Merits and Risks of VIPKID: Are 30,000 Foreign Teachers Worth $1B?

The founder of VIPKID, Mi Wenjuan has a mixed disposition that fuses the elite with the underworld.
One of VIPKID’s investors told about his most profound impression on Mi:

She walked into the road show room dressed in an idyllic white dress, a straw hat and small leather shoes. She had a gentle smile. During the road show break, an investor accidentally met Mi in the stairwell. She was chatting with her colleague with one foot on the railing. She looked like someone from the underworld.

“At that time, she was still a high school dropout who was following her uncle to do English training. She worked her way up from sending out leaflets on the street to becoming one of the co-founders of ABC English, a famous English training institution in China,” said the investor, who complained Mi was so “tough”.

Today, VIPKID identifies itself as the place to “study American primary school at home” through vast network of North American teachers. VIPKID is geared to the needs of children and adolescents between the ages of 4 to 12. It adopts the immersive learning method and provides students with online real-time learning from North American teachers. So far, VIPKID has more than 200,000 premium users.

The support from well-known investment institutions also adds splendor to VIPKID. In August 2017, VIPKID completed a total of $200 million in D-round financing with Sequoia Capital as the leading investor, Tencent as the strategic investor, and Yunfeng Capital, Matrix Partners, Zhen Fund and ZTwo Capital following. VIPKID set a record for the largest fundraising of K12 online education.

Behind this is the prevailing model of one-on-one online English tutoring in China. One of the core advantages of this model is that it can solve the problem of insufficient foreign teachers. In VIPKID, there are more than 30,000 North American teachers.

By contrast, foreign teachers on 51 Talk are mainly from Philippines. Though foreign teachers with DaDaABC and VIPJR are mainly from Britain, the United States, Canada and Australia, the number is much lower than the VIPKID. Each of these platforms all have about 10,000 foreign teachers.

For now, the huge number of foreign teachers has become a core advantage that VIPKID has over other platforms. But foreign teachers are still the key difficulty in one-on-one online English tutoring. Due to different cultures and habits, it is not easy to recruit a large number of foreign teachers abroad, not to mention manage them effectively.

How does VIPKID make it?

Mi Wenjuan interviewed Mi, and she analyzed how VIPKID was established and how it managed to find 30,000 foreign teachers.

Storm of Protest in the US

Last year, Misty Heitman, a 42-year-old woman from Tennessee, began teaching Chinese children English on VIPKID. One morning, she found her 9-year-old daughter, who had migraines, died in her sleep. Heitman was devastated and cancelled the day’s lecture on VIPKID.

Before long, she received an automated email from VIPKID, listing all her absentee days and telling her that she had been fired.

Heitman exposed the incident to the Internet, prompting a protest and heated discussion about VIPKID in North America. Eventually Heitman received an apology from VIPKID and her work was restored.

However, because of this, VIPKID’s ratings on Glassdoor, a US employer rating site, fell from a “near perfect” five points in 2016 to 3.9, and only recently rebounded.

The story is based on a report in the American edition of Bloomberg Businessweek titled “The Grieving Mother against a Chinese Startup.”

VIPKID explained that Heitman had been absent from class many times, seriously violating its regulations for foreign teachers and drawing complaints from parents. As VIPKID has clear management requirements for foreign teachers, she was fired. After learning the real reason for the cancellation, VIPKID apologized to Heitman and asked her to return to work.

A Chinese startup shook the American mainstream society and mainstream media. Within four years since its founding, VIPKID hired 30,000 part-time English teachers in North America.

How does one organize or manage 30,000 North American foreign teachers?

One American teacher, who taught at VIPKID, said she started teaching in her hospital bed the day she gave birth because she was afraid of losing her job. Another teacher said that two days after she underwent emergency appendicitis surgery she was told she was not considered ill enough to cancel class VIPKID. Another teacher also said she had submitted evidence to VIPKID when she was hospitalized for migraines was told it was not serious enough to miss class.

After the Misty Heitman event, VIPKID said it began to allow teachers to cancel the course for emergencies and not receive a penalty, but this needs to be 24 hours before the start of the course. Teachers can also choose to complete their courses within 24 hours, but still have to pay a fine. Under the new rules, each contract can cancel courses without punishment no more than six times.

VIPKID has harsh management of foreign teachers, but still, more than 100,000 teachers send their resumes to VIPKID per month – only 5,000 are selected.

“The teachers are very supportive. They feel the more strict the regulation is, the happier and prouder they are,” Mi said.

In communication with Mi, found that the attraction of VIPKID is the material and spiritual returns foreign teachers derive from teaching Chinese children.

