china's education market 101

China’s education market 101 ZhenFund

October 2013

•  Introduction: China’s education market opportunity •  Education subsectors:

–  K12 –  Vocational Training –  English Training and Overseas Study

•  State of e-learning •  Online distribution and edtech innovation

2

Overview

3

Education market opportunity

($mm) 2012 Revenue Market Cap (08/2013) New Oriental (NYSE: EDU) $771 $3,644 TAL Education (NYSE: XRS)* $226 $984 China Distance Ed (NYSE: DL) $52 $360 Xueda (NYSE: XUE) $293 $261 ATA (NASDAQ: ATAI)* $59 $121 ChinaEDU (NASDAQ: CEDU) $78 $113 Ambow (AMBO) N/A $69

Total -> $5.6 billion

$115 $5.6

Source: The BDA Group, yCharts.com accessed 14 August 2013, *Fiscal year ended 28 Feb 2013 and 31 Mar 2013

China’s largest education players combined still represent only a tiny slice of the market, leaving huge opportunities for new entrants in all stages of the education value chain

China’s projected 2013 private education market ($USD bn)

China’s education system at a glance

Gaokao

4 Source: Wikipedia “Demographics of the People’s Republic of China”, h&p://news.xinhuanet.com/poli8cs/2013-‐02/23/c_114772758_2.htm

~500k students leave the Chinese system for boarding school and higher education abroad each year

6mm+ Annual graduates

26mm+ Post-secondary

200mm Grades 1-12

24.3mm High School

64mm Ages 2-5

The vast majority of students are educated in the public system with little access to personalized attention. The booming market in private after-school training for families with expendable income seeks to fill the gap.

College entrance exam

5

Understanding the opportunity

•  This report seeks to identify the key needs and opportunities in the private education market for each major sub-sector, taking into account key players and new innovations.

Government/public schools

Parents, teachers, students

Key players and

channels




6

Overview

The market •  150,400 PreK and K schools in China •  Pre-school and kindergartens

typically combined in same school for ages 3-5

•  Public kindergartens and Pre-K available but quality varies (government mandated school does not begin until 1st grade), private kindergartens on the rise

•  Fierce competition driving parents to start early as possible to give kids an advantage, driving growth in private schools and after-school training services

7

Pre-K and K education

Estimated 490 billion RMB market for offline education services

Source: Deloitte “中国教育与科技发展思考” March 2013

Student #1: Weiwei, 3yo, Shanghai •  8:30am-5pm Kindergarten

–  Weiwei just started this year a private kindergarten chain close to her home, which costs 6k RMB/month, the local public kindergarten only cost 1k RMB/month, but her mother is worried about the curriculum quality and large class sizes

•  5-6PM After-school and weekends –  Wei Wei attends three different training classes, including

pinyin for Chinese study, painting, English, and storytelling. Her kindergarten teacher recommended the painting class, and Weiwei’s mother found out about the other schools from friends and from reading the popular parent online forum 55bbs.

–  Her mother hopes these skills will improve Wei Wei’s chances of passing the competitive interview to get into one of Shanghai’s best public primary schools

•  Evenings and downtime –  Weiwei’s mom regularly visits Yaolan.com and Babytree to

search for new tips on child rearing and new educational products

–  Weiwei often plays Qiaohu 巧虎 games, a subscription service that sends her new boxes each month full of books and toys, with online videos that teach life skills like brushing teeth

–  Weiwei plays on her mom’s iPad whenever she is allowed, but her parents limit playtime as they are concerned about effects on her eyesight

8

Day in the life: Chinese students ages 3-5

Key Players…Kindergartens

…Training Schools

…Products

•  Mothers are the key decision maker for educational products and services, decisions primarily influenced by word of mouth recommendations

•  PreK-K education is focused on improving chances for admittance to best primary schools

•  Private kindergartens still fragmented market, few nationally recognized brands

•  Public kindergartens are 3-6x cheaper than private ones, teachers are paid less but get good government benefits and job turnover is lower, public kindergarten quality varies widely

•  Government policy prevents third party education providers from selling products/services to public Chinese kindergartens and pre-schools, making distribution challenging

9

Pre-K and K market insights

FMCG, ¥1,400 , 33%

Books and Toys, ¥200 ,

5% Health, ¥100 , 2%

Training Classes,

¥500 , 12%

School Fees, ¥2,000 ,

48%

Average Monthly Parent Spending (RMB)

Private school and educational product have the chance to build strong brands in a still fragmented market, and

should focus online channels where most 80’s gen parents discover and pay for education

Source: ZhenFund Survey

•  257,400 Primary Schools •  54,900 Junior High Schools •  14,058 Regular Academic high schools

(versus 42,412 in the US) •  14,526 vocational high schools •  98% of children attend public schools •  Grades 1-9 tuition is free •  Grades 10-12 tuition paid by parents •  Average student to teacher ratio in high

schools is 57 students (US average is 20:1) •  The big filter: Gaokao College Exam,

9.15mm students took the gaokao in 2012 to determine their placement on one of China’s 2,236 universities

