Will a merger between an online education company and nonprofit founded by Harvard and MIT make online learning viable for higher education?
When Harvard University and Massachusetts Institute of Technology first launched edX, a nonprofit online learning organization, in 2012, some media reports at the time called it The Year of the MOOC, referring to the massive open online courses edX and other similar outfits were offering. Nearly a decade ago, industry watchers and stakeholders were betting that these large, free lecture-style classes would democratize higher education by providing a whole new swath of learners with access to courses from top universities.  Its a new chapter.   Howard Lurie, principal analyst at Eduventures Research  That vision hasnt exactly played out over the intervening nine years. Tens of millions of people did flock to sites like edX to try out courses for free, as expected, but attracting the kinds of students who would make online higher education a viable business  those who were willing to pay for a degree or credential  proved harder and costly. Now, the recent announcement that 2U TWOU, -0.63% , one of the largest, publicly traded online higher education companies, would buy edXs assets for $800 million signals a new future for the industry. One where free online courses serve as an entry point to paid credential and degree programs. The announcement last week comes a few months after Coursera COUR, -2.42% , one of the biggest MOOC providers, revealed its success at converting free users into paying students in its IPO paperwork. I dont think this is the end of the MOOC question, but I think its a new chapter, said Howard Lurie, principal analyst at Eduventures Research, a market research firm. From MOOC hysteria to struggling to compete  When MOOC hysteria took hold back in 2012, much of the rhetoric surrounding the role the courses would play in transforming higher education came from outside the sector itself, said Joshua Kim, director of online programs and strategy at Dartmouths Center for the Advancement of Learning. We looked at the movement towards MOOCs as a way to have different conversations on our campuses about teaching and learning, to experiment and build new capacities, said Kim, whose school became part of edXs consortium of schools, as a charter member in 2014. But within a few years, it became clear open online learning couldnt fund itself, Kim said. In 2015, edX began charging students to earn certificates through the platform.  Open online learning couldnt fund itself.   Joshua Kim, director of online programs and strategy at Dartmouths Center for the Advancement of Learning  That shift started to move edX in a direction that belied our initial interest and engagement, said Edward Maloney, the executive director of the Center for New Designs in Learning and Scholarship at Georgetown University. His school became a founding member of the edX consortium in large part because of its commitment to the open or free component of MOOCs, he said. The sale to 2U, is an evolution of a direction that they have been pursuing for a while, thats just very different from where we started and where we were thinking this might go, said Maloney, who is also a professor in the schools English department. Still, the shift wasnt enough for edX to elbow out the heavily capitalized competition. The acquisition demonstrates that edX determined as a nonprofit it really could not compete effectively with Coursera, Kim said. That dynamic raises questions about how successful nonprofits can be in the online higher education industry. Will universities say okay, weve got to tie our futures  if we want to scale online education globally  to these for-profits? Kim said, or will universities try to build some of these capacities themselves, he added. Deal came when online education was riding high  In a conference call with reporters after announcing the deal, Alan Garber, the provost of Harvard University, said the transaction came about during a period when edX was riding high because of increased interest in online learning generally, and their platform specifically, during the pandemic. Over the past year, edX saw a 15-fold increase in course enrollments, which made it the right time to seize an opportunity to create a step-function increase in our impact in a way we couldnt do otherwise, Anant Agarwal, the founder and chief executive officer of edX, wrote in an email.  The right time to seize an opportunity.   Anant Agarwal, the founder and chief executive officer of edX  edXs board of directors of which Garber is co-chair, considered several possibilities for the organizations future, including remaining independent, but the 2U deal proved far and away the best approach to advancing edXs mission going forward, he said on the call with reporters. Harvard and MIT will use the $800 million 2U paid for edX to create a nonprofit focused on educational outcomes and learning inequity. As part of the deal, 2U has vowed to permanently commit to the entire notion of open access to free learning, Chip Paucek, 2Us chief executive officer, told reporters on the call. By combining edXs offerings, which include, microcredentials  or shorter programs that can sometimes stack towards a degree  and free MOOC auditing, with 2Us offerings, including bootcamps and online degree programs, the combined firm will create a full ecosystem of offerings that truly address lifelong learning from free to degree, Agarwal said. Full suite of programming  Historically, 2Us business has focused on partnering with universities to provide the marketing, backend technological support and other services for their online degree programs. Now, the company can offer a full suite of programming ranging from free courses to degrees, Lurie said. That makes the 2Us value proposition to schools looking to offer online degrees really different now, he said, because the company now has access to edXs 39 million users who may be interested in continuing their education with a university program. Typically when 2U offers a degree with a university partner, they run a bespoke marketing campaign, which can include spending to advertise on places like LinkedIn, to attract students said Brett Knoblauch, who follows 2U as vice president at Berenberg Capital Markets. Compare that to edX where the learners come to you and you know theyre interested in learning because theyre coming to you, he said. That gives 2U a huge funnell of people who they know are interested in learning.   Were trying to pull back the cost curve.   Chip Paucek, 2Us chief executive officer  2U estimated that the transaction could help them drive down marketing costs by 10% to 15%, saving $40 million to $60 million a year, according to an investor presentation. If the company is able to convert 0.03% of edXs 39 million users into paying learners, that would push 2Us average cost to acquire a customer from $3,900 down to $3,500. We hope that the kind of investment that 2U has just made would allow them to do things at scale in a way that would allow them to share some of those cost savings with students, Maloney said. In the email, Agarwal said that the companies agreed contractually to certain principles related to access and affordability including, increasing the number of courses in non-English speaking markets and continuing the free MOOC audit track offered by edX. Universities set the prices for the degree programs, but its possible they could use pass-through cost-savings from 2U to pass those on to students. In the past, critics have derided companies like 2U, arguing that provisions in their contracts with universities, which often include sharing tuition revenue, push tuition costs up for students. Paucek pushed back on that idea on the call with reporters saying, the notion that because there is a company sharing revenue,that were interested in higher costs is just completely untrue.  He added that higher tuition costs mean fewer students sign up as paying users. Were trying to pull back the cost curve, he said.