How MOOCs Make Money

Dhawal Shah, founder of Class Central, has been tracking the machinations of the MOOC business since before it was a business. Here, he provides perspective on the revenue side of open and online courses.

• By Dian Schaffhauser
• 03/20/19

In 2011, when a few Stanford (CA) professors experimented with delivering three of the university's most popular computer science courses online for free, Dhawal Shah signed up for "Introduction to Artificial Intelligence." The idea of Stanford opening up its top-caliber education to people who lacked access appealed to Shah. And besides, he needed a boost to get him through the technical interviews that might result in a job in northern California, where he wanted to land. He'd already earned a bachelor's in electronics and telecommunications from Mumbai University and a master's at Georgia Tech in computer science, enabling him to pick up work in Texas as a software developer. But to a young, ambitious programmer, Dallas wasn't Silicon Valley.

Shah noticed that at the same time he was working to keep up with the AI course, taught through videos and live quizzes by Sebastian Thrun and Peter Norvig, additional free online courses were popping up, mostly from Stanford, but also some from other esteemed institutions. All of them had their own home pages, which made it hard to keep track of what was available. Since Shah knew he wanted to take additional courses, during an energetic weekend, he put together a one-page website to keep track of all of them. His hope was that the project would give him something to show off to future employers.

His plan certainly worked, but not in the way he expected. Shah eventually did land that job in the Bay area, but it lasted just over a year. In the meantime, that one-page site eventually grew into what is now known worldwide as Class Central.

"I happened to be at the right place at the right time," he said, noting that at that time, Udacity and Coursera weren't officially called either of those names. No one used the term "MOOC." That would join the popular vernacular a few months later.

Since then, Shah has taken perhaps another nine or 10 massive open online courses. But more importantly, his site has made it possible for people all over the world to find their own online courses. Class Central has become the one-stop shop for hunting down every MOOC available to help people decide which online courses to take. Out of roughly 1.8 billion websites in the world, the site was recently ranked globally within the top 18,000 by Alexa. In the United States it came in at 13,322; in India it was part of the top 6,000.

On top of that, through the site's "MOOC Report," Shah and his team of reporters have kept track of the evolution of MOOCs as they've grown into money-making machines. According to his tracking of public sources, among the four biggies, privately-owned Coursera generated about $140 million in 2018; Udacity earned $90 million for the year; edX took in about $57 million for fiscal year 2017; and UK-based FutureLearn made about £8.2 million.

Recently, Shah shared his perspective with Campus Technology on MOOCs and money.

Dhawal Shah

Campus Technology: It seems like every MOOC is generating income for somebody.

Dhawal Shah: It varies widely. You can consider revenue at three different levels: provider, institution or instructor. Institutions have more courses, so they have more opportunities to make money. If a university launches 100 [MOOC] courses, not all of them will be lucrative. But a few good ones in the right field can be very lucrative, making up for the costs of the other ones. So even if just a few courses become really big, it's okay. The rest can act as a marketing channel for these big ones. Also, I think for certain universities, they make money indirectly, not directly, from the courses, by getting their brand across the entire world. That has some additional benefits, which sometimes can be really hard to quantify.

Some courses are more monetizable than others. The professional education courses are more monetizable, even if they have lower audiences. Take something like "Learning How to Learn," which has had something like 2 million students take it. I love that course — it's my favorite course. But I don't expect the monetization to be that strong because it's a course that you don't need a certificate for.
Whereas Udacity, which doesn't have that much content, does have a focus on professional education and things that monetize well, like the "Self-Driving Car" nanodegree. I think that had 10,000 paid students enrolled in it for the first semester, which was $800. (The full nanodegree is a year-long, $2,400 program.) So that sole semester could potentially have generated $8 million.

In these courses coding is definitely a big thing. There's a huge market for data science and AI. I think they monetize well because they target people who already might have developer jobs, so they might be able to afford these courses. And the benefit is pretty obvious [to the learner] if you end up having one of these skills. Business is also [a big subject area]. There might be some outliers that are not in any of these categories, but generally business and technology are the big drivers for professional education courses.

CT: Coursera is the top dog here. The next highest level one is Udacity. Why have those two companies seen so much success?

