Global Macro Monitor’s recent post about fast and slow-growing economies looked at national numbers, but did not spend much time focusing on actual industries within localized markets. In the article that follows, contributor Emma Collins takes a deep dive into the online education sector, which is touted by many as something of a “next big thing.” Emma’s recent work includes a description of 2012’s best online MBA programs, and her insights should be of real interest to anyone looking either to invest or take part in Internet-based learning in the years ahead.
The Birth of Edupreneurs and Investing in Education Startups
In recent years, austerity measures at state governments throughout the US have lead to cutbacks in university funding and surging tuition rates. Many students, educators and school officials have expressed concern that overpopulated classes, fewer resources and professors are leading to a significant decline in the quality of education at many schools. As traditional schools suffer, though, a number of technology entrepreneurs see an opportunity to revitalize higher education.
Venture capitalists have poured millions of dollars into education-technology startups in the past few years. Investments in online education startups having tripled in the last decade, from $146 million in 2002 to $429 million in 2011. “The investing community believes that the internet is hitting education,” says Jose Ferreira, founder of interactive-learning company Knewton, which secured a $33 million investment in 2011. At stake is both a burgeoning industry and, for millions of potential students around the globe, an opportunity for a world-class education unlike any before.
In the last two years alone, venture investments in education technology have more than doubled, from $82 million in the first quarter of 2010 to $189 million in the second quarter of 2012. While education startup investing has undoubtedly experienced a boom in the past two years, there is reason to believe the return on investment is only beginning to accrue. While Knewton has a number of different business models, including charging for access to test prep materials for standardized exams like the Law School Admission Test, most companies are still exploring methods of generating consistent revenue. Startups like Coursera, which allows users to access Ivy League lectures and coursework for free, and Udacity, which offers free courses and charges a nominal fee for testing and certification, will likely be focusing on revenue generation in the coming years as their services gain traction around the globe.
“These new technologies can really accelerate the learnings of students from preschool all the way to college graduate education,” says venture capital investor and board member of Coursera John Doerr. “So it’s important, it’s big, and entrepreneurs can make a high impact in this large market.”
Of course, as more education-technology startups enter the marketplace, those offering the largest returns on investment will be those with sound business models that can outperform their competition One of the organizations best positioned for long-term success is EdX, a joint creation of MIT and Harvard University. The partnership of two of the most prestigious names in academia have helped EdX to gain a great deal of exposure since its inception. In July, the service received a $1 million grant from the Bill & Melinda Gates Foundation, illustrating the perceived potential of the company in becoming a leader in online education. Around this same time, EdX added course offerings from a third university, the University of California at Berkeley.
Like Coursera, the partnership strives to democratize online learning by allowing people around the globe to access courses and real-time lectures at top universities for free, and has already acquired hundreds of thousands of students around the globe. However, one of the chief concerns for students is how to ensure their work is recognized and valued in the workplace. In September, EdX worked out a deal that would address these concerns by allowing students to formally test in supervised centers run by Pearson VUE for a nominal fee. To date, there are 450 of these centers in 110 countries throughout the globe. EdX founders and students hope that soon, their testing records will be recognized as equal to those of degrees received at traditional universities.
Udemy, another education startup, has garnered attention by offering an even more democratic method of education. Udemy allows anyone to take or build an online course, instead of only adapting those offered at colleges and universities. Udemy is essentially crowdsourcing education. Instructors can implement PowerPoint, audio files, video lectures and PDFs to create courses and share them around the globe. Since its launch in May of 2010, the San Francisco based startup has come to offer over 6,000 courses on subjects ranging from language developing and programming to computer applications. While about 90% of courses are Udemy are free, some instructors choose to charge. In these cases, Udemy pays the instructor 70% of the class revenue, resulting in many instructors making $5,000 to $10,000 per month on the site. By 2012, Udemy had already raised over $4 million from investors, which, along with their funding through paid courses, suggest Udemy’s long term prospects are strong.
With university costs continuing to rise and millions of individuals around the world now connected online, the potential growth for technology-education startups is staggering. In the US and around the globe, the growing relationship between education and technology could revolutionize education and economics while offering opportunities to many who would have otherwise never had a chance to take advantage of higher education. As top schools begin to embrace online education and effective business models are discovered and cemented, world-class education may soon be available to nearly anyone with the intelligence and ambition to pursue it.