With big questions one and two, we investigated whether MOOCs really are expanding the reach of higher education, in the U.S. and abroad, and found some surprising results. Now, with the remaining three big questions, we turn our attention to money: who is investing in MOOCs? Are they financially sustainable? Our research suggests that the free MOOC as we know it may not be around for too much longer, but it also gives us some clues as to what might rise in its place.
Part II: MOOCs and Money: Is the free MOOC soon to be extinct?
3. Who is investing in MOOCs?
Venture capital investments in new education startups have gone through the roof recently, hitting $429 million in 2011.[1] Coursera’s initial funding consisted of $22 million in venture capital funds, while Udacity started with $5 million.[2] Harvard University and the Massachusetts Institute of Technology each committed $30 million to launch edX.[3] There is also interest from private philanthropic foundations; so far in 2012, the Bill and Melinda Gates Foundation has invested $4 million toward the development of MOOCs, with nearly $900,000 earmarked for the American Council on Education to investigate accreditation possibilities, and the majority of the remaining funds committed to developing introductory and developmental courses for low-income American adults.[4]
So what? The interest and support from the Gates Foundation and the goals they articulate could improve the issue of uneven access to MOOCs within the United States, discussed in the first part of this article, by making more entry-level content available. With regards to edX, the impact of the participation of elite universities can’t be underestimated, and their decisive entrance onto the scene of online education and open learning has done a lot to legitimize and raise the profile of MOOCs and online education in general. Even within the last year, governing bodies and policymakers across the country have had no choice but to become more aware of online and open education and, more broadly, of the shifting landscape of higher education in the United States. Lastly, Coursera and Udacity’s venture capitalists will inevitably want a return on their investment, and the startup funds raised will only go so far before MOOCs will need more money. This pressure could (and does) mean a search for revenue streams. This search has already begun, and big changes in the MOOC scene may result.
4. Can MOOCs be cost cutters?
Tuition costs are rising; since 1978, tuition in the United States has increased 1,120 percent — four times faster than the Consumer Price Index.[5] What’s more, state funding in 2012 decreased nationally by 7.6 percent, with 41 states cutting funding to higher education. Inside Higher Ed called it, “the largest such decline in at least a half century.”[6] With these two well-known realities at play, what can higher education institutions do to cut costs and generate revenue? Consider the following: four-year institutions in the U.S. spend, on average, $35,679 per full-time-equivalent student[7]–while only annually collecting on $22,092 per student in tuition (on average).[8] Tuition simply cannot keep increasing indefinitely to cover these costs. The institution’s expenditures, however, could be reduced by introducing a new delivery model. Research by Stephen Ruth of George Mason University identifies two areas where cost is significant — administration and teaching — and proposes MOOCs as one potential solution to the cost issue. Once a MOOC and its associated learning materials have been created, Ruth argues that “a significant returns-to scale opportunity is attainable, where each added student reduces the unit cost and the… break-even point is reached quickly.”[9] Quite clearly, the cost savings to be found in the MOOC model are in “faculty and administrative labor,”[10] as a MOOC operates as one unit of a course, with one set of course materials, one professor, etc. Ruth goes on to propose an import/export model of MOOCs, where MOOC owners provide these courses, fully formed, at a fee to the interested institution — a fee that streamlines the cost per student and saves the institution significant expenditures.[11]
So what? Higher education institutions across the nation are strapped for cash; they’re looking for solutions and this is one that may just work. For MOOCs to truly take on this cost-cutting role in a significant way, the delivery model would already have to be established as legitimately accredited (or accreditable). The first stirrings of this move have begun, with the American Council on Education investigating accreditation possibilities for MOOCs, and several United States colleges beginning to grant credit for MOOCs in some form or other.
