Hong Kong: top private tutors make $10 million/month

There are some small tidbits on the Hong Kong cram school market in this 1 June 2009 NYT piece “In Hong Kong, Cram School Teachers’ Image Rivals Pop Stars“:

(…) Government statistics from 2006, the latest year available, showed 34 percent of the primary and secondary students in the city, or about 300,000, went to cram schools. With students typically paying around 1,000 Hong Kong dollars, or $128, per person per month in fees, the tutoring industry is generating at least 3.6 billion dollars a year, and that is probably a low estimate. A 2005 survey by the University of Hong Kong found that 70 percent of high school students and about 50 percent of primary school students had hired tutors.

To meet the demand in this city, which has more than 800,000 primary and secondary students, four dominating cram school chains have sprouted up, along with 800 smaller ones and many more private tutors. With more and more competitors entering the industry, which has a low entrance barrier, after-school teachers needed to find ways to attract students, and the so-called tutor kings and queens were born.

“Schools are like modeling agencies and tutors like stage actors,” said Richard Eng, an English tutor king who is co-founder of Beacon College, a cram school that is registered with the Hong Kong Education Department. “It’s human nature that we like to look at something beautiful.”

For Mr. Eng, that means wearing designer clothes and putting on foundation and lipstick for the camera; all classes are broadcast live via closed-circuit television.

(…) Mr. Eng declined to disclose his monthly salary, but Chinese media have reported that the top 20 tutors in the city have each made more than 10 million dollars a month. Mr. Eng, who owns a row of houses in a high-end residential area, has a yellow Lamborghini and a silver Mercedes-Benz.

There are no details on methods, class size, etc. I presume the model is similar to South Korea. Keep in mind that a if you can attract a class size of 50,000 then the same infrastructure can deliver the product to 1,000,000 students (the marginal cost of additional students is very low).

South Korea: education innovation in free market for tutoring

Kim Sung-jae, a physics instructor, conducts a lecture that is filmed for use on the Internet. Photo credit Jean Chung for the International Herald Tribune.

More on the South Korean web-tutoring business in this piece in the NY Times Global Business 1 June, 2009. So far I’ve not found evidence of significant innovation beyond these two elements:

1. teacher performance

2. rewarded by as much as 23% revenue sharing

3. online video leverages the top performers into massive 50,000 viewer classrooms

None of my hoped-for technology innovations seem to have happened yet – probably because of the development investment required. E.g., learning software with interactive labs, simulations, tracking and guiding student progress.

Are these web-tutors effective at getting their customers into the top three Korean universities? Given the amount of revenue they are raking in their customers must think so. But in-person cram schools charge about five times as much as the web-based tutoring.

The top teachers are compensated by 23% of their course revenues (that’s how you get to $4 million annual incomes). At least that was the Megastudy.net comp rate in 2009. Following are excerpts from the NYT article:

SEOUL, South Korea — In the 1990s, Son Joo-eun was a success in South Korea’s hypercompetitive business of preparing students for the national college entrance exam. He had an annual income of 720 million won — the equivalent of $573,000 today — as a private tutor helping children from rich families in Seoul win admission to elite universities.

Then, he says, he had an epiphany: “What I was doing — helping the rich lift their children to the top of the ladder while pushing others down — was deepening inequality in education.”

In 1999, while watching a home-shopping channel on television, Mr. Son came up with the idea for an online test preparatory school. As South Koreans were embracing broadband Internet, he thought: why not bring classes into the home, too?

He turned to the Web to provide “an honest, inexpensive education available to everyone,” and South Korea’s multibillion-dollar test preparation industry has never been the same.

Megastudy.net, the online tutoring service Mr. Son started in 2000, may be the perfect convergence of South Koreans’ dual obsessions with educational credentials and the Internet. In this country, where people’s status and income at 60 are largely determined by which college they entered at 18, South Korean parents’ all-consuming task is to ensure that their children enter an elite university. And that requires a high score on the college entrance exam.

