Loading

Competitive Analysis Report: Liulishuo UBC ETEC522 Assignment 01

Table of Contents

  1. Industry & Market
  2. Porter's Five Forces
  3. Major Competitors
  4. SWOT Analysis
  5. Competitive Situation
  6. Recommendations
Industry & Market

Industry & Market

Online education market of China

According to iResearch, the revenue of China’s online education market reached CNY251.76 billion in 2018 with a year on year growth of 25.7%, which was estimated to keep a growth rate of 16%-24% in the following 3-5 years.

English language learning market of China

The size of the English language learning market, as measured by revenues, reached approximately CNY228.8 billion in 2017. The market size is expected to continue to grow to CNY548.8 billion in 2022, representing a CAGR of 19.6% from 2018 to 2022.

China’s English language learning market includes various segments, typically defined across user groups and learning purposes. The three key segments for user groups are pre-school, K-12 and adult. Examination preparation and general proficiency improvement are the two key segments of learning purposes. While the K-12 segment represents the largest revenue share, the adult segment shows a higher growth rate. The examination preparation segment enjoys significant revenue share with a constant, high growth rate.

AIEd (AI in Education) market of China

The revenue of the AI-powered online education market in China reached approximately CNY3.7 billion in 2017. The market size is expected to continue to grow to CNY172.4 billion in 2022, representing a CAGR of 118.3% from 2018 to 2022.

The AI technologies that have been introduced in the education industry involving speech recognition, computer vision, knowledge map, etc. The degree of penetration of artificial intelligence in different fields of education is various. In general, the penetration is relatively high for the off-campus and adult segments. Among them, the oral English training, the intelligent question bank and the assignment review/grade are the best infiltration scenarios.

Porter’s Five Forces

Porter’s Five Forces

The Five Forces of Competition Model

Threat of New Entrants

For online English education market:

  • English language learning represents one of the most attractive and promising sectors in China’s education market. The rising acceptance level for online education, enhanced online service payment willingness and improvement in the online learning experience and effects drive the steady growth of the online education market, and make the online English language learning an attractive market.
  • The aim of the government's industrial policy for the education industry generally is to encourage and regulate the development of the industry. There are no significant entry barriers.
  • China’s education market is still very fragmented with even the largest companies in the sector still having a small market share. No fierce retaliation from the industry giants would be expected for the new entrants.

Huge market potential, loose regulatory environment, and existing competitors have not yet formed strong barriers to entry, all these factors have attracted many new entrants.

For AIEd market:

  • In most cases, AI technology itself is not an entry barrier to the AIED market because it’s obtainable from the AI platforms, such as Google AI.
  • The industry entry barrier to the AIEd market is a cumulative significant/sufficient amount of learning data. Big data helps the company in analyzing their existing user data and in drawing meaningful insights from the same.
  • Based on the learning data, the competitor is able to integrate AI technologies with the language learning curriculum design and learning science, to develop a core competence.
  • Competing in a new industry, AIEd market requires a firm to have sufficient financial resources and capital investment to deploy and develop AI technologies. Furthermore, a new entrant is unlikely to quickly generate the level of demand for its product that in turn would allow it to develop economies of scale.

Therefore, compared to the online language training market, there are certain entry barriers to AIEd market.

Threat of Substitute Products

Substitute products are these alternatives from outside the AIEd market that perform similarly or the same functions as a product that the industry produces. In our case, the substitute products are:

  • Learning software (i.e. RosettaStone) or online learning programs(includes MOOCs): Learning softwares and online programs are both easy to use and inexpensive, but learners cannot get personalized learning experiences and timely feedback.
  • English learning programs provided by the traditional English training institutions (EF or Wall Street English): Learners can get personal guidance and have opportunities to fully interact with the teachers. However, these programs are costly because of the limited supply of high-quality teachers.
  • Online real-time one-on-one tutoring (i.e. VIPKID or 51talk): It is more convenient, and also cheaper than the offline one-on-one tutoring. However, this educational solution is still limited by the shortage of quality teachers, thus cannot be popularized.

