When Massachusetts Institute of Technology and Harvard University first launched edX, an online, non-profit learning organization, in 2012, several media reports at that time called it “The Year of the MOOC,” massive open online courses that edX and other similar platforms were offering.
About a decade ago, stakeholders and industry watchers were betting that these free lecture-style classes would democratize higher education by offering a whole new swath of learners with access to courses from top universities, stated Jillian Berman for Market Watch (1).
However, the vision didn’t play out over the past nine years. Tens of millions of learners did flock to platforms like edX to try out courses for free. But, luring the kinds of students would make online higher education a profitable business; those who would pay for credentials or degrees proved costly and harder.
The announcement that 2U Inc, one of the most publicly traded online higher education firms, has purchased edX for 800 million USD indicates a new future for the industry. The one where free online courses make the entry point for paid credential and degree programs.
Notably, the announcement earlier this month comes a few months after Coursera, one of the most prominent MOOC platforms, revealed its success at converting free users into paying learners in its IPO documents (2).
The Future of edX as 2U
Harvard University has officially passed the ownership of their edX online learning platform to 2U. It started as a non-profit organization with the mission of offering an open-source e-learning platform with free and paid online courses from accredited and high-profile universities.
This month, and has taken the next step in its journey, which has brought a level of uncertainty for the platform’s future.
According to Bath Porter, the former VP at edX and co-founder of Esme Learning Solutions (3), “education goes through different kinds of innovative cycles and new activities and stays there for a while. Then, something else prompts a whole new learning set experiences creation, and edX has been an essential part of making that transformation have a leading edge.”
However, the balance between non-profit innovation and for-profit motives to keep afloat can create tension as edX transforms its financially backed structure (4).
Details of the Deal
In an 800 million USD deal, OPM, Online Program Manager, 2U has become the new owner of edX, a competitor to familiar Coursera. According to a presentation for the investors, the deal does not include the technology but the website, brand, and marketplace (5).
The all-cash funds of the deal would go to former edX owners, the involved universities, who will build a non-profit organization “focused on transforming educational outcomes” and “tackling learning inequities.”
According to MIT’s press release (6), the goal of the non-profit is to “explore the next generation of online education.”
Like Patagonia and Ben and Jerry’s, edX has become a part of 2U’s portfolio as a Public Benefit Company.
With the merger, seven offerings are listed:
- MOOCs, offered by 2U
- Short courses 2U, and professional certificates, edX
- Bootcamps, 2U
- “MicroMasters” and “Micro Bachelors,” edX
- UG degrees, 2U
- PG degrees, edX, and 2U
- Doctorate degrees, 2U
While it is clear that donors of the edX are not getting any compensation, it is settled that the “friends of edX” program is dismissed. Moreover, corporate training under the “edX for Business” is mentioned but not pictured (7).
The idea of the “free-to-degree” offers students access to the whole education offering in revenue-seeking plans. There are expectations that the deal would improve 2U’s marketing performance by 10 to 15%. Notably, edX reported operating losses of 17.4 million USD on an 84.7 million USD revenue.
With an assurance that the funding took 2U to take on a 475 million USD payable loan for 3.5 years, it is estimated to make around 42 million USD of annual interest expenses, or 1% yearly amortization, if present interest rates remain.
What are the Promises?
- Anant Agarwal, the founder of edX, confirmed that he would remain part of 2U’s team, stating that the “Audit” mode would continue for at least five years, where learners can access the courses and their content for free. Even though the Audit model doesn’t allow participants to earn a degree, allowing it would “guarantee affordability (8).”
- Moreover, Agarwal promised a “complementary set of programs and services,” amounting to a “full ecosystem of offerings that truly address lifelong learning from free to degree.”
- A “set of core mission principles” to which they would commit contractually.
- Other promises include accessibility, privacy, and non-English offerings.
What about Open edX?
With the deal, the technological platform on which edX runs, Open edX would be the responsibility of a non-profit, which seems to have kept the name “Open edX.” Apart from trademark issues, MIT and Harvard will keep the non-profit, which would close open lines of credit to 15 million USD each and devote the remaining 770 million USD to the new firm.
