MOOCs | Feature

The MOOC Business Plan

With millions of students taking high-quality MOOCs for free, schools and course providers are now searching for a viable business model.

The MOOC Business Plan
Major MOOC players: Anant Agarwal (left), president of edX, and Andrew Ng, cofounder of Coursera

Name a product sold in stores for thousands of dollars that can be obtained for free online. If you're struggling for an answer, don't be surprised--no company would last very long under those circumstances. Yet that's exactly the predicament in which higher education finds itself as MOOCs begin to disrupt the traditional post-secondary model. Schools are giving away what was once their most valued treasure--the intellectual property of their faculty--for nothing.

This story appears in the August 2013 digital edition of Campus Technology. Click here for a free subscription to the magazine.

Obviously, it's not a sustainable business model, so what's next? Where will the money come from? While it may seem surprising, no one really seems to know. For many colleges and universities, the current environment more closely resembles a high-stakes game of musical chairs--everyone is terrified of being left without a chair when the music stops. But the game is being played by more than just schools. From a business standpoint, higher education is ripe for reinvention, and it has attracted a slew of companies--both old and new--that smell significant profit.

"The higher education market has not yet been disrupted the way newspapers, music, and other industries have," says Cable Green, director of global learning at Creative Commons. "The cost of higher education is bloated, and the services are aggregated and ripe for disaggregation. Plus, there is a huge population not being served by the current business model, so the venture capital people see that there is money to be made."

It certainly appears that a Silicon Valley-style VC philosophy is driving the current approach to MOOCs: Build market share and worry about profit later. The three highest-profile MOOC ventures--Coursera, Udacity, and edX--freely admit they are not settled on a revenue model yet. "Venture capitalists encouraged [Coursera and Udacity] to do a land grab and get as big a footprint as possible, and now they are saying, 'Go back and figure out how to make it sustainable,'" says Phil Hill, a partner with MindWires Consulting who writes for the e-Literate blog.

Business Model Tests
For Coursera, this task is already under way. "Some business models are becoming clear," says Andrew Ng, cofounder of the for-profit company. "Some we are confident will work; others we are still experimenting with." For example, Coursera offers a signature track by which students pay $50 for verification that they really completed the coursework.

"You could have a certificate of a course completed at Duke University [NC]--that could be a valuable credential," adds Ng. "We have projected that this alone will lead us to sustainability. In the first quarter of the signature track, we brought in $220,000, and in the second quarter, which hasn't ended yet, we roughly doubled that amount. So we project that by itself that will make us sustainable."

Unlike Coursera, edX does not need the backing of venture capitalists--it received $30 million in seed funding from both MIT and Harvard University (MA). Even so, the nonprofit must also focus on the bottom line. While MOOCs may be free to students taking the courses, notes Anant Agarwal, president of edX, they are not free to the course developers. "EdX itself and its university partners are spending dollars to create courses," he says. "We need a way to make that sustainable. We need to meet those stakeholders' needs, and generating revenue is one of those, but we don't have to do an IPO like Facebook."

At press time, edX has partnerships with 27 universities. As described in a February Chronicle of Higher Education article, these partnerships come in two flavors: Under the "edX-supported model," the company offers production assistance to universities for their MOOCs and charges a base rate of $250,000 for each new course, plus $50,000 each time a course is offered for an additional term. The "university self-service model," on the other hand, allows a school to use edX's platform as a learning management system for MOOCs developed in-house, with edX receiving a share of any revenue generated by the course.

Platform Battle
It is here--in the competition for platform supremacy--that the MOOC battle will probably be most hotly contested. It's certainly on the minds of the founders of Coursera. According to Ng, the company is looking to play middleman for content adoption, whereby one university produces a course that other universities want to adopt. As middleman, Coursera would provide the advanced technology to wrap around the content--everything from analytics to discussion boards--and receive a licensing fee in return.

EdX, too, is looking to extend its self-service model with the goal of becoming a marketplace for course content that universities want to license to one another. The platform wrapped around that content is "sort of the next-generation textbook," Agarwal says. Testing for this approach started last year when San Jose State University (CA) used an edX course, Circuits and Electronics, as part of a blended online course offered to 85 tuition-paying students on campus.

EdX is now working on 15 such pilots, including a partnership with the California State University system. The nonprofit has not charged for these courses yet. "Once we prove we are providing value, then we can start talking about revenue," explains Agarwal. "We are still working through the challenges. This is all so new that it is hard to charge people for it."

What Agarwal describes as the next-generation textbook is what MindWires' Hill calls courseware, which combines the curriculum, the course materials, the assessments, and perhaps the analytics to track student progress. Hill notes that the MOOCs are moving in the direction of providing courseware because the content itself has lost much of its monetary value.

