Coursera, 2U, and the Emerging Education Platform Market
I’m refining my view of the 2U acquisition of edX based on recent earnings calls with both Coursera and 2U.
When Coursera was founded, it was a pure MOOC company, as was Udacity and edX. In 2012, I wrote a post calling out four barriers that MOOC providers faced to become self-sustaining.
By the time of Coursera’s Spring 2021 IPO, the “successor model” has become more clear. In particular, with the introduction of paid certificates in 2013, an OPM offering started in 2016, corporate training in 2016, and academic courseware in 2019, Coursera established a multi-pronged revenue model. At first glance it can appear that these revenue sources were merely funding mechanisms bolted onto the MOOC model, but as of the IPO, the company was telling a coherent story of how these pieces fit together. Free content from partners (i.e., universities) attracts millions of learners at a low cost (CAC = customer acquisition cost), some of whom pay for certificates and some who pay for degrees, with a portion of that revenue distributed back to the universities. This “consumer flywheel” was described in the company’s IPO filings.
The graphics are much better in the current investor presentations, but this IPO graphic captures the concept well. The following chart is more explicit in how the company uses marketing and a broad offering to convert free MOOC registrants into paying customers. In addition, Coursera licenses the content as courseware to universities and enterprise customers.
Seen holistically, Coursera is no longer a MOOC company with side revenue add-ons, nor is it an OPM or a courseware company. Coursera is a broader entity described as a “global learning platform”, and this is not just marketing language. It describes their model.
2U is perhaps the best-known Online Program Management provider, and it has long positioned itself apart from the competiton. Initially 2U was a niche provider, only targeting one program per discipline and only from elite universities, whereas the other OPM providers tended to focus on mid-ranked schools and sought ways to duplicate general program designs. The problem with that strategy was that it limited the number of available programs and only fit within higher-tuition US higher education. 2U, however, is perhaps the most strategic company in higher education, willing to evolve and change strategy often before the market realizes the need for a change.
In 2014 2U began adding multiple programs within an academice discipline in coordination with its IPO, arguing that with careful planning the existence of multiple online MBAs through 2U, for example, would help enrollment at each school.
In 2019 2U recognized that competition between schools for online programs and rising advertising costs were fundamental market shifts, and the company announced that it was cutting down expected new graduate program starts by at least half over the next year or two, and cutting back on marketing spend per program.
2U’s recent acquisition of the nonprofit edX from Harvard and MIT signals another strategic change, or transformation, and it is likely more significant than the previous changes. Initial coverage focused on the combination of the OPM and MOOC companies in a similar manner to the initial GetSmarter and Trilogy acquisitions. Add-ons to augment the core model. But it is becoming more clear that edX is going to be more than an opportunistic addition, even more fundamentally than the Alternative Credential segment. 2U is strongly communicating its expanded vision with a coherent story around “free to degree”.
During last week’s earnings call, CEO Chip Paucek described his expectations for a flywheel effect.
He later described the expanded offerings and the path to expand internationally in a much more aggressive manner.
In retrospect, I think this news is bigger than I initially realized, as I focused too much on why edX had to be sold and how 2U could plug some holes.
Seen holistically, 2U is no longer an OPM company with side revenue add-ons, nor is it an alternative credentail or a MOOC company. 2U is a broader entity described as a “consumer learning platform”, and this is not just marketing language. It describes their emerging model.
I believe that we are seeing a fundamental shift in markets this year and that MOOC and OPM no longer adequately categorize vendors. 1 Coursera and 2U are attempting to define a new online education platform market that relies on network effects enabled by consumer-level flywheels (i.e., beyond the heavy digital marketing based primarily around institutional brands). This new market is about creating student demand and scale.
In a recent conversation about the 2U / edX acquisition with Clay Shirky, he desribed these dynamics and some scenarios on market changes.
Seen in this light, 2U’s announcement last week about its new online MBA program at the University of Miami takes on new significance. First, the partnership started with bootcamps. More importantly, however, the University of Miami already has a highly-ranked online MBA – they don’t need help “going online” – but they do need help growing student demand and improving the program.
Both Coursera and 2U have a heavy lift in front of them to create essentially a new market built on network effects. Coursera has yet to prove that its degree-based business is scalable, and 2U has yet to prove that it won’t lose many edX partners concerned about the loss of nonprofit status, among other challenges. But there does seem to be an emerging market that is broader than MOOCs or OPMs, and given the network effects, early entry and pre-existing scale will be important factors for new competitors.
1 I include expanded OPE and OPX language.
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