With the latest funding, the firm becomes a provider of open source technology with enviable resources, if with a user base at a section of longstanding players such as Moodle. Moreover, early talks on the vision and purpose of the new non-profit firm seem compatible with Canvas or Moodle, whose latest news of parent firm Infrastructure returning to the public market (9) also takes us back to the subject of open source as a business asset.
Agarwal has claimed that edX would continue to use OPen edX, promote it, and actively participate in improving it instead of its previous lead development role. There are also no contractual commitments known for edX to keep using the platform. Agarwal joining 2U also raises the question regarding the leadership in charge of the platform.
But is the edX Acquisition a Big Deal?
First of all, it is a big deal for Harvard and MIT.
On the one hand, edX was a money loser, like most edtech companies. They lose money for the long-term, then they become slightly profitable. Investors are often okay with it when the “slightly profitable” is also “reliable profit.” As long as investors believe that edtech companies would be eventually profitable, one investor may purchase a stake in an unprofitable entity from another.
On the other hand, universities are not yet in that game in a similar way. As far as we know, edX was rushed out to get ahead of the Coursera launch. It was not a strategy but a reaction. It was also a money loser.
The basic idea for both of them is to be Amazon MOOCs. Get everyone to sell everything via the storefront and collect a small amount of each transaction as a fee. Attract enough consumers so that the small amounts add up over time.
In a way, if edX had any business play beyond “do whatever Coursera is doing,” that was it. It was not obvious that edX would be an asset that they would sell.
However, when 2U came, it allowed Harvard and MIT to get out of the money trap, declare victory, and make a good return on their investment. As per Tech Crunch (10), the universities have thrown 80 million USD cumulative to keep edX running for free. If the number is correct, then two universities made 10x on their 9-year investment.
Whether it is good or not depends on your perspective. For VCs, who look to make a 10x return in five years, we believe that those numbers may sound even less ambitious in edtech. However, it could be a huge unexpected windfall for MIT and Harvard that get rid of some issues and build some opportunities for them.
What’s in it for 2U?
Well, it is obvious that 2U would not have forked more than 800 million USD in cash if they didn’t believe edX would be a big deal for them.
According to Phil Hill (11), “Coursera’s market value is 18x its annual revenue whereas it is about 4x for 2U. These are rough stats; however, I think 2U’s leaders believe that the deal would increase its value.”
But the bigger question is, why do investors think that Coursera is more valuable compared to 2U? The short explanation is that one of the expensive parts of an OPM business is marketing for new students. Investors think that both of these entities claim that owning a MOOC business helps lower the marketing costs for their core OPM businesses. According to 2U’s public estimates, they can save about 15% on marketing costs.
Apart from this, there are also a handful of other potential business justification for 2U to acquire edX, including its aspiration to transform the education sector by bringing it online. Owning a major MOOC platform offers 2U’s aspiration more debt.
Secondly, edX has a massive reach of students in a lot of countries. International edtech marketing has been coming for a long time, and it has finally arrived. edX expands 2U’s international footprint to some extent, which gives it a good story to tell.
The final advantage is that 2U has always been into telling a compelling future narrative. Chip Paucek, the CEO of 2U, responds to market changes (12). Considering Coursera’s recent success, it makes sense that he would look to make the boldest and biggest MOOC move. The edX acquisition fits.
The Impact of the Deal in the Higher Education Ecosystem
Almost no one is complaining that it is a bad deal. MIT and Harvard are getting a good return on their business while getting rid of a money-losing business that was increasingly losing ground to Coursera. With 2U’s expertise, capital, and experience in student support and marketing, edX can compete with Coursera.
While some of the edX’s parties would have preferred working with a non-profit, Coursera’s growth and the overall growth of the OPM industry indicates that there will be little to no impact from edX turning into a for-profit.
With the change underway, we can see several non-profit universities that used to recoil from for-profit providers are not happily collaborating with OPMs or even for-profit entities in some form of acquisitions (13). The University of Arizona, collaborating with for-profit Ashford University, is one such example.
Even though getting a lot less attention than the deal with edX, 2U had recently collaborated with Guild. This workforce intermediary entity brings together large-scale education providers and employers, which says that the ecosystem has changed.
