Is the big model of education a "good story"?
Author | Zhou Tong
Edit | Fun business
From Wen Xin's words to iFLYTEK Spark, and then to 360 Wisdom Brain, since August 31, in just one week, several large artificial intelligence models that have attracted "far ahead" attention in the domestic capital market have been officially announced to open to the public. With this as a sign, the competition of domestic artificial intelligence large models has entered a new stage.
At the same time, on September 1, the Cyberspace Administration of China released the second batch of deep synthesis service algorithm filing information announcements in China, including 110 large model algorithms, including NetEase Youdaozi big model, Douyin lark big model, Jingdong Yanxi big model, HUAWEI CLOUD Pangu big model, etc., and successfully obtained "ID cards". Among them, NetEase Youdao's "sub-big model" has also become the first education model in China to be filed through algorithms, which will be applied in the fields of "virtual population language coaching" and "AI composition guidance".
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As a veteran online education service company founded in 2006 and listed on the New York Stock Exchange in 2019, NetEase Youdao, which has been losing money for 5 years, is trying to achieve a "breakthrough" by betting on artificial intelligence in the face of the continuous pressure of "double reduction".
01. From K12 to smart hardware
In 2006, Ding Lei invited Zhou Feng, a legendary alumnus of Tsinghua's Department of Computer Science, to join NetEase Youdao. Initially, I actually planned to make Youdao a search engine, but after a short attempt to consciously fail to do Baidu, I turned around and took the lead in making tool products to find a sense of existence; Youdao Dictionary, Youdao Translation, and Youdao Cloud Notes have successively launched, all of which have gained a lot of fans.
Image source: NetEase Youdao official website screenshot
In 2014, after seeing the opportunities in the online education industry, NetEase successively launched a series of online education products such as NetEase Cloud Classroom and Chinese University MOOC, which won a lot of word of mouth, and was even praised as "Ding Lei is using the money earned by making games to subsidize education".
But this is not lasting, there is no NetEase Youdao who is "kidnapped by feelings" like NetEase Cloud Music, and then began to follow the good future, New Oriental, and ape tutors "step by step", and started the idea of K12. However, at this time, K12 online tutoring has entered a white-hot stage, and if you want to grab a piece of meat from the mouth of "New Orientals", you must not only invest a lot of money in marketing, but also invest a lot of manpower and material resources in teacher preparation, curriculum research and development, etc.
This also directly led to the fact that for a long time, NetEase Youdao was in a state of making ends meet - although revenue was growing, spending was growing faster. According to its financial report, in 2017, 2018 and 2019, NetEase Youdao's revenue was 456 million yuan, 731 million yuan and 1.309 billion yuan, respectively, and the net loss reached 164 million yuan, 209 million yuan and 609 million yuan, respectively. Among them, in 2019, the first year after listing, sales and marketing expenses alone reached 623 million yuan, an increase of nearly three times over the previous year, far exceeding the increase in revenue in the same period.
Image source: Baidu Stock Connect
However, given that the domestic K12 market was still growing at that time, both enterprise operators and investors could accept the model of profit for scale, and NetEase Youdao also relied on high investment in exchange for high growth. In August 2020, it hit a stock price high of $47.70, and its market value once reached $5.9 billion, four times that of its listing in 2018; among the domestic education companies listed on the US stock market, it is second only to several companies such as Good Future, New Oriental, and Who to Learn. NetEase Youdao's revenue reached 3.168 billion yuan that year, a year-on-year increase of 142.7%, and the loss of 1.753 billion yuan also hit a new high after listing.
In order to continue to "burn money and grab the market", NetEase Youdao completed a public offering of 7 million American Depositary Shares (ADSs) at a price of US$34 in February 2021, raising US$232 million, and also obtained a US$300 million credit facility from NetEase Group. Just when preparing to make a big move, in July 2021, the landing of the "double reduction" policy gave NetEase Youdao a head-on blow.
According to its financial report for the second quarter of that year, it achieved revenue of 1.293 billion yuan during the reporting period, and the three core businesses of online courses, intelligent hardware and online marketing services were 921 million yuan, 206 million yuan and 166 million yuan respectively. Among them, 86.5% of the students in the online course business are K12 students, contributing 41.2% of Youdao's total revenue.
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Although compared with New Orientals, it is not a "disaster", but for NetEase Youdao, who has been groping for many years and finally found a worthwhile track and is ready to cultivate deeply, it is undoubtedly a heavy blow.