"As in other industries [during disruptive innovation], one aspect becomes commoditized, and in education it is raw content delivery," adds Michael Horn, cofounder and executive director for education at the Clayton Christensen Institute for Disruptive Innovation (formerly the Innosight Institute.) "So then there is a value shift to assessment or social support."

Approximately 70 percent of students taking MOOCs today already have bachelor's degrees and enroll for professional-development reasons--and they want to be able to certify those skills. "[MOOC providers] want to have an impact on the greater problem in higher education: getting a degree for a reasonable amount of money," Hill says. "They realize that to reach those students, they have to work within the accrediting system and the universities, not go around them."

Picking a Fight With LMSes
By focusing on the underlying technology platform, though, MOOC providers will likely walk straight into a street fight with education publishers such as McGraw-Hill and Pearson, as well as LMS companies such as Blackboard, Instructure, and Desire2Learn. "We are already seeing an overlap of LMS, MOOC, and companies like Pearson," notes Horn. In fact, he says, the LMS and MOOC terms may go away altogether. "They are all jockeying for what will be the platform for digital education. The MOOCs' strength is the volume of students they have attracted and the huge data sets on what works and what doesn't."

But Josh Coates, CEO of Instructure, doesn't share the broader perception that MOOCs are a tsunami poised to sweep through higher education--or his company. For him, MOOCs are just one piece of the educational-technology puzzle. "Some people believe this is going to revolutionize education--I don't believe that," he says. "[MOOCs] are a cool innovation, but schools are not going to be shutting their doors."

As its answer to MOOCs, Instructure has launched the experimental Canvas Network, a catalog of courses shared by customers of its LMS platform. "Just as these schools have different ideas of what they want to do with it in terms of pedagogy," he says, "they also have different ideas about experimenting with how they get paid."

Today, Canvas Network is a free, open platform, but Instructure has a queue of several universities that want to move to a pay model, which the company will work on over the next year. As for Instructure itself, Coates does not feel the need to change the company's business model. "The MOOC is just one feature of our LMS platform, which is already growing," he notes.

Horn doesn't take such a sanguine view of the potential impact of MOOCs. He predicts a shakeout a few years from now, as well as an LMS and MOOC convergence. Rolled into the mix perhaps will be players such as Khan Academy that are capable of delivering modular pieces of learning. And instead of soup-to-nuts solutions coming from a single vendor, Horn sees the possibility of a disaggregated landscape, with different players handling different educational roles: one that is really good at content delivery, for example, while another specializes in in-person collaborative experiences or placing students in work settings.

The Future for Schools
But where does this leave colleges and universities that are trying to determine whether MOOCs are a threat or an opportunity? Unless schools develop their own platform--as MIT and Harvard have jointly done--their potential for revenue appears to lie in three areas:

  • Content Licensing. For the past year, there's been an expectation that elite schools such as the Ivies, Stanford University (CA), and MIT would leverage their brands to license courses to other institutions, both nationally and abroad. While this is certainly happening, it's not clear how much revenue will flow from this strategy. As Horn at the Christensen Institute noted, content is becoming increasingly commoditized. In fact, Creative Commons is urging MOOC providers to allow universities to openly license their material for reuse. "Our pitch is that open educational resources is a global movement that is driving the cost of content to zero," says Green. "The MOOCs will ultimately not be successful in licensing content as more of it enters OER space. They will be successful at selling ancillary services."
  • Paid Accreditation. Proponents of MOOCs do not see the online courses gobbling up an education pie that's already been baked. Instead, they see MOOCs making the pie much, much bigger. It's the philosophy behind the $7,000 master's degree in computer science that the Georgia Institute of Technology is offering. At stake is the university's brand and an on-campus master's degree that costs about $40,000, but the school feels that its online degree will appeal to a different demographic, and that the low price tag will be offset by sheer volume. Among those schools unwilling to bestow degrees for students educating themselves by MOOC, other forms of for-fee accreditation are a possibility.
  • Blended MOOCs. By using MOOCs to go big with the flipped classroom model, schools can potentially increase on-campus enrollment while reducing costs, although this might mean eliminating faculty or replacing them with lower-paid instructors (see "Blended MOOCs: The Best of Both Worlds?").

Regardless of the direction that schools ultimately choose--and it may be none of the above--there is a growing realization that the status quo is not an option. "What won't work is the ostrich-like head-in-the-sand approach, like people who hoped the internet would go away," Coursera's Ng says. "Our university partners are taking charge and working out sustainable models with the MOOC movement."

The universities jumping on board now are doing so because they want to understand the concept better, not because they claim to know where the movement is going. "They feel that if they are not engaged, the whole market could shift under their feet," explains Green. "I think it is a wise move to get involved, even if it is a little blind. But the future holds a separation for the rich who can pay $50,000 a year tuition for small, private universities, and the drive to the bottom around MOOCs that seek to offer high-quality content but very inexpensively. The state universities in the middle may have a lot to be concerned about."

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