italki - Business Model Analysis

Table of Contents

List of Abbreviations

List of Figures

1. Introduction to the Company
1.1 Facts and Figures
1.2 Business Model Patterns and Main Features

2. Business Model Canvas
2.1 Value Proposition
2.2 Customer Segments, Relationship and Channels
2.3 Key Activities and Resources
2.4 Key Partners
2.5 Cost Structure and Revenue Streams
2.6 Summary

3. Business Model Evolution and Outlook

References

List of Abbreviations

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List of Figures

Figure 1: italki’s main features

Figure 2: Teaching at italki

Figure 3: The official italki blog

Figure 4: italki’s Business Model Canvas

1. Introduction to the Company

“Those who know nothing of foreign languages know nothing of their own.”

––Johann Wolfgang von Goethe (1749-1832)

What the German playwright and poet already understood in the 18th century has by now gained center stage. In our modern, globalized world, the ability to speak foreign languages has become a person’s main asset, opening the door to different cultures, human enrichment and international success.

When italki’s co-founder, the American entrepreneur Kevin Chen, went to Shanghai to learn Mandarin Chinese, he got the vision to make learning languages a social experience. Today, the Company founded together with current Chief Executive Officer (CEO) Yongyue Jiang is one of the leading social networking sites in this field (cf. italki.com, Inc., 2012).

In the following, this paper is going to analyze italki’s business model using the Business Model Canvas, a strategic and entrepreneurial management tool developed by Osterwalder & Pigneur (2010). This will also provide a basis to develop ideas related to a possible business model evolution in the near future. To start, a short overview of the Company and its main features is given.

1.1 Facts and Figures

Established in 2006, italki.com, Inc. operates a free of charge social networking platform for learning languages online. The small sized Company is based in Shanghai and employed no more than 13 people in 2009 (cf. Microsoft BizSpark Online, 2009); current estimates range between 20 and 50. Besides a shared learning experience within the online community––e.g. through language exchange partners, forum discussions or the availability of free learning materials––since 2009 the platform also comprises an independent online marketplace to connect teachers and students worldwide for paid tutoring services rendered via online communication tools such as Skype or MSN Messenger. The market place has now become the Company’s main asset, potentially creating up to 10,000 part and full-time jobs for language tutors possibly being unemployed otherwise (cf. Ricketts, 2009). With approximately 900,000 registered users^[1] from over 212 countries in 2012, the Company allows to learn over 100 languages including the most popular ones such as English, Chinese, Spanish, French, Russian, Arabic, German, Portu-guese, Japanese, Hindi, Korean, Italian, Swedish or Polish.

Completely privately funded, italki generates its main revenues from advertise-ment and a tax on transactions between teachers and students. Investors consider the worldwide online language learning market to be worth $83 billion (cf. Marshall, 2009). One of the Company’s main competitors in this market is the fast-growing site Livemocha with almost 5 million users, but a somewhat different business model. italki claims to be unique and is not directly threatened by other language service offerings such as Rosetta Stone.

1.2 Business Model Patterns and Main Features

italki’s offering can be roughly divided into three sections (see figure 1): One-to-one paid professional learning, free informal tutoring, and social learning.

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The platform itself is free and––in terms of Osterwalder & Pigneur––can be clearly described as multi-sided. Once registered, every user can take over two roles: the role of a learner, and the role of a tutor, each of which will even be assigned a separate profile. Professional teachers will have to provide evidence of a corresponding academic career to italki; however, both community tutors (i.e. every registered user who is not a professional teacher) and professionals can decide upon learning methodology, schedule, lesson

pricing, and whether or not they want to provide a trial lesson by themselves. In general, italki’s online marketplace is functioning like an open resource center and tries to keep direct regulations by the site’s administrators to a minimum. Similar to eBay, a rating and feedback system helps prospective students to find the right teacher (see figure 2), who in turn can establish their online reputation. After a lesson has taken place, both sides will have to confirm them before so called italki credits purchased via service providers such as PayPal can be transferred to the teacher (10 italki credits equals 1$). Otherwise, each side is able to report a problem or, as the last choice, address directly to italki for dispute settlement.

