What happened to the market for teaching Chinese adults to speak English?
Serving Chinese adults keen to learn English and English-based curriculum was a powerful market, long before delivering online English tutoring to Chinese children became so popular with investors. The current market for teaching adults English in China is estimated to be $5.5 billion.
But these days, that’s a fraction of China’s overall tutoring market, which the U.S. brokerage firm, Jeffries, believes is worth more than $52 billion. So, what does the story about adult learners tell us about the changing nature of education investment opportunities in China?
In the early days of adult English learning in China, chain brands represented by Wall Street, EF, Meten and Web English competed fiercely for business delivered by teaching centers. The fast penetration of the internet, however, reshaped the education space across China. At that point, the adult English training brands that had strong online offerings began to rival the traditional offline models.
Keyword search frequency for adult English learning, according to Baidu Index. Source: JMDedu
According to Baidu Index, the keyword search rate for adult English learning peaked in 2015. Online tutoring brands aimed at adult learners flourished. Taiwan-based iTutorGroup, which started in 1998 and raised $15 million in venture capital in 2012, completed a Series C financing round of $200 million in November 2015, which valued the company at more than $1 billion. A few months later, in March 2016, ABC360 secured its B round financing of 100 million RMB (approx US $14.4 million). In June, 51Talk was officially listed on the New York Stock Exchange at an offering price of $19, raising $72.4 million.
Next came student-focused online tutoring companies, which began to raise dazzling amounts of funding, even if they still represent less than 10 percent of the market for tutoring, training and enrichment, as noted by a research report by L.E.K. Consulting. But brands such as VIPKID and DaDa (previously DaDaABC) attracted investment capital so fast that the companies providing online English tutoring for adults suddenly faced competition not just from traditional tutoring—but also from this new group of online services focused on children. Investment dollars turned to the student-facing companies.
That prompted many adult language training organizations to put more attention on tutoring younger age students. The iTutorGroup developed tutoring solutions for mathematics and junior coding for K-12 students. ABC360, after raising a Series B+ round from Hujiang, integrated its adult English business with Hujiang and focused heavily on young students. Hujiang EdTech’s online oral English brand, Hitalk, was designed to offer real-world speaking simulations for adults ages 25 to 38. Four months after launch, the company set up a program for students.
According to investment firm Blue Elephant Capital, the student-facing English learning market rose from 120 million RMB to 1.45 billion RMB (approx. US $209 million) between 2014 and 2016. Adult foreign language learning, by contrast, saw the opposite trend, with investment plummeting from 1.05 billion RMB to 300 million RMB (US $43.3 million) during the same period.
When 51Talk, the first one-to-one online tutoring company to be listed on the NYSE, was preparing for that initial public offering in 2016, the K-12 sector was represented by a single page in its investor presentation. By 2018, one-to-one student tutoring accounted for 73 percent of 51Talk’s revenue and the adult learning business barely got a mention in the company’s earnings report.
What drove the huge change? JMDedu explored this issue recently in interviews with a hundred users.
According to JMD’s research, even Chinese adults who are using English-learning products are ambivalent about their use. Learners say they want to improve their English competency during their spare time, but they often give up, saying they are “too tired to learn something after work” and “cannot get obvious improvement.” According to our research, 81 percent of interviewees have used adult English-learning products, with 70 percent of them aiming for self-improvement, followed by “personal interest” and studying abroad.
Far fewer keep it up, however. Just 14 percent of the people JMD interviewed persisted in using adult English-learning products for more than one year; the majority last for only one to three months. Specifically, “too lazy,” “too busy” and “gradually losing motivation” were the main factors why users say they are not able to persist.
“Too busy to study” is a long-standing problem in adult-language training. Adult learners want to learn at different times: Less than 6 percent of adults learn English in the morning. Some 41 percent like to study at night. A solid 51 percent study at random times. Yang Zhengda, founder of iTutorGroup, told JMDedu that those numbers correlate to his company’s experience: “The peak time of using our adult English platform, TutorABC, is concentrated from 8:30 pm to 10:00 pm.”
Convincing adult learners to renew their engagement with studying programs is also hard. Yang revealed that the average renewal rate of the adult English market is less than 5 percent. And finally, adults are very sensitive to prices, notes Zhang Liming, COO of 51 Talk. JMDedu’s research indicates that more than half of adult learners are willing to spend 100 to 500 RMB (US $14 to $72) for course. A scant 1 percent are willing to spend more than 10,000 RMB.
By contrast, the student-facing tutoring industry does not face the same issues. These services are purchased by parents, who are willing to invest as much as possible in their kids’ education. They actively supervise their children’s attendance at classes and many want to “show off their own kids.”
Even so, Yang believes there is still room for growth in online adult English market. “There is still 15 to 17 percent growth every year on the online products.” He points particularly to demand for adult tutoring in China’s second- and third-tier cities where there are far fewer tutors to support classic tutoring centers. “The second and third-tier cities have large populations, but the degree of concentration [of live classes] is not as high as that of first-tier cities,” he says.
“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 adds.
The key to success in the adult English business market? For companies, much like their users, it starts with ensuring that companies meet user needs and, as is the case with the users themselves, may be as simple as staying motivated to keep to the course.