On October 25, 2019, Netease Youdao was officially listed on the New York Stock Exchange, but only one year after its listing, Netease Youdao’s business underwent a butterfly change. This butterfly change is most directly reflected in NetEase’s Youdao financial report data.
According to the prospectus submitted before listing, among Netease Youdao’s businesses, online courses and online advertising services accounted for the largest proportion of revenue, accounting for 45% and 41.4% respectively in 2018 and 41.6% and 42.6% in the first half of 2019. It can be seen that the payment revenue based on online courses and the advertising revenue based on traffic were equal at that time and were in a relatively balanced situation, contributing to the vast majority of Netease Youdao’s revenue.
However, in Netease Youdao’s latest financial report for the third quarter of 2020 as of September 30, the revenue structure of Netease Youdao has changed dramatically from a year ago. In the third quarter, NetEase Youdao’s net income was 896 million yuan, of which the net income of online courses and intelligent hardware as the main components of learning services and products was as high as 763 million yuan, up 239.1% year-on-year, accounting for 85.2% of the total revenue, while the advertising business and other revenue that used to account for nearly half of the total revenue has dropped to less than 15%.
From the perspective of business model, the revenue of learning services and products is actually a more healthy and sustainable business model than that of advertising, because learning services and products are user payment income obtained by creating new value for users, and have broader growth space. The traffic advertising revenue is mostly obtained at the expense of the user’s product experience. The ceiling is obvious and it is difficult to last.
There are two core drivers behind the sharp increase in the revenue share of NetEase Youdao learning services and products. One is the rapid growth of online courses that are familiar to the public. The financial report shows that in the third quarter of 2020, the sales of online courses with Youdao premium K12 and adult course business as the core reached 955 million yuan, an increase of 228.4% year on year; Another is Youdao’s educational intelligent hardware products, which contributed 163 million yuan in the third quarter, up 289.3% year on year, accounting for nearly 18.3% of the company’s overall net income, and has replaced advertising as the second growth curve of NetEase Youdao. Among them, from the perspective of specific product contribution, the sharp increase in the revenue of intelligent hardware products is mainly due to the sharp increase in the sales of Youdao Dictionary Pen 2.
For the above results, many readers who are not familiar with Netease Youdao may be surprised. Because in the public impression, NetEase Youdao has always been a light asset enterprise that mainly provides learning tool software and course content products. It started from the earliest Youdao search, and then transformed and launched Youdao dictionary, NetEase cloud class, Youdao premium course and other learning tool software and education course products. Especially, Youdao premium course has been rapidly rising in the past two years, and is well known by the public, but hardware products are less known to the outside world.
In fact, NetEase Youdao began to explore the field of intelligent hardware in education very early. In October 2017, it launched the first intelligent hardware “Youdao Translator Egg”, and then successively launched hardware products such as Youdao Translator King. However, these products were not hot in the market before. Until the successful launch of Youdao Dictionary Pen 2 in August 2019, NetEase Youdao truly opened the door of the field of intelligent hardware.
Youdao Dictionary Pen 2 not only ranks first in the electronic dictionaries and translation tools of major e-commerce platforms for a long time, but also frequently sells out of stock in more than 2000 distribution outlets across the country. It is also introduced to 78 national famous universities and key middle schools, including Tsinghua University, Fudan University, National People’s Congress, Hengshui Middle School, Bayi School, Hangzhou Second Middle School, covering 20 provinces and cities, and is becoming a popular product among dealers, students and parents.
So why did Youdao Dictionary Pen 2 suddenly become popular? The dealers who have the most say should be those who are in the first line of direct contact with the final consumer. Recently, the author visited some dealers of Youdao dictionary pen, and the experience of these dealers revealed the secret of Youdao dictionary pen’s sudden rise.
Zhang Jun is a core dealer of Youdao Dictionary Pen. He has nearly 20 years of experience in mobile phone trading. Zhang Jun, who has seen too many generations of mobile phone products, has a very keen sense of smell in judging whether a smart hardware is a popular product. When he first saw Youdao Dictionary Pen 2, he judged that it might be an explosive product that would ignite the market.
First of all, children’s learning and education is the biggest rigid need of the society, and also accounts for a large part of the consumption expenditure of each family. If a product can really bring obvious value in helping children’s learning and education, it will certainly be sought after by parents, and it is particularly easy to form a word-of-mouth effect in the field of children’s education. As long as some parents buy for their children, other parents will quickly follow up, Because no parent wants to delay even a minute or a second in their children’s learning and education.
