a16z Podcast - a16z Podcast: Lessons Learned from Chinese Education Startups

Episode Date: March 12, 2019

When people talk about trends in education technology, they often focus on how to disrupt higher education in the U.S., whether it's about breaking free of the "signaling" factor of elite educations or how to shift education out of its "cottage industry" mindset to achieve greater scale. However, in China, the transformation of education is already well underway, with a fast-growing ecosystem built around lifelong learning. In fact, one of the largest demographic groups paying for education in China is actually not college students -- it's college graduates, aged 26 through 35.In this episode -- which originally aired as a video on our YouTube channel -- a16z general partner Connie Chan talks with operating partner Frank Chen about the lifelong learning ecosystem in China; what it means for startups there; and lessons for entrepreneurs everywhere... or will these techniques even work outside of China?

Hi, this is Frank Chen. Welcome to the A16Z podcast. This episode is part two of a series called What's Next for Education Startups. It originally aired as a YouTube video, and you can watch all of our YouTube videos at YouTube.com slash A16Z videos. Hi, this is Frank Chen. Welcome to the A16Z network. I'm very excited today to share a conversation I had with Connie Chan, one of our general partners.

Connie is one of the world's experts on trends, especially consumer trends in China and tech. And today we're going to talk about the future of lifelong learning. And she's going to share a few examples of very awesome startups in China. She's super interested in what's happening with Gen Z consumers. She's very interested in real estate and how people are finding homes, preparing their homes to be listed on Airbnb, renting homes, so on and so forth. She's also very inspired by things that entrepreneurs are doing in China that might have applicability here in the United States. She helped us find our investments in Lyme and Pinterest, and I think you're going to have, I think you'll really enjoy this

conversation that I had with Connie. And I have to tell you a funny story before we get started. So we did not synchronize our sweaters. This was, we've known each other so long. that we just knew to come in the same color family. So Connie was my first hire at Andreessen Horowitz. Adam Rifkin introduced us to Adam at one time and may still be the most connected person on LinkedIn and his whole heart and mission is to connect people. And so when I told Adam I was looking for the best deal partner ever,

he went and found Connie. And I'm so thrilled that you've been here for so long. And now are a general partner looking to make investments. So welcome. Thank you. Thank you. So today we're going to talk about, we're going to continue our series in education and talk a little bit about ongoing education. And we're so excited about the things that we can do as adults to continue to learn new things.

And for those of you that know me, like learning a new thing is my favorite thing in life. So I'm so excited about this episode. So Connie, why don't you set the context and let's talk a little bit about the things that are working, especially in China. And I thought maybe it'd be good to just anchor on how much money and how many users people spend on ongoing adult education, because this is very surprising. Yeah. I think about education and learning in a way that goes well beyond K through 12. So I'm actually hyper-focused on education for adults. People, once they have graduated college, how can they use online education for self-improvement, for example?

And if you look at the dollars abroad, I do a lot of students. studying what's working in China and working in Asia to give me inspiration for ideas here in the States. It's a massive market in Asia. It's massive in China. And I think it's because China has developed all these online education platforms that are specifically made for mobile that unlock all these other new features and benefits. And in terms of how big it is, I Research says that right now online education in China's 150 million users and expected to grow to nearly 300 million by year 2020. It's a $40 billion industry, expected to grow to $70 billion. Of course, this is a very broad categorization of what counts as education.

But what's interesting is the way that these research reports break it up, the largest group is not K through 12. It's not even college students. the largest groups of students who want to do self-improvement in online education, they are 26 to 35. Oh, that's super interesting. So you would expect sort of the Asian cultures that the parents sending their students to, you know, after-school enrichment programs, and so you think that's where all the money is going, but you're saying, look, it's after they graduate college. Right, right.

