This article aims to help you understand the current situation of the K12 online education industry, analyze Yuanfudao from multiple aspects, and record some of my own thoughts.

1. Market Analysis

1.1 Market size

In recent years, the online education industry has experienced explosive growth and has a clear growth trend.

According to a chart from Essence Securities Research Center, the number of online education users in China exceeds 400 million, accounting for more than 40% of all Internet users and is still on an upward trend.

Through the PEST analysis model, we can explore the factors that may have contributed to the rapid development of the online education market:

P Political level:

• The country has gradually improved relevant laws and regulations for off-campus training institutions and raised the entry threshold for offline off-campus tutoring institutions.
• The second draft of the revised Law on the Protection of Minors proposes that schools shall not use rest days for collective make-up classes; two ministries shall standardize and unify the extracurricular training service contracts for primary and secondary schools.

E Economic level:

• The national residents' income and consumption expenditure continue to grow, and spending on education and entertainment is gradually increasing.
• From the perspective of price, courses offered by offline training institutions can easily cost thousands or tens of thousands of yuan. Compared with the high cost of offline education and the time cost of picking up and dropping off children, online education appears to be cheaper and more accessible.

S Social level:

• Promoted by the outbreak of the COVID-19 pandemic: The sudden outbreak of the COVID-19 pandemic has brought the online education industry close to rigid demand, providing huge growth opportunities for leading players and unexpectedly accelerating the revenue growth of online education companies.
• Chinese citizens born in the 1980s and 1990s have gradually become the main group of parents, and most of them are from single-child or two-child families. As parents' education level improves, their attention and investment in their children's education level also increases.

Technical level:

Support from technological progress: Technologies such as live broadcast, real-time online interaction, video compression, transmission and 5G are becoming increasingly mature, which provides guarantees for the quality of online courses, improves user experience and promotes the development of online education.

1.2 Market Segmentation

The scale of the K12 online education market has expanded significantly in recent years.

In its analysis report on the online education industry, iResearch Consulting pointed out that the proportion of K12 online training has increased significantly to 31.4%, second only to the proportion of higher education training.

1.3 Development

1.3.1 Overall development

The online education market is vast.

According to the "China Online Education Market Data Release Report" released by iResearch Consulting, the growth rate of online education duration is stable, and the scale of China's online education market is expected to reach US$400.38 billion this year.

The number of user groups tends to be stable, which poses great challenges to expanding new user markets and retaining old users.

As can be seen from the figure below, the number of user growth has not changed significantly in recent years. Users in first- and second-tier cities may have reached a stable upper limit. How to attract new users and retain old users through high-quality course content and services may be the key to the development of the platform.

At the same time, the current K12 online education market situation has become relatively stable, with many leading companies competing for market resources, but in fact they have not exceeded the influence of the original market. Based on the personal growth path, the feasibility of online education for other age groups can be evaluated, such as preschool education, interest, specialty and quality education, higher education, vocational education, etc., to expand the market and at the same time explore the potential value of the platform's loyal users.

Online education still has a large market demand in the sinking market, but there is still great instability.

According to the charts and data provided by the iMedia Data Center, compared with first- and second-tier cities, there is still a large demand for online education in the sinking market, and this type of users are highly sensitive to prices. Their overall ability and willingness to pay are still somewhat different from those in first- and second-tier cities. Although the online education market in lower-tier cities is in its early stages of development and has great potential, there is still a lot of uncertainty.

The main roles in the K12 education industry include students, parents, teachers (subject teachers, tutors/class teachers), institutions/platforms, teaching and research personnel, behind-the-scenes staff, textbook and auxiliary material compilers and manufacturers. Teachers, platforms and related staff are at the upstream of the industry.

The above roles are in the production, intermediate links, and classes of online education courses. Among them, courses, as a content body, run through it all, and the development of the entire education platform is also determined by the quality and service of the educational resources (courses) that can be provided.

1.3.2 Future changes and opportunities

First of all, in developed countries in Europe and the United States, due to differences in the education systems, K12 online education that is more exam-oriented is not common, and most of the tutoring is done in offline forms such as private teachers.

In regions like Japan and South Korea, although the culture of cram schools is well developed, the development of online education is relatively slow, and there is not much foresight in the development path of China's K12 online education market.

However, with the popularization of mobile Internet, the country's recent support policies, and the stimulus of the recent new coronavirus epidemic, China's online education industry is changing in an increasingly better direction.

