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Internet Transforms Chinese Education Industry

Transformation is a familiar theme in education. In recent years, developments in various market segments that have illustrated large-scale changes include Massive Open Online Courses (MOOCs), Kindergarten through 12th Grade (K12), online education, online language training, and online vocational education.

Major players in the Internet education industry see room for more growth. Content providers deliver educational materials that meet the requirements of specific market segments. Platform providers are transforming to digitally driven enterprises that yield profits through Big Data analytics to attract users and achieve increases in their user base. And technology providers may have the greatest opportunity for market breakthroughs and business expansion due to new technologies, such as wearable devices, artificial intelligence, and the Internet of Things (IoT). These technologies will continue to change the education industry dramatically and attract institutional investors and entrepreneurs seeking opportunities in new industries.

Various market segments of the education industry must actively explore and develop models that suit their goals. Each segment has the following opportunities available to them.

Preschool Education

Preschool Apps are thriving, and software subscription models are readily adopted in this market. Preschool educational products should be fun, easy to use, and interactive. Most importantly, the products should systematically match the preschool curriculum.

Due to concerns for the safety of preschool children, smart watches and smart bands with security functions are expected to be highly popular — and some Internet education companies have already entered this field.

K12 Education

Many institutions are attracted by the huge potential market scale of K12 education, though some are only succeeding temporarily. A consensus has been reached on the critical role of online-offline content integration. Institutions that produce online courses and products and take advantage of Online-to-Offline (O2O) models will have more opportunities.

The content of K12 educational products falls into two categories. First are exams, exercises, and assignments that meet public education requirements. The second category offers preschoolers additional curriculum materials whose content can be taught both online through mobile terminals as well as offline.

Driven by favorable policies on educational ICT construction, the state-run K12 education system has achieved remarkable results in the deployment of Internet education infrastructures. However, Internet-based reform still has a long way to go. Current circumstances indicate that providers will succeed in providing comprehensive solutions if they enter the education system through technical services.

Higher Education

In the post-secondary market segment, ICT infrastructures are relatively mature. Governments and universities have formulated clear policies that encourage open learning systems. Rapid developments of MOOCs platforms are accelerating the penetration of the Internet into the higher education system. Technology and solution providers with distinctive advantages in creating digital course content are most likely to own future market share.

Policies on college entrance exams are affecting higher education markets, such as recent changes to China’s college entrance exams that require more provinces to use unified national exams and allow students to take exams on certain subjects multiple times within a year. These changes offer great opportunities to online and offline training institutions. Unified national exams support Internet-based training because training products can be standardized rather than tailored for different regions, and the repeat-exam policy enables institutions to set more nodes in their training processes.

International Education

International education is extending to more and more students — even younger ones. Customization is a growing trend in this market, with some institutions delivering value-added benefits such as free services on the Internet to attract attention and increase page views. Institutions that provide diversified services, customized requirements, or deliver one-stop services to other areas of the industry chain will seize more opportunities.

Language and Vocational Training

Intense personnel recruitment and career competition have created a surge in language training and vocational education market segments. Institutions with positive brand images and expertise in particular fields are enjoying the competitive advantages that come with meeting the students’ functional requirements for improved results in the form of exam performance and marketable skills.

Interest Cultivation

Cultivating interest involves a wide range of services. Diversified institutions are competing in this market segment, but not a single one has gained prominent advantages. To overcome this concern, Business-to-Consumer (B2C) Internet institutions should promote their service integration with offline training institutions, and Consumer-to-Consumer (C2C) platforms should enhance user participation through better community outreach to improve user loyalty and encourage enrollment.

Financing

Another sign of opportunity is the development of multi-layer financing channels. Financial and strategic investors in the Chinese market favor enterprises in the Internet education industry. Currently, startups in many market segments are the top investment targets, including language and vocational training and K12 education. Additionally, China’s new Over-The-Counter (OTC) market, which allows Small- and Medium-sized Enterprises (SMEs) to raise funds, provides a pre-IPO platform for educational institutions, allowing them to develop financing and management capabilities. Moreover, the simplified listing procedures in China’s A-share market and reforms in the IPO registration system are facilitating the listing of educational institutions. This facilitation provides primary market investors with easier exit channels and has led to the current boom in educational investments. Finally, in recent years there has been a growing recognition in the U.S. of the stock markets in China and Chinese Hong Kong that are helping China’s educational institutions find rich financing sources. As Internet education becomes increasingly global, there may be additional links between China’s A-shares and the stock markets in the U.S.

By Wang Lei/Zhou Yi

Consulting Director/Senior Consultant, Ernst & Young