•  2.2 trillion RMB (2014E) market for private after school education, primarily to help students prepare for the gaokao

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Grades 1-12 education

Gaokao

Source: BBC News “China’s students take on tough Gaokao university entrance exam” 8 June 2012, Wikipedia “Chinese university ranking”, PRC Ministry of Education, US National Center for Education Statistics, Veriapp.org 2012 Report, Deloitte “中国教育与科技发展思考” March 2013

Student #2: BoBo, 16yo, 10th grade Beijing •  6am-5pm School

–  Bobo spends most of his weekday in his public high school, while his first 9 years of mandatory school were tuition-free, from grades 10-12 his parents must pay 2k RMB/semester + book, uniform, and material fees

•  7-9pm: After-school tutoring (1 on 1) –  A college student helps Bobo with his more challenging

subjects 2x/week for 50-150/hour, once a month Bobo also meets with a qualified teacher who charges between 200-500rmb/hour

•  Weekends: –  Bobo takes weekend English classes at New Oriental, he has

also taken course specific subjects at Xueda and Xuersi in the past to ensure high Gaokao subject scores

•  Other free time: –  Bobo fills out subject specific exercise books, they are not

assigned as homework, but his parents feel it will help improve his score on the Gaokao

–  Bobo studies a little piano on the side, but this is not a priority as it does not improve college admittance chances

–  Bobo plays online games or chats with friends on WeChat

11

Day in the life: Chinese students ages 6-18

Online homework/study material

Tutor

Training School

Arts-education (for arts exams)

•  All student energy devoted to test preparation, public high school’s are ranked by average gaokao scores and encourage focus on test prep

•  Most students attend supplementary academic classes to prepare for the high school admittance test (Zhongkao) and college admittance test (Gaokao)

•  Students under immense pressure, very little time for play, lack of individualized learning plans or teacher attention

•  The market for after-school training is extremely fragmented •  For training schools, maintaining an extensive offline sales

force is key to acquiring customers •  Parents are reluctant to pay for pure online products •  Only a few publishing houses are licensed by the government

to sell directly to public schools, making sales difficult •  High school is relatively expensive in China; more than 70% of

rural Chinese students will drop out during or after middle school to find work

12

G1-12 market insights

Accessible and high quality content

Low quality/

expensive/fragmented

Demand

Supply

Market need

Source: Veriapp.org 2012 Report, Rural Education Action Project Research Brief #107

13

Shifts in learning outcome measurements

•  Parents concerned about children’s health and well-rounded development are starting to pay for arts and sports after-school training classes

•  Top universities In Shanghai are expanding admissions criteria beyond just gaokao scores, with new application fields to favor more well-rounded students

Art Dance Basketball

The Chinese education system is only structured to reward good test takers, but the private and public systems are slowly changing to resemble the Western focus on well-rounded students and applicants, this is fueling the market for a wider diversity of training offerings for G1-12 students




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Overview

•  After the baby boom of the 60’s and resulting second wave in the 80’s, the size the of the workforce is declining

•  Blue-collar wages rising 10-15% a year in the last decade, low-cost, low-skill jobs gradually moving to other countries…

•  China faces a huge human-capital challenge in producing enough skilled workers to take the place of low-wage factory jobs

15

China’s need for vocational and professional skills education

Source: The Economist, “The End of Cheap China” 10 Mar 2010

Few Chinese students make it to college

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In China, enrollment rate decreases significantly as students go up in the education system stage by stage….

…translating into a very low percentage of students who make it to college (two or four

year) relative to other countries

93% 82%

59% 57% 48%

23%

Source: PRC Ministry of Education, UNESCO Institute for Statistics, Deutsche Bank research report (www.veriapp.org/report2012)

Primary to middle school 99%

Middle to high school 74%

College entrance exam (Gaokao) 23%

•  Of the record breaking 6.99mm+ fresh college graduates in 2013, only 35% of undergrads and 26% of masters have secured a job before graduation

•  Millions of graduates live in “ant armies” on the outskirts of big cities, average pay approaching that of migrant workers

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But college graduates struggle

Source: Xinhua News “大学生冲刺“最难就业季” 毕业生签约率全面走低” 28 May 2013, “职教”工学结合“打造”金牌蓝领“ 26 Oct 2006 , Source: career.eol.cn “2001年－2013年全国高校毕业生人数” 29 Jan 2013

0 1000 2000 3000 4000 5000 6000 7000 8000

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Annual College Graduates (000’s)

Even college graduates in China will find it difficult to land a job

•  Results are everything, critical for students to get high score tests, brands are often diluted as growing schools cannot maintain outcomes quality

•  High fixed costs to operating the business, customer acquisition requires large a offline sales force

•  Vocational schools lack transparency in outcomes, the central government provides $240 USD subsidy to students enrolled in vocational schools although there is no evidence to suggest these schools increase job prospects

18

Challenges in vocational/professional education

65bn Projected market size of professional

education in China 2011 (RMB)

Source: The Rural Education Action Project News “Evaluating Vocational Schools in Rural China” 5 April 2012, Yi Hongmei et al, “How are secondary vocational schools measuring up to government benchmarks, China & World Economy, 98-120, Vol 21, No 3, 2013, Deloitte “中国教育与科技发展思考” March 2013,新浪2011中国教育盛典《中国家庭教育消费白皮书》

•  Founded in 2013 as spin-off from successful offline school for IT training

•  High outcomes transparency, higher salary or money back!