Shah: They're [venture-capital] funded, and they do focus on revenues. They have been very aggressive about monetization. They are constantly making changes to their models to monetize effectively. They try to target content that monetizes well.

In the case of Coursera, they made it so that courses are always open to register. Instead of being delivered once or twice a year, you can join at any time; you can upgrade [to a verified certificate option] at any time. That really helps with monetization and the conversion rate.

With Udacity, specifically, they have done a great job of monetizing their nanodegrees. They've also set up many partnerships around scholarships they have to offer in certain countries.

CT: And then there's edX, which has less than half the revenue of Coursera.

Shah: Part of the revenue is the contributions or donations from the universities. So with edX, not all of it is direct revenues generated from students or companies.

Also, the focus on monetization has been much stronger in the other companies. EdX eventually comes to the same answer that Coursera might come to, but they're very delayed in that. For example, at the end of last year, edX announced how they were going to put up paywalls for graded assignments. Coursera did it maybe a couple of years ago. The same with certificates. It took edX 18 months or two years longer to take away the free certificates after Coursera and Udacity had already done it.

CT: How is the revenue split between the platform, institution and instructor?

Shah: With Coursera, I think there is a standard deal — somewhere around 50-50 or 60-40, something like that — between the platform and the university.

But the between the university and the instructors, I think that varies a lot among universities. In some scenarios I've heard institutions don't pay their instructors or share revenue. Some share it 50-50. It's not something you find public information on.

CT: Which organization was first to figure out they could come up with programs that would appeal to employers for training their workforce and make money that way?

Shah: I think everybody had the same plan at the back of their minds. One of the first attempts that all these providers tried to do was recruiting, where they would find students from among the people who did well in their courses and pass their résumés around to different companies. I don't think that worked out well.

But eventually they came around to focusing on professional training. Udacity went in the strongest, by going into the nanodegrees and deciding they were no longer a "MOOC provider" and no longer interested in partnering with universities. They were the first ones to go all in into this model.

Coursera did too eventually. But the difference with Udacity was that they started creating their own content. Coursera still has their university partners, so they kind of have to wait for their partners to create the right content.

What Coursera did a few years ago was launch an RFP process where they say, "These are the kinds of content, the kinds of specializations we want." And universities can bid on it and then get $50,000 or $100,000 to make that specialization. That [advance] was then taken out of future earnings. Basically, Coursera was able to take some control of the process instead of waiting for universities to create the content.

Again, that shows the difference between Coursera and Udacity and other platforms. Because of the focus on monetization, they take more proactive actions instead of waiting in many cases.

CT: Is it too late for universities that want to get onto this gravy train?

Shah: If a professor is already famous or has a following on one of the platforms, they can get a lot of press, so it's still viable. The space is big enough and the number of paid users is growing, so I think that there is still a lot of opportunity to create content that at least breaks even. We see new courses being added [to Coursera and edX] at the same rate as they were being added before, so in that sense things haven't slowed down.

CT: Any MOOC predictions for the coming year?

Shah: I don't see any major changes in the status quo. I don't think a major new provider will be launched in the near future. I feel like the market is sort of settled now and the focus is more on the big-ticket items, like online degrees and corporate training.

When MOOCs started out, they were in the new market of low-cost or free, unaccredited, online college courses. They had to create this whole new market from scratch. They had to educate people on what MOOCs were, the benefits, why you should take them. They had to teach students as well as their employers. With corporate training and online degrees, however, they're now breaking into more traditional markets of online degrees and corporate learning, which are already big, lucrative markets. And the providers have an advantage. Because of the free online courses, there are also a lot of online users, which helps generate business for online degrees, where the cost for user acquisition is high. The free online courses are a marketing channel for the online degrees. And through corporate training, they can sell university-level courses, which is a differentiator from traditional players like PluralSight, Lynda.com or skillsoft.

CT: But you predict a healthy future for MOOCs?

Shah: In terms of them making money, yes. But as a student who likes free courses, sometimes I get nervous. What I'm optimistic about is that they'll keep offering these courses for free or free to audit because they act as a marketing channel and that gives them a financial reason for MOOCs to exist. But it's mostly optimism. I don't know if that's how it will turn out to be.