China’s thirst for English language is disrupting traditional language providers
This week Magic Ears, a Chinese English language teaching platform where instructors put up videos and then get selected to be tutors for virtual classes raised $6m in Series A funding. By itself this is small fry, but it comes amid a backdrop of huge funding and valuation in the Chinese K-12 Edtech market and especially English language. VIPKID, which connects native english teachers (many in the US) with predominantly Chinese school students, raised $200m in its recent Series D funding round with a valuation of $1.5bn. The high valuations reflects the fact China is close to an ideal market for Edtech due to both supply and demand factors.
On the supply side is a country with a very strong developer base and increasingly a developed venture capital scene to support start ups.
The demand side is even more favourable. Firstly, China has a middle class who place a very high priority on education, this has created a huge secondary market for educational goods and services such as tuition. Secondly, its consumers are among the most comfortable with digital goods and services. Parents will pay for digital education if they see the results in school exams — VIPKID has 200K paying users. Finally and most importantly for this tech-savvy affluent group, demand exceeds supply for English language, which is where VIPKID et al came in, to bypass geography and establish a platform to create a marketplace for teachers and students.
Many of these principles apply to language teaching in general. Almost by definition the native speakers of a language don’t live in the country requiring them, it’s expensive often for the same reason and finally language assessments (and to some extent curriculums) tend to be standardised (e.g. IELTS) which makes it easier to design scalable solutions fit better - Duolingo launched their own low cost test.
Where does this leave the incumbents? Existing language providers may point out in-person demand is still strong in China (it is) and that official qualifications such as IELTS are still the gateway for study and work abroad (they are).
None of these advantages are insurmountable however. Online options will not only vacuum up the low-cost end of the market they could also exert downward pressure on the price of in-person classrooms as they demonstrate they are a viable alternative reducing revenue to the core providers. Furthermore, digital challengers may well chase the assessment market too, if they can ensure the standard of the assessment, employers etc will be quick to recognise new qualifications.
What should incumbents do? The obvious answer for the incumbents is to develop comprehensive digital offerings while their brand still affords them a strategic advantage; Cambridge English teamed up with Babbel to create their own assessment. It’s a start but digital offerings will need to cover teaching as well as assessment lest they cede market share while learners are in school and never reclaim it — here and here