•  Teachers control student progress and module progression to ensure course success

•  Students can earn tuition back by contributing to forums and assisting peers with questions

•  Available on PC and mobile platforms

•  Investors: ZhenFund

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Innovation case study: 51zhichang.com




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Overview

•  English required for Chinese domestic tests (gaokao, zhongkao, graduate tests) & overseas studies

•  English language ability strong determinate of salary and job advancement opportunities

•  Chinese public schools prepare “mute” English learners, reading and writing levels are high but oral English is weak

•  Native speaker teachers are in short supply

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China’s English training market

Pearson (Wall Street English and Longman Schools) •  Strategy driven by acquisitions and

complemented by existing massive content library

•  $155mm 2011 acquisition of Wall Street English, 45 centers in China

•  Acquired Longman English training for kids, 21 centers in China

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Offline English training: foreign premium

English First •  130+ schools in China •  Widespread network of kid’s

English training schools in China

•  Children’s education centers function as loss leader to drive more customers to adult education centers

Disney English •  44 centers in 10 cities across

China •  Native speakers teach children

oral English •  Goal of 148 schools, 150k children,

and $100mm in revenues by 2014 •  Educating a future consumer

base for Disney media brands, can function as loss leader

Best Learning •  Subject specific curriculum

(math, science etc) in English for kids 2-12

•  27 centers nationwide set to double by 2013

•  1:8 student teacher ratio with only North American native English speakers

Rise English •  Subject specific

curriculum (math, science etc) in English for kids 2-12

Competition featuring foreign teachers is eating away New Oriental’s market share, foreign teachers for English and academic training command hourly course premiums of 2x+ that of local teachers, the key barrier to entry is recruiting and retaining foreign staff members

VoIP online English instruction platforms increasing access to English teachers: •  Traditional bottleneck in availability of

native English speakers in China •  New platforms are offering low-cost

classes to expand access (51talk.com, teachers from Philippines) or targeting high end users who want more convenience and choice

•  (VIPABC.com and TutorGroup, North American teachers)

•  Investors: DCM, Qiming, ZhenFund

23

Online language study market growth

•  Grassroots online community of influential online English teacher-netizens with freemium content for all age and skill levels for multiple foreign languages

•  40mm registered users •  40-50 free learning apps with courses that synch

across mobile and PC platforms •  Unique revenue model:

–  Advertising –  Books and other educational materials

(buy.hujiang.com) –  Online courses, 2,000 offerings including 200

Hujiang in-house productions (buy.hujiang.com/kecheng)

•  Recently completed Series B funding

Other content sites for language learning:

Source: http://tech.sina.com.cn/i/ec/2012-12-12/00297876938.shtml

English language training represents one of the fastest growing segments for online education, with new entrants attracting significant investor capital

24

Study abroad market in numbers

English is a priority, with top study destinations in order of popularity:

1.  47% United States 2.  Britain 3.  Australia 4.  Canada 5.  Singapore

Source: Eastwestconnect.com “How Chinese students choose a foreign university to attend” 20 Nov 2012, US, British, Australian, Canadian, Singaporean Embassy data , Veriapp Survey, Wall Street Journal “Chinese students struggle for returns on education in US” 27 March 2013

Roughly 490,000 Chinese students will study abroad in 2013, representing a small but lucrative market for private education

$4,182/student – Estimated baseline expense for studying abroad including tests and application fees

$14,182/student - Estimated expeses for students who also opt for test prep training courses and engage agencies for extensive application assistance, fees may range depending on quality of school tier counselors promise for admission

New Oriental Education and Technology Group (NYSE: EDU) is the largest player in study

abroad, caters to 2mm+ students each year, but new entrants focused on small verticals in the

overseas study market pose competitive threats

Study abroad market opportunities Cheating

•  Startups are offering overseas schools and Chinese students document verification services (Veriapp) and video interviews for applicant verification (Vericant)

•  Test prep services provider New Pathway Education standardizes teaching quality and outcomes by augmenting instruction with individualized learning on computers; teachers tailor classroom content to student needs based on practice test results

Source: Xueda Fiscal year ended 31 Dec 2012 SEC Form 20-F, Zinch China, “White Paper No 4”, May 2010, survey of 250 Chinese high school seniors

Counselor/teacher talent bottleneck and turnover

Customer acquisition •  Juesheng.com, founded by former VP at Qunar, offers

portal for students to search for counseling consultants and offline tutors, splits tuition revenues for each student referral with service provider, generated 30mm RMB in revenues for 2012

•  Cheating on overseas applications is a huge problem, often facilitated by expert private counseling services, among Chinese applicants to US schools, a Zinch China survey estimated 90% provide false recommendations, 70% did not write their personal essays, and 50% forge transcripts