And I think that's because if you take the word education and you expand it just to self-improvement, self-learning, then it greatly increases the demographic that you can address. And yes, a lot of people will just say China education, it's huge because parents spend so much money on tutoring and so forth because of the way the college system works. But most of that money is actually going through post-college graduates. It's really interesting because in China, what's already happening is what we sort of expect to happen here, which is today we have this system where sort of you go through K through K through 12, and then a subset of these people go to college, and then basically at age

22, you're done. There's no more formal education, and now it's basically the workplace's job to train you, right? They'll send you to classes and so on, and we know that's going to change. We know that the world is so dynamic now that you can't learn everything that you need to be a productive worker or a citizen by age 22, and you're going to have to learn ongoing, right? This is sort of a big part of our investment thesis behind Udacity. And there's a bunch of courses that a college curriculum would likely never include, like, how to conduct yourself at a meeting, how to speak publicly, right? How to sleep, train your kid. That counts as education. Parenting courses, that counts as education. You would never cover that stuff in college. Yeah. And in addition to sort of the evergreen stuff that you mentioned, like, you know, everybody needs to be a good public speaker. Everybody needs to know how to the – there's also sort of topical things that emerge as marketplaces emerge. I'm thinking about the Taubal sellers, right?

So Taubal was like eBay here, and what happened in Taubal was there were sellers who were experimenting with the system, and they kind of figured out what was working for them, and they would share online in videos. And Taubal saw this happening, and they're like, oh, let's actually get behind this and push, right? Let's set up Taubal University,

where we can take our very best sellers and actually have them make money from their content, not just their markets. Yeah, completely. Yeah. So awesome. So why do you think this is happening already in Asia? Why are they ahead? I think Asia is in general much more mobile first and mobile only of an environment than the states. Meaning that if I ask you to go buy a pair of shoes, you might naturally flock to your computer to get the best user experience. But in Asia, you'd pull up your phone and you'd open the T-Mall or the Taubo app.

And the idea that your PC and phone are completely interchangeable, and you can completely rely on your phone to give you everything you need is more prevalent in Asia. There's also more mobile payments, and the idea of paying on your phone is very natural and common to people, not just in Tier 1 cities, but across the country. But I think there's three core breakthroughs and insights that Asia's really figured out that has propelled its education market

so much more forward. The first one is that they rely on artificial intelligence and machine learning in a much more interesting way. So that allows them to unlock products and features and just ideas that I don't see here in the States. So for example, there's this company called LingoChamp and it teaches you English. And typically when you look at a language learning app here in the States, it's very flash card driven. or you'll give you a sentence and you can read it. But in Asia, they realize that people want to learn English, not just to be able to read and write,

but more importantly, to have conversations, to be able to visit the world, to interact with other people. And so they use the mobile phone and the microphone to allow you to speak directly into the app and read out sentences and actually carry on conversations with a computer that will speak back to you. And that kind of scoring using machine learning and artificial intelligence

allows people to learn pronunciation with a standalone mobile app. And I think that's a fantastic example of like leaning in to artificial intelligence and machine learning to dramatically reduce the cost. This company, LingoChamp, their gross margins are over 70%. Because they don't have the teacher cost. Right. So nobody has to sort of say, oh, that's a terrible accent. My funny story on this is when I was learning Chinese Mandarin,

my Mandarin teacher said, ask me one day, are you from Hong Kong, which, for those of you that don't realize it, is probably the most grievous insult that you could hurl at somebody trying to learn Mandarin because it's so bad. So you're saying, look, they didn't have to have a teacher listening to you and then getting guns.

They're using the machine learning to say, you don't sound like a native, and here's where. Right, and because their gross margins are so high, their price point is so much lower than having a real life. tutor or even an online course instructor tutor. Their price point is so affordable

that people all around the country can access it. And that same concept of leaning into machine learning is also true in music as another category. There's this company in China called VIP Paylein.

And Paylean in Chinese translates to they will practice piano or practice an instrument alongside you. And what it is is a mobile app, which is a piano teacher. And this app, you put it on the stand and you attach it to your piano. And this teacher can help your kid, age 5 through 16, learn an instrument.