By tapping into those anxieties, which deepen during recessions, Megastudy has become South Korea’s fastest-growing technology company, with sales expected to grow 22.5 percent this year, to 245 billion won ($195 million), even as the country’s economy is projected to contract.

About 2.8 million students, including approximately half of all college-bound high school seniors, are members of Megastudy, which allows them access to some of the country’s most celebrated exam tutors. For a fraction of what they would pay at traditional private “cram schools,” students can watch video-on-demand tutorials on home computers or download them into hand-held devices for viewing in the subway or parks. They can skip or fast-forward through some parts of a lecture and bookmark or repeat the rest.

(…) Last year, South Korea spent 55 trillion won, 6 percent of its gross domestic product, on public education. But private education expenditures amounted to an additional 20 trillion won, a burden that has been cited as a factor in South Korea’s low birth rate. Eight of every 10 students from elementary school through high school take after-school classes from private tutors or at cram schools, online or offline. Offline cram school courses cost up to five times as much as their online counterparts.

(…) Online commercial services like Megastudy charge a relatively small fee, averaging 40,000 to 50,000 won ($30 to $40), for each course a student selects from thousands of online tutorials. But as they grow bigger and more commercialized, schools like Megastudy create a new divide in education, this time on the Web, said Yang Jung-ho, a professor of pedagogy at Sungkyunkwan University in Seoul.

(…) To compete with the free online schools, Megastudy hires teachers with followings that rival those of pop stars. Some teachers lose their contracts if their popularity ratings drop. Last year, one Megastudy teacher generated 10 billion won (nearly $8 million) in online sales and pocketed 23 percent as his share.

Read more »

South Korea: tutors can be millionaires

Education columnist Bill Costello commented on the free market for cram school tutoring in South Korea. A crude bottom-line on how the Korean tutoring market works is to look at top-teacher compensation (outlined in this July 2, 2009 Reuters report):

The top online math tutor, Woo Hyeong-cheol, makes $4 million/year

The top online English tutor, Rose Lee, expects to make $7 million/year (pictured lecturing above)

In the tutoring market the competition is intense to deliver results, so the tutoring companies innovate at a feverish pace. They use everything they can think of to achieve the best results for the lowest per student cost: software learning aids, networked learning/lectures, and very importantly — superb teachers.

The highest paid instructors in Korea last year earned about the same as top sports stars. How? By tutoring 50,000 students in a “virtual classroom” using innovative technologies and sharply honed teaching skills. At least that is how Woo Hyeong-cheol produces the results and income that pays his $4 million. I don’t know how Rose Lee teaches, but it must be similar in scale — thousands of students in a “class”.

Korea seems to have discovered that teacher quality is (much) more important than class size. During his 2010 South Korea trip, Costello interviewed Lim Cheolil, associate professor of education at Seoul National University, who explained that

South Korea actively raises the status of teaching as a profession by doing two things. First, it makes entry to teacher training very selective. Teachers are recruited from the top five percent of each high school graduate class. Second, teachers are paid generous starting salaries of 141 percent of GDP per capita, which is significantly above the Organization for Economic Cooperation and Development (OECD) average of 95 percent.

Here they are discussing Korea’s conventional classroom instruction — where it seems that valuing teacher quality produces results (I’ve not yet found any objective studies demonstrating relative quality of the Korean schools). Bill Costello again:

Making teacher training selective and paying teachers high starting salaries attracts the strongest candidates to the teaching profession,which is important because teacher quality significantly impacts student outcomes.

South Korea is able to pay teachers high starting salaries because it employs relatively fewer teachers than other nations. As a result, the student-teacher ratio in South Korea is 30:1, compared to the OECD average of 17:1.

It’s a smart tradeoff because studies show that teacher quality has significantly more impact on student outcomes than class size. Dollar for dollar, it’s better to attract a small number of outstanding teachers with high starting salaries than to attract a large number of mediocre teachers with lower starting salaries—even if that means having a high student-teacher ratio.

In summary, unlike American teachers unions who are focused on inputs, seniority, benefits and class sizes, the tutoring competitors are focused on outputs = results.