What's the Business Model for MOOC's?

A recent article in the Chronicle of Higher Education discussed the questions surrounding how major universities hope to profit from participating in Massive Open Online Courses, or MOOC's, run by for-profit ventures like Coursera.   The article describes a contract between Coursera and the University of Michigan that lists several methods for turning the MOOC's into money.  The following passage expresses some skepticism:

When I showed the Coursera contract to Trace A. Urdan, an analyst at Wells Fargo Securities who focuses on education-related companies, he found it "ironic" that major universities are embracing online education when they have been dismissive of earlier efforts by for-profit companies like the University of Phoenix.

"These are two of the most arrogant types of institutions—Silicon Valley companies intersecting with these elite academic programs," he says. "Neither of them considers that anyone else has come to this place before they've arrived. They say, We're here now, so now it's sort of legitimate and for real."

And he argues that the plan relies heavily on all of the money colleges are already spending on professors and facilities. "It's a way to carve out some extra money on the top of the existing program, but it's not an alternative system that is going to solve the cost crisis of higher education," he says. "It's being subsidized by incredibly high-priced education."

Ms. Koller insists that the courses the company is offering differ fundamentally from those at the University of Phoenix. "Their online effort is really traditional teaching mediated by the computer as opposed to using the tech in a fundamental way," she argues. "There's no economies of scale there. What we're doing is one instructor, 50,000 students. This is the way to bend the cost curves."

The comment on economies of scale caught my eye.  On the face of it, that seems plausible -- a MOOC appears to up the productivity ante substantially, moving to astronomical student-faculty ratios.  But what is actually produced in the process?  In other words, what value do the 50,000 students get out of the experience, and how much will they be willing to pay for it?   The article mentions two possibilities:

Coursera's leaders say they are actively pursuing only two of the moneymaking ideas on the list: charging students who pass the courses a small fee for a certificate, and serving as a matchmaker between students looking for jobs and companies seeking qualified employees.

Both of these possibilities, however, threaten to increase the costs of the venture and erode the economies of scale.  For the certificate, Coursera must determine how it will show that someone "passed" a course.  This will require identity verification as well as a credible form of assessment.  For the job matching, Coursera must offer some service on top of a job clearinghouse if it is to add value beyond existing job matching sites.  That is, they presumably want to claim that the MOOC's help identify better potential employees, which adds value to the matching.  But that brings us back to the need for credible assessment.

[As an aside, the above reminds me of the Epic 2020 video, which while compelling in its presentation, never spoke to the question of credible assessment.]

All of this makes me wonder where we are heading, and whether the enthusiasm for MOOC's will ultimately wane.  A Wall Street Journal article from Friday intersected with this thought -- here's the quote that made me think:

"Investors who were excited about social networking have learned just how immature these companies' business models are," said Michael Shinnick, who manages $2.5 billion for Wasatch Advisors of Salt Lake City, Utah, and doesn't own Facebook shares.

Are we back to the jump first, monetize later philosophy, based on a misapplication of network effects, that characterized the tech last bubble?  Or are MOOC's onto something more substantial?

 

 

Comments

[James Grimmelmann]

Here's a possible way things will proceed:

(1) Coursera, Udacity, and edX flame out having burnt through their capital with very little revenue to show for it.
(2) Individual professors and amateurs produce their own online higher educational materials at an accelerating pace.
(3) Students who might have enrolled in traditional higher education programs increasingly turn to these bottom-up free alternatives.
(4) Someone figures out how to monetize this bottom-up outpouring of materials by providing additional services to creators and students.

Think of it as Benklerian disruption, rather than Christensenian disruption.

[Joel Reidenberg]

I think James describes a likely scenario. Point 4 is really about credential validation. Someone, some school or some association will issue credentials based on acquired knowledge regardless of the way the knowledge was acquired. The value of the credential will depend on the trustworthiness and reputation of the issuer.

[Alfred Brophy]

Thanks for this post, Paul. I've been wondering what on-line courses from major schools will look like in light of the UVA uproar.

Small is beautiful, to invoke a 1960s-ism, James. But I think the just to (4) is going to be difficult -- and rather unlikely. My bet is that, to the extent major universities are going to make money delivering courses on-line to huge numbers of students, it'll be more top-down. My guess is that some major schools will start marketing some of their programs on-line, particularly basic undergraduate programs.