5. Can MOOCs be revenue generators?
Credit rating agency Moody’s Investors Service certainly thinks so. The top major credit effect they predict will come out of the MOOC movement is “new revenue opportunities through fees for certificates, courses, degrees, licensing or advertisement.”[12] Moody’s sees the current state of MOOCs as an excellent space for experimentation with a highly positive potential for later monetization, both nationally and globally. They even suggest that the short-term market benefits for the elite universities offering free MOOCs has already begun, in the form of positive publicity and enhanced branding for these institutions.[13] Antioch University recently became the first university to enter into a licensing agreement with MOOC provider Coursera to offer several MOOCs as a part of its B.A. program. Antioch will pay a certain amount for this licensed content, and the revenue from this deal will be shared between Coursera and the course-developing university partners.[14] In anticipation of more credit-seeking partnerships, edX and Udacity have both established agreements with testing services provider Pearson VUE, offering proctored tests for a fee of $89 that allow students to attain an “official credential” for their course offerings.[15]
So what? Between new partnerships, licensing potentials, pressure from cash-strapped universities and pressure from venture capital investors, MOOCs are moving toward a financially sustainable, revenue-generating model. This new model will most likely change the face of MOOCs, as they are increasingly embraced by a higher education system that desperately needs all of the revenue-generating or cost-cutting opportunities it can get.
To sum up: Is the hype warranted? Are MOOCs here to stay?
In light of the data and trends discussed over the course of this two-part feature, it’s clear MOOCs in their current, nascent incarnation are most likely a stepping-stone to further development in several different directions. One direction might be geared toward greater and more democratic access to free and open education resources, as the Gates Foundation funding might suggest. Another direction could be further legitimizing MOOCs with the goal of integrating them into traditional higher education institutions, thus cutting costs and generating revenue for these financially-strained schools. Before either of these happens, however, there are many kinks to work out, and as more data emerges from more recent MOOC courses and research projects, the picture will become ever clearer. For now, it’s a fascinating and low-risk space of experimentation and exploration in education.
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References
[1] Nick DeSantis, “A Boom Time for Education Startups,” The Chronicle of Higher Education, March 18, 2012, accessed November 17, 2012.
[2] Education Advisory Board, “The Promise and Peril of Innovation,” 2012, p. 16.
[3] Education Advisory Board, “The Promise and Peril of Innovation,” 2012, p. 16.
[4] Bill and Melinda Gates Foundation, “Massive Open Online Courses,” November 2012, accessed November 17, 2012.
[5] Michelle Jamrisko and Ilan Kolet, “Cost of College Degree in the U.S. Soars 12 Fold,” Bloomberg, August 15, 2012, accessed December 2, 2012.
[6] Doug Lederman, “State Support Slumps Again,” Inside Higher Ed, January 23, 2012, accessed December 1, 2012.
[7] U.S. Department of Education, National Center for Education Statistics. Digest of Education Statistics, 2011 (Washington: U.S. Government Printing Office, 2012), Table 377.
[8] U.S. Department of Education, National Center for Education Statistics. Digest of Education Statistics, 2011 (Washington: U.S. Government Printing Office, 2012), Table 349.
[9] Stephen Ruth, “Can MOOC’s and existing e-learning paradigms help reduce college costs?”, International Journal of Technology in Teaching and Learning, Vol. 8 (1), 2012, p. 23.
[10] Stephen Ruth, “Can MOOC’s and existing e-learning paradigms help reduce college costs?”, International Journal of Technology in Teaching and Learning, Vol. 8 (1), 2012, p. 23.
[11] Stephen Ruth, “Can MOOC’s and existing e-learning paradigms help reduce college costs?”, International Journal of Technology in Teaching and Learning, Vol. 8 (1), 2012, p. 29.
[12] Moody’s Investors Service, “Shifting Ground: Technology Begins to Alter Centuries-Old Business Model for Universities,” Moody’s Investors Service, September 12, 2012, accessed November 17, 2012, p. 1.
[13] Moody’s Investors Service, “Shifting Ground: Technology Begins to Alter Centuries-Old Business Model for Universities,” Moody’s Investors Service, September 12, 2012, accessed November 17, 2012, p. 2.
[14] Steve Kolowich, “MOOCs for Credit,” Inside Higher Ed, October 29, 2009, accessed November 25, 2012.
[15] Udacity Blog, “Udacity in partnership with Pearson VUE announces testing centers,” Udacity, June 12, 2012, accessed November 25, 2012.
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