From Global Times By Michele Scrimenti and Cong Mu
Zhang Ying had studied English for years and even lived abroad, but she just couldn’t get a seven on the International English Language Testing System (IELTS) used by universities and companies around the world to measure English proficiency. Zhang had managed to score 6.5 twice, which meant her English was pretty good, but not good enough to nail down a job as a nurse overseas. A salary increase and a new life in another country were just half a point away.
Millions of Chinese around the country cram into large classrooms and pay high fees for one-on-one lessons at major well-known schools like New Oriental and English First, but Zhang opted for EQEnglish.com, a Beijing-based IT start-up that plans to revolutionize language-learning through the Internet the way Amazon overturned the book industry.
Supply and demandEQEnglish, founded in Zhongguancun, China’s Silicon Valley, in 2005 by Jonathan Palley and Adrian Li, solves a basic supply and demand problem.
According to Reuters, the number of Chinese students enrolled at English teaching industry-leader New Oriental exceeded 1.5 million as of May 31. And that’s just one company. The People’s Daily reported in 2006 that as many 300 million Chinese people are learning English. While that might be an inflated figure that included cab drivers and street vendors who were learning basic phrases in the build-up to the Olympics, the number of people taking the IELTS, which EQEnglish is currently focused on, is expected to exceed 300,000 in 2009, up 15 percent from 260,000 in 2008.
But the number of native English speakers teaching in China cannot begin to sate this demand, leading to exorbitant tuition fees, with a one hour one-on-one session ranging from 150 ($22) to 600 yuan ($88).
While companies like English First and New Oriental pay foreign teachers’ plane fares to meet demand, EQEnglish gets around this problem by hooking up Chinese students with teachers in America over their own Skype-like interface designed specifically for teaching English. Students can connect with teachers anywhere they can get an Internet or phone signal.
The lack of overhead costs for classroom space and the cheaper costs of American labor (part-time teachers in the US get paid one-fourth of their counterparts in China), EQEnglish is able to cut fees down to about 60 yuan ($8.80) per lesson, giving the company a major competitive edge over traditional brick-and-mortar schools.
Unlike most firms, EQEnglish has actually benefited from the financial crisis. With massive layoffs plaguing the US, more people are trying to find part-time jobs from home. According to Palley, EQEnglish’s co-founder, they are tapping into a growing pool of over 40 million Americans looking to work from home.
And they seem to be having no problem getting enough teachers. Of the thousands of people who fill out their 40-minute online application, EQEnglish only accepts 1.7 percent. But instead of having human resources staff pour over thousands of applications, the firm can pick out the best of the bunch with its custom-designed technology that vets the applications automatically.
“And we can do this at scale,” Palley said. “That’s why we can do it at low cost.”
Technology is powerUsing technology is not constrained simply to the hiring process. It runs through the entire company.
EQEnglish employs only around 30 people in Beijing and yet is able to coordinate hundreds of teachers in the US and give thousands of lessons across China. How?
“That’s where technology comes in,” Palley said. “It’s all custom-built.”
EQEnglish has developed its own advanced technology to take care of almost everything the company does, including monitoring thousands of lessons to maintain quality control.
Palley says the start-up is part of an emerging industry, “technology-powered services,” which is part of the idea of Web 2.0: using data to make the service better. Google tracks every search and uses the data gathered to improve the quality of its search engine, and EQEnglish records every lesson and follows variables like the amount of material covered to evaluate teachers and lesson plans.
While online competitors have sprung up across the globe, including Wall Street English and New Oriental in China, EQEnglish is the only one that extensively develops its own technology.
“Everyone else just puts what they have in real life online,” Palley said. “We are the only one that took a step back and said, ‘Let’s completely rethink the language-learning experience for the online medium.’”
Currently, the company focuses exclusively on the IELTS exam so that they would have a way to measure how effective their classes are. The company partnered up with the British Council, the maker of the test, to help students improve their scores.
So far results have been promising. In January the company will launch a money-back guarantee of a 0.5-point increase, a significant jump, after just 30 lessons.
On the wings of angelsA problem for any budding IT company is funding, but EQEnglish has been able to get enough money to keep developing, sometimes from surprising sources.
In 2006, Palley was discussing his business model with Bill Trenchard, CEO of LiveOps, a telemarketing giant that also utilizes the same workforce of part-time American workers that EQEnglish now relies on. Trenchard was so sold on the idea that he became an angel investor in the company.
An angel investor gives capital to a start-up normally in return for debt or partial ownership.
Another angel came from New Oriental, one of its competitors. Xu Xiaoping, cofounder of the English teaching giant, has invested in the firm and is convinced that this “innovative and revolutionary” model will work, according to the foreword of an IELTS test prep book EQEnglish is releasing next month. Xu is also planning on going around the country to promote the company at universities, according to Palley.
More recently, venture capital firms have invested in the firm. Gobi Partners, a Chinese VC firm, and Ambient Sound Investment, founded by one of the four lead engineers at Skype, have put an undisclosed amount of money into the firm over the last three years.
Marketing problemsOne major challenge still remains for the company: marketing. EQEnglish has yet to fully throw itself into the market, where they will have to face experienced and well-recognized foreign and domestic competitors.
“You’ve got New Oriental on one hand, and English First and Wall Street on the other,” John Holsapple, founder of an English-teaching company in Beijing, “New Oriental’s got the money and connections, while EF and Wall Street have the great branding because they’re foreign companies, which is obviously a plus for English teaching. It’s a very hard market to break into.”
Despite the clear difficulties ahead, Palley is confident EQEnglish will succeed.
“We have a product that can teach you faster and more effectively than anything else in the world,” Palley said. “Once people realize that, they’ll use our service.”
As EQEnglish begins its first major marketing push next month, perhaps the most effective means of passing along the message are satisfied students like Zhang, the nurse.
Zhang, who is planning to work in America, said, “After a lot of hard work, I got the seven I needed to go abroad. I don’t think that would have been possible so fast without EQEnglish.”