After the "double reduction", a large number of education and training institutions have aimed their direction at the field of intelligent education hardware in the process of seeking their own transformation. Under such circumstances, while launching quality education products such as programming, Go, art, and robotics, and expanding adult online education revenue, intelligent learning hardware has become the primary transformation direction established by Zhou Feng for NetEase Youdao.
02. The hope of "the whole village"
NetEase Youdao, which once relied on Youdao translation, Youdao dictionary and other tools and software to find a sense of existence, does have certain advantages in making products compared with authentic education and training enterprises such as Good Future and New Oriental.
As early as October 2017, NetEase Youdao began to test the water of education intelligent hardware, and successively launched more than ten hardware products, from translation eggs to repeaters to pocket printers and hearing treasures, with a fairly large product span.
However, it is a pity that after many years of market testing, the only thing that can hit sales is Youdao dictionary pens. Although in the external publicity, Youdao flaunted that it created the category of "dictionary pen" and led the formulation of national industry standards; But in essence, this is not a product with a strong technical moat, and competing products with similar functions abound. Even because of BBK's overwhelming advertising, most people instinctively think that this is its invention.
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It is precisely because of the fierce competition that the unit price of dictionary pen customers is low and the profit margin is also low. Although on e-commerce platforms such as Jingdong, Youdao Dictionary Pen has won the TOP1 category sales for three consecutive years from 2020~2022, it is obviously a drop in the bucket for supporting the market value of NetEase Youdao during the transition period, let alone carrying Ding Lei's dream of education.
From $47.7 per share to $3.03 per share, in the face of falling stock prices like free fall from high points and continuous losses, NetEase Youdao urgently needs to find new growth points, and the emergence of AI large models has given it hope.
"Master teaches people, each according to his talent", at the conference on July 26, 2023, NetEase Youdao CEO Zhou Feng quoted this sentence from Zhu Xi's "Analects and Notes" to explain the opportunities brought by the big model to education in his mind - the real opportunity to teach according to aptitude.
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Compared with the general large model, NetEase Youdao has positioned the sub-large model as a scenario-first education vertical model from the beginning. At the press conference, NetEase Youdao launched six "innovative applications" based on its development, among which document question and answer and AIbox functions were first applied to Youdao translation, and functions such as virtual population language coach and AI composition guidance function will be applied to Youdao dictionary pen, Youdao AI learning machine and other products in the third quarter of this year.
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Youdao AI learning machine is also a new generation of explosive items that NetEase Youdao is focusing on. According to a report released by IDC, China's learning tablet market shipped about 2.2 million units in the first half of 2023, up 37.2% year-on-year, maintaining a rare stable growth in the face of a continuous decline in consumer tablet sales for the masses.
As the education intelligent hardware with the highest user penetration rate and utilization rate, its high unit price and high profit margin are regarded as the "basic disk" for the layout of educational intelligent hardware, in addition to realizing various interaction, direct writing, video and other experiences, it can even be backward compatible with the translation, reading and even scanning functions of the dictionary pen. For NetEase Youdao, which is interested in making a difference in the education market, this is a "mountain" that has to be conquered.
It is precisely because of this that on July 6, 2022, NetEase Youdao released its first tablet product "AI Learning Machine", in addition to providing popular services such as Chinese library, high-quality English, and synchronous learning of teaching materials, it added several personalized services such as English composition correction, in an attempt to get a piece of the learning tablet market.
Image source: Little Red Book
However, judging from the subsequent financial report sales data, the competitiveness of new products does not seem to be strong. The 2022 financial report shows that despite the launch of a number of new products such as learning machines, NetEase Youdao's intelligent hardware business revenue that year only increased by 28.2% year-on-year, down 60% from the 82% growth rate in 2021. After entering 2023, this data is even less optimistic, NetEase Youdao intelligent hardware business revenue in the first quarter fell by 16.0% year-on-year, and the decline in the second quarter remained unchanged, down 7% year-on-year.
Empowering with large models and through more personalized and customized services, AI learning machines and dictionary pens can carry the banner of intelligent hardware revenue together, which has also become the expectation of NetEase Youdao.
03. "Barbarians" at the mouth of the village
However, it is not only NetEase Youdao that is eyeing the smart hardware and even AI education market.
In August 2022, the Ministry of Science and Technology issued the Notice on Supporting the Construction of a New Generation of Artificial Intelligence Demonstration Application Scenarios, and smart education was included in the first batch of demonstration application scenarios. With the encouragement of policies and the attraction of broad market space, more and more companies have begun to continue to pour in, which means that the market share of smart hardware that may have belonged to NetEase Youdao is being rapidly divided.