•  High turnover in counselors and variability in counselor quality, market leader Xueda for K12 tutoring experiences ~25% attrition rate in tutors each year

•  College consulting is hard to scale; hundreds of consulting firms are chasing an addressable market of the <5mm students considering seeking study abroad services

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Emerging trend: “domestic” study abroad

www.sinocampus.cn

3rd party services platform for creating dual degree programs: •  Founded in 2002 with the mission

of bringing international higher education to Chinese students

•  Works with 80+ international universities and local universities to create joint degree programs approved by the Chinese MOE

•  Degree completed at Chinese university, no study abroad required

•  16 programs and 15k+ students graduated to date, with an additional programs in the pipeline

Summer courses taught by foreign professors in Chinese universities •  Founded in 2009, for

Chinese students studying abroad who want to complete course credits during the summer closer to home

•  Relatively low-cost, only $3,500 for 3 courses, 11-12 transferrable credits

•  Shanghai, Beijing, Guangzhou Nanjing

Summer.sieschool.org

Foreign universities coming to China: •  Duke Kunshan University sponsored

by Wuhan University, will offer liberal arts degrees from Duke for Chinese students starting 2014, will be first major US University to do so if approved from MOE

•  Chinese law requires foreign universities partner with Chinese university for domestic campus

•  While more convenient and affordable for Chinese students, joint programs often have difficulty recruiting foreign professors

•  University of Nottingham and University of Liverpool offers joint-,MOE-approved degree programs with Chinese Universities

•  Stanford, Harvard, USC and others have centers in China

www.dku.edu.cn

The cost of overseas study is prohibitive for many students, so foreign education providers are coming to China

Source: “British Universities in China: The Reality Beyond the Rhetoric”, Agora Discussion Paper, 2008




27

Overview

Online education currently < 10% of the market

28 Source: ChinaEDU fiscal year ended 31 Dec 2012 SEC Form 20-F, *leading civil service exam training provider

Online degrees and distance learning are still rare for universities in China

•  Only 67 universities of the more

than 2,000+ in China have accreditation from MOE to offer online degrees

•  Online degree students must often still take courses and tests in remote learning centers affiliated with the university

•  Diplomas mark students as graduates of the online branch of their university

Renmin University online bachelor degree diploma

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Xueda NYSE: XUE •  Private personalized tutoring services to primary and

secondary school students in China, subjects covered including Math, English, Chinese, Sciences, serves 138,000 students

•  2011 saw huge push to establish online English teaching presence, cited as main factor driving Q4 2011 losses of $9.9MM

•  H1 2012 fired 200 employees in online department, including 1 Chairman, 1 CIO, and 1 Vice-Chairman, eventually shut down the new online/tech departments

Noah Education NYSE: NED •  Privately owned kindergartens and primary schools,

English training for children ages 3-12 •  2007: #1 in sales of digital learning devices in China •  April 2011: Sold off electronic learning products at 100MM

RMB due to several years of deficits, popularity of smart phones and tablets cited as reason

Traditional players struggle in online

Source: iMeigu, iChinaStock, Financial Times, NY Times Dealbook,,*leading civil service exam training provider

Offline education companies adapting poorly to online education, online provides only a fraction of income for most major offline players

0% 3% 10% 10%

80%

% revenue from online services for China’s largest private education companies

Online Offline

Online education: innovator’s dilemma

30

New Oriental’s Koolearn.com NYSE: EDU ü Founded 2002 ü Recorded online lecture content with little

added functionality ü Provides students with choice of teacher and

comfort of studying from home ü 2,000 courses offered, no price difference with

offline courses ü 7.8mm registered students and 245k paying

students ü Courses purchased with pre-paid cards or sold

through online platforms like Hujiang.com ü Contributes <10% of New Oriental’s

revenues, has yet to leverage full potential of education delivered online

Source: New Oriental SEC Form 20-F Fiscal year ended 31 May 2012




31

Overview

Online players disrupting content distribution

32

Traditional

Online players are revolutionizing the way private education is distributed and delivered in China

•  Case study: ChinaEDU 101 Online School for test prep and tutoring for high school students, which generates $4mm a year and serves 38,600 paying students and 1.7mm registered users

•  60% of revenue is generated through 220 offline distributors who pre-buy subscriptions and resell to parents offline

Emerging

•  Search engines are primary customer acquisition channels, Baidu alone rumored to generate 5 billion RMB per year for educational keyword ad spending, Qihoo, the 2nd biggest search engine in China; released edu.360.cn for education product search

•  Alibaba reports millions of RMB in transactions for educational products, including courses, on C2C platform Taobao and B2C platform Tmall

Source: ChinaEDU fiscal year ended 31 Dec 2012 SEC Form 20-F

33

Online course platforms

MOOC’s •  Guolairen: working with

EDX and Chinese universities to launch own MOOC platform

•  Netease: translated American MOOC courses to draw traffic to their portal

•  Tencent, Sohu, and Sina also offer overseas MOOC’s with Chinese subtitles, but none are monetizing the content

