$5.5B Market! How Can Adult English Break Through the Stagnant Growth in China?
The competition in terms of market share between kid English learning and adult English learning has been around for a long time. However, it is hard to judge whether the current stage is the final result. Kid English has remained the most active segment in K12 since 2016, leaving adult English no choice but to compromise. A number of online brands that had entered adult English field transformed their business orientation and retreated. Interestingly, the adult business of many English learning organizations has not completely disappeared but just survived relying on its “natural traffic”.
Given the fact of rethinking its business model and profitability, online adult English that used to be a prevailing hit in education space now seems to be stuck in an awkward situation. Apart from the acknowledged market factors, JMDedu attempted to dig some more accurate reasons through consumer research. Unexpectedly, the outcomes are not as bad as imagined.
How can online adult English business survive under dual dilemma?
Adult English learning is not a product of online education. In the early days, the chain brands represented by Wall Street, EF, Meten and Web English started to compete fiercely for offline adult English learning business in the form of teaching centers. But then the fast penetration of the Internet reshaped education space all across China. Adult English training brands with online genes have gained more attention and strength to compete with the traditional offline models.
According to Baidu Index, between 2014 and 2017, the keyword search rate for adult English learning was much higher than other periods, reaching its peak in 2015. During this period, several online brands had performed well in the capital market. For instance, on November 19th, 2015, TutorABC (used to be known as VIPPABC)’s parent company iTutorGroup announced the completion of C round with nearly $200 million and then valued over $1 billion. A few months later, on March 1st, 2016, ABC360 secured its B round financing with 100 million RMB. Later on, 51Talk was officially listed on the New York Stock Exchange at an offering price of $19 and a total financing amount of $72.4 million on June 10th, 2016.
Following this trajectory, everyone in supplementary English learning track was prepared for an enduring battle between online and offline model in adult English and ready to witness how online model would outperform the traditional setting. However, at this point, kid English learning brands represented by VIPKID and DaDa (used to be known as DaDaABC) with a dazzling speed to raise funds twice in just one year caught everyone’s attention, which threw online adult English once again into an intense competition in another spectrum — age.
Capital is the main factor contributing to the shift of market orientation. According to the “2016 Education Industry Investment Report”(《教育行业2016年投资数据盘点》) published by Blue Elephant Capital, from 2014 to 2016, the funding amount of kid English learning market has been on a rapid rise from 120 million RMB to 1.45 billion RMB. But when it comes to adult foreign language learning, a totally opposite trend can be seen with the investment plummeting from 1.05 billion RMB to 300 million RMB.
Retreat or remain, the key to tackling the current predicament is still in the hands of the companies themselves. Therefore, a large number of adult language training organizations laid out their business into younger age group. For example, TutorABC’s parent company iTutorGroup launched the youth brand vipJr. After obtaining the B+ round financing from Hujiang, ABC360 integrated its adult English business with Hujiang and fully targeted on young kids’ business. Even Hitalk, which run its business against the market trend, was not able to dodge the bullet but set up “Hitalk kids” only four months after its initial launch.
As the first online 1-on-1 English company listed in the US stock, 51Talk’s business decision is undoubtedly a more direct and “visible” guide for others in this space. As early as the roadshow before the listing, 51Talk used a special page in the PPT slides to describe its substantial growth in the K12 sector. In March 2018, 51Talk determined to try their utmost to kids’ business and handed over the adults group business to an independent brand as a supplement.
This transformation is not unexpected. The overall stagnant market of adult language training has led to great losses for 51Talk, and the reversal hope of this dilemma can only be pinned on kid English market. In the fourth quarter of 2018 fiscal year, 51Talk highlighted its kid one-on-one business revenue accounting for 72.7% of the total income, and the adult business was almost skipped over in its earnings report.
Large consumer demands VSLess longtime users
Apart from the capital, user attributes is also an important factor influencing the market trend. Lately, JMDedu has surveyed the use of adult English learning products and over 100 interviewees’ feedback we received proving that the “application-oriented” gene makes the adult English training a tough nut to crack.
Currently, among the users of adult English learning products in China, a large number of them are ambivalent. They want to improve their English competences during their spare time, but they often give up with various excuses such as “they are too tired to learn something after work” and “they can not get obvious improvement”. According to our research, 81.08% of interviewees have experiences in using adult English learning products and 70.27% of them were aiming for self-improvement. In addition, personal interest, following others, and studying abroad can also drive learning enthusiasm.