They do piano, violin, a bunch of classical Chinese instruments. But again, it's that price point that they're able to unlock. Because for a lot of these music instructors, so much of that cost is in their travel time. or because you're living in a city where the cost of living is just so high. Right. But now in China, my teacher doesn't have to live in Beijing. They don't have to live in Shanghai. They can live anywhere in the country.

They don't even have to live in China. Right. Right? And then not only is that the case, they use the machine learning aspect to help the teachers with scoring the kids and scoring the performance. Because with music, just like with language, there is an actual pitch. There is an actual tempo and actual rhythm that you're supposed to play. Yes.

Right? So they can take the composition score and then hear your actual performance and give you a grade, which then allows one teacher to teach two or three students at the same time, which then unlocks even more cost savings, allowing more parents to give their kids these music lessons that they would typically not be able to afford. I'm flashing back to my piano learning days, and I'm hearing the too fast, too fast, right? So now we can do that with machine learning.

Right, right. And imagine being able to do that during practice sessions, right? And having that information feedback to the teacher. There's just a lot more we can do with machine learning, especially when it comes to language and music that is still, I think, very untapped here in the West. So let's talk a little bit about sort of the efforts that we've sort of seen here and sort of how you think we get from here,

where we are. So we have learning platforms like Masterclass, we have learning platforms like Udeme, we have learning companies like Udacity, one of our portfolio companies. What's sort of missing from those that sort of the next generation of ed tech startups you're looking for, you think we'll have?

Yeah, I think the answer is one word, it's mobile. And the reason is because mobile only is a society that I think is inevitably in our future. And when you have mobile, that allows for all kinds of different things. It allows, again, for microphone input as an example.

Everyone has a camera, a front-facing and a back-facing camera on their phones, which allows for different kinds of input and interaction with the platform. Mobile allows you to have these bite-sized snacks. Rather than opening your Instagram news feed, maybe you can take a three-minute class, a five-minute class, whenever you have downtime. And also, mobile allows people to not feel like you have to be confined to a video format. And I think this is really critical because a lot of long-tail expertise doesn't always naturally suit video. For example, you can be a math teacher, and yes, you're writing formulas on the board, or you can be a philosophy teacher, right?

And you can be sitting there giving a lecture just sitting there. or that same kind of content can be also conveyed through a podcast, through an audio format. And once you're focused on mobile, you're not thinking like it has to be video, it has to be full-screen immersive. It now can also be a podcast that you listen to when you're driving to work, when you're walking to work. And again, I think that expansion of formats is really obvious once you make something that is mobile-centric. So we haven't seen the class of mobile first ed tech that you're expecting to see, which is pretty surprising, right? It's sort of, it is sort of an obvious insight once you say it out loud like you did. And so...

And I think the reason is because so much of ed tech has been either you pay this one-time very expensive tuition or, honestly, it's ad-based, right? Like YouTube is the biggest university in the world. And most of the creators are monetizing through advertisements. But because it's ad-based, a lot of the content on YouTube can't go to the depth of absurdies that you need to really make a big impact on your life or your career. Because the creators, they have these incentives to have to create content that gets lots of clicks. And the reality is a lot of self-improvement lifelong learning content is not all clickbait content. And to go into that depth of what you need to know, an ad format is not the best way to compensate these creators.

So, for example, if you're buying a house for the first time, you need to understand how to think through that transaction. It doesn't make sense for someone to create these ad-based videos because, one, they're not going to get all the clicks they need to justify their time and expertise. But, I mean, imagine a platform where someone could package that in 20, 30 courses. It could be a mixture of audio, a PDF, video, a live stream Q&A, a paid one-on-one consultation, and put that all in one format where that creator now can make much more money and have the right incentives to create deeper, better content. Yep. So that makes perfect sense, right?

Which is it takes a lot of work to create this content. And if you're monetizing with advertising, that means only the top 1% are going to even break even or barely break even on all of that effort, right? because you need to attract tens of millions of people. And adds reward production value. Right. So you need the great videographer there. You need to spend an hour on your YouTube thumbnail.