Real-time teaching marketplaces: •  YY (NASDAQ: YY) most popular online learning

market-place in China for real-time lectures, YY does not take commission, supports ~10,000 teachers with some earning 1mm+ RMB in course fees per month

•  Real-time platforms have slight advantage, as the educational value of live teachers is perceived more highly by consumers

•  Chuanke - $10mm investment from Baidu, online marketplace for teachers to connect with students and deliver lectures online;

•  Duobei - $3mm investment from Xuersi, online platform and information infrastructure for teachers/instituations to create online courses

•  Xsteach.com, 15mm RMB investment from YY.com for one of their most popular course channels, teacher Xing ShuaI offers basic IT and skills training, student primarily from Tier 2 cities targeting income of 3,000-5,000RMB/month after 2-3 months of study, generated 30mm RMB revenue in 2012, projected 100mmRMB revenue for 2013

B2C and C2C platforms are reducing barriers to customer acquisition for sales of online courses, may hurt business of offline schools as individual teachers are empowered to monetize content directly from students, MOOC platforms not making money…yet

E-commerce platforms •  Taobao reported $32mm

USD in educational content transactions on singles day alone in 2012

•  Recently announced new vertical market “Taobao Classmates” for organizations or individual teachers to publish content, potential to become the “Udemy” of China

•  Tmall offers B2C platform for content providers like Hujiang, New Oriental, and other schools

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Leap-frogging to SaaS

Key Challenges •  Breaking into the public school

system requires creative marketing and government partnerships

•  Schools are sometimes restricted by law from purchasing services from third party private companies

•  Hard to identify purchasing decision maker in schools

New Services •  iClass – classroom management tool for

teachers; invested by Gobi •  Zxxk – exam creation tool for teachers;

acquired by Fenghuang Media •  17zuoye – homework management platform,

starting with English, presence in thousands of public schools and 2mm+ students signed up; invested by ZhenFund and Shunwei

•  Gikoo – Mobile platform and content development tools for employee training, 1000 person team and offices throughout China, investors include CBC Capital

With little adoption of traditional systems like Blackboard in China, schools and corporates are rapidly adopting online tools for learning management

Apps and games: popular but hard to monetize

35 Source: PEDaily.cn “Yuantiku completes its US7$mm Series B Financing”, finance.yahoo.com “Taomee reports unaudited first quarter”

•  Netease (Youdao) •  Released 2009 •  Total users from web/

mobile dictionary hits 200mm, with 2.5% monthly active users

•  Poor monetization, some revenue from advertisements

Unless part of a larger online education ecosystem, even the most popular apps and games have had difficulty monetizing

•  Taomee (TAOM) once leading kids gaming platform for ages 6-12

•  Paying accounts down from 1.9mm in Q1 2012 to 1.5mm in Q1 2013

•  ARPU and conversion to paying users relatively low compared to adult market (RMB 33)

•  Children tend to use games for short periods of time before moving on to the next thing, parents perceive games negatively

•  Educational game developer Babybus (Series A led by Shunwei) and vocabulary app for kids Wukongshizi claim profitability, but long-term potential still unclear

•  Yuantiku.com- mobile test prep apps for popular vocations, including civil service, accountancy, judicial, and construction examinations

•  Preparing to release app for Gaokao exam

•  Launched March 2013, founded by former 163.com President Li Yong

•  400k registered users •  Not yet profitable •  Series A led by IDG ($3mm), Series

B led by Matrix China ($7mm)

36

Conclusions •  China’s education market is hugely fragmented, leaving room for growth and new

entrants •  After-school training schools will need to innovate around teacher supply and quality to

scale their business •  English training will continue to present huge opportunities, businesses with foreign

English teachers or who can offer low-cost English online have an advantage •  Private schools, particularly those offering foreign education in China, is a rapidly growing

segment •  Traditional players have not been successful in online education, leaving room for new

models and entrants •  Online platforms and marketplaces are democratizing access to customers, individual

teachers and content providers can now gain access to huge markets without offline sales resources

•  Chinese customers are more and more receptive to paying for online education •  Public schools face regulatory barriers in paying for third party services, so services

platforms and LMS’s need to seek innovative monetization strategies •  Apps and games are hard to monetize unless they are part of a larger educational

services ecosystem

APPENDIX More fun facts

37

38

About ZhenFund

•  One of China’s leading angel funds •  ZhenFund believes in one principle above

all others: Integrity •  Founded by Xu Xiaoping in 2006 •  Recent fund a collaboration with Sequoia

Capital China •  Fund size: US $30MM fund (RMB/USD) •  Investment size: Up to $500k USD •  Over 100 angel investments in China, over

20 in the education sector •  www.zhenfund.com for more •  Contact: [email protected]