Taking the most competitive AI learning machine as an example, since iFLYTEK took the lead in launching this product to the public in 2019, it has not only attracted former education and training giants such as New Oriental, Xueersi, Homework Gang, and Ape Tutoring, but also traditional learning hardware companies with great advantages in offline channels such as BBK, Haojixing, and Shulang, and even home appliance companies such as Haier, Skyworth, and TCL have their own learning machine products.
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Although some of them do have some vague concepts that sell ordinary learning machines as AI learning machines, there are also companies with "real talents", and the large models they rely on seem to be able to compete with NetEase.
According to the financial report, its revenue from intelligent hardware reached 570 million yuan in the first half of this year, a year-on-year increase of 19%, and after the release of its Xinghuo cognitive large model, in May and June this year, the GMV of the iFLYTEK AI learning machine equipped with the iFLYTEK Xunflix cognitive large model increased by 136% and 217% respectively, with fierce momentum. It is worth mentioning that its new product T20 Pro, priced at up to 9999 yuan, single-handedly raised the ceiling of AI learning machines.
Image source: Screenshot of the live broadcast of iFLYTEK's press conference
In addition, Baidu's Xiaodu learning machine is the first in domestic shipments in 2022, and now with the blessing of Wenxin's big model, the ability has been greatly improved, and functions such as 1-to-1 tutoring for AI speaking teachers and AI homework assistants for all subjects have been launched.
There are also homework gangs and good futures who have also suffered from the "double reduction" policy, and have also begun to make efforts on the big model. Good Future launched MathGPT, a 100-billion-level large model in the field of mathematics, and Homework Gang launched a galaxy model "tailor-made" for the education field covering multiple disciplines, multiple sections, and multiple scenarios, and according to the plan, it will be successively applied in their respective AI learning machines and other intelligent hardware.
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This is also a very embarrassing thing for NetEase Youdao, although the sub-Yue large model is positioned as a "scene-first education vertical model", but in practical application, it seems that there is no obvious gap with competitors, and it is difficult to find where the barriers and differences with competitors are.
Taking the "six innovative applications" that NetEase Youdao highlighted when the sub-model was released, as an example, whether it is a virtual population language coach, or AI composition guidance, grammar refinement, etc., it can not be called "true innovation", the iFLYTEK learning machine, Xiaodu learning machine, 360 learning machine, etc. currently on sale can achieve similar functions, and the differences between each other seem to be limited to different expressions and promotion techniques.
What is more embarrassing is that compared with such "pendant large models" as Ziyue, some intelligent hardware products that apply general large models also add AI programming, AI creative drawing boards and other functions, which seem to be more attractive to parents and children.
Originally, I wanted to rely on large models to break through, but the current situation is that NetEase Youdao seems to be falling back into the homogeneous involution of intelligent hardware similar to the K12 online course of that year; If you want to increase market share, will you return to the old path of "profit for scale"?
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Another question worth thinking about is that for companies like NetEase Youdao whose product application scope is limited to a certain field, it is necessary to invest a lot of manpower and material resources to develop an independent "vertical model", which is debatable. Under similar circumstances, foreign online education platforms such as Quizlet and Khan Academy have chosen to directly access general large models such as ChatGPT to develop products.
Not long ago, Quizlet delivered a strong second-quarter report: daily active users up 62% and operating income up 44%. Without its own large model, it has not affected the capital market's recognition of it, and the stock price has doubled in more than half a year.
At the 2023 Baidu Cloud Intelligence Conference on September 5, Baidu CEO Robin Li, who invested 21.416 billion yuan in research and development in 2022 alone, also expressed similar views. In his view, a large model such as Wen Xin Yiyan itself does not directly produce value, and the application developed based on the basic large model is the meaning of the model's existence, and encourages enterprises to develop products on the basis of Wen Xin Yiyan.
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The chairman of SAIC Motor once refused to cooperate with third-party manufacturers such as Huawei for autonomous driving on the grounds that he "wants to take his soul into his own hands"; As the only independently listed company under NetEase, NetEase Youdao insists on self-developed "sub-big model", and may have similar concerns. However, this also means that with greater investment and higher costs, can a company that has set "growing its business while improving financial indicators" as its annual goal to win this "big model battle" with iFLYTEK and its job gangs?
With the slowdown in demand for smart hardware and the intensification of industry competition, NetEase Youdao, which has been losing money for many years, how far can it go under the "blessing" of large models?
Resources:
1. ""One Leg" Walks, NetEase Has a Road Hardware Lost", Extreme Business Review
2. "Two Days of Ice and Fire in the Big Model of Sino-US Education", Alpha Factory
3. "2022 China Education Intelligent Hardware Market and User Insight Report", iResearch