November 24, 2014

The money pours in to fund online learning start-ups – while the public system starves

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Banning, Doresa (2102) Online education start-up Udacity Raises $15 million in funding, CityTownInfo.com, October 26

According to the National Venture Capital Association, a staggering $463 million has already been invested this year by venture capitalists into educational technology companies in the USA.

This year some of the online start-ups that have received venture capital funding are:

  • Udacity: $15 million this week; total: $21 million
  • Coursera: $16 million in April
  • 2U (formerly 2tor): $26 million in April
  • Codeacademy: $10 million in June.
  • Desire2Learn: $80 million in September (not a start-up, of course, but still a significant online education company. For more information on the investment click here)

At the same time, the California two year college system has undergone nearly $1 billion of cuts since 2008, resulting in a waiting list of 470,000 students who cannot get into classes.

The California State University system meanwhile is outsourcing most of the services for CalState Online to Pearson.

In the forthcoming November elections in California, in order for the governor to increase some state taxes, proposition 30 attempts to get round the infamous proposition 13 in 1978 that outlawed any property tax increases for ever in California, resulting in the state going into effective bankruptcy last year.

Comment

Clearly the USA is in the process of undermining their public state system of education (at all levels) and in effect privatizing education. Frankly, what American’s do in their own bedrooms is none of my business.

My concern though is that in the urge to get  a return on their investment, these privatized, American online companies will start to gnaw away at the funding behind public education systems in countries outside the United States. And as an aside, where the hell are the Canadian venture capitalists? (Still waiting for the Northern Gateway Pipeline, no doubt – so last century).

It is clearly the goal of the xMOOC companies such as Coursera and Udacity to go global with their offerings. This will be necessary to get a return on the capital invested. But where will these revenues come from? In the USA, it is clearly being diverted from the public education system. Will the same begin to happen in Canada or Europe or Africa as U.S. MOOCs spread?

The least we should know are the business models for getting their money back. Whose money will it be?

Comments

  1. tom abeles says:

    hi Tony

    One need not look at just the xMOOC’s but at companies like Straighterline. I am currently in a small East Africa country where a company from India has opened an ICT school where tuition is 1500/year and at the end of 3 years all course work transfers with a 4th year at a recognized university for a degree- all in is about 10-15 USD including COL.

    What this says is that the cost of a basic continuation of PreK-12 to P->16 can be provided at costs substantively below that of many extant institutions (The company from India has a campus presence- and the final year is at the institution)

    The basic education P-16 does not require that the faculty “pub/perish” to stay current any more than P-12 requires that of their faculty. If one wants research prof’s and other amenities, then add this on. But, faculty have lost the argument at the 13-16 level that they should be seen differently, given the fact that they have been, over the years, pushing lower ranked faculty, grad assistants and adjuncts into the 13-16 slot and it is now biting them in the behind.

    • Ric Canale says:

      Tom, I think you have made a very important point. The world needs mass post-secondary education and higher education has been the only game in town for a long time. Public education has been used to cross-subsidise research costs so there is huge opportunity for business models that don’t need to fund that subsidy. Hence new entrants of all sorts, not just MOOCs.

      If we accept that more and more people (career-seekers and employers alike) will be well-served by post-secondary qualifications that are not the result of a university education in the traditional sense, then universities will come under pressure. They will have to show clearly how a university education is worth the extra time, money and effort, and they will have to learn to engage with other business models without sacrificing their brand’s reputation and underlying values. In some respects, like premium champagne producers, universities will have to deliver to various quality and price points in a segmented and increasingly discerning market. How many will succeed? Given the global demand for post secondary education and how we perceive quality, I think very many will devise, copy and adapt successful strategies. I think the start-ups and their financial backers have a more challenging task ahead of them, and Tony’s account of strategies for diverting funds out of the public education system, perhaps is evidence of this challenge.

  2. I think you’re casting the net a bit wide. Venture capitalists don’t have the responsibility of funding public education. That is and has been the charge of the government. So however much or little VC firms invest in ed tech start-ups and by what means they seek their ROI is of little consequence to the existing funding formulas that have plagued public education since compulsory education was legislated early last century. Sure, VC firms can be blamed for a lot, but this is a rare instance where I’ll defend them. Underfunding of public education, inequitable funding of public education – plenty are to blame for these circumstances, but VCs are not among them.