38

39

ZhenFund Education Portfolio

www.bestlearning.cn

www.towords.com

www.smartots.com

www.laureateei.com

www.suxuewang.com

www.51talk.com

www.rybbaby.com

www.guolairen.com

www.shufaedu.com

pxzx.nwpwq.com

www.51mengdong.com

www.artrainbow.cn

www.veriapp.org

www.17zuoye.com

www.51zhichang.com

www.sinocampus.cn

www.swivl.com

www.lafafa.cn

www.51mengdong.com

www.suxuewang.com

www.dijiuke.com

www.wangxiaowang.com

www.shicha.com

40

Venture backed online education startups in China by industry

Source: IT桔子“在线教育2013年创业投资盘点” Aug 2013 (ITJuzi.com Startup Database)

39%

9% 4%

25%

6%

6% 4%

7%

Kindergarten/ECE

K12

Higher education/entrance exams

Language

Overseas Study

IT Vocational

Interest/Hobby

•  The online education market is still young. For the funded companies represented in the IT Juzi startup database as of Aug 30, 2013, 52% had only been funded at the angel stage (representing 60 companies), only 13% were Series B or later stage deals.

•  Active investors for online education in 2013 include:

–  VC’s: DCM, Shunwei Capital, Weitoulu, Gobi, ZhenFund, Qualcomm, Matrix, IDG, Bertalsmann

–  Corporates: Xueresi, Baidu, Netease

41

Key Educational Services/Products Age Group Early/growth Mature-‐Public

Content Distribution Tool Content Distribution Tool PreK-K 趣儿网、棒棒糖、小

蜜蜂、玫瑰窗、好幼儿园、六一儿童、有伴网、工程师爸爸、娃娃路、乐豚、铁皮人、网趣宝贝、亲宝网、61宝宝、AppleTreeBook、嘟豆、斑马骑士、儿童音像馆、童说童画、酷米、Magikid、有乐网、MobEdu、易轩昂、帝恩学校、宝宝巴士、Elite Kids, Best Learning*

早教趣、优教成长、天下宝贝、拼学帮、微童星、SmarTots、61bus、61时光、长趣网、爱宝宝、袋鼠妈妈

阿爸阿妈、微宝贝、水滴宝宝、辣妈育儿、童星广场、育智科技、成都乐知、稚汇网、FunPark、宝宝识名犬、启望乐园、妈妈晒、牛贝贝、熊猫乐园、快乐尼莫、61UP、动动脑、拉比盒子、昂途科技、童乐汇、掌上育儿、i知子、互动宝宝、爱花朵、Roam & Wander、幼儿云、BrainLink、脑工场

上海童石、童年网、蜂蜂网、丫丫网、宝宝邦、Q妈咪, Ruisi*, Babycare*. PopEnglish*, Alo7* JinBaobei* RYB Kindergarten* Aileguoji*

宝宝树、贝瓦网、双肩背、爱早教、洪恩龙宝

Kidsland、广州百田、悟空识字、八方视界、天一讯灵

Grades 1-12 高考无忧、学通在线、九叶网、三及第、360择校、MEET、趣学网、奥塔网、沙漠教育、超级课堂、比邻、丁博士、一起作业, Rainbow School of Art*, Best Learning*

淘师网、365好老师、海角教育、家教快举手、悦学科技、优倍100、乐而思、天天上课、花朵网、爱辅导、奥塔网、满分网、360老师、三人行、择师网、微课网、壹加学吧、常青藤、城际课堂、榴莲网、家教114、金老师

蓝卓教育、对对塔、作业帮帮圈、家校互联网、善科、求解答、萨卡魔方、乐知行、爱班网、爱考拉、乐辅通、学而习之、英和文化、成长网

雪地、学乐中国, Xueersi*, Jingrui*, Longwen*, Gaosi*. Ambow*

好课网、好课程、搜课、简单学习、德智教育、题谷

习网、思昂教育

College/Certification exam

上学吧、零距校园、麦都、波普城、赶考网、蔚秀报告厅

开课网、大艺在线、能力天空、金考网、玩课网、猿题库

我要当学霸、悠悠校园

帮考教育、万学教育、高学网, New Oriental*, Ambow*, China Distance*

591UP、91UP、好学教育、

* Represents physical school brand offering offline services, all others online/digital businesses unless noted

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Content Distribution Tool Content Distribution Tool Language

ABCmouse、英语窝、DaDaABC、英华兰、爱语吧、学睿外教、募格英语、InnoBuddy、Voicetube、八迪

91外教网、海绵外语网、大嘴外教、人人说、我的外教网、顺溜网、ChinesePlaza、OpenLanguage、OK口语、Smart口语、口语100、酷伴、在聊网、时差网、MogoEdit、开口学、极智批改、乐知英语、Viki英语外教、whyyu、51Talk、速学网、Seendio

森先生背单词、优明英语、iKnow英语、欧路、背单词、英来网、魔方英语、能飞背单词、ChinesePod、我读啦、五分钟英语、课堂外词场、拓词、SpeakingMax、易呗、朗易、菲林音话、奇思、扇贝网、单词之美、英语口语控、爱卡微口语、百词斩、囧记单词、英语口语精华、滔滔英语、别忘单词、云词、英语流利说