However, only a few of them can keep on this learning process. According to the results, just 14.29% of the interviewees could insist on using adult English learning products for more than one year, and majority of them could keep on learning for 1 to 3 months. Specifically, “too lazy”, “too busy”, and “gradually losing motivation” are the main factors why users are not able to persist.
“Too busy to study” is a long-standing problem in adult language training. Competing for users’ time has become a prerequisite for improving product usage. Therefore, mobile-based learning products are more popular among customers. However, the pain points determined by user attributes are not easy for companies to control.
5.71% of adults learn English in the morning, 40.54% of them like to study at night, and 51.35% prefer to study randomly. This result reaffirms what the founder of iTutorGroup, Yang Zhengda, has told to JMDedu: “The peak time of using our adult English platform TutorABC is concentrated from 8:30pm to 10:00pm .”
The biggest challenge of adult English business is “renewal fee”. Yang Zhengda revealed that the average renewal rate of adult English market is less than 5%. Zhang Liming, COO of 51 Talk, once said that adults are very sensitive to prices and lack the motivation to continue their learning activities. While in the kid English market, the real buyers are parents who are willing to invest as much as possible in their kids’ education. They will actively supervise their children to attend classes, and naturally leading to an attribute of referral driven by the craze of “showing off their own kids”.
Even though there are enough products which can meet customers’ needs for learning tools in the adult English sector, the real problem lies in the monetization of tool-based application with hundreds of millions of users in the context of adult learning mode.
Is there still room for growth in online adult English business?
JMDedu found another noteworthy phenomenon: in the era of the Internet, adult English in offline model still captures a considerable number of fans, accounting for 35.14%. The interactive learning atmosphere and real-time communication in the classroom are the main reasons to explain their proposition. So, is there still any room for the development of online adult English amid the challenge of large-scale business transformation and offline courses competition? Yang Zhengda answered yes. “There is still 15%-17% growth space every year on the online products.” He believes that space is mainly concentrated in the second and third-tier cities.
The offline institutions are mainly concentrated in the first-tier cities, and a few are also expanded in the second-tier provincial capital cities. Yang Zhengda said that: “the second and third-tier cities have large population, but the degree of concentration is not as high as that of first-tier cities.” The main reason why offline organizations are not penetrated into second- and third-tier cities is that it is difficult to break through the bottleneck of teacher shortage. The gap between high learning demands and the lack of supply just gives space for online institutions to enlarge their customer group.
In addition, the class price is still a key point to affect deals. The high unit price is a major pain point for offline adult English institutions. Many consumers would prefer cost-effective online products. According to our investigation, the proportion of people who attach much attention to the price is 16.22%, among whom, the maximum number of people who could accept to pay for the course price between RMB100 to 500 is 56.76%. Those who are willing to spend more than 10,000 RMB only accounted for 1%, which shows that online courses with price advantages still have growing space.
From the perspective of learning willingness, the adult English market is still considerable. 81.08% of interviewees said they would continue to try new products and 83.78% said that the adult English courses are effective for them to achieve self-improvement. Moreover, the fun outcome of learning styles and courses is the dominant expectation when users choose products.
The adult English market is just like a big cake with＄5.5 billion value
Since the demand still exists, companies that have been in the education industry for a long time are certainly well aware of this supply-demand gap. Similar to 51Talk, while concentrating on the kids’ market, many companies such as Palfish(伴鱼) have positioned adult English as a supplementary business maintained by natural traffic. “The adult market has a value of 37 billion RMB(＄5.5 billion). Of course, the market share of kids English is much higher by more than ten times, but ten times market share means ten times competition.” Yang Zhengda said.
Undoubtedly, the profit margins of kid English learning is also continuously compressed because of complex marketing process and higher cost of customer acquisition. Operating both kids and adults business, Yang Zhengda thought: “When many adult language training brands have retreated, players who are still sticking to it will achieve cost-effective launch strategy and better profit.”
The key for adult English business to stick around may lie in just a simple belief: meeting users’ needs, which is always the highest standard for measuring the hard power of an organization. The market situation is not as bad as imagined. Although the increase is limited, online adult English business with Internet genes and large online traffic can still use their imagination to attract users with quality products. After all, there is still a large market with 37 billion (＄5.5 billion) value for adult English. This is a big cake that can be shared by practitioners with enough courage and initiatives. Maybe the battle for adult English and kids English will last for a long time. We will continue to pay more attention to this segment and share first-hand updates.