Youdao dictionary pen is a product that can well meet the learning needs of children and can really bring real value. Among them, the biggest highlight of Youdao Dictionary Pen 2 is that it uses the OCR (optical character recognition) technology independently developed by Youdao to realize the “word search in one second” function. As long as you scan it, you can display the translation results in one second, making the word search speed 15 times faster than turning the paper dictionary, which has greatly changed the traditional learning mode of students. In addition, Youdao Dictionary Pen also compiled a special vocabulary for different learning stages, such as common vocabulary for college entrance examination. For the weak words in students’ English learning, Youdao dictionary pen can also be stored in the “word book” with one key to facilitate students’ centralized memory. In addition, it is also equipped with English and American pronunciation. After students follow it, the AI system will automatically score; Even without the help of professional oral teachers, students’ oral pronunciation can be corrected quickly and efficiently.
A really useful and easy-to-use product can speak. As soon as Youdao Dictionary Pen 2 reaches the hands of early users, it will soon form a huge reputation in the entire education field.
Secondly, the pricing of Youdao Dictionary Pen 2 also plays a huge role in helping it become an explosive product. Many good products are priced too high, resulting in the final loss of market. While it has great user value, Youdao Dictionary Pen 2 has a high cost performance ratio. Its standard version price is only 799 yuan, which greatly reduces the purchase threshold of consumers. This is also an important factor for the success of Youdao Dictionary Pen.
Finally, Youdao dictionary pen has a good channel policy and is popular with dealers. Friends familiar with smart hardware products such as smart phones all know whether a product can achieve large-scale sales. In addition to the core premise of product strength, it is also important to enable dealers to make money. Only by allowing dealers to make money, can they have the power to continuously deliver products to end consumers. In addition to its strong product power and excellent cost performance, close cooperation with dealers to make money for dealers is the key to help Youdao dictionary pen succeed in breaking the situation in all channels.
The success of Youdao Dictionary Pen has also led to the explosion of Dictionary Pen, a new category of educational intelligent hardware. After that, companies such as iFLYTEK have also followed up. According to the official data released by the JD e-commerce platform, the turnover of audio-visual education and accessories products in 2020 increased by 251% year-on-year, while the sales of dictionary products increased by nearly 19 times year-on-year. From the perspective of the entire education smart hardware market, the dictionary pen has also become the third largest smart hardware category for children and students, second only to the sales of children’s watches and learning tablets.
The follow-up of a large number of competitors is not a bad thing for Netease Youdao, but a good thing on the contrary, because the participation of more enterprises will be conducive to the rapid expansion of the market scale and the outbreak of the overall scale of the market. Youdao dictionary, as an industry leader, will be the biggest beneficiary.
The great success of Youdao Dictionary Pen 2 has made NetEase Youdao full of confidence. NetEase Youdao Zhou Feng also said that it had predicted that educational intelligent hardware would have a good future, but the success of Youdao Dictionary Pen 2 has made Youdao truly confirm that hardware is indeed a gold mine, so NetEase Youdao made further efforts and released the latest Youdao Dictionary Pen 3 on December 1 this year. On the basis of the great success of Youdao DictionaryPen 2, Youdao DictionaryPen 3 has significantly improved in many product dimensions.
First of all, after the previous generation achieved the ultimate experience of scanning word search, Youdao Dictionary Pen 3 has launched the “super fast search” function, which is the first in the world. This function upgrades the efficiency of word search again, and allows users to directly simplify the word search experience from the previous generation’s scanning interaction mode to “click” with a pen to complete word search. In addition, it continues the offline function of the previous generation. Youdao Dictionary Pen 3 can search words without connecting to Wi-Fi, which is applicable to the school environment without network.
Secondly, Youdao dictionary pen has added another important function of “interactive reading” for children of low age, extending the age of users of dictionary pen category to 3 years old. Unlike the traditional point-reading pen, Youdao dictionary pen is the only intelligent learning hardware on the market that realizes visual point-reading. It can present the content of children’s daily picture books with animation effects, turn the paper picture books into English cartoons that can be played on the spot, and bring more rich and three-dimensional reading experience for preschool children to read picture books, enhance their interest and enhance their learning motivation.
In the past, the core user group of Youdao dictionary pen was mainly the student group of primary school, middle school and university. The launch of the “interactive point reading” function means that the application scenario of Youdao dictionary pen will be extended to the children group, which will create a huge new incremental market for Youdao dictionary pen.
Behind the realization of the two core functions of “super quick search” and “interactive point reading”, NetEase Youdao has accumulated deeply in the field of technology. For example, it is not easy to focus the functions of point search, point reading and scanning translation on one pen. In order to realize automatic recognition and ensure smooth and seamless switching of user experience, Youdao Dictionary Pen 3 independently developed the world’s first super-sensitive optical system, which is compatible with the automatic judgment and recognition of two AI technologies, OCR (Optical Character Recognition) and OID (Optical Identification Code), and can recognize infrared and visible light at the same time. This is a huge technological innovation.