巴别鱼、说宝堂, New Oriental*

好外教、说客英语、安格英语、新学堂、VIPABC、TutorGroup、沪江网、线话英语

词库、朗播

Overseas Study

CosMenu、SMART留学、FindingSchool、好达人、WishBird

决胜网、SatOnLine、留学点评、我是留学党、友邻教育、游学网、考GMAT、优录网、云飞跃、芥末留学网、ChaseFuture、好乐智, Sinocampus*

西游计、留学专搜、盈禾优仕、时代焦点

尚友留留学、壹壹网, 　

IT Training/Vocational

PPV课、蓝铅笔、软酷网、清源教育、宁皓网、我赢职场、飞盒教育、课程派, 51Zhichang, xsteach.com

ilove学习、麦可网、选学网、邢帅网络学院、开课吧、学云网、优才

SoftCompass、泡面吧北风网　


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Content Distribution Tool Content Distribution Tool Interest/Hobby/Skill

吉他世界网、花艺在线、几分钟、ISPIANO

音乐堂、师徒网、油菜花、第九课堂、艺术巴士

icanmusic 帮我学纪明德教

Other

星宝教育、知知、勤学网、好知网、同问、益趣课堂、粉笔网、喜知网、视频课堂

教学邦、骑士互动、面对面、72人拜师、91成才、Peixunnet、5课网、微社网、学都、淘教中国、过来人教育、悠课、网校网、传课网、多贝网、皆学问、学活儿、1号教室

魅课网、此时此课、必听网、268教育、爱海豚、速学、快课、友学、掌中宽途、云腾教育、若云兄弟、至善在线教育、唧唧堂、墨齐科技、义方教育、捷库动力、佰分云

AiSchool 博乐网、嗨学优阅、云学堂


Key sales/ad channels for education

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Language learning sites

ü High traffic site, most expensive ad space ü Completely focused on IELTS prep

ü Kingsoft Product ü High traffic, but few ads, expensive to buy space

Search Engines

E-commerce platforms

Social

Mobile

ü Netease Youdao ü 200mm users

ü Large reach amongst middle and high school students in China

•  Founded in 2003 by two Beida grad students Bangxin Zhang and Alan Cao •  15-35 student tutoring classes, private tutoring “Zhikang” brand, online

tutoring courses (www.eduu.com) •  Mathematics, English, Chinese, physics, chemistry, biology, history, political

science and geography as well as preschool classes •  255 learning centers and 237 service centers in 15 cities throughout China •  77% of revenue derived from Beijing and Shanghai customers •  816,110 enrolled students fiscal year ending Feb 2013, CAGR 29.5% •  Tutoring classes last 2-3 hours at 40-80RMB/hour, private tutoring

100-250RMB/40 minutes, online classes 15-50RMB/50 minutes •  Call centers in 6 cities, 170 operators to receive inquiries and drive sales •  80 FT writers and 200 FT teachers develop content in house based on public

education system and national exams •  2,787 FT teachers •  12.2% of revenues go to sales and marketing

45

Profile: TAL Education (NYSE: XRS)

Source: TAL Education SEC Form 20-F Fiscal year ended 28 Feb 2013

Xueersi’s online strategy

46

Draw traffic with 11 content sites covering the most popular G1-12

subjects in China (similar to MegaStudy in South Korea)

Engage parents on online forum

Convert traffic to sales for online K12 tutoring

courses, which are 30-50% cheaper than

their normal group classes and up to 90%

cheaper than their private tutoring courses


Despite offering some of the most popular online content and parent forums for K12 in China, Xueersi still derives only 3% of annual revenue ($6.78mm) from their online schools

Website Domain Name Topic •  www.eduu.com Main webpage which has links to the websites listed

below •  www.xueersi.com Online courses •  www.gaokao.com College entrance examinations •  www.zhongkao.com High school entrance examinations •  www.jiajiaoban.com Personalized premium services •  www.aoshu.com Mathematics for primary and middle schools; specialized

training for competition mathematics •  www.yingyu.com English language •  www.zuowen.com Chinese composition •  www.youjiao.com Preschool and kindergarten education •  www.liuxue.com Study abroad •  www.speiyou.com Small-class training •  www.mobby.cn Preschool training under Mobby brand •  www.yuer.com Raising infants and toddlers

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TAL Education Online Properties


•  Founded in 1993 by three Beida classmates, Yu Minhong, Wang Qiang, and Xu Xiaoping •  2.4mm student enrollments fiscal year ended May 2012 (50% English language and 50% test

prep), CAGR 41% •  Known for a one to many lecture style where teachers lecture to 50-500 students at a time •  Largest provider of private educational services in China based on the number of program

offerings, total student enrollments and geographic presence •  Services: English and other foreign language training, test preparation courses for admissions

and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education

•  Margins decreasing due to decreasing class sizes •  45.4% total net revenues from operations in Beijing, Shanghai, Wuhan and Guangzhou •  Language and test prep represent 86% of revenue •  55 schools, 609 learning centers and 32 bookstores operated by us, over 5,000 third-party

bookstores and approximately 17,600 teachers in 49 cities as of May 31, 2012 •  360 FT staff involved in curriculum development •  English training: 214k adult students, 305k middle and high school students, and 620k children