That's nuts. Right. Because honestly, a lot of these great experts, a lot of these professors, these doctors, these nutritionists, they are not media experts. And the fact that they have to go hire videographers by very expensive equipment, cameras, lighting, what have you, learn how to edit videos the most. sells for the first time, that's not long-term, I think, going to work because these creators are being underpaid for their knowledge.

So as I think about my own sort of ongoing education habits, YouTube has definitely become one of them, which is to say I'm watching TED Talks. I did something over the holidays, which I'm very proud of, which is I replaced a doorknop. And I'm proud of this because I'm like the least handy person I know. And so I watched a YouTube video and went to Home Depot. And in my in-law's house, I replaced the little doorknome mechanism. I was like, yes, I did it. And so you're saying, look, I know, I shouldn't be that proud of myself. But I was, like, giddily proud of myself because, like, I'm a software person.

And that was definitely hardware. Okay. So, anyway, thank you for indulging my burst of enthusiasm for myself there. So you're saying, look, that type of content, that's fine for YouTube because, like, that's super easy. It's a fine video. It's visual. It's visual. You need to see which part to change out, which nail.

to take out that makes sense. So like ads for that make sense, but it doesn't make sense for this sort of highly produced package where I'm teaching you something that's a more serious life skill. Right. I mean like TED Talks are fantastic intro courses. It's a first great lecture, but there should be 10 lectures beyond that for every topic. Right. Right. And a lot of things that are skill-based in particular, I think deserve having 10 courses, 20 courses, 30 courses, so on. And there's a lot of things that I would be willing to pay for. I would love to pay to figure out how can I improve my voice. I would love to pay to see how can I improve parenting and so forth. And there aren't great platforms right now that make it as easy as

creating like a Shopify website for these creators to monetize their knowledge. And these creators, typically, one, they're not media experts. Two, they're not technologists so they don't have time to build their own blogs or their own websites and integrate PayPal or credit card payments into them. And the biggest problem is they're truly underpaid right now for the knowledge that they're freely sharing on YouTube. Yeah. If you think about sort of an example that is in this ecosystem, you think about

master class, right, where the entrepreneurs doing a great job of sort of hoovering up all of the top experts in their fields. And I think part of the reason he went top down is sort of the same reason that, you know, Elon Musk went to the roadster first and then the X and then the S and then the X and then the 3, right? So he's working his way down. And I think part of that is because I wonder if there's enough cultural support in the West for paying for education of this kind, right? So it sounds like in China you already have that cultural support. So like what is education amongst household expenses?

Is it like number three or number four after housing and medical? Right, so you have this inbred sort of support, cultural support. Like, of course I'm paying for education, right? And so once mobile sort of content sources sprung up, the money just went, right? And so what do you think is going to happen here? Do we need more cultural support? How does that interaction happen? I think the way that we Silicon Valley and platforms can help encourage this shift for more lifelong learning and self-improvement is really breaking away from just the ad.

base model and finding the right incentives for creators to be able to monetize. Because I think a lot of creators, when they have an ability to make a significant amount of income from sharing their expertise, they will create better content. And as there's better content out there, users will say, hey, this is a fantastic way to put a small investment into myself. Right? And right now, the platforms, I think, are not doing enough to help these creators monetize. And for a platform, that doesn't just mean changing their business model. It also means monetizing their own brand and becoming a mainstream app, a mainstream website. And that's really important because for a lot of these platforms, they shouldn't have just one teacher teaching you how to sing. There

should be 20, 30 teachers, and then there should be rankings based off of student reviews or based off people who actually completed the course, right, and repeat students and so forth, and all those things should help bubble up the best teacher. And these platforms need to do a lot to invest in building out their own brands to become mainstream in order to do that. And I love the master class content. I think once they expand, they're going to have to include more teachers for the same categories. They sort of go down in market. It doesn't have to be Steve Martin teaching you how to do comedy. it'll be your local comedy genius.

