The Chinese media sphere witnessed in this month of August, a battle between two giants in the online education market involving pornography, threats, and unfair actions. The investors of these companies are enraged by the fallout from this scandal.

Retrospective of the online education market in China

In recent years, the online education market in China has been growing steadily. Education in China is deeply rooted in the culture of the country and its people, with the evolution of society and the digital world, this market responds perfectly to a demand and expectation of a certain target of consumers.

Indeed, in 2016, the market grew by more than 25% and represented a turnover of more than 20 billion dollars. The market is still growing, more than 90 million users are registered on different platforms and the market expects a 20% increase over the next two years.

This growing interest in education lies in the deep culture devoted to this sector. It is well known that Chinese families are willing to spend thousands and cent to provide the best possible education for their children to get the best grades and schools possible. To do this, learning at school is not enough and the parallel courses complete the knowledge of the child. The profile of a student is very important in Chinese society in which success is measured by its accomplishment.

At the beginning of 2016, the market identified more than 9,500 platforms offering online services, which are positioned on various levels of education ranging from primary to higher education, as well as foreign language learning aid or vocational training.

The growth of the market has attracted the interest of many investors to capitalize on these startups. This attraction allowed in 2015, an influx of investments in social capital in the industry through investment, mergers and acquisitions to give a second boost to the development of the sector. In these investors, one can notably find giants of the digital world such as Baidu, Alibaba or even Tencent.

Two platforms are performing well in a highly competitive market that is Zuoyebang and Yuansouti, which hold a large share of active users on their applications.

A scandal that challenges the development of the sector

Last August, a post on Weibo, one of the most important social networks in China, showed screenshots from an e-learning platform owned by a company known for sharing exclusive and unusual content. the Yuantiku company which contained content with pornographic connotation. A scandal that made very quickly speak of him since it was relayed very quickly on the internet and the media.

Yuantiku’s investors include IDG Capital, Matrix Partners and Tencent, and take this scandal very seriously, which can result in loss of credibility among individuals but also the deterioration of their brand image.

An inquiry was opened internally to find out the origins of the content, especially since the platform software automatically regulates and removes any content that may be inappropriate. As a result of this investigation, the IP addresses that sent the content were analyzed and it appears that the IP addresses originated from the rival company of Yuantiku, Zuoyebang. According to the company every door to roise that its competitor is conducting a defamation campaign about it.

The problem quickly became a public matter when the manager of Yuantiku published and designated on his account WeChat, Zuoyebang as being the instigator of this scandal. The two companies threw themselves into a media battle with statements and mutual accusations.

The case became even more important because of the statements made by Yuantiku who used the term “Baidu Zuoyebang” in his messages to address the company. Baidu shareholder of Zuoyebang, very quickly responded to this affiliation to this scandal, since it lets claim that Baidu is affiliated directly to Zuoyebang. This reaction takes the form of a legal action against Yuantiku.

This media battle and the contempt exercised by both parties, strongly damages the image and development of the sector. Indeed, many companies in the sector see in this scandal the negative repercussions that they can have on the whole of the sector of which the loss of confidence of the users and in particular of the prescribers that are the parents.

The facts remain for the moment still vague and few external parties really know what happened. The three parties have launched actions in justices, remains to be seen over the month that will arrive the outcome of this case that will strongly impact all actors.