The online education sector is projected to hit 433 billion yuan (US$64.2 billion) by 2020, according to mainland China based data mining and analysis company iiMedia Research. The sector is underpinned by the country’s education system, the largest in the world, and a culture that prioritises education.
NetDragon has been on a shopping spree as it builds capacity in the online education sector. In 2015, it bought the British-founded education hardware firm Promethean for US$130 million; last year, it American education social networking company Edmodo for US$137.5 million.
It is also spearheading the Binhai Education Village, a 400-hectare seaside compound in Fujian province. The initiative is also part of the Belt and Road Project. The education village is home to NetDragon’s new Changle campus, which features a 705 million yuan office building that resembles the USS Enterprise spaceship, as founder Liu Dejian is a Star Trek fan.
The long-term goal is for the education village to become a hub of institutions and education technology companies. So far, NetDragon has poured 3 billion yuan into its development. The company is funding its education sector push through sales of past ventures.
For instance, in 2013 it sold online portal 91 Wireless to Chinese search engine giant Baidu for US$1.9 billion, the largest deal in China’s internet sector at the time.
The education division brings in 54 per cent of NetDragon’s revenue and the gaming division contributes with about 43 per cent. Yet losses suffered by the education business are high enough to cancel out gains made in the gaming sector where margins are more than 90 per cent. As a result, NetDragon has been making losses for the past three years, booking a loss of 20.8 million yuan in 2017.
The online education market also has its challenges. The sector is highly fragmented, with at least half a dozen different players in each of the market segments.
“Another challenge with online education for kids is, if you don’t have an offline brand then that could be harder. You’re selling to the kids, but they’re not the ones paying. It’s the parents who are paying,” says Mariana Kou, head of China education and Hong Kong consumer at financial company CSLA.
The company is currently selling 101 Education PPT to schools on a business-to-business basis, and plans to sell the tool to students and parents in the future.