategy works in a single city.”
However, DFUB’s operating model “heavy” on service, quality, and content is a double-edged sword, putting tremendous pressure on the management team.
“Heavy” on recruitment, management, and cost
1.Extensive Need for Qualified Teachers and Experienced Store Managers
As a completely independent subsidiary under Koolearn, DFUB recruits all teachers out of its own pocket at a later stage. In 2018 before summer, the organization already hired and trained hundreds of instructors, with an aim of maintaining high class quality.
Additionally, DFUB also needs lots of experienced store managers to run those service centers. It is rare to find management who can bring new workforce, so the company has adopted systematic self-hire and self-training procedures.
2. High Cost and Price
“The heavy operating model means high cost, but we are able to cover it by pricing 30%-50% higher than local counterparts offline. Courses for primary school children are double priced or more.”
Consequently, many parents wouldn’t accept such expensive charge, although they acknowledge the course quality. Nevertheless, DFUB believes it’s only a short-term phenomenon. As people upgrade consumption need, and weigh more on education in Tier-3 and Tier-4 cities, class quality will outweigh high price. DFUB is betting on a trend.
Is China’s future education industry worth big investment?
According to DFUB, a complete industrial revolution cycle includes three phases: consumption upgrade, system reform and technology innovation, corresponding with three respective investment opportunities.
The next 5 years is the “Golden Age” of China’s education industry.
- Explosive Leap in Education Consumption
In 2018, China GDP per capita exceeds 9,000 US dollars, and is estimated to exceed 12,000 US dollars in the next five years, which is the international standard for high-income developed countries. China is about to enter high-income developed countries. At this critical stage, the education industry without need for state guidance will transition smoothly to embrace explosive demand growth.
- Rising Buying Power and Knowledge Need
The growth of high-quality born children and the significant improvement of parents’ education level have further boosted Chinese’s ability and willingness to pay for education. Although China’s total population growth has slowed down in large cities, the birth rate is still increasing in Tier-2 cities and below. Within 10 to 15 years, the urban population rise and awareness change will guarantee a strong growth in China’s education industry
- Adequate Human Resources Preparation
Higher education in China has produced a large number of skilled labor for the development of the education industry.
The number of China’s new graduates is 7 million a year, including 4 million undergraduates and 3 million specialists. 400,000 graduates come from Project 211. Plentiful qualified candidates are entering the education industry, even if the hiring line is undergraduate level or above.
- Strong Information Technology and Internet Backup
The rapid development of information technology and Internet infrastructure have provided a solid support to improve efficiency and solidify concentration, making it possible to create an educational institution giant.
“We keep our goal simple, clear, and focused.”
Despite the “pain point” of high markups, DFUB has decided to persist in the “heavy” business model, investing significantly in instructor training, course design, student recruitment, and class management.
As a trusted business partner since 2016, ClassIn believes that DFUB will keep up the momentum to reform future education in China.
