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The Chinese-American EdTech Space Race: Who is Best Set to Win Global Education Markets?

“I think one of the fascinating conversations like that in many other industries is will education technology be a global sector or are we going to see regional solutions?”

Patrick Brothers, CEO and Co-Founder of HolonIQ

Over the past several months, President Trump issued orders banning Chinese-owned WeChat and TikTok apps from operating in the United States if not sold to a U.S. buyer. Besides instilling yet more drama into what has already been a tumultuous year, the development highlights a global trend. Although globalization was thought to have saturated industries worldwide, technology appears to present one of the final frontiers nations can still battle for global dominance. And this digital “space race” extends to the realm of edtech, as well.

Educational technology is an often overlooked global phenomenon, but the numbers show it is the iceberg beneath the surface. Investors are pouring billions of dollars into the industry both in the U.S. and abroad, with the global market projected to grow at 17 percent annually to $252 billion in 2020.

China is now leading the edtech market—a development that may have passed under the radar of average newsreaders given the siphoned nature of technology by region and culture. For example, until recently, popular global social media apps like Facebook, Instagram, and Twitter were products created and developed by U.S. companies. And even though some regional products like VK were offered to consumers in Europe, Korea, and Russia, local social media alternatives to U.S. apps never really took off globally.

China too had its own social media platforms like QQ and Weibo. But the recent boom in the use of TikTok and WeChat marked a departure from the traditional pooling of digital lagoons by region. These Chinese apps have bridged disparate internet spaces between countries by becoming the rare non-American apps taken up by users globally.

So with the growing investment, development, and usage of digital products, can the edtech industry expect to see a similar convergence and play for dominance between Chinese and U.S. companies?

We spoke with an expert to learn more about what edtech developments in the U.S. and China look like currently—and what this means for education markets worldwide.

Meet the Expert: Patrick Brothers

Patrick Brothers is the CEO and co-founder of HolonIQ, a global market intelligence platform for education. He is also a long-standing member of the World Economic Forum and B20 Education and Employment Task Force.

Brothers has worked in both the multinational public and private sector over the course of his career. He also has experience working in finance, infrastructure, and defense across Asia, Europe, and North America. He is the former CEO of Navitas’ education venturing arm, Navitas Ventures, and also served as the Chief Development Officer at Navitas.

Q&A with Brothers on the State of U.S. and Chinese EdTech Markets What differences do you see in the investment, development, and adoption of edtech in China as compared to the United States?

Brothers: The U.S. very much led the investment into education technology for the first half of the decade, from 2010 through to 2015—2015 was really a peak for U.S. investment in education technology. It was the year that LinkedIn acquired and that at the time was a very strong indicator that education technology was evolving and implied it would play an increasingly important role.

From 2015 on to 2020, China definitely took over as a global leader in investment to the point that in 2018, China was out-investing the U.S. 3-to-1. The total investment that year globally was about $8 billion, and China was circa $4 or 5 billion, accounting for more than half of global spending. The U.S. went through a bit of a period of recovery, so to speak, and has since started to peak again.

More recently, China’s investments [are larger than those in] the U.S. market. That’s reflected in the size of the individual investments that are going into companies. For example, the largest investment in a U.S. company this year was $130 million into Coursera, and the largest investment in China this year was $1 billion into Yuanfudao.

From a development and adoption perspective, the differences relate to both the culture and the market. In China, the focus and the largest areas of adoption of education technology have been around tutoring, test preparation, and language learning.

In the U.S., it’s not so much those areas we’ve seen really strong growth in. Instead, learning management and other systems that enable the formal education system to operate more effectively are popular. Massive Open Online Courses (MOOCs) have also taken off. Some examples of this include Coursera and edX, among others, which have brought about a new approach to education.

In terms of adoption, a key difference is that Chinese parents spend a significant amount of income on their children’s education, which is much greater than most parts of the rest of the world. And that also drives a really strong after-school market of spending that’s happening, whereas in the U.S., that’s not so much the pattern.

In the U.S., there hasn’t been as much direct-to-consumer spending, although now we’re seeing companies like Chegg, for example, who started as a textbook rental [service], helping students get access to those resources cheaper. [Chegg has] evolved into really supporting students in post-secondary education outside of the formal curriculum. In China, clearly there was a spurt in growth where it began to dominate global edtech investments around 2015. Do you think there are any other elements in the workforce or from the business side of things that could have contributed to that change, beyond the consumptive model for education due to the culture there?

Brothers: Absolutely. If you read Chinese, policy documents show the Chinese government has been very, very active at driving technology adoption in education. The Chinese government doesn’t want technology to replace the formal education sector at all, and neither does the U.S. government. They see that as a real strength.