1.3.3 Players’ responses to changing opportunities

Mobile Internet connects teachers and students, overcomes geographical limitations and uneven distribution of educational resources, promotes the dissemination of knowledge, but also reduces the opportunities for the existence of intermediate links. Therefore, the onlineization of education may cause changes in the profit distribution mechanism of the education industry.

Since the costs of offline teaching venues, offline staff, etc. are saved, from the teachers' perspective, the platform can distribute more profits to teachers in order to stabilize excellent teaching staff and build a brand for the teaching team. With excellent teachers and attractive treatment, more outstanding teachers will flow to online education platforms.

From the perspective of students and parents, the improvement of teaching staff and teaching quality will attract more students and parents to sign up, and the number of course registrations will increase. And for students and parents, online courses are more cost-effective, both in terms of fee and time cost. The more students there are in each class, the lower the average course cost will be, which will increase both teacher salaries and platform revenues.

From the platform's perspective, more profits can be allocated to promotion and marketing, reaching more users in need and seizing market share.

Through the above virtuous cycle, online education can form a non-zero-sum market where students, teachers and platforms benefit from each other, which is conducive to the growth and development of the platform.

At the same time, due to the characteristics of mobile Internet, the platform can create a learning product matrix through tool products, build an online education ecological environment, help students solve the difficulties encountered in learning, while increasing migration costs and increasing users' dependence and stickiness on the platform.

2. Product Overview

2.1 Product Introduction

Yuanfudao is a B2C online education product for the K12 stage. It is an online education brand chosen by more than 400 million users nationwide. It is the first unicorn company in the domestic K12 online education field and is currently valued at US$7.8 billion.

The company owns a number of online education products including Yuanfudao, Yuantiku, Xiaoyuansouti, Xiaoyuankousuan, and Zebra AI Class, providing users with diversified intelligent education services such as online classes, smart exercises, and problem analysis, helping students complete the learning loop systematically and efficiently.

The product logo uses an orange window “Window of the World” as its visual symbol, expressing that Yuanfudao online education is far more than just a video window, but another window to the world for children. In Chinese history and culture, the cartoon monkey pattern in the logo and the “猿” in the product name represent intelligence, fun and humor. This gives vitality to Yuanfudao's brand.

2.2 Product Market Share

As of March 2020, Yuanfudao’s online courses for primary and secondary schools had more than 1 million long-term full-priced students, and more than 500,000 long-term full-priced students for online courses for children aged 2-8 (Zebra AI courses), and the cumulative number of users of its learning tool products exceeded 400 million.

Among online education apps, homework and word products still top the list in terms of the number of independent devices. From the perspective of user growth rate, apps such as Yuanfudao, Renrentong Space, and Xueersi Online School have seen a significant growth rate of more than 150%.

2.3 Product Data Analysis

2.3.1 Application Ranking

According to the APP application rankings obtained from Qimai data statistics, Yuanfudao ranked steadily in the top 20 in the education APP ranking from June 15, 2020 to July 14, 2020, and within one month, it rose from 20th to 4th.

2.3.2 Downloads

As can be seen from the figure below, in the past month, the number of downloads of Yuanfudao IOS was about 12,879, showing an overall upward trend, which is close to the number of downloads of Xueersi Online School and slightly higher than other similar apps (data source: Qimai Data).

2.3.3 Rating reviews

Rating analysis:

According to Qimai data as of July 14, 2020, all versions of Yuanfudao scored 4.8 points, with 76,758 ratings, of which 89% were 5-star reviews.

By comparing with similar competing products, it can be seen that the ratings of similar products are very similar, which indirectly shows that the content quality of online education products is relatively homogeneous and there is not much difference for users.

Comment Analysis:

It can be seen from the comments that the product basically meets the needs of users, there are many positive feedbacks on the teaching quality and results, and the user response is good. The problems reflected by the poor reviews are mainly related to offline course promotion and after-sales issues, which may reflect the need to strengthen the management of teachers and pre-sales and after-sales processes.

2.4 Product Development History

2.4.1 Financing History

According to the statistics of Yuanfudao's previous financing situations compiled by CITIC Securities Research Department, Yuanfudao has raised funds eight times from Round A to Round G in the eight years since its establishment, with a steady pace and basically at the time when it was preparing to develop new businesses or new markets. After completing its G round of financing in March 2020, its valuation reached 7.8 billion yuan.