English students (100-3,5000RMB/course) •  Test prep course students: 340k overseas test prep, 414k PRC test prep, 352k gaokao test prep

(150-25,000RMB/course)

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Profile: New Oriental (NYSE: EDU)

Source: New Oriental SEC Form 20-F Fiscal year ended 31 May 2012

•  Founded 1999 •  400,000 students and $63 million in income (~80% of revenue) for online

programs in 2012 •  27 partnerships with public universities to offer online degree programs,

30-50% tuition share •  Services include content creation, LMS, marketing, student recruitment (via

122 offline centers), and student retention/support •  Top 5 universities account for 50% of revenue

49

Profile: ChinaEDU (NYSE: CEDU)

Source: ChinaEDU fiscal year ended 31 Dec 2012 SEC Form 20-F

•  Founded March 2001 by Zhengdong Zhu, local engineering graduate, all work experience in China

•  2.2mm enrolled students for online education programs in 2012 •  Core business is professional education and test prep for accounting,

healthcare, and construction •  Online programs represent 77% of 2012 revenues (~$40mm ) •  642 lecturers who create online content •  Selling and marketing represents 22% of revenue •  Rely on a combination of regional and online sales agents, referrals and

cross-selling to acquire students

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Profile: China Distance (NYSE: DL)

Source: China Distance Learning Fiscal year ended 30 Sept 2012 SEC Form 20-F,

•  Largest computer-based testing services provider in China •  Primarily for corporate training and professional certificate test taking •  As of March 31, 2013, ATA's test center network comprised 2,804 authorized

test centers located throughout China, testing takes place on computers but students must physically go to a test center

•  366mm in revenues fiscal year 2013 ($59USD), test taking services accounts for 91% of their revenue

•  Delivered and provided technological and operational support for more than 400 test titles sponsored by government ministries, industry associations, enterprises and public institutions.

•  Assisted clients establish 15,000 client-owned test centers installed with ATA technologies

•  Can accommodate more than a million candidates being tested concurrently

51

Profile: ATA (NASDAQ: ATAI)

Source: ATA fiscal year ended 31 Mar 2013 SEC Form 20-F,

•  Founded in 2001 by Xin Jin and Rubin Li (both undergrad degrees from Beijing local universities)

•  383 learning centers serving 138,000 students, presence in 73 cities •  Provides private personalized tutoring services to primary and secondary school

students in China, subjects covered include Math, English, Chinese, Sciences, and others

•  $293mm USD in revenue in 2012, CAGR of 37.9% •  12% of 2012 net revenues were generated in Beijing, with Xi’an, Shanghai,

Guangzhou, Nanjing, and Tianjing contributing 31% •  Average hourly course fee is $28, gross margin of 25% •  Performance-driven salary structure for teachers, focus on maintaining teacher

quality •  Teacher attrition rate currently at 24.8%, 13,000 full time instructors/

counselors

52

Profile: Xueda (NYSE: XUE)

Source: Xueda Fiscal year ended 31 Dec 2012 SEC Form 20-F,

53

Xueda tutoring services

Source: Xueda Fiscal year ended 31 Dec 2012 SEC Form 20-F,

•  Operates private kindergartens, primary and secondary schools in China, also offers supplemental English language training for children aged 2-18

•  Originally developed and marketed interactive learning tools designed to supplement existing Chinese textbooks, and was involved in electronic learning products. These segments have now been largely discontinued or sold off to focus on direct education services, which Noah believes provides more opportunity and higher margins

•  Brands include: Noah诺亚舟, Wentai Education 文泰教育, Little New Star, Yuanbo Education 渊博教育

–  Acquired 100% of Little New Star in 2009, 70% of Wentai in 2010, and 80% of Yuanbo in 2012

–  Little New Star provides English training in over 500 learning centers in China, Wentai and Yuanbo operate private kindergartens, primary and secondary schools

•  Went public in 2007 •  Revenue $25.7M USD in 2012, Wentai and kindergarten segment account for the largest

portion of revenues •  Their overall network as of June 30, 2012 consists of 34 kindergartens with over 9100

students and 1100 teachers and faculty

54

Profile: Noah (NYSE: NED)

Source: Noah Fiscal year ended 30 Jun 2012 SEC Form 20-F, http://ir.noaheducation.com

•  Founded 2000 by overseas returnee Jin Huang, spent 10 years in Silicon Valley, Berkeley Computer Science PhD

•  K12 tutoring centers, several K12 schools, career enhancement centers, 2 private colleges

•  As of December 31, 2011, the company operated 150 tutoring centers and 5 K-12 schools; and 25 career enhancement centers, 2 career enhancement campuses, and 1 college

•  Revenues of $265M for fiscal year 2011, almost 1 million enrolled students over the course of FY2011

•  Went public in 2010 (NYSE:AMBO), lost 90% of its market cap before being delisted in March 2013.

•  Did not file 20-F for fiscal year 2012, unknown how the company is faring since then.

55

Profile: Ambow (NYSE: AMBO)

Source: Ambow Fiscal year ended 31 Dec 2011 SEC Form 20-F, www.sec.gov