In addition to the addition of new functions, Youdao Dictionary Pen 3 has also significantly improved the functional experience of some core products compared with the previous generation. For example, Youdao Dictionary Pen 3 can recognize more than 30 kinds of fonts, including common textbooks, extracurricular books and other books, as well as all kinds of fancy characters and variant characters, to adapt to more use scenarios. At the same time, the offline neural network carried by Youdao Dictionary Pen 3 accelerates by 20% on the original basis, making recognition faster. The recognition accuracy has also been greatly improved. Last August, when Youdao Dictionary Pen 2 was launched, the average recognition accuracy rate was 95.5%. After several product upgrades, the accuracy rate has been continuously improved. On the latest Youdao Dictionary Pen 3, the average recognition accuracy rate reached 98.3%.
While the function has been greatly improved, Youdao dictionary pen 3 still maintains a very competitive price, of which the standard version is priced at 1199 yuan, the professional version is priced at 1499 yuan, and the standard version is offered a discount of 100 yuan during the pre-sale period. You can have a new Youdao dictionary pen 3 for only 1099 yuan.
In the experience link after the product launch, the author noticed that many dealer guests were confident after experiencing Youdao Dictionary Pen 3. When these groups with the most acute sense of the market give Youdao DictionaryPen a high evaluation, it means that Youdao DictionaryPen 3 may become a phenomenal explosive product with more market potential than 2.
As a popular product, Youdao dictionary pen is becoming an important driving force for the rapid growth of NetEase’s Youdao revenue, but it is far from all its value. There are two greater values of Youdao dictionary pen. First, it has successfully broadened the business boundary of Netease Youdao, and second, it has built a new organizational capability.
In the past, Chinese Internet companies often made a relatively serious strategic mistake, that is, they were trapped by gene theory. If an enterprise is an asset-light company, it dare not venture to do asset-heavy business, or if it is a company in the field of To C, it dare not do business in the field of To B, which often limits the pattern of enterprise development. In contrast, some of the most successful enterprises in the current Internet field have a common feature that they have the courage to break business inertia and are not bound by genetic theory.
For example, Alibaba was an asset-light website development and operation company at the beginning. What really broke the situation was to build an offline supply iron force in the heavy operation team, enabling it to successfully realize the closed-loop business model. However, Xiaomi was originally a software company with MIUI and MicChat as its core products, and finally achieved great success by relying on hardware products such as Xiaomi mobile phones
Both NetEase Youdao and NetEase Youdao’s parent company, NetEase, have a very strong software gene and have long been operating with light assets. They are hesitant about whether to vigorously develop hardware business for a long time. The success of Youdao dictionary pen has made the team of Netease Youdao dictionary no longer superstitious about gene theory, but to see that their advantages in the field of software and content can make better intelligent hardware, thus strengthening their confidence in the development of intelligent hardware in the field of education, which has greatly expanded the business boundary of Netease Youdao, making it the only educational enterprise in the industry to balance the business layout in hardware, software and content. At present, the online education market is actually a highly competitive Red Sea market, and the profit model has not been fully verified. Educational intelligent hardware may become a sharp tool for NetEase to achieve overtaking in corners.
Wu Yinghui, senior vice president of Netease Youdao and head of Youdao products, said in an interview with the media, “Unlike some Internet companies, we will enter the hardware industry. Hardware R&D and manufacturing is one of our fundamental skills.” Zhou Feng, CEO of Netease Youdao, also said, “In Netease Youdao, hardware and curriculum are juxtaposed, and they are two forms to meet users’ learning needs, which are equally important.” From the words of two core executives, Zhou Feng and Wu Yinghui, we can see that Netease Youdao is far more firm in hardware business than before.
In addition, the success of Youdao dictionary pen has formed new capabilities in NetEase Youdao’s organizational system, such as the product R&D capability of software and hardware integration, the hardware supply chain capability and the channel and after-sales service capability throughout the country. This capability is extremely valuable. As long as it has this capability, as long as there are new product opportunities in the future, NetEase Youdao can seize new business opportunities more efficiently with the new organizational capabilities.
For example, Ding Lei, founder of NetEase, said that, “We are looking forward to AR glasses. AR glasses are more comfortable than VR glasses, and I think AR glasses will have a huge impact on the world. Because NetEase has worked in the content and technology fields for a long time, we know what product innovations we can combine with AR glasses after they are released. If you bring a magazine today, you can’t understand this text, but your glasses have a radar. When you scan the magazine, all English will be translated into Chinese. This may be very soon What will happen. ” As predicted by Ding Lei, Netease Youdao will surely be the enterprise with the greatest probability to seize the commercial opportunities of AR glasses in the education industry.
In a media interview after the launch of Youdao Dictionary Pen 3, NetEase Youdao CEO Zhou Feng also said confidently that if a competitor wants to make Youdao Dictionary Pen 3, the capabilities of content, hardware and AI algorithm are indispensable.
In the process of long-term business research, Lishi Business Review has an important experience, which is to judge the long-term development of an enterprise based on the ability to