For years, China lagged behind the rest of the world in coding education for children. Although computer classes were conducted in elementary schools, they usually involved teaching how to use Microsoft Office. But in recent years, as China redefines itself as a global tech power and IT-related jobs grew in economic clout and prestige, more parents are wanting their kids to learn coding. Government directives promoting coding education for children have also bolstered demand for such lessons.
In 2018, there were more than 200 coding education startups targeting K12 kids. By 2019, one new coding education startup was registered every six days. Zhang Lijun, Executive Director of Sinovation Ventures, which has invested in over 30 edtech startups, expects the coding education market to continue growing over the next 5–10 years to reach half the size of the online kids' English tuition market, by now a mature one.
An earlier industry research report shared the same view, pegging the coding market to reach RMB 50bn by 2023, versus about RMB 10.5bn in 2017.
Yu Zhouhua was a first mover when he founded coding education startup Alpha Camp in 2010. He recalled: “When I spoke to others about coding education in 2013, they thought it was such a niche market. So I thought it would take at least 10 years for coding education to be accepted by a larger audience. Now things are changing so fast.”
Policy, demand driven
The turning point was in 2017, when China's State Council issued a directive that required middle and primary schools to gradually offer coding lessons.
In April 2018, the government sent a stronger message. The Ministry of Education issued a directive on the quality of coding education content. The directive also made it compulsory for high school students to sit for IT exams. The same year, education authorities in some cities, including Beijing and Guangzhou, introduced special programs that allowed the best high schools to give preference to applicants with coding skills.
Such policy changes have made after-school coding classes extremely popular, especially in bigger cities. Chinese parents are now willing to pay for coding education as they consider coding to be a necessary skill for their children's future.
I want to prepare my daughter for a world where humans will inevitably work with robots
“I want to prepare my daughter for a world where humans will inevitably work with robots and interact with machines. Coding will be a basic skill for the era of artificial intelligence,” one parent told the South China Morning Post in 2017.
According to the National Bureau of Statistics, IT professionals in China earn top salaries and most fresh graduates seek coding-related jobs. The average annual salary of IT employees in 2018 was RMB 141,962, compared with RMB 82,421 for others.
Different business models
The course content of coding edtech startups is similar. Most of them use visual programming language (VPL) that enables kids to code by graphically manipulating blocks with Chinese words on them. Codemao uses its own VPL called Kitten, but many other coding education startups use Scratch, a VPL developed by the MIT in 2013. Kids progress from one VPL to another. For example, after they master Scratch, most students will move on to Python, another popular coding language.
But the business and operating models differ. While Chengdu-based Xiguacity prefers online teaching with pre-recorded videos, Codemao uses both AI-powered virtual teachers as well as human teachers. Some others choose to employ human teachers to teach in real time via small online classes. Shanghai-based Alldream uses a “1v1,” i.e., one-on-one, class model, while Beijing-based CodePKu uses a 1v6 model.
Investors tend to prefer such online platforms as it is easier for the businesses to scale. No surprise then that the coding edtech startups that have received huge funding are those with online models. They include Xiguacity, which is backed by Sequoia Capital China and Matrix Partners China, and VIPCODE, which counts Sinovation Ventures as its main investor.
There are offline players as well. Usually funded by traditional training institutions, they start with local markets and gradually expand their presence. Tongcheng Tongmei was founded by Nasdaq-listed education company Tedu.cn in 2015. It now has over 200 offline coding education centers across the country.
Hurdles despite growth potential
This is despite the extremely low penetration rate of children's coding education in China – about just 1%, compared with nearly 45% in the US – meaning there is still room for significant growth in the market.
Online platforms spend RMB 3,000–5,000 per student in customer acquisition costs
While VCs were initially eager to bet on a market that seemed so alluring in potential, their patience – and financial support – soon ran out as most of the sector's startups failed to overcome their growing pains, especially as they continued to incur high costs and their losses widen.
A common problem has been the lack of qualified teachers. Software engineers are so well paid in the industry that it's almost impossible to recruit them to teach kids how to code. This means that startups have no choice but to spend on training teachers to code before they, in turn, teach the kids. The lack of teachers affects offline training centers more than the online platforms, which can use virtual teachers.
The high cost of student acquisition faced by online platforms is another challenge. While offline institutions can promote their courses through local schools, online platforms usually spend RMB 3,000–5,000 to get a new student through placing online ads or offering free courses. For each click on the ad alone, they have to pay the search engine up to RMB 100.
To cope with these issues, since 2019 more startups are expanding both online and offline. Codemao provides teaching tools to public schools and takes a cut of the fees charged. Tongcheng Tongmei continues to focus on offline business but is also building an online presence.
“Since 2019, funding is flowing only to top players and it's harder for smaller startups to raise money,” Wang Jiang said, commenting on the current funding state of coding edtech startups. Wang is CEO and founder of coding education startup Xiaomawang, which secured a nine-digit RMB Series B funding in February 2019. In November 2019, Codemao raised RMB 400m Series C funding, bringing total investment in Codemao to RMB 1bn.
For those investors that are still in the game, some are placing their bets, though in reduced stakes, on newcomers. Two of the nine startups that received VC funding in the first half of 2019 were seed-stage companies.