Porter's 5 Forces

Substitutes include: in-person tutoring, study groups, self-learning, and a variety of other online services and applications

Despite the Chinese government's recent crackdown on online education, new EdTech startups are constantly stepping up with the latest technology. Barriers to entry are low, and switching an education provider is as easy as a click of a button (Yuanfudao's new-user renewal rate of 70% is evidence of this). Apart from Yuanfudao's patents and innovative advancements, the education space is very much a free market; no one has exclusive rights to math and science problems. Yuanfudao's customers are only as loyal as they perceive their education services are "the best."

Although the number of substitutes are high and buyer switching costs are relatively non-existent, educational services are unique in that results are not black and white, and they definitely are not instant. Especially at the primary school age, primary user feedback is often ignored (how many children actually enjoy learning math after school?). Furthermore, product knowledge is low to medium - how often are parents actually actively engaged with their child's after-school education (i.e. I hired you so I don't need to worry about this)? As a result, though buyer bargaining power has the potential to be high, the nature of this industry and service prevents users from exercising this power.

Given the low barriers to entry and the relatively unsaturated online education market, new entrants are constantly hitting the marketplace. Despite the government's new regulations on after-school education, there are more than 1,058 EdTech startups in China (as of September 2021). Yuanfudao's competitive advantage is its developments in data science, and its greatest asset, its vast amount of user data (home assignments, student profiles, etc.).

If Yuanfudao's products and services are its applications and live courses, then its suppliers are its team of teachers and IT/data science professionals. Given that most teachers in the after-school education sector are not professionally qualified and often part-time, supplier power is low. On the other hand, data science professionals are in high demand worldwide, and thus come at an equally high price point.

As mentioned previously, China's EdTech startup scene is booming. However, celebrating its 10 year anniversary in 2022, Yuanfudao has matured far beyond its status as a unicorn startup and is the highest valued EdTech company today. Competition for a piece of the after-school education pie fierce, and is evident in Yuanfudao's advertising strategy (its highest expenditure), and their aggressive pricing strategy. Furthermore, as of January 2022, childbirth rates in China are at a record low, dropping for a fifth consecutive year. As K-12 education providers are limited to a customer's lifetime value of 13 years, it is no surprise that Yuanfudao has turned to other business ventures, such as selling winter down jackets.