Or it could be all of them together, right? And they could be priced at different price points. And then when you go the level beyond Steve Martin, you can have them ranked differently. Right. Right. And I'd love to be able to figure out what are the rankings of the classes that people finished?

What are the rankings where people gave the highest reviews? Right. What are the rankings based off price? What have you? Right. And all of that kind of data is totally, presentable right now. It's just not being surfaced by the platforms. Another sort of age-old challenge in sort of building these pervasive education

marketplaces in the past has been you sort of have very broad categories of education. They're sort of, let's call it, hobby entertainment, right? I'm learning the piano. I want to sing better. And then there's sort of business self-improvement. Like I want to learn how to use Excel better or I want to be a better offer-up seller or something like that. So do you think that there's going to be one platform that sort of wins both? Do you think there will be more specialty things that sort of cater to each of these because it feels like they have different dynamics? I think it's possible. But it's unclear how the feature will shake out. I mean, for example, I think there's a lot of great workout apps today already that put a bunch of fitness instructors

or nutritionists up against each other and you can choose which instructor you want. And they have that category down pretty well. But I also think it's very possible. if there was a platform that created the right tools. I know this like Shopify in a box where I can say, here are my podcast, here are my blog posts. These are the times where I'm going to do a live stream Q&A. This is the PDF, the book I'm willing to sell. If it gave creators these options to just turn on these modules

and create their own knowledge store, I think it's possible also to have one major platform as well. That serves both sort of the hobbyist entertainment market as well as the serious self-improvement market. Yeah, you know, and it's possible that it's not a new startup, but could eventually be something that YouTube goes into or something that Twitter goes into. Twitter has a ton of influencers too, and lots of long-tail experts. But I think the opportunity is still there and still so early enough that a new startup could take it. Great. If you were to give, if you had water,

or two pieces of advice that you have for entrepreneurs in this space, what would it be? This is probably a contrarian view, even in Silicon Valley, but I would build for mobile first, and I would build your app before you build your website, because it will drastically unlock different ways of thinking. You'll be able to use your GPS, your microphone, you'll be able to use the camera, and if those new additions of features don't help you brainstorm new things, then that's a problem, actually. You will be able to use in-app payments, right? You might be able to use Apple Pay and so forth.

So I think one big thing I would say is if you're building for the future, consider building this platform first on mobile, even before you go to the PC. And now I know that's a very contrarian view because a lot of investors will also say, go to the PC first, get your brand, and then go do the app. But I think when you start at least brainstorming, at the very least on a mobile platform first,

it unlocks this idea, how can I use a microphone differently? And then now that I have microphone and audio input, how can I use machine learning differently? Right? And that allows you to unlock ideas like the LingoChamp for English learning or like Palion for piano teaching that honestly someone building for a PC

would never get to that insight. Right, right. And then presumably your next piece of advice would be experiment on the business model, right? So we've got mobile, we've got machine learning, and now it's like, let's do something other than ads. Yeah, for sure. Yeah.

For sure. I am not a fan of strictly ad-based models, mostly because the ones that do succeed, say like a Facebook or Google. I mean, the reason their ads succeed is not because of the massive page views. It's also because of all the information they have on that user. So the ads are highly targeted.

And if you're a platform where you don't have such detail information on your end users, your ads are not as valuable and they're not going to convert as well. So focusing on just building up page views and hoping they'll monetize with ads to me is a scary strategy in general for any consumer app. But I think business model experimentation in the education space is huge because, I mean, a lot of these categories, like your skills for a doorknob, right? Maybe it could sell you, you know, a similar doorknob. They should have sold me the door knob.

They should have sold you other doorknobs. They should have sold you other home projects that, hey, if you take this course, buy the components for it at a discount, and that can be a partnership with your local Home Depot. Because geographically, they know the local home depot is only two, three miles away from where you are. Right. Right. And those ideas are very possible in not being implemented today, kind of thinking, if this person learned this course, What else can I sell them beyond just another course?

