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Tal Education disclosed that its spending in the same category surged by 172% from a year ago to 660.5 million yuan for the three months that ended Feb. In its earnings report for the first three months of the year, the company said its selling and marketing expenses of 2.29 billion yuan were three times more than a year ago. Gaotu did not respond to a request for comment. "In China, Kuaishou is a smaller platform than Douyin/TikTok, so the total spend on traffic by all of K to 12 education companies would be much more than that," the source said in Mandarin, according to a CNBC translation. U.S.-listed Gaotu spent more than 50 million yuan ($7.75 million) in one week this past winter for ads on short-video platform Kuaishou, a person familiar with the matter told CNBC. Advertising warsĬhinese after-school tutoring companies began to spend heavily last year on advertising to attract new students.
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But the coronavirus pandemic in 2020 accelerated the tutoring industry's shift online, and the cash-burning fights of China's internet world was in full play. The opportunity was enormous given China's population of 1.4 billion people and a culture in which parents prize their children's education.Įarly industry players like New Oriental got their start with physically leased locations and in-person classrooms. However, the education industry already had several major market players, he pointed out, and "it turned out that no business could really beat the other before the crackdown."īuilding a dominant market leader in after-school tutoring was a lucrative prospect. He requested anonymity because of the sensitivity of the matter.
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"They were hoping to create another oligopoly like Didi" with market pricing power, said an investor and co-founder of one of the largest U.S.-listed Chinese education companies, according to a CNBC translation of his Mandarin-language interview. Two months later, competitor Zuoyebang raised $1.6 billion from investors including SoftBank's Vision Fund 1, Sequoia China, Tiger Global and Alibaba. In October 2020, online tutoring start-up Yuanfudao said it raised a total of $2.2 billion from Tencent, Hillhouse Capital, Temasek and many other investors - for a valuation of $15.5 billion. It came months after Beijing's efforts to tackle alleged monopolistic practices by the country's internet technology giants like Alibaba and Tencent.īy late July, the education sector was clearly Beijing's next target. Just days after Didi's IPO, Chinese authorities ordered app stores to remove Didi's app and began investigations into data security - effectively shutting down the business's growth prospects in the near term. For the strategy to work, investors aimed for a "winner takes all" approach that they'd used with other Chinese start-ups such as coffee chain Luckin Coffee and ride-hailing company Didi.ĭidi essentially paid Chinese consumers to take cheap rides through its app, beating out Uber to dominate about 90% of the mainland market, and went on to raise more than $4 billion in a New York IPO on June 30.īut it soon became clear that investment strategy might no longer work. The strategy was one of burning cash to fund exponential user growth, with hopes of profit in the future.