At the same time, the execution of the team and the curriculum development system are also important factors for the expansion of the foreign teaching team of VIPKID. In terms of management, VIPKID places more emphasis on empowerment, including professional training and curriculum development. Foreign teachers report a greater sense of achievement on VIPKID.

VIPKID does not have strong restrictions on foreign teachers. For example, VIPKID never regulates that teachers can’t teach on other platforms or that they must sign long-term teaching agreements. Foreign teachers work part-time. In Mi’s view, it is better to strengthen the construction of VIPKID than to restrict teachers through various measures. If foreign teachers can gain more benefits from VIPKID, VIPKID will be more attractive.

The sense of achievement includes both material rewards and spiritual rewards. VIPKID has up to 2.19 million classes monthly. If calculated at 30,000 teachers, every teacher teaches more than 70 classes a month. At $10 dollars per lesson, the average monthly salary is $700. After removing the outliers, the majority of foreign teachers can earn up to $1,000.

Kobe invested in VIPKID.

VIPKID teachers are mainly from primary and secondary schools in the US, where they earn around $30,000 to $40,000 annually. Being able to earn an extra $1,000 to $2,000 per month is a significant incentive.

At the spiritual level, teachers can also establish emotional connections and achieve a sense of achievement by teaching Chinese children English, and the VIPKID platform will has various spiritual encouragement.

Meanwhile, VIPKID’s curriculum system also makes it easier for foreign teachers to benefit from the platform. Teachers on VIPKID don’t have to develop their own lesson plans: they teach a curriculum developed by VIPKID, which makes it less difficult.

The recruitment and management of foreign teachers also requires the efficient operation. VIPKID formed a team of dozens of people in North America, specialized in recruiting, interviewing, training and managing foreign teachers. If you add in the team that provides services for foreign teachers, there are hundreds of employees.

VIPKID’s Other Challenge?

There are still industry insiders who question whether VIPKID can really turn into a lucrative business. Many think it is a product of loose capital.

After all, currently VIPKID is mainly focused on children between the ages of 5 and 8. The results are not immediate and are difficult to verify, which affect the repurchase.

In China, the education industry is a huge business, but it is strongly tied to tests. In the future, VIPKID should work in areas strongly connected with the education system. Doing so would put VIPKID in a field of intense competition.

On the other hand, the biggest advantage and asset of VIPKID is the tens of thousands of North American teachers. But compared with the AI+ education companies that have huge question banks and real-time collection of user data, it is not easy for VIPKID to precipitate user behavior data or to form its own closed loop.

Other real issues that VIPKID faces:

It is basically impossible to gain profits through one-to-one tutoring.

In order to attract more North American teachers to join its platform, VIPKID assigns a large part of its income to the teacher, which makes the operating costs high and difficult to achieve profitability.

For instance, students pay about 90 to 130 yuan per class, and foreign teachers earn $10 fora single lesson, equivalent to 66 yuan. In this way, teachers’ salaries account for 50 percent to 60 percnet of the income. After deducting the cost of recruitment, training, management cost, bandwidth, and marketing, it is difficult for VIPKID to be a profitable business.

The difficulty of small class.

VIPKID hopes to gain profits from the 1 to 4 small class. The one-to-many mode, the cost of teacher can be shared by multiple students, and thus VIPKID can achieve higher profit margins.

VIPKID is also exploring smaller classes to improve profitability. According to the report, smaller classes would use a one-to-four online teaching models, as well as the immersive English class. Each class lasts about 40 minutes, longer than one-to-one tutoring. The course has three levels for children of different ages, and emphasizes interaction and participation.

It was reported that in August 2017, the revenue of VIPKID’s small class exceeded 10 million yuan.

But it’s not easy to change one-on-one tutoring to one-on-four. The first is the challenge to teachers’ ability, which requires teachers to have more control and interaction besides teaching ability.

Secondly, one-to-many increases the difficulty in one’s teaching research. And it is necessary to design a multi-research-related curriculum, which needs to take into account the scenes of multiple children learning together with an emphasis on interactivity.

How will word of mouth change?

It is relatively easy to form a good reputation in the early stage of development, but as the user scale expands, the demands of users increase and become more differentiated. With the number of foreign teachers growing, their teaching styles are different. And it is increasingly difficult to maintain a consistent good reputation in this situation, which will affect the rate of referral and renewal.

At present, the controversy of VIPKID on user experience is non-fixed foreign teachers and course schedules.

Generally speaking, learning from a fixed teacher can reduce the communication cost of learning, so it is not necessary to take the time to adapt to each teacher.

VIPKID said non-fixed teachers are preferred since they can boost listening comprehenson.

However, the demands of users are diversified. Some students have adapted to the rotation of teachers, and some students want their teachers to be fixed. It is difficult to satisfy all the students without a fixed teacher.

This article originally appeared in Huxiu and was translated by Pandaily.