Bargaining Power of Supplier

In the English training industry, suppliers are people or organizations that provide resources for training activities.

  • Learners: As consumers, they are buyers of educational products. While as a learner, their learning process has produced a lot of learning data which is very essentials to an AIEd company. In this sense, they are also suppliers of AIEd competitors.
  • Teachers: For cost saving purpose, most English training institutions are employing part-time college students who major in English in China. On the other hand, the market has a large demand for high-quality teachers and foreign teachers, and they are under-supplied. Comparing to their part-time peers, these teachers have strong bargaining power in the labour market. However, for AIEd market, the demand for quality teachers is relatively low.
  • Vendors of curriculum: In China, most of English training institutions purchase the core curriculum from the providers such as Pearson and National Geographic Learning. They further develop their own online courses based on the purchased contents. These quality curriculums are widely recognized by parents and learners in China and have always been a scarce core educational resource that all educational companies compete for.
  • AI technology suppliers: There are only a finite number of technological providers (Tencent and Baidu in China) are able to offer AI technologies, ranging from speech recognition, natural speech processing to speech synthesis. Training institutions do not have much ability to bargain with these internet giants.

Bargaining Power of Buyers

The major buyers in the English learning market are the learners themselves or their parents. The portion of central purchasing from the governments, schools, or corporates is relatively small. The highly substitutable and homogenized training contents provided by a large number of English training institutions has intensified market competition. As the learners have many choices and the switching cost is low, it gives the learners a strong bargaining power.

In some segments that is dominated by a few monopoly giants, such as the exam preparation training or the emerging AIEd, consumers have relatively few choices.

Rivalry among Competing Firms

China's online education industry is highly fragmented and has many competitors. The top 4 education companies (including top 2 listing education companies, New Oriental and TAL) share a market share of 6.5% with low market concentration. Relatively, AIEd is a new niche market and there are not many players in the market. The main competitors of Liulishuo are Baicizan and Shanbay in the AIEd and oral English segments.

With the public listing of Liulishuo and the gradual popularization of AI technology, more and more education companies are considering launching their own AI education products, and AIEd has gradually become the new "blue ocean". Once these companies with capital, technology and learning data join the competition, a big impact and realignment of the competitive landscape is expected.

Major Competitors

Major Competitors

The key players of the AIEd and oral English market are: Liulishuo, Baicizhan and Shanbay (from left to right).

Persona Profiles

Liulishuo
  • User Name: Xiaomei
  • Occupation: white-collar worker of a multinational corporation
  • Goal: change dumb English and improve oral English
  • Personal Situation: Needs to communicate with foreign colleagues in her daily work, and travel abroad frequently. Because her oral English is not good enough to be readily understood, Xiaomei has no confidence to communicate well in English.
  • Scene: Xiaomei was sent to the United States for a business trip during the Halloween holiday. At that time, the Liulishuo APP sent her a Halloween related oral English topic. That exactly was what Xiaomei wanted.
Baicizhan
  • User Name: Xiao Ming
  • Occupation: High school student
  • Goal: Improve vocabulary in order to get better English test scores
  • Personal Situation: Xiao Ming feels bored and drowsy when he learns English with the textbooks. He is worrying about his English scores.
  • Scene: The final exam is coming, Xiao Ming is increasingly anxious because he is not confident in his English. Xiao Ming downloads the Baicizhan App as per one of his friends’ suggestion. The vivid and interesting flash cards and the daily practice help Xiao Ming gradually find his confidence.
Shanbay
  • User Name: Xiao Li
  • Occupation: College student
  • Goal: Significantly improve IELTS scores in a short period of time
  • Personal Situation: Because she is planning to study abroad, Xiao Li needs to prepare for the IELTS test. With limited time and budget, Xiao Li needs to do her best to improve her listening and speaking skills in order to get the desired test scores.
  • Scene: Xiao Li tests her vocabulary and Shanbay gives a customized one-month study plan. Following the plan, Xiao Li obviously felt the progress of her listening and speaking skills. In order to improve her English proficiency in writing, she downloaded other Shanbay writing App from the AppStore.

