Coursera’s Business Model Challenge

According to a report, The U.S. Market for Self-Paced eLearning Products and Services: 2010-2015 Forecast and Analysis, by market research firm Ambient Insight 2015, the number of post-secondary students in the U.S. who are taking online classes will rise from 12.36 million in 2010 to 21.13 million by 2015. Annual growth over the five-year period is expected to be 11%. While many students will continue to take both online and offline classes, the largest growth is projected among students taking exclusively online courses. The report projected annual growth of 23% for students taking only online courses; this is up from 1.37 million in 2010 to 3.86 million in 2015. The online education industry will benefit from the growth of massive open online courses (MOOCS), which are usually free courses offered to a big online population.

Coursera’s Offerings

Education tech startup Coursera is one player helping to drive growth in online education. Coursera was founded by Stanford alumni Daphne Koller and Andrew Ng early last year. Coursera is a social entrepreneurship company that has tied up with several universities across the world to offer free courses online, globally. The company was set up on the belief that in the future, universities will be able to provide education not only to the few who attend their campuses, but also to millions of others who can attend the university virtually. Through Coursera’s tools and services, professors are able to conduct their classes online and open access to the world-class education they offer.

Coursera’s platform is based on the extensive use of interactive exercises, which they believe are essential to ensuring the long-term retention of the concepts being taught. For instance, their videos frequently pause so that students can answer questions to assess their understanding. In addition, students get instant feedback on their performances, and the “randomized versions” of their assessments ensure constant revision of the concepts taught. Coursera was also among the first few startups to gain a recommendation from the American Council on Education (ACE). Last November, ACE’s College Credit Recommendation Service was evaluating the creditworthiness of Coursera’s courses. After due diligence, ACE has recommended that five of Coursera’s courses have earned credit recommendations. These free courses have received approval for college credit, and upon completion of the courses, students can request transcripts for credits. Coursera will have to ensure that they proctor the assessments for these courses better. Under this system the courses will remain free online, but the student will have to pay an estimated cost of $200 for a signature and ID tracking. Coursera has let the choice remain with universities whether to accept the credits for Coursera’s courses.

Courses offered by Coursera are available in a range of topics, including the humanities, medicine, biology, the social sciences, mathematics, business, and computer science, among others, and are brought by 62 universities.  Coursera expects the number of universities to double within a year. They plan to begin offering 90 new courses in various languages, including French, Spanish, and Chinese, this year. They have partnered with top universities like Stanford, Princeton, the University of California at Berkeley, the University of Michigan, and the University of Pennsylvania to bring professor-created classes online. Besides offering free courses, Coursera also lets universities use their learning management service platform to revamp their own online programs. According to recent reports, Coursera has enrolled more than 2.8 million students from 33 institutions.

Coursera has also realized the importance of monetizing their model, considering they are a venture-funded company. Recently, Coursera enabled access to organizations to their student database so that potential employers can search for suitable candidates. This Career Services initiative is available free to the students, but Coursera charges a fee to the organizations. Coursera also shares this revenue with their university partners. Details of their financial models are not available, but according to estimates the universities get between 6% and 15% of the revenues earned by Coursera.

Coursera is not the only company enjoying the rise of MOOCs. Other players such as Udacity and edX are also delivering on this socially driven agenda, which is wonderful. MOOCs come with their own set of criticism, the biggest being that not many students have the required level of commitment and thus tend to drop out of courses. But as I said earlier, I believe that the culture of online learning will soon become thoroughly embedded into society, and the MOOCs will be able to overcome this hurdle.

Coursera has received $22 million in funding from investors, including Kleiner Perkins Caufield & Byers and New Enterprise Associates. Their most recent round of funding of $16 million held in April 2012 has helped them enhance their platform. All this VC financing leads me to ask a simple question: Is this business a venture-style business, or is it better run as a non-profit? As you know from my recent story on edX, that is a non-profit being funded by MIT and Harvard to the tune of $60 million. What worries me about Coursera is that a high-growth business model has not emerged yet. How long will VCs continue to support the business under those circumstances?