What physical things can I sell them? What other services can I sell? Yeah. It seems inevitable that as we continue into a world that rapidly changes, therefore needs new skills all of the time, that the spending pattern here on education will flatten, right? Which is the way I think about education spending over a lifetime today is kind of like there's an elephant inside a python, right?

which is you spend a lot of money, and then you get to college, right, where you have the 529 plan, right, to help subsidize, right, tax-deferred dollars to go to university. And then basically it drops to zero, right? It's sort of like a very small proportion of the population spends money on ongoing training. And if you spend it, it's mostly like, oh, work had me do it, and then I expensed it. But it's nowhere approaching college tuition. So it's sort of this big sort of college expense in the middle, it feels like as we move into a new like we want to flatten that out, right?

We want to give access to piano teaching for kids, smooth it out earlier in life, and then we sort of smooth it out later in life too. And that's going to require this business model experimentation. Business model experimentation and just making that information more accessible. Like if I told you, you could spend $15 and get 10 courses on how to improve your voice, would you consider it? I am looking for voice instructors right now.

I'd pay far more than that. But I feel like so many of these ideas or these instructors, people oftentimes just forget that they exist because it's not so in their face. And it's not also done in bite-sized snacks on their own schedule, on their own time frame, right? And when you're on a mobile platform, when you're doing these bite-sized lessons,

you can do it every morning. Yeah. Well, I personally can't wait for a lot of this. this stuff, as I mentioned, I love learning new things, and I can't wait to have very compelling products that are teaching me new things a little more sophisticated than how to replace a doorknop, maybe a little less sophisticated than how to do. If that platform, should have also sold you services of a handyman nearby in case you fail. That's true.

Right? Luckily. There's just so many ways you can monetize a simple video like replacing a doorknob that's not being done today. Yeah, yeah, totally true. Like all these how-to home fixes, a good friend. chunk of people who attempt them can't do it, right? And they're willing to pay.

They give up in the middle, surrounded by an explosion of tools, right? Oh, I give up. Right. Or I'm maybe missing this part. Maybe I'm missing this wrench. Or, hey, power tool. Right. Right.

You could have done this in half the time if you had this power tool. Right. These ideas aren't being thought of right now because it's a business model innovation, right? Think about not just selling them the next course and stuffing more ads into your course and then therefore making your video much longer. than it needs to be, which is the game that a lot of these influencers have to play. They're being forced to play that game right now. Give them better ways to monetize what they're selling.

Yeah, and that business model would be good for it, because another age-old problem with these education markets, places that try to get broad, right? I want to have all of this content, is that the repeat usage is never as good as the entrepreneur hopes, right? So you kind of hope that I sell you the piano playing class, and then you'll come to me for filmmaking or whatever it is. And it turns out in a lot of these that you're almost capturing that customer again for the first time

even though they've bought a class from you, right? Yeah. And to this point is actually I wouldn't say I'm never a fan of subscription models, but for this category, I don't think subscription is necessarily the best model. Because for me

to sign up for a subscription, I have to think I'm going to take more than one class. I mean, why not instead? let me pay per course and for other courses if you want to push discovery allow me to sample the first 10 minutes of a class for free right or do some other kind of incentive to get me to see the value and then maybe after two three courses then sell me something like a subscription where I'm like yes for sure I'm going to use this multiple times over yeah but the idea of jumping from day one to push you a subscription I think is a hard business model for this category

Yeah, it's hard. You have to capture the people who would pay up front for health clubs, right? Which is it's sort of, it's the aspirational me that will go to the gym all the time, right? Right. Well, thanks for joining us. We're so excited for the future of ed tech that is mobile first and AI enabled and isn't just advertising because I want to learn new stuff. I want to learn it all the time. The next thing I think in our house will be clearing clutter.

And so it's funny, Marie Kondo has that series on Netflix now. And so maybe I should watch it, and maybe there will be a tailor-made startup for that type of stuff. They can offer me help when I get stuck clearing my own crap. So, all right, thanks, YouTube. We'll see you next episode. If you liked what you saw, go ahead and comment and subscribe on the bottom, and we'll see you next episode.

Bye.