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All transactions going on between teachers and students are supported through a highly innovative technology and an appealing and simple user interface. Teacher schedules are automatically displayed in the local time of the student, automatic notifications and reminders sent in the case of new requests or upcoming lessons, and payment and revenue accounts managed through an own system of purchasing, withdrawing and transferring.

Beyond that, every user disposes of a personal inbox and the possibility to talk via chat, which leads us to italki’s social networking aspect. As it is the case with facebook or mySpace for instance, profiles can be customized, friends can be added, and people can be followed. Community members have the possibility to study together in groups, post questions they have (e.g. concerning grammar), write blogs, post pod-cast videos, links or material for self-study, as well as lead discussions with other members in forums.

A breakthrough innovation launched in 2008 is the so-called italki Knowledge. Similar to a wiki-style system, the Company promotes the creation of socially built language textbooks being possibly one of the largest language learning projects so far. In addition, it attaches certain characteristics of an open business model, as outside resources and partners play an essential role in pushing innovation and value forward. Particularly for endangered languages, italki CEO Yongyue Jiang sees a great value in this feature. As he said in an interview, “languages like English have lots of educational materials, but many languages don't have the same level of support. With italki Knowledge, no language, no matter how obscure it is, won't be lost to history” (Aune, 2008).

2. Business Model Canvas

2.1 Value Proposition

As anchor for the Company’s value proposition, we will first have a look at its mission statement, saying: “italki helps people learn foreign languages […] [and] intends to become the leading platform for online language learning by using Web 2.0 concepts to provide users with the most complete language learning tools available on the net (from www.italki.com/about )”.

Analyzing this statement, the first point of the value proposition is to help people learn foreign languages. If there is a best way to learn a foreign language, it is definitely to be surrounded with native speakers. Italki helps its users to connect and interact with native speakers all over the world. Secondly, customer convenience and flexibility, i.e. the aspect of time, money, availability and also the fact that one can choose the teacher he or she wants or gets along with, is ascribed to the virtual nature of the business.

Another key aspect is the technology. While constantly developing and testing new features, the Company aims at providing their users first with the most complete learning experience, and second with the most enjoyable Web 2.0 practice though highly innovative concepts as has been described previously.

However, the most distinguishing feature of italki’s business model is not directly included in its mission statement––the social aspect. “It's a twist to the original Web 2.0 concept”, says William Bao Bean, director at the Company. “Instead of just making friends online, why not find a language partner who can teach you English or Spanish, while you teach him or her Chinese?” (So, 2012)

Indeed, the community aspect of its business model is highly relevant to italki. While giving users the possibility to get in contact with administrators for critique and feedback, as well as for reporting infringements of behavioral codes within the language learning community, the Company is just testing a new feature of assigning users special points for behaviors that make it a friendlier and more useful place to learn.

In this context, it has to be pointed out that italki wants to give its users the most possible freedom, not only within the community, but also within its language learning system. That is why the Company does not assure the quality of training, i.e. a “good” or professional language lesson, or the correctness of a forum entry e.g. concerning grammar. italki Knowledge has also been criticized in this way, as nobody can guarantee the accuracy of the user content. However, if italki would only hire qualified and examined teachers and impose community rules, the customer convenience and social aspect, as core part of its value proposition, would definitely getting lost.

2.2 Customer Segments, Relationships and Channels

Exclusively operating in the B2C sector, italki’s customer base is highly diversified across different geographic, demographic and socio-economic segments. Basically, everybody interested in learning or teaching a language––or simply an open-minded person eager to get to know other cultures––and with access to the Internet can take part. However, the business model might especially attract people with a lower-to-middle budget and/or limited flexibility, making the difference in choosing between italki, classroom training at a language school or even travelling abroad. According to available statistics and recent data given by the South China Morning Post on italki’s user traffic, customers coming from Mainland China make up around 20 per cent of total users (cf. So, 2012), followed by the USA, Russia, India, Germany, the UK and France. As it is the case with other social networks such as facebook or Twitter, the premise for a high web-affinity usually explains a relatively young clientele; so are almost 50% of italki members between 18 and 24 years old, which is even slightly lower than the general average of social networking platforms (cf. FindTheBest.com, Inc., 2013).

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^[1] Remark: Among different sources, the estimated number of italki varies broadly in a range from 250,000 up to one million. This may be due to the number of registered, but inactive users. The number stated in this paper originates in italki.com, Inc. official disclosures.