Product Comparison

From left to right: Baicizhan, Liulishuo, Shanbay
Liulishuo
  • Advantages: Engaging short videos guide customers to start English learning directly without having to go thru the whole registration and login process first. Innovate and personalized placement test can help users understand their English level (especially for oral English) more accurately and intuitively.
  • Disadvantages: The sign-up process is too long (because of the introductory video) and too complicated with total five steps: start learning - introductory video - enter the mobile phone number - get the verification code - enter the verification code and other steps.
Baicizhan
  • Advantages: Image-based immersive learning experience
  • Disadvantages: The study plan is too simple and singular, while learners do not always progress in a linear fashion.
Shanbay
  • Advantages: Encourages users to share their daily check-in to their social network to attract new users.
  • Disadvantages: The users have to download the corresponding APP separately from AppStore for speaking, listening, reading, and writing practices.
SWOT Analysis

SWOT Analysis

SWOT analysis framework

Strengths

  1. As a pioneer of the AIEd market, Liulishuo has established a good reputation and achieved competitive advantages and benefits of the first mover. After the public listing, Liulishuo got substantial funding for further development.
  2. Liulishuo has a strong R&D team and a wealth of patented technology reserves. For instance, Liulishuo has already registered more than 35 patents, 100 trademarks, 40 software copyrights and 1 written work copyright in China.
  3. Liulishuo has accumulated a large amount of first-hand learning data. Based on their 30 million strong user base, Liulishuo collected a wide range of user learning behaviour records and a recording database of 275 million minutes and 3.19 billion sentences in three years.
  4. Economies of scale are derived from incremental efficiency improvements through integrating AI technologies into educational product design. Therefore, the cost of producing each unit declines and the attractive price could be offered to gain a larger population of customers. A larger user base then further improve the quality of the AI-powered product and form a virtuous circle.
  5. The salary cost of the teachers accounts for 35-40% of the total operating cost in traditional education/training institutions. As a comparison, the teachers’ salary takes up a small portion of the total cost in Liulishuo.

Weakness

  1. The outcomes of the first mover’s competitive actions may provide a blueprint for second and even late movers as they determine the nature and timing of their competitive responses.
  2. Liulishuo’s financial status and profitability are not optimistic. A loss from operations has been almost doubled within the last two years.
  3. The market segment in which Liulishuo is competing is English training for adults (especially for oral English). For these paying users who are mainly college students and working professionals, English listening and speaking training is an elastic demand, instead of an inelastic demand. As a nature of this market, both the course completion rate and renewal rate are low. However, comparing to the industry benchmark of 5%, the renewal rate of Liulishuo was about 1.4% in the first half of 2018.
  4. Absurdly high expenses are used in marketing and customer acquisition. In 2016 and 2017, the marketing expenses of Liulishuo were about 29 million yuan and 283 million yuan respectively, and about 260 million in the first half of 2018. In 2018, the expenditure on marketing expenses completely offset all of its revenues. Basically, Liulishuo needs to spend an average of CNY10 to acquire a customer, in exchange for a CNY9 tuition income.
  5. The learning efficacy of those AI-based products needs to be verified and improved. In addition, Liulishuo lacks authoritative and systematic learning systems and curriculum design capabilities.
  6. In order to retain existing customers and increase renewal rates, Liulishuo had to be equipped with a large number of customer service personnel. The operating model makes Liulishuo‘s light asset model becoming heavier and heavier.

Opportunities

  1. Liulishuo’s focused cost leadership strategy serves well for the specific niche market, oral English training for adults. To support the constant growth, related linked diversification should be implemented to share resources/capabilities and transfer core competencies to achieve economies of scope.
  2. While the English training for adults segment shows a higher growth rate, the K-12 segment represents the largest revenue share than the other segments in China. The most important fact is that the demands are inelastic as a market nature of this segment.
  3. According to the financial report of 2018, the average price per customer of Liulishuo was only CNY206 yuan, vs. 51Talk’s CNY5714 in 2017, Hujiang’s CNY6363. There is room to further tap the potential of customers.
  4. Traditional English training institutions are constantly seeking breakthroughs and embracing the Internet and artificial intelligence. There are opportunities for Liulishuo to cooperate and partner with these companies to provide AI-powered educational solutions.

