What is a MOOC and how will MOOC’s make money?

Written by Steve Kolowich
Massively open online courses, or MOOCs, do not currently lead to any widely recognized credential. Still, with more than 1.5 million people having registered for MOOCs through Coursera, Udacity and edX, the demand for the novel online offerings is undeniable.

But while demand appears to be high, none of these three organizations — two of which are for-profit companies that will be expected to generate money for investors and the other of which is a nonprofit that will be expected to stand on its own feet eventually — currently has a business plan.

They can afford it, for now. The Massachusetts Institute of Technology and Harvard University together have committed $60 million to edX, Coursera has raised $16 million in venture funding, and Udacity is sitting on an undisclosed infusion from Charles River Ventures. They have cash to burn, and each has focused on establishing partnerships with reputable institutions and professors and harnessing available technologies in its platform.

The MOOC providers are nonetheless in strange territory. They have staked their future on a vision that makes higher education more free than ever before. And yet their task, eventually, will be to figure out how to make money. By declining to charge for content, instruction and assessment, these providers will have to find new ways to cover their overheads and pay back investors.

So far the only revenue stream that the major new MOOC providers have said they will pursue is charging a fee for a certificate. Coursera, the largest of the big three with over 1 million registrations, says it may charge between $30 and $80 per certificate, depending on the course, to students who pass muster. MIT and Harvard say they will likely charge a “modest fee” for the opportunity to earn an edX certificate.

But the extent to which revenue from certificate fees can support a MOOC business remains unclear. So far only a small fraction of the students who have registered for MOOCs actually made it to the final exam — generally between 10 and 20 percent. That means the providers would be relying on a slim sliver of their users for revenue.

But Daphne Koller, the co-founder of Coursera, argues that the scale of the courses makes it so that monetizing 20 percent of registrations potentially sustainable. The cost of streaming lectures is Coursera’s biggest operational expense, says Koller. “The [students] who drop out early do not add substantially to the cost of delivering the course,” she says. The most expensive students are the ones who stick around long enough to take the final, and those are the ones most likely to pay for a certificate.

Surveys results from Coursera’s first course — Machine Learning, last fall — suggest that relatively few registrants, 18 percent, were looking to position themselves for better jobs. But that was before the company had started divvying out (non-credit-bearing) certificates to students who completed the course. The extent to which the credentials students earned from MOOCs end up carrying weight, in the work force or in academe, remains an open question. But if they do become valued currency, the volume and proportion of MOOC registrants who have their sights set on a credential might stand to rise relative to those who register out of mere curiosity or thirst for knowledge, the Machine Learning course’s largest subgroup.

One of the more provocative potential business models for MOOCs is to bypass credentialing altogether. Udacity has suggested that it might double as a headhunter for companies that might like to hire some of its more impressive students. Instead of simply selling those students credentials that they can list on their resumes while looking around for jobs, Udacity would offer to match students with companies that have enlisted Udacity as a talent scout. (The company has already hired a full-time jobs counselor to lay groundwork with potential employers.) Udacity would take a commission for each successful match, same as a headhunter.

Here, again, Udacity would be making money on a relatively small fraction of its user base. Too small perhaps, according to Ryan Craig, a partner at University Ventures, given the number of richly credentialed job candidates already flooding Silicon Valley with résumés and applications.

But Koller, the Coursera co-founder, and David Stavens, the chief operating officer at Udacity, contend that even a relatively small proportion of successful matchmaking efforts should generate enough money to fortify the companies’ bottom lines. In Silicon Valley, headhunters often get paid finder’s fees equivalent to 20 percent of a software engineer’s starting salary, Stavens says. That could mean around $15,000 per match, he says, which could add up quickly.

And because the MOOC providers not only found the students but in fact educated them, via a data-rich teaching platform, they would be able to offer employers not just résumés but a deeper set of details on the unique skills of potential hires, says Koller. “Employers [could] be able to search against our databases, where you have very detailed, quantitative performance information on people across different skill sets,” she says. “That might be something they would be interested to look at.” Companies might even be willing to pay for the privilege.

Craig, the University Ventures partner, suggested that the MOOC providers might also try to make money by matching the many students who do not complete their courses — not with employers, but with traditional online programs where they might have better luck. Lead generation, which is big business, is “not something we’ve talked about as intensely,” says Koller. But it is on the table.

But the MOOC providers might also do well to look beyond courses and credentials to other elements of the college “package” that registrants might like purchase à la carte, says Ann Kirschner, dean of the honors college at the City University of New York.

More than a decade ago Kirschner headed Fathom, the first attempt by “elite” universities to take their content online. Fathom tried to monetize by charging for access to content, and failed. Coursera and its “elite” partners — which include Stanford University, Princeton University and the University of Pennsylvania — are giving away the content and assessment, which means they ought to focus on the other things students get from universities, Kirschner says.

The MOOC providers could wrap their free courses and assessment with “accompanying content and services, so that it’s not all about the courses themselves,” she says. The companies could potentially make money providing — or outsourcing — library resources, tutoring services, and other accouterments of collegiate academic life, says Kirschner. “That ‘envelope of learning’ is going to have to happen somehow in order for this concept to really take off, and in creating that envelope will be opportunities for new businesses,” she says. And if the MOOC companies do not do it themselves, chances are somebody else will.

If they wanted to stay within their current course-and-assessment wheelhouse, the MOOC hosts could “add layers of more robust assessment” to their courses — a tier of feedback and human interaction that some students might be willing to pay for, says Paul LeBlanc, the president of Southern New Hampshire University, which has built its own very large national online learning enterprise out of what had been a sleepy private college in New England. This could, in turn, create an additional tier of credibility to the students who succeed in the course under that extra scrutiny — “something that inches closer to credit-bearing,” he says.

Another part of postsecondary education that does not currently come free with MOOCs is the chance to network with other promising students. But online institutions historically have struggled to replicate the bonding that comes with a campus experience.

There are ways MOOC providers could create a premium product around the demand for networking opportunities, says LeBlanc. Once again, they would be taking aim at their more successful, upwardly mobile users. But this time the premium offering would be not be services, but events.

Take edX, the nonprofit MOOC platform from MIT and Harvard. The universities could organize conferences in different cities for students who take a certain number of edX courses and maintain a certain grade point average. MIT and Harvard professors could give talks, employers could send recruiters, and students could participate in workshops and hobnob over drinks.

The success of those conferences would depend heavily on universities’ willingness to leverage their names to pump up the prestige — especially overseas, where most of the current MOOC students are and where the MIT and Harvard brands are in particularly high demand, says LeBlanc. This means MIT and Harvard are in a better position than Udacity and Coursera to charge for selective networking opportunities at the Beijing Hilton (although he says it was a mistake to re-brand the MIT-Harvard collaboration as edX).

“Most of the stuff that will hold up over time, will be that which is attached to the brand,” says LeBlanc. “Everybody would put it on their resume,” he added. “They could make a billion dollars.”

About Steve Kolowich

Reporter Steve Kolowich joined Inside Higher Ed in August 2009. He graduated in 2008 from Bowdoin College, where he earned an A.B. in political philosophy and co-edited the Bowdoin Orient. Shortly after returning from a 15,000-mile post-college road-trip, he interned at The Chronicle of Higher Education, which awarded him the David W. Miller Award for Young Journalists. He served a brief stint at the Global Security Newswire, but couldn’t stay away from higher education reporting for long. Steve is a freelance music writer, and plays music in his apartment with his roommate way too loud, way too late. He likes Washington, but would like it better if it were in Maine.

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