2.4.2 Business Development

Yuanfudao uses question-searching tools as an entry point, targeting the pain points of solving difficult homework problems for primary and secondary school students, penetrating into the market, and reaching direct potential users of K12 online education. Then, we accumulated a large number of users through online tool products such as online question banks, online grading tools, online Q&A, and finally joined the online education industry ecosystem of online courses.

After entering the online education industry, Yuanfudao has expanded its apps to include Zebra AI Class and Yuan Programming. It is speculated that it may expand online courses or tools for children's interests, skill enlightenment and training in the future.

2.5 Target Users

Yuanfudao focuses on the K12 stage from elementary school to high school, and the main participants in this stage are: parents, students, teachers, and platforms.

2.5.1 Parents

According to the analysis in the previous article, the majority of parents of K12 students gradually become those born in the 1980s and 1990s.

According to Baidu statistics, among the people searching for the keyword Yuanfudao, the number of people aged between 20 and 29 is basically the same as that of people aged between 30 and 39. Parents at this stage have significantly higher education levels than those born in the 1960s and 1970s, and they pay more attention to their children's education.

However, due to the fierce competition for admission to high-quality high schools and universities and the limited optional resources of offline training institutions, an unbalanced supply and demand relationship has formed between high-quality teachers and the large and scattered student population.

Although the income of Chinese residents has greatly increased, the majority of parents in the K12 stage are still in the development and maturity stages of their careers. Although they have the ability and financial resources to invest in their children's education, they often lack the energy and time to screen the quality of courses and to take their children to extracurricular classes. Therefore, one of the demands of contemporary parents is not just to transfer courses to online platforms, but to transfer the responsibility of managing their children in schools and tutoring classes to online education platforms.

Based on the information available above, parents' needs may include the following aspects:

1. Reasonable planning of curriculum system
2. Strict control of teaching staff
3. Reasonable price
4. Children complete the course on time and with high quality
5. Get first-hand learning information in a timely manner
6. Visible feedback on changes

The characteristics of mobile Internet and the gradually younger age of children may bring about the following changes for parents:

1. There are many online courses of the same type, and the levels vary
2. It is possible to obtain online course information on various platforms more directly, making it easier to compare factors such as quality, price, and discounts.
3. It is easier to get positive and negative feedback on the course
4. Will be more affected by online advertising

2.5.2 Students

At present, the student groups covered by the K12 stage are all those born after 2000.

As the group that spends the longest time in contact with platforms and teachers, the Internet has penetrated deeply into their daily lives. Electronic products such as mobile phones and tablets and the huge amount of content on the Internet, coupled with the fact that the classroom environment is basically held in the comfort of home, can easily distract students. And because they are accustomed to the expression form of images and videos, students have higher requirements for the fun and appeal of the courses.

Between the ages of 6 and 18, students of different ages need different courses and objectives. According to the classification of compulsory education, students covered by K12 education can be divided into the following three categories:

1. Primary school stage: 6 to 12 years old, with less pressure on further education, mainly for cultivating students' interest in learning and basic qualities;
2. Junior high school stage: 12 to 15 years old, the academic pressure increases sharply, and they face the pressure of entering high school from junior high school. The key points of this stage are the transition from primary school to junior high school and systematic learning training for the goal of entering high school;
3. High school stage: 15~18 years old, students' learning initiative has improved, but the pressure of further study is the greatest at this stage, and the future development goals are different, so personalized tutoring is needed according to the students' situation

Based on the above analysis, the common needs of students at each stage can be summarized into the following aspects:

1. Systematic and comprehensive teaching research
2. Lively and interesting course explanations
3. Close to real classroom scenes
4. Accurate grasp of course difficulties
5. Fast and clear communication and answering of questions

The characteristics of mobile Internet in the field of online education may bring about the following changes to students:

1. Time is fragmented, there are many temptations, and classes are usually held at home or in other environments, which makes it easy to be distracted
2. There is a lack of the sense of ritual of offline classes, and the boundaries between classes and breaks are not clear, making it difficult to get into the learning state.
3. Online courses have a strong sense of distance from teachers, making it difficult to immerse yourself in teaching

2.5.3 Teacher

First of all, teachers in public schools are in a poor situation, with heavy workload, low starting salary and slow promotion. Moreover, the teaching model is single and traditional, the teaching effect is difficult to achieve as expected, and teachers lack a sense of accomplishment. Although offline tutoring classes have solved the income problem to a certain extent, in many cases, teachers need to travel back and forth between different institutions in a day, which increases time costs.