  3. Let’s hope that we get high quality online learning environments that students can use to individualize learning and learn at their own pace. Teachers can circulate to work with individuals or groups like the flipped classroom process. The computer can also assess the student so the teachers know where they need help. Schools could divert textbook money to pay for online products. The factory model has to go and this might help. Thanks for your thinking on this.

  4. Wendy Lampner says:

    In the US at least, students are paying for things like course packs from publishers, sometimes an additional $40 per student, plus an etext or two and sometimes for access to online labs. Could these costs be reallocated, reduced or scaled more economically or transparently?

    • Hi, Wendy

      Yes, absolutely. See my post on British Columbia’s open textbook plan, based on a similar plan being introduced in California.

      In the end, I think these ‘open textbooks’ will turn into full, multi-purpose courses: as an ‘off-the-shelf’ full ‘core’ credit course with an adjunct instructor and exam (tuition fee, but less than today); as a textbook included in a course designed and delivered by a faculty member (Textbooks free, tuition fee for course, similar to today); or as a completely free, stand-alone MOOC, but with no instructors or credit. Thus once created, these open textbooks will become multi-purpose.

      To get to this point though will require many hurdles to be overcome, such as faculty resistance and IP issues. They are not insurmountable though and competition (from the venture capitalists) is likely to cause these barriers to fall.

  5. To whom all concerned
    1.- MOOCs are wonderful . That is providing elite schools online courses.
    2.- ANTIOCH University students will take 5 online courses from elite DUKE and UPENN and
    Antioch will assign a facilitator for the online course and at the end ANTIOCH will award a credit .
    Exams can be made by ANTIOCH
    3.- Result. Cost of those students reduced by 50 % Tuition is halved.
    4.- Quality increased due to elite schools
    5.- More room for new students since 50 % online classrooms are empty
    4,000 school can be now 8,000 school
    6.- There will be great demand for ANTIOCH at half tuition + higher quality
    There are rooms for new comers too .

    Why all colleges do not follow the same model . They can select any top schools they want .

  6. Let the numbers talk .

    The cost of an online course is at MOST $ 1,000,000 by the university

    That includes initial development cost ( Intellectual Property Rights of the professors + schools ) + annual recurring costs for 5 years , TAs, instructor, hosting ( done by Coursera, Udacity at $ 1 per person , they declared that ) But probably Coursera will ask 10% for their marketing efforts .

    Then if a course is taken by 1 million people in 5 years or 10 semester s then the cost is $ 1 .
    1,000,000 / 10 = 100,000 students per semester .

    1,000,000 $ / 10 = $ 100,000 should be recovered per semester for break even .

    Assume it is sold by Coursera or Udacity at $ 10
    Then their annual income is 2 x 100,000 x 10 $ = $ 2,000,000 ( Break even is only $ 100,000 )
    As you know they can easily sell it at $ 100 too.
    Then annual income is 2 x 100,000 x 100 $ = $ 20,000,000 ONLY PER COURSE ( break even is only $ 100,000)

    Assume they could not sell that many only 1/10 of that , that is 10,000 per semester
    Then highest income at $ 100 2 x 10,000 x 100 $ = $ 2,000,000 per semester ( break even is $ 100,000 )
    Lowest income at $ 10 per course 2 x 10,000 x 10 $ = $ 200,000 per semester ( breakeven is only $ 100,000 )
    But as you see above only $ 100,000 per semester is enough for BREAKEVEN .
    That means universities and Udacity + Coursera will make good money even thouıgh they do charge just a little.
    Today most colleges charge per online course $ 1,500 .

    So do not worry about financing .
    I do worry about DEMANDS If there is no demand no money

    Be careful no taxpayers money is used .
    On the contrary if public schools use MOOCs they save money .

    Unfortunately MOST REPORTERS mislead people

    Look up Antioch University at http://www.antioch.edu for money savings
    Smart ones follows ANTIOCH .

  7. Hi Tony

    I totally agree with you , Looking forward on more updates from you on this matter.

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  3. […] from Rich DeMillo. I do not know whether the analogy is correct, but it is enlightening. In another post, Tony Bates lists some of the funding going into Ed Tech companies this year: According to […]

  4. […] bit of catching up – a blog post I missed in September. Just to update an earlier post, The money pours in to fund online learning start-ups – while the public system starves, Desire2Learn, a fast-growing LMS company based in Waterloo, Ontario, Canada, received an injection […]

  5. […] number of investments are being made to Ed-Tech start up companies as opposed to funding for public education.  Watters  uses the example of  California in which the state is freezing enrollment of 470,000 […]

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