Saturday, September 22, 2012

Edu-Zynga, the Current #MOOC Business Model?

While there is much discussion in higher ed circles about the potential for profit from MOOCs, the companies hosting them have yet to provide a clear business model. Based on some fairly simple observations, I expect that #MOOCs will ultimately earn ~zero net profit for most schools that partner with these companies. Here is one of the reasons why.

Most of the current MOOCs cover intro "101" material. If we peruse the offerings at, e.g.,  Coursera, it is easy to see that this is the case:

Coursera Course Offerings

That MOOCs target intro material makes perfect sense; after all, those offering MOOCs want to demonstrate just how massive the courses can be, so they are typically picking intro-level material with broad appeal. So, offhand, one might think it clever to use MOOCs as a substitute for some of the 101 courses. Students don't like to sit in stadium courses anyway, right? And from the school's perspective, if they can MOOC out the 101 courses, it should decrease their instructional costs.

[Never mind that instructional cost has less to do with tuition inflation than administration and facilities overhead... but I digress]

After taking a MOOC, if students need exams, a school could charge, say, $100... and that would be a bargain compared to the typical $200-$400 per credit hour that most students pay. Or, a school could generously permit students to take a free exam and proceed to more advanced coursework if they pass. A similar policy already exists at some schools, where if students pass a final exam in a course, they earn credit or at least bypass the course. Sort of like a CLEP. That's nothing new and it could work perfectly well with MOOCs. So far so good.

However, there is a worrisome catch-22 that continues to escape the notice of the giddy throng, who continue to believe that MOOCs will address the financial problems of higher ed. The problem is that intro courses are by *far* the most profitable for a school to host: they have the largest ratio of students to instructors. If we do the math, we see that intro courses are enormously profitable. And note that because the cost per credit is approximately the same for all courses at a school, the student pays approximately the same for an intro course as an advanced course; however, the school pays far, far more to host an advanced course.

So... if you really want to profit from MOOCs, it seems that you actually want them to cover advanced topics for which student-teacher ratio is too small to pay for the instructor. Schools should certainly not want MOOCs to cannibalize their introductory course enrollment. And note, advanced courses are typically taught by the more expensive tenure-track faculty. The paradox is that lower enrollment also implies that those courses are less likely to be offered as a MOOC. It's hard to herd 100,000 people into a rigorous grad-level course on general relativity or whatever.

In summary, the numbers don't (yet) add up, and yes, at this point, adoption of MOOCs appears to be more about egalitarianism, greater access for all, getting your school's good name out there, and testing the waters etc.

I do think there are a number of wonderful attributes of MOOCs, by the way. Developing countries lacking higher ed infrastructure should find them particularly valuable. And MOOCs do offer the possibility of connecting a more diverse pool of students with fresher material and perhaps multiple, diverse instructors. Those are wonderful things, for sure. But those of us who actually invest ourselves in higher ed do need to think carefully about fiscal sustainability and how to preserve the core value in our schools.

Will MOOCs ever make substantial money for anybody? Well... that hasn't actually been demonstrated yet. Right now, the MOOC business model that people are proposing is basically edu-Zynga: charge a lot of people a buck or two and they'll hardly notice. The problem with this business model is that it has no growth: sure, you get an initial swarm of interest, but then *pop*... what was that stock price at IPO?? It's a far, far cry from the slow and steady growth that investors have come to expect from the premier higher ed investments.

I expect VC people to lose interest in MOOCs very quickly, unless a more elaborate business model presents itself. Edu-Zynga won't cut it... not for long.


  1. Keith, good article. I think some scepticism about MOOCs is a good idea, because we've all seen this sort of rabid enthusiasm before. However, I think that the obsession in the press with how MOOCs look *now* fails to take into account that this is only the beginning of a revolution in both higher education and in workplace learning. Future models will be based on today’s MOOCs, but very different from them, and will probably involve a range of overlapping delivery mechanisms. I suggest a handful of these over at

  2. Thanks for your comment and good points. I am optimistic that MOOCs will eventually find their niche, but the direction the MOOC providers are taking is still unclear.

    My own conviction is that MOOC-like initiatives could be enormously helpful at the high school / intro college level, helping to solve the prep problem that generates so much cost in higher ed.

    On a related note, there is a new piece today on CHE describing a more "Monster"-like business model being explored by the MOOC providers....

    This requires more thought than I have given it, but offhand I must say that sharing student data opens many legal issues. And as a hiring manager, I certainly wouldn not consider course scores useful for considering job applicants. I look at far broader issues- real accomplishments and unusual capabilities etc. I could care less if a student figured out how to game an online course.

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