Similarly, due to the characteristics of the Internet and online teaching, the changes that may be brought about for teachers are:

1. Higher and more flexible salary system
2. Save time traveling to different institutions to teach
3. Focus on education and teaching to achieve better career development
4. Since classes are no longer taught face to face, it is more difficult to obtain course feedback and monitor students’ class status.
5. The growth environment and geographical background of the students in the same class are more complicated, and the teaching plans in different places are not unified.
6. The overall teaching is more transparent, the cost of communication between parents is lower, and word of mouth spreads quickly. It is necessary to improve the quality of courses and pay more attention to the management of personal brands.

2.5.4 Platform

The powerful connectivity of the Internet connects students, parents and teachers together despite spatial distance. For the intermediary platforms and traditional offline cram schools, the possible changes are:

1. When promoting courses and teacher brands, more Internet marketing methods should be incorporated
2. Get more market demand and after-class feedback, iterate courses better and faster to cater to the market
3. Save the cost of offline teaching and use the profits more in customer acquisition, advertising and marketing and other channels
4. A diversified matrix of learning tools provides comprehensive support for students' learning, while opening up matrix product traffic and developing across multiple platforms

As a K12 online education platform, Yuanfudao is the link that organizes and connects teachers, students and parents. It needs to balance the needs of multiple parties and meet the pain points of different roles while seizing the market of existing students and excellent teachers, opening up new user groups and occupying a larger market share. Therefore, brand building and advertising are also the challenges it currently faces.

3. Core Business Review

The essence of the online education industry is the transaction of courses and services. We can refer to the data indicators commonly used in e-commerce and combine them with the key indicators in online education to think about how Yuanfudao improves its operating conditions in its core business through products and operations.

First, profit = revenue – cost.

The benefits and costs can be simply divided into the following parts. If you want to increase profits, you need to balance revenue and costs as much as possible to achieve maximum profits.

3.1 Number of users

The total number of users determines the base and upper limit of paying target users. No matter how you optimize the course quality and product experience, it is impossible to exceed the total number of users.

Our ideal state is for as many users as possible with real learning needs to choose Yuanfudao. If you want to increase the number of users in this area, you can consider the influencing factors through these two points and make optimizations.

Establish brand image and increase brand exposure.

From the perspective of brand building, Yuanfudao has established a national brand image by cooperating with education-related programs and keeping up with current affairs.

Recently, Yuanfudao's operating activities are as follows:

Improve user reputation:

In terms of user word of mouth, Yuanfudao encourages parents to share their children's learning performance and academic progress. While satisfying parents' desire to share, it also promotes the platform and establishes its reputation. Yuanfudao also encourages new users by offering discounts and rewards.

3.2 Conversion rate/renewal rate

Due to different user attributes, they can be divided into new users and old users based on whether they have registered for Yuanfudao courses.

For new users, only after they actually pay can they become effective customers of the platform and will have a certain degree of stickiness. For old users, the renewal rate after the course ends is the most effective feedback reflecting the user’s satisfaction with the overall course and its results.

The ideal situation is that after users enter the platform, they will pay more for courses. To get closer to the ideal state, Yuanfudao adopts the following methods:

3.2.1 Optimize the overall process from course selection to payment to provide excellent user experience

After entering the platform, when users are selecting courses, they may not be able to find the type of courses they want, or there may be too many choices, leading to user loss. As mentioned in the product analysis above, Yuanfudao has very good control over course classification and product function architecture, and provides a direct search channel for users with clear goals.

3.2.2 Weigh the user's psychological value of the course and the actual price, and formulate a cost-effective pricing strategy

By investigating the current market charging situation of online and offline education, weighing the number of applicants and the profit per customer, we gradually optimize the price system to maximize profits as much as possible.

3.2.3 Reduce user decision-making risks, provide experience and low-cost courses, as well as complete course withdrawal and after-sales protection

For new users, Yuanfudao provides exclusive low-priced courses and other preferential activities for new users to increase their platform participation and enthusiasm. The platform also provides high-quality free trial classes and low-priced classes. Through free trial classes and low-priced classes, students and parents are encouraged to try out the program. After users purchase a course, Yuanfudao supports cancellation before the second class if they are dissatisfied. These activities and mechanisms reduce users' risks in purchasing courses and greatly enhance their willingness to consume.

