Big Class VS One-to-One: Contradiction Between Experience and Cost Control
The most effective way to reduce teaching costs is to increase the number of students in the class. That is to say, a teacher has to teach more students. Thus the teacher productivity is improved, however, this makes it hard to ensure teaching results and leads to low renewal rate.
In comparison, one-to-one model delivers better teaching results, but has a high marginal cost, not conductive to scale development. This is against the inherent demand of the online business models for scale development. and with a high per customer transaction, one-to-one courses have fewer users, leading to a higher customer acquisition cost.
Now, the offline one-to-one model and big class model are all well developed. The online class tutoring has some scale effect, while the scale development and profitability of online one-to-one model is to be tested.
Class Tutoring Model Has Obvious Scale Effect and Has a Better Financial Model Than One-to-One
Class tutoring has a higher gross profit rate than the one-to-one model. This is already proved in the offline education. Taking the listed companies for example, the gross profit rate of Xueda Education Group, who focusing on one-to-one model, was 25%-29% during FY2015-FY2017. While that of New Oriental and TAL, was above 50% in the same period. For online education, the gross profit rate of live streaming video classes can be as high as 50%-70%, with a marginal cost much lower than that of one-to-one class and other models. With the decrease in customer acquisition costs, the class tutoring model will have a profit higher than one-to-one model, and be the first to have a scale economy.
For example, Yuanfudao took tools as its main products when it was established and started to provide K12 one-to-one tutoring in 2015. and in 2016, it started to try the B2C online classes, including one-to-one and class tutoring. In 2017 and 2018, K12 class tutoring gradually turned out to be the largest source of revenue for Yuanfudao and generated a revenue over 1.0 billion Yuan in 2018, making Yuanfudao a leader in K12 online education.
Besides Yuanfudao, Genshuixue, listed in the US on June 6th, 2019, ceased to lose and started to make money in 2018 relying on K12 dual-teacher live streaming videos. Genshuixue launched Gaotu100 online line streaming videos in the second half of 2017, focusing on the online live streaming videos of class tutoring. The number of registered users of its paid courses increased from 65,000 in 2017 to 552,300 in 2018. The revenue and the net profit was about 400 million Yuan and 19.65 million Yuan, an increase of 307.16% and 122.6% respectively in 2018。
To make profit in 2020 and to be listed in 2021, VIPKID needs to find new growth points besides the one-to-one business, and class tutoring may be the only opportunity.
Breakthroughs in One-to-One Model May Be AI+ Live Streaming
Currently, the online one-to-one model is mainly constrained by the profit margin squeezed by the high teacher costs and the target users limited by the high per customer transaction. The key is how to ensure the tutoring experience under the one-to-one model while reducing the costs of the courses. and AI may play a crucial role to achieve this goal.
In the exploration of live streaming videos + AI, the enterprises adopt two approaches. The first approach centers on the human teachers and is supplemented by AI. The human teaches are for the core tutoring process, and AI help the human teachers match students, push courseware before the class, recognize the emotions during the classes and correct homework after class. The direct cost of this approach is teacher pay, therefore, the selling price is very high. The other approach centers on AI teachers (virtual teachers) supplemented by human teachers. The role of the two types of teachers changed. Besides the high R&D costs at the early stage, the cost of each class can be ignored. The selling price of each class can be as low as dozens of Yuan.
Now the top institutions in each major online live streaming video sectors are exploring the first approach. For example, VIPKID, Zhangmen, Squirrel AI one-to-one, etc., In the short term, it is possible to launch one-to-one model. We will pay close attention to the performance of related products on the market.
The startup brands tend to adopt the second approach, such as Toutiao’s aiKID, DDKT365. The AI technology is not mature enough for wide application, so it is unlikely to see large-scale commercial application. However, in the long run, the approach may change the education industry substantially in the future.
More details can be seen in 2019 K12 Online Education Investment Report