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.

Coursera Coherence

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.

So what are the barriers that must be overcome for the MOOC concept (in future generations) to become self-sustaining? To me the most obvious barriers are:

* Developing revenue models to make the concept self-sustaining;

* Delivering valuable signifiers of completion such as credentials, badges or acceptance into accredited programs;

* Providing an experience and perceived value that enables higher course completion rates (most today have less than 10% of registered students actually completing the course); and

* Authenticating students in a manner to satisfy accrediting institutions or hiring companies that the student identify is actually known.

Given this short timeline and the nature of investment-backed educational experiments, I think the real focus should be on whether and how MOOCs or successor models build on current scalability and openness while overcoming these four barriers.

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.

consumer flywheel for Coursera from their 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 Transformation

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 2017 2U acquired GetSmarter (short courses) and in 2019 Trilogy (bootcamps) to create an Alternative Credential segment complementing its core Grad Degree segment.

  • 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.

  • After the 2014 failure of the Semester Online initiative, in 2019 2U re-entered the market for bachelor’s degrees with the London School of Economics and then Simmons University.

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”.

Investor slide showing that 2U, edX combo will have unmatched free-to-degree offerings

During last week’s earnings call, CEO Chip Paucek described his expectations for a flywheel effect.

edX will create a flywheel in our enterprise business. More courses means more learners means more companies means more jobs for students, which means a bigger, better, business opportunity.

edX will create a flywheel in our campus ambitions. More courses means more campuses utilizing our courses for their students, which means more learners, which means more opportunities for our partners, including both existing edX and 2U partners.

He later described the expanded offerings and the path to expand internationally in a much more aggressive manner.

edX will create new product categories for 2U, Micro Bachelors, and Micro Masters and disruptively priced Master’s programs in tech, data, and business. These are innovative and affordable ways to offer greater access to higher ed and they’re particularly appropriate for emerging economies and learners abroad.

edX will accelerate our international ambitions. Today while massive in the US, edX is even bigger or broad. As one example, edX has almost the same learners in traffic from India as the United States. Our localization efforts will help us more efficiently grow the short course business internationally. The first localized course is some from Stanford are doing well. edX will fuel this effort.

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.

Emerging Market

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.

What’s more interesting than the end of that [MOOC] era, though, is what happens next? As the OPM market becomes more clearly about creating new entry points for students, at various price points and greater transfer of credits from smaller programs to large ones, 2U starts to look less like Wiley or Pearson, and more like Guild, doing more to create and direct student demand while leaving more of the instruction and assessment of the programs themselves in the hands of increasingly capable schools.

It’s possible that COVID inflates both markets — less capable schools hire 2010s-model OPMs to get them online, and more capable schools handle more of the program design and operations in-house, but partner to get students. Or it’s possible that the older OPM model (which came to include the MOOCs, post- the Georgia Tech compsci degree) will shrink over the next few years.

In either scenario, though, it’s clear that the scale at which student recruitment happens just shifted upwards, and I expect other such acquisitions, to get to the scale needed to compete.

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.

“The University of Miami already offers one of the best online MBAs in the country; our role at 2U is to further grow this transformative program so even more students and professionals can gain the knowledge and expertise needed to thrive as business leaders in a rapidly changing world,” said Andrew Hermalyn, President of Global Partnerships at 2U.

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.