Before coronavirus, [the media used to talk more about] China’s ambitions with respect to artificial intelligence—that has been driven really aggressively through the school system curriculum-wise. And that’s also encouraged a much larger level of investment in mechanisms and education technology supporting the country and students in the progression of the education system there. The U.S. hasn’t really had that level of policy. It’s not the opposite, but there hasn’t been really as much—and I suppose that reflects the two governments’ approach.

In the U.S., charter schools were probably the center of focus and a bigger part of the national conversation than education technology until lately, when access has been an issue. And even trying this stuff, there are the same access issues. In the U.S., a lot of students just don’t have access to bandwidth or devices needed in order to learn remotely as well.

I think the key differentiator over the last five years has really been China’s progressive rise as consumers. And in terms of investment, the rise of the technology giants Baidu, Alibaba, and Tencent, and the government having a supporting role in their education technology sector. Beyond the government and tech giants’ initiatives, do you see any companies or startups within China and the U.S. that stand out as driving the development of the edtech market?

Brothers: Three companies that are very famous in China and have raised the most amount of venture capital are Yuanfudao, Zuoyebang, and VIPKid. Yuanfudao and Zuoyebang are very tutoring- and test prep-related. Meanwhile, VIPKid is super interesting because for the most part, it’s powered by teachers in the U.S. for students learning English in China. And that was actually a really unique configuration.

It’s no secret that most Chinese parents admire the U.S. education system and U.S. education in general. So there seemed to be a role that could be played in using technology asynchronously to deliver language learning online to those students. There were just not enough teachers in China from an English learning perspective. And it wasn’t as convenient for parents to go out into traffic to take their child to after-school tutoring. In Beijing or other cities in China, that is electing to spend an hour at least in traffic.

Offering learning online just hits that really neat convenience note for them to stay at home if they’ve got the connectivity. But also to connect to a teacher in the U.S. who is fabulous at teaching language.

Those three companies are, at the moment, head-and-shoulders above everyone else in terms of startups. Yuanfudao has raised $1 billion, and earlier this year, Zuoyebang raised $750 million. And VIPKid had been in the spotlight through 2018 and 2019…a little bit quieter as of late.

Meanwhile, in the U.S., MOOCs like Coursera have been taking the limelight lately from a venture capital perspective, but some of their recent moves [have helped] universities access online resources as they respond to the coronavirus.

From a language perspective, MOOCs like Quizlet and Duolingo have been popular recently. And then, [there are] companies like Guild at the employment end, who have been supporting Fortune 1000 companies to harness education in a benefits ecosystem and connecting them with universities that can skill their employees. Are there any markets where Chinese and U.S.-based companies are focused on competing with one another, either immediately or up-and-coming?

Brothers: That’s a great question. Somebody would have said a few years ago it might have been India, but India is now overtaking both in some respects. You know, the U.S. is such a dynamic powerhouse and global leader in technology, and China has over the last five to ten years been catching up really, really quickly and developing its own technology ecosystems. And that’s been one of the reasons why there isn’t as much direct competition.

It’s just like what we’ve seen in the whole TikTok, WeChat conversation at the moment.

In China, WeChat is like a survival mechanism; China has got this whole different technology ecosystem. When you travel to China, a VPN is necessary to access certain sites. [It has created] an environment where there’s not so much competition because you’re building on two really different technology stacks, in two different languages between the U.S. and China. And both with really different cultural focuses. I think VIPKid has been a really fascinating bridge in that regard.

But otherwise, I’d have thought it would have been a market like India, which is really large and has a relationship with both of those markets. However, India now has players like Byju’s, Khan Academy, Simplilearn, Toppr, and so many others. It’s really built its own capacity.

So I think one of the fascinating conversations like that in many other industries is will education technology be a global sector or are we going to see regional solutions?

Players like Coursera would have to be the best-placed. And I think Coursera already has more users in India than they do in the U.S. There are definitely some examples of users spanning those markets.

But there is still not so much direct competition between those companies other than some MOOCs around the world and some government-sponsored MOOCs that are arguably competing for the same funding.

You [also] could look at it from an international education perspective with one million students that used to travel to the U.S. either to study language or higher education. [They] won’t be traveling this fall.

But, we’ve seen a lot of companies like Shorelight in the U.S. develop essentially online alternatives for those international students who now can stay at home, in market, in China—but at the same time will get a live lesson from a Stanford professor.

Just on reflection though, there has not been as much direct competition in education technology thus far because of how regional it has been up through today.

Chelsea Toczauer

Chelsea Toczauer is a journalist with experience managing publications at several global universities and companies related to higher education, logistics, and trade. She holds two BAs in international relations and asian languages and cultures from the University of Southern California, as well as a double accredited US-Chinese MA in international studies from the Johns Hopkins University-Nanjing University joint degree program. Toczauer speaks Mandarin and Russian.