Intelligent beyond imagination, adaptive to the future – China AI adaptive learning industry whitepaper

With the breakthrough from computation power and algorithm capability, Artificial Intelligence (“AI”) has been evolving quickly in simulating human intelligence and penetrating multiple aspects of our daily life. “AI Adaptive Learning” is a major achievement after AI is applied to education industry, which truly helps to implement the teaching philosophy of "teaching in accordance with one's aptitude".

The market potential of AI adaptive learning is growing rapidly with diversified service offerings. Meanwhile, due to the high technical barriers and changing application scenarios, its market definition and user recognition remain unclear. Under such circumstances, EY-Parthenon publishes this white paper with an analysis on the industry status-quo and future trends. We hope this white paper could help market participants and users get a deeper understanding of AI adaptive learning and move the industry forward together.

1. AI adaptive learning is derived from Adaptive Education by usage of AI

The idea of “AI Adaptive Learning” is derived from “Adaptive Education,” both of which adhere to the principle of teaching students in accordance with their aptitudes. According to the degree of intelligence, adaptive education can be ranked into six levels (L0-L5).

• L0: Traditional real-person teaching in all links without automation tools;
• L1- L2: Digitalization or intelligent technology is applied to improve efficiency, but AI technology is not adopted in core teaching links to realize personalized education. Representative forms include livestream lessons and intelligent homework search tools;
• L3-L5: AI is adopted in the core teaching process to assist, lead and even replace -human teachers without intervention. On these levels, students can experience truly personalized learning by the usage of AI. International representative companies include Knewton, IBM Watson, Korbit, etc., while domestic representative companies include Squirrel AI, iFLYTEK, etc.

Only when artificial intelligence enters the core "teaching" link (L3-L5) can it be called “AI Adaptive Learning".

It is worth noting that though, in theory, AI can simulate or even surpass excellent teachers, and be applied to all aspects of education, we believe that under current AI’s  technical level, it cannot replace the role of real teachers in supervision, communication, motivation and personality training. Therefore, it might be an ideal form of education to have AI responsible for teaching and real teachers for cultivating. Looking beyond, with the technological breakthrough, it is not ruled out that there will be a higher level of intelligence that can independently complete all the work of teaching and cultivating.

2. China’s K-12 AI adaptive learning industry will experience explosive growth

In China, K-12 education is exam-oriented and knowledge point-driven. As a result, students’ learning effects are quantifiable, making K-12 education the best landing point for the initial application. At the same time, K-12 education is directly related to Gaokao (the college-entrance exam); thus parents are more willing to spend money on it, which provides business opportunities for the development of K-12 AI adaptive learning.

According to EY-Parthenon’s calculation, the penetration rate of AI adaptive learning in China’s K-12 education sector in 2019 was approximately 4%, and it is expected to increase to approximately 19% by 2025. The overall market size is also expected to grow from RMB 30 billion in 2019 to over RMB 100 billion by 2025, at a CAGR of approximately 62%. The main market drivers include policy benefit, technology maturity, and demand growth, especially customers have strong needs for high-quality educational resources, and institutions are eager to be equipped with innovative teaching tools.

3. AI adaptive learning disruptively transforms the OMO educational mode

The outbreak of COVID-19 in 2020 has led OMO educational mode into public view. With the ability of being free from time and space limitations, delivering better teaching experience, and breaking the boundaries between online and offline realms, OMO educational mode is becoming increasingly popular among educational professionals, parents and students.

AI adaptive learning brings disruptive change to classroom through digital technologies. Lecturer will be completely replaced by AI, while assistant only needs to maintain classroom order and provide emotional support to students.

OMO AI adaptive learning is considered as an advanced OMO educational mode, which is able to solve many pain points of traditional offline/online learning. Compared with  traditional offline education, OMO AI adaptive learning has lower requirements for teachers, which fundamentally solves the issues of teacher shortage and high labor cost. It also adopts a mixed class system that allows students of different grades and subjects to study in the same classes, further expanding class scale and reduce operating cost. Moreover, in terms of teaching quality, OMO AI adaptive learning is expected to simulate or even surpass one-on-one personalized teaching in the long run, reaching the level of “fully adaptive learning” and being competitive in both cost and quality. With advantages in content R&D, AI adaptive learning can be fully leveraged by traditional small and medium-sized institutions to solve their brand-building problems.

4. China’s AI adaptive learning will usher in an all-round development in the next few years

Looking back on the development history of the education industry, it coincides with that of the retail industry. Both of them follow the development path of “Offline – Online – O+O – O2O – OMO”. We believe that this is because, in these two industries, offline experience is the key success factor. When the online service develops to a certain stage, industry players will inevitably find that it is difficult to completely replace offline experience, and this would further urge leading players to ultimately integrate online and offline services. Compared with the retail industry, although OMO is still in the early stage in the educational field, we believe that with the fast development of AI technology, OMO AI adaptive learning will undoubtedly become one of the major applications in the education sector.

In terms of the market outlook, EY- Parthenon outlines four development trends of the AI adaptive learning industry: more traditional entrants, more subject coverage, more education stage coverage, and more approach oriented. It is foreseeable that the competition landscape is changing quickly with more players such as education groups, tech companies, and startups entering the market while leading companies such as iFLYTEK and Squirrel AI are also expected to continue to expand.

This material, which may include historical data and forward looking statements,  has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice. Such forward looking statements are subject to a number of risks, uncertainties and assumptions that may cause actual results to be materially different from those expressed or implied. We assume no future obligation to update these forward looking statements.