3.2.4 Ensure course quality and suitability for students

Yuanfudao has a strict teacher access mechanism, strictly controls teachers' teaching experience and educational background, and has strong teaching staff. Most of them are from famous domestic and foreign universities, or are well-known in the industry. The course provides complete teaching auxiliary materials to improve the quality of the course from all aspects.

In addition, in order to help students and parents choose appropriate courses, Yuanfudao sets registration thresholds for courses that are more difficult and have basic requirements on students' qualities through pre-registration testing, reducing the possibility of students falling behind in the course progress.

3.3 Cost

In terms of teaching costs, excluding teaching materials, the teaching costs of a single course are relatively fixed, so the closer the number of applicants is to the upper limit, the lower the average cost, and thus the higher the profit.

When Yuanfudao provides students with optional courses, it only offers one option for subjects with the same grade, subject and student level, except for the time period. This can increase the number of applicants for a single course, keep it as close to the quota as possible, reduce costs and increase profits.

4. Product Analysis

4.1 Functional structure analysis

The main users of Yuanfudao APP are students and parents.

According to the position of user needs in the business process, the usage scenarios can be divided into two stages: before purchasing the course and after purchasing the course.

The following is a table of the corresponding user needs and product functions.

Yuanfudao’s main users are students and parents, so the APP needs to match the cognitive models established by the two roles with the product system model as much as possible, so that users can accept it more quickly and prevent users from leaving due to poor experience.

The figure below summarizes the functional structure of Yuanfudao version 7.13.1.

We analyze Yuanfudao's products from the following perspectives:

1. Category aggregation: The bottom navigation bar of Yuanfudao is mainly divided into three modules: Courses, My Courses, and Me. Judging from the user needs analyzed above, the "Courses" module brings together the corresponding functions for students and parents before purchasing courses; the "My Courses" module brings together the corresponding functions for students and parents after purchasing courses; and the "Me" module brings together functions related to viewing and operating students' attributes, APP settings, and low-frequency but necessary functions. The functions are clearly and reasonably divided according to user needs.
2. Scalability: Yuanfudao has designed its product functional architecture with strong scalability, and from a product perspective can support functional expansion quickly and at low cost. Whether it is the course coverage age group selection window or the subject classification on the course selection page, it meets user needs while being highly flexible.
3. Simple, efficient, and easy to use: Overall, Yuanfudao is not a product that meets a single simple need of users. Both the business and the internal logic of the product should be relatively complex. However, the product function architecture and usage process presented to users by Yuanfudao are extremely concise on the basis of meeting user needs, with little noise and easy to understand during use, which is an excellent achievement. In terms of courses, Yuanfudao provides users with concise choices. In addition to the choice of time, Yuanfudao, with its excellent teacher course resources, does not provide users with too much choice space, which reduces the user's comparison and hesitation time in choosing a teacher and reduces the possibility of user loss.

4.2 Product Iteration Analysis

The following table shows the iterative functions of each version of Yuanfudao since its launch. Judging from the latest iterations of Yuanfudao’s features, the recent focus is also to enhance the interactivity and fun of the classroom.

V. Conclusion

Through market analysis, we can see that the top players in the K12 online education field are relatively fixed.

Yuanfudao started with question search and question bank tools. After accumulating a certain number of users and traffic, it has occupied a considerable market share in the K12 online education field with a strong teaching team and excellent course quality as the core.

While various products are competing fiercely, Yuanfudao is actively building its product matrix, expanding the age coverage to preschool education (Zebra AI classes), and exam-oriented education to quality-oriented education (Yuan Programming), deeply tapping into user value, forming a closed loop of educational products, and strengthening competitive barriers.

From a product perspective, Yuanfudao’s functional structure design closely follows user needs, with reasonable function classification, simplicity and ease of use, strong scalability, and good user experience.

From a business perspective, Yuanfudao has taken measures to reduce user churn at every stage, improve the matching degree between courses and students, and increase the number of students in a single class. While not affecting or even optimizing the user experience, it has also worked hard to maximize the use of educational resources, reduce costs, and increase revenue.

Author: Red Bean Paipai

Source: Red Bean Paipai