What a New Strategy at 2U Means for the Future of Online Higher Education
The fortunes of Online Program Management firms, or OPMs, are falling quick as of late. These firms, which assist faculties arrange on-line packages and sometimes assist finance them as nicely in trade for a reduce of revenues, have these days seen a barrage of bad news.
Wiley posted an 8 % drop in college companion enrollment for its OPM phase, Pearson misplaced its greatest OPM buyer (Arizona State University) and reported falling enrollments (1 %) and income (2 %), Coursera noticed a 4 % drop in income and lowered full-year steering, 2U dropped its full-year income steering by 10 % and commenced an across-the-board 20 % set of layoffs, and FutureBe taught reported that it might not survive one other yr with out new funding.
What occurred to this market that many analysts persistently describe as worthwhile and rising, and that many critics fret would take over and privatize a lot of greater training?
Rather than merely pointing to a pre-pandemic aphorism that college-going at all times declines when unemployment is low, or cheering the collapse of what many teachers see as an undesirable pattern, it will be helpful to take a deeper look at what is going on to 1 of these firms, 2U, to get a higher understanding of not simply OPMs however the broader developments in the market for on-line training.
2U has been the poster little one for revenue-sharing fashions, and the firm tends to make the most strategic modifications primarily based on broader market circumstances. And as such, it supplies extra helpful market insights than its lower-profile opponents. The related information supplied by 2U late final week alongside its earnings was no exception.
The Pivot
What 2U introduced was each a pivot and an acceleration. In 2U’s early years, the firm centered on working with one on-line graduate program per self-discipline (in order that none of its companions have been in competitors with one another) and dealing solely with highly-selective packages with low enrollments per course. In essence, 2U labored on high-tuition packages that relied on elite reputations.
2U and the OPM market have come below hearth lately for, in impact, encouraging unsustainably excessive graduate program tuition, thus rising pupil debt, culminating in the Wall Street Journal article about the University of Southern California’s Online Masters of Social Work that charged upwards of $115,000 for a two-year program. While the article conflated USC and 2U points, it’s price noting that 2U’s response to the tuition subject was hands-off—stressing that the companion establishments set tuition, not the firm.
One key half of the large pivot final week is that 2U is now taking an lively position to encourage packages to decrease tuition, first by “exchanging revenue share points for tuition reduction.” The argument is that it’s simpler for 2U to market lower-tuition packages, and that it’s the proper factor to do.
The second half of the pivot is that 2U will now not supply a one-size-fits-all high-touch strategy usually charging 60 % of tuition, as a substitute providing a stackable set of service packages that begin at 35 % “for a core set of tech-enabled services” with choices to go as much as the legacy quantity. In essence, this enables faculties a higher choice to select solely the providers wanted, which helps with decrease tuition and acknowledges that schools and universities have been growing their very own online-education capabilities. So general, the transfer is from a intentionally excessive value, full package deal of providers to a stackable set of providers and incentives for decrease tuition.
The Acceleration
The acceleration is that 2U goes all in on the education platform strategy that began with the firm’s acquisition of edX final yr. The thought at the time was to depend on a flywheel impact, the place edX can upsell to its tens of thousands and thousands of registered learners taking free or low-cost on-line programs generally known as MOOCs, thus driving down the advertising prices required for the OPM enterprise, whereas providing a spectrum of choices—from free MOOCs to stackable certificates, to bootcamps and quick programs, all the option to full levels. The flywheel side is that the extra the technique succeeds, the extra income is made by institutional companions and by the firm, resulting in extra free programs and registered learners. It’s a self-reinforcing technique that’s the similar one adopted by Coursera.
2U introduced final week their plan to totally embrace this technique. The firm will reorganize as one entity below the edX model, and it’ll improve its concentrate on sustainability (and profitability) and reduce the concentrate on development. This acceleration sadly signifies that 2U will lay off roughly 20 % of its employees throughout all capabilities in the second half of 2022. The declare made to monetary analysts is that income estimates for full-year 2022 could be down 10 %, however EBITDA (a common measure of revenue) could be up 30 %.
2U is a firm that’s prepared to make large modifications and never simply journey out the storm. They did it in 2019 once they realized the elevated degree of competitors between on-line packages was resulting in decrease enrollment expectations, and they’re doing it now.
Market and Company Implications
In pursuing this technique, 2U is betting that the broader market for on-line school packages is altering and should proceed to see lowering enrollments and lowering common course exercise in the quick to medium time period. 2U is betting that these modifications are structural, and never an end-of-pandemic scenario that can reverse again to regular.
2U can also be betting, or acknowledging, that the days of high-tuition on-line graduate packages are going away. 2U desires to get out of the crosshairs of activists trying to rein in the revenue-sharing OPM market. Having lower-priced choices and a direct incentive for faculties to set decrease tuition might assist take off this strain, and it may assist faculties make higher selections.
The jury is clearly nonetheless out on whether or not these strategic modifications will work for the firm. edX was by no means the premier MOOC model—that title belongs to Coursera. And 2U is probably shedding some of the hard-won model worth of “2U” in phrases of offering high-quality choices for elite faculties that don’t wish to put their very own manufacturers at threat.
It’s necessary to do not forget that earlier than 2U, few highly-selective faculties have been prepared to supply fully-online diploma packages. Brands have worth and inertia.
Furthermore, for this technique to work, faculties should be aligned in the want for lower-tuition packages, which isn’t a given. And there are further questions to contemplate. What might be the impacts of the layoffs, and can firm morale affect their providers for companions? And core to the total technique, will the flywheel impact work by lowering the quantity of advertising and recruitment spend wanted to fill on-line packages past what has already been achieved in early 2022?
While I’m not able to say that the modifications will work, I do assume the modifications have been wanted and are getting in the proper course relating to decreasing tuition and providing extra versatile, lower-cost decisions.
Resting on its laurels and driving out the storm would have been a mistake, and it is going to be fascinating to trace 2U / edX’s efficiency over the subsequent 2 to three years to be taught not simply whether or not the technique works, but additionally to raised perceive the altering nature of post-pandemic greater training in the U.S.
