MOOCs Find Their Sweet Spot

After years of panning for gold in video streams, MOOCs may have finally hit pay dirt.

From the very first, when tens of thousands came out of nowhere—like monarch butterflies migrating in the fall—to enroll in free online university classes, the big question marks hanging over massive open online courses  was how can they survive without making money and will free MOOCs last?

Launched with piles of cash, top MOOC providers Coursera and edX just ploughed ahead, inexplicably delivering free classes to millions of people without knowing where the money was going to come from. Company techies, who had figured out how to stream classes worldwide, were way ahead of C-suite executives who were still scratching their heads about how to extract cash from millions of online learners.

One cynical blogger joked that giving away your product is not a very effective business model. It “does not, in general, result in much income.” 

Writing in Fortune during the dot-com boom, financial tech observer Erick Schonfeld recognized that what internet-based company CEOs “crave above all else is eyeballs…eyeballs mean customers.” But focusing on eyeballs alone, he cautioned, makes it hard to grasp the real business question: “Is there a chance they will ever turn a profit?” 

To everyone’s jaw-dropping surprise, by the end of last year, MOOCs had attracted 58 million learners, representing a colossal number of eyeballs.

After filling its war chest with $145 million following three rounds of venture funding, the biggest MOOC provider, Coursera, kept hunting for the right strategy to make its vigilant investors happy—that is, turn a profit and pay handsome dividends. For edX, the nonprofit MIT-Harvard joint venture financed with a combined $60 million investment from sustainability—not profit—is the name of the game.

After five years of looking for the right formula, both seem to have uncovered how to turn all those eyeballs into cash, a weird 21st century alchemy. Meanwhile, Udacity, the third big MOOC company, took another path to generate revenue, offering “Nanodegrees,” a neologism, representing a group of career-focused, non-credit courses in such hot new fields as self-driving cars.

Long before they hit on the right money-making scheme, Coursera and edX had set the stage for big things by successfully recruiting many of the world’s top universities to join them. Their stunning success laid the foundation for everything that has followed.

It was a staggering achievement to have been able to entice, not only some of the most noted, but also among the most conservative, risk-averse institutions to share their formidable brands with these upstarts. It was an especially Odd Couple arrangement—MOOCs, after all, are online courses, commonly dismissed by most selective universities as an inferior form of education.  But Yale, École Normale Supérieure and Peking University, together with more than 700 other of the world’s elite universities, signed on.

The Sweet Recipe

Three key ingredients account for transforming MOOCs into potential money-making machines. Here is their sweet-spot recipe:

Step 1: Convert your random catalog of disaggregated courses, across nearly all of scholarship, into distinct bundles of connected classes in targeted fields, say, cyber security or machine learning. It’s particularly sweet if they happen to be in appealing STEM or business fields.

Step 2: Make sure your bundles carry college credit, and brand them with gravitas, with such seductive titles as “MicroMasters.” Best of all, offer full or partial degree programs.

In an interview, edX CEO Anant Agarwal acknowledged, “Credit is the gold coin of education today.” MOOC credit bundles can often be stacked like Legos, giving students the flexibility of going just far enough to earn a partial degree; but if they wish, go on to earn a full degree.

Step 3: Hang a steep, discounted tuition price tag on your credit-bearing bundles. All the while, add millions of new learners each year by continuing to deliver free courses, admittedly, without the new bells and whistles offered to your paying customers. MOOC providers say they mostly split revenue with their academic partners, 50-50, but also negotiate separate deals with certain schools, often 60-40.

Once they got the ingredients right, it didn’t take long for an expanding menu of delicious new for-credit bundles at discounted tuition to come tumbling out of MOOC kitchens. When I looked at the edX site recently, it listed 16 MicroMasters; but because things were moving so fast, the company’s website team didn’t have time to update its offerings. Practically overnight, edX now offers 35 from premier schools—MIT, Columbia and Michigan, among a dozen or so others in the U.S. and elsewhere.

MicroMasters  give students who pass five graduate-level MOOC courses, plus a proctored final exam, the chance to apply for an accelerated, on-campus masters that is about a third less expensive than the on-campus equivalent. At MIT, a student who completes the master’s entirely on campus pays $67,000; someone who earns a MicroMasters and then caps it off with the residential program pays just $45,000.

At Coursera, its MOOC ovens were also working overtime. Just two weeks ago, in addition to its existing partnership with the University of Illinois—a joint venture in an iMBA and its recently announced Master’s in Computer Science in Data Science—it launched a new iMSA, a Master’s in Accounting, also at Illinois, plus a new Master’s in Innovation and Entrepreneurship with the Ėcole des Hautes Ėtudes Commerciales (HES) in Paris, one of the top business schools in the world and Coursera’s first degree with an international partner.

Coursera CEO Rick Levin, who moved to the company after serving as President of Yale, said that students can now “get a great education at a fraction of the cost” of earning degrees on campus. For example, at the University of Illinois, tuition for the residential Executive MBA is $97,000. But Illinois' MOOC iMBA is a bargain basement $22,000.

In a recent post, I commented on how MOOCs might help contain the academic tuition spiral. edX, too, is in the degree-granting business, with two new master’s just launched with GeorgiaTech.

Five years into MOOCs, neither Coursera nor edX are in the black, but by stirring the three key ingredients—bundling, credit and discounted tuition—there’s a good chance that their trajectory is now set, moving from pin money to real money.

Steward Brand, who founded the Whole Earth Catalog in the 1960s, is said to have originated the slogan “Information wants to be free,” an idea that eventually sparked the open-source movement, a near cousin of the first “O” in MOOCs that stands for "open”— or free. For the millions who benefited from the generosity of free MOOCs, which happily still continues, it’s poignant to see some of the optimism of those early heady days succumb to the hegemony of the marketplace.

“On the one hand information wants to be expensive, because it's so valuable,” Brand declared. “The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.”