Threats

  1. A company competing on K-12 English learning market may decide that the market segment served by Liulishuo using a focused strategy is attractive. For example, VIPKid may launch their oral English learning programs for adults (Liulishuo’s stronghold).
  2. The government has gradually tightened control over the online education industry.
Competitive Situation

Competitive Situation

In the below figure, we show different hypothetical intersections between Liulishuo and individual competitors in terms of market commonality and resource similarity. These intersections indicate the extent to which the firm and those with which it compares itself are competitors from the whole education sector’s perspective.

A Framework of Competitor Analysis: Source: Adapted from M. J. Chen, 1996, Competitor analysis and inferfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100–134.
  • In quadrant II, although Liulishuo and Baicizhan/Shanbay share a high level of market commonality, they have little similarity in their resources. As an NYSE listed company, Liulishuo has an abundant supply of financial resources, strong technical strength and a professional team. These conditions lead to the conclusion that they are not the most vital competitors.
  • As illustrated, Liulishuo and VIPKid displayed in quadrant I have similar types and amounts of resources (i.e., learning data, financial, technological and human resources). Liulishuo and VIPKid would use their similar resource portfolios to compete against each other as Liulishuo moves in K-12 and VIPKid moves in AIEd market. VIPKid is a K-12 English teaching online company just like Liulishuo but with larger funds and larger spending on R&D to improve artificial intelligence resulting in the introduction of new technologies way much faster than its competitors.
  • The same situation might occur in quadrant IV once the education giants (New Oriental and TAL) decide to move into AIEd market.
  • In contrast, Liulishuo and EF/Wall Street English in quadrant III share few markets and have little similarity in their resources, indicating that they aren’t direct and mutually acknowledged competitors.
Recommendations

Recommendations

As illustrated below, firms seek to create value from economies of scope through two basic kinds of operational economies: sharing activities (operational relatedness) and transferring corporate-level core competencies (corporate relatedness).

Value-Creating Diversification Strategies: Operational and Corporate Relatedness

Taking the advantages of their AI technical strength to solve a traditional pain point in English language learning, is the key to Liulishuo’s success in occupying the niche market. However, the English listening and speaking training for adults is not good enough to support the healthy and sustainable development an education company in the long run considering the market size and customer demand elasticity.

Inevitably, Liulishuo needs to mitigate single-market risks through multiple competition and diversification. By replicating its success to more segments (i.e. K-12), Liulishuo will be able to create more value from economies of scope. To be more specific, they could transfer their corporate-level core competence (applying AI technology to resolve education problems) to other businesses and share operational activities (curriculum design and technology deployment, etc) within the company to achieve both scale and scope of economies. The related linked diversification could be the right strategic direction to help navigate Liulishuo through the fog of uncertainty and get ready to deal with a variety of challenges in the coming years.

About Author

About Author

Vincent is a lifelong learner and tech enthusiast, who genuinely believes that education can make a difference and technology would play an increasingly important role in education. Before becoming a UBC student, he used to work for Pearson and VIPkid.com in China. Vincent is very excited to have a splendid studying journey to explore EdTech potential in the coming AI era.

Created By
MET UBC
Appreciate

Credits:

Created with images by Markus Spiske - "untitled image" • Joey Kyber - "untitled image" • Matteo Vistocco - "untitled image" • Boris Stefanik - "untitled image" • Marjan Grabowski - "untitled image" • Oliur - "untitled image" • Oliur - "untitled image" • Noah Silliman - "untitled image" • Pexels - "battle chess checkmate" • Kévin Langlais - "untitled image" • Engin_Akyurt - "old notebook map"

Report Abuse

If you feel that this video content violates the Adobe Terms of Use, you may report this content by filling out this quick form.

To report a copyright violation, please follow the DMCA section in the Terms of Use.