2U’s business was done by bringing highly valued universities into the online market. Historically, those universities paid little to no attention to workforce requirements. Now, by collaborating with Guild, there is a new channel to link those universities to the online market and Guild, and then thus to large scale employers. It is a connection that never existed before and has now altered the ecosystem.
These days, there is much talk about building a marketplace for post-secondary education as Amazon for retail. While 2U may or may not have been the aspiration, it has become a dominant player in the higher education ecosystem.
Nonetheless, any company hoping to build the dominant marketplace for higher education has three major challenges:
- Higher education is a heavily regulated space.
- Education is an inherently complex “product,” with intensely human and thus complicated emotional and psychological components.
- Even though conventional higher education is slow, it is influential and massive and is not likely to sit by in the face of existential crisis.
Suppose 2U acquiring edX means that it would bring more affordable post-secondary higher education options to people around the globe with demonstrable positive results. In that case, it seems like a good chance for students.
For everyone else, it would seem as if life is becoming more complicated in a way we yet can’t fully comprehend but now that these changes are making profound shifts in the industry (14).
At the same time, the development should be a wake-up call for other universities and educational institutes. Lamenting the government and reducing enrollments won’t help them. Instead, they need to ask how they can make an ecosystem to provide high-quality education at a lower cost.
At present, universities are following a vertical integration model where they perform the entire value chain in-house, from enrolling students all the way to awarding degrees. It is time to start thinking about unbundling this value chain and outsourcing areas where others have superior core competencies. For instance, they can reach content creators like Outlier.org, or platforms like edX, or even those in the gaming space with expertise in AI and AR/VR and have the capabilities to build immersive experiences.
Universities can get a big portion of revenues that would steadily migrate towards edtech companies by collaborating with them instead of resisting them. These additional revenues can help universities get the seed capital they need to drive their edtech initiatives. At the moment, they are mere spectators in the big play (15).
Read Also: NEP 2020: How will it impact students?
In and of itself, we are still indifferent to this deal. We are not opposed to revenue-share OPMs or 2U either.
At first glance, we don’t see any significant harm to educational institutes or students. However, we may have to change our opinion later as we learn more about it. And since xMOOCs have not come out to be the end of academia as we know it, nor in the revolutionary sense or the armageddon sense, we are inclined to feel mildly positive towards an arrangement that offers a major provider a viable path forward.
MOOCs serve as a supplement as we try to provide everyone globally the opportunity to fulfill their potential via education. If anything, we would like edX and 2U to make a contribution to their new venture.
Beyond that, there are two aspects which we care about the most. First, there is the open-source code. While I believe that the early OpenEdX’s iterations were a band which “surprisingly” improved over time, considering how bad the foundations were, we believe that there is value in keeping an open-source MOOC platform.
While 2U can be good at working with academics, the question is whether it can steward an open-source academic community, especially when these two things are not the same.
Second, we may have lost research. Thanks to the efforts of researchers like Rene Kizilcec and Justin Reich, edX has been one of a handful of public testbeds we had for conducting credible learning efficacy research at a scale. In contrast, 2U has done nothing visible in the learning science space.
In 2021, there should be no excuse for any edtech company at the size and scale of 2U’s or Coursera’s not to be engaging actively with academics in serious applied learning science and contributing our collective knowledge. Suppose 2U can spend 800 million USD in the case for a MOOC entity that loses money every year. In that case, the company can afford to invest every year in a credible program to advance the knowledge and literacy of ineffective teaching practices. And now that they have acquired a platform for conducting such research at scale, the onus on the company has only surged.
The same goes for Harvard and MIT. Even though few researchers had put excellent work on edX, along with the institutes’ rhetoric when edX was established, one reason we have not gotten more and better research from the platform was that it was poorly designed for educational research. And as Michael Feldstein from eLiterate (16) puts it, how can MIT build a platform for massive-scale learning in 2012 and fail to consider what sorts of metadata and educational data they would require to facilitate research? And what does it say about the real priorities behind their initial push to edX production? Well, it is a mystery.
While we are not particularly interested in the vague promises the two rich universities make about doing good in the world with their 700 million USD windfall from non-profit, we would like to see a credible plan this time from them.