How VIPKID Became the Biggest Unicorn in China’s fiercely competitive EdTech Market?

VIPKID is one of the largest online English tutoring companies in China, which is valued at more than $1.5 billion. It matches over 30,000 teachers in the US and Canada with over 200,000 primarily Chinese students, ages 4 to 12, for real-time one-on-one English immersion learning. The platform has a beautiful student-retention rate at 95%, and its 25-minute-long classes brought in $760 million in revenue — up from $300 million the previous year. On the 2018 World’s Most Innovative Companies list, VIPKID ranked 29th. If considering the Chinese company solely, it ranked the second on the list, right after Tencent.

In consideration of its very short history, VIPKID has made a hit and cannot be neglected when we look at China’s EdTech market. The company was founded in 2013 and formally launched in 2014, and attracted investment from Sinovation Ventures, Sequoia Capital, Tencent, Yunfeng Capital, Matrix Partners, Learn Capital, Northern Light VC, Bryant Stibel, etc. Xu Xiaoping, the Founder of ZhenFund even expressed the regret of not having met the company sooner. Kobe said it only took him five minutes to make the investment decision.

You may wonder what made the company grow so fast like this, and what we can learn from the growing experience of the company.

The Founder and CEO of the Company

Inspired by the bad teaching experience with her math teacher, Cindy Mi made her mind to help children develop a love of learning from an early age. She had lots of difficulties with school and dropped out in 11th grade, aged 17, and started the first business with her uncle. They together founded ABC English, a brick-and-mortar English-training company, and Mi herself also worked as an English teacher in the company.

This experience gave Mi the opportunity to lead business development and campus expansion across China from the beginning, which she claimed gave her the “street smart “she needs for the business developing; meanwhile, she continued her self-study for English literature.

From 2010 to 2012, she studied for an MBA at Cheung Kong Graduate School of Business (CKGSB) in Beijing. CKGSB gives strong support to entrepreneurs and encourages students to start their own businesses and collaborate with some of China’s largest internet companies, such as Tencent and Baidu.

The professors helped students with their business plan and students were paired and one-on-one tutored by mentors who had extensive backgrounds in real business world.

The course made her “book smart”, and equipped her with a “galactic” view — to view the planet as a whole. She said it’s crucial to not merely think about just one company, one industry, or even one country. After graduation, she started her second business, Future VIPKID, which later known as VIPKID.

Looking back, Mi empathized with the math teacher who kicked her out of the classroom, as it’s hardly possible to personalize anything when there are 50 students in the classroom.

The Opportunities Lie in the Language Learning Market

Mi found that in China anxious parents approximately spend $15 billion a year on children’s English-language learning. They believe education is a game changer and consider English as a way of changing fate. There are 18 million new babies born in China every year and a million elementary school kids. However, the residing qualified North American English teachers are only 27,000.

Besides, many parents complained about the time cost of delivering their children to classes. Therefore, the market for online English learning is imaginable huge.

According to the report made by the Chinese Academy of Sciences big data mining and knowledge management laboratory 2018, 73 percent parents in big cities like Beijing and Shanghai spend at least 1,580 USD (10,00 RMB) on online English classes each year, which confirmed Mi’s estimate at that time.

The Difficulties in the Initial Stage

The business did not go smoothly at the beginning. It’s difficult to convince the efficiency of online teaching at first, as there are not many forerunners in China at the time. Both parents and kids have not been familiar with the learning model; therefore, it could say that Mi was creating an entirely new market.

Mi believed the outcome of learning is the most persuasive reason for parents to pay for the service. The quality of teachers and curriculum is extremely crucial for the business. Mi came up the idea of understanding the learning process of the kids, so she asked the teacher to teach the kids in a meeting room, where she can observe the whole process and carefully studied it. Based on the observation, the product of VIPKID is structured step by step.

The stage one started from a four-kid experiment. Two were kids of CFO of the company and one was the child of the chief legal officer. The second and third experimental class recruited more and more children. While Mi insisted on charging for the service from the ever beginning, as it’s a way to develop users’ paying habits, but gave parents the whole refund when the course ended. The first experimental class charged for 308 USD (2000 RMB), and the second one doubled. Still, she returned half of the price to the parents when the course finished. Not until the third experimental class did the normal charge begin.

It also took a while for Mi to gain the trust of the investors. When she talked about her business idea to the investors, they barely show any interest. Then, it occurred to Mi’s mind to invite the investors’ kids to experience the products. Finally, because the course is so engaging, the enthusiasm of the kids convinced their parents to invest in the company.

The Tough Competition VIPKID is Facing

Challenges continue to crop up. Not only did 51Talk started to recruit many North American teachers right after the sharp increase of VIPKID, but DadaABC, which was founded in 2013, received around 100 million USD in the round C financing from Tiger Global and TAL Education Group in Jan 2018. Recently, DadaABC partnered with McGraw-Hill Education, a leading global education publisher, and with existing partners Oxford University Press, National Geographic Learning, and Highlights, determined to make itself more competitive in the one-on-one teaching turf.

To make the competition tougher, TAL Education launched its new product VIPX on April 16, 2018. While publicizing immersion language environment and North-American teachers, TAL also broadcasted their concentration on developing leadership, critical thinking and reading abilities, which seemed to be a bonus besides language ability. The slogan it advocated was “cultivating global competence of Chinese children”, which catered to many parents in today’s world.

Apparently, TAL’s entrance will make the competitions in the “red sea” even fiercer. VIPKID needs to figure out the strategies for coping as soon as possible.

The Ambition of Expanding Abroad

Expanding abroad could be one. When VIPKID finished the D round of financing, it announced the launch of Lingo Bus, the online learning platform for overseas children aged 5 to 12 to study Mandarin Chinese. For the product pilot, it hired 100 teachers to serve its first batch of Chinese learners. Over the next three years, Lingo Bus aims to attract 50,000 students, which will need at least 10,000 teachers to teach them.

It’s similar to what VIPKID has done for the last four years. The courses apply immersion method and are structured and designed in accordance with ACTFL (American Council on the Teaching of Foreign Languages) as well as YCT (Youth Chinese Test).

On the Lingo Bus’s Facebook page, many expressed their passion for this new product. Common comments are like “teachers are encouraging and patient”, “it’s a fantastic way to learn Chinese”, “the lessons are full immersion and paced well for a beginner”. However, there was also a father critically commented that the trial class perpetuated stereotypes about either culture, which he thought was bad for children understand the world.

Still, it takes time for VIPKID to discover the way best suits the learning habits of children growing in different cultures.

What made VIPKID Distinguished?

Three silver bullets made the initial success of VIPKID: Strict teacher criterion and matched supply chain, one-on-one teaching model and timely feedback, and the enrollment of the “right people”.

VIPKID follows an Uber-lie model, and some described VIPKID as a kind of Yelp for Chinese students seeking North American English teachers. Teachers are hired on for six-month contracts. They create a profile and upload videos of their instruction on the platform. Parents and kids scroll through the information and read reviews from other parents, and then book open slots for the following two weeks.

To be a teacher on the platform, a bachelor’s degree is required, although it doesn’t have to be in the education field. A smoothly-running computer and a reliable Internet is a must as well as a minimum of one-year of teaching experience. VIPKID pays its teachers $14 to $22 (90–130 RMB) per hour, based on performance and consistency. It also provides teachers with courses to help them better tutor students.

Mi regards the quality of education as the top priority along every step of VIPKID’s development. The applications the company receives each month are between 20,000 and 30,000, but 90 percent is rejected. The research and development team of the company develops its own teaching curriculum to ensure the quality of the study, and teachers have to stick to it.

During the class, the teacher and their student engage in a live video chat for the lesson. Usually, students take the lesson independently, but parents will receive a video recording their kids ‘performance afterward to help them learn the learn the progress their children have made.

Key talents are very crucial in the process of development. VIPKID has three co-founders, and each took Mi a very long time to convince them to join in. To persuade Zhang Yuejia, who is the last co-founder joining the company and former co-founder of Baicheng.com, one of the Ten Top online travel agency in China, Mi spent nearly half a year. She values the people a lot and often spends time with her team. After long-hour intensive and stressful work, Mi insisted on having weekly meetings with two sorts of people: the employees who want to quit the job, and the parents who ask for a refund, so that she can always have perceptions about the “front-line”.

The Future Challenge

The one-on-one business model has been questioned a lot, as it always companies with low-profit margin, low teachers’ salary and high turnover rate. To make more profits, the company has no choice but scale up. However, with more students, it has to recruit more teachers, which brings the company higher cost, otherwise, the teaching quality will avoidably decrease.

These days VIPKID is also facing bemoans from parents, complaining the quality of teachers cannot compared with the old days’. The increase popularity of the product makes it hard to maintain the same quality level as it does in the past.

Besides, with the development of technology and language translation becomes easier and easier, many started to question whether taking the time to learn another language is really worth it. How long will the prosperity of VIPKID and online one-on-one language learning last is still a question.

Numerous challenges are waiting for VIPKID in the future. However, as Mi said, the sky is the limit.