Coursera plans to share wealth as university partners add online programs

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The competition to help colleges and universities launch affordable online degrees and credentials heats up by the day — literally.

A few weeks ago, the online program enabler 2U announced a plan to buy edX, the nonprofit online course platform founded by Harvard University and the Massachusetts Institute of Technology, for $800 million.

Inside Higher Ed reported Monday that Noodle, another online program management company, would try to muscle its way in to the crowded market alongside 2U and the other dominant player in the space, Coursera, by creating a new platform for its university partners to market non-degree courses to its alumni and other learners.

Coursera isn’t sitting idly by. It announced today that it would decrease the share of revenue it keeps for credit-bearing degrees and credentials from its current 40 percent (it is higher for non-degree programs) as its partners increase the amount of tuition dollars they bring in — by expanding enrollments in existing programs, adding new programs, or both.

Under the new fee structure, universities that reach $10 million in revenue will see the share of tuition revenue that Coursera takes in exchange for hosting and marketing the programs on its platforms drop to 35 percent from 40 percent. The revenue share drops to 30 percent at $25 million, and to 25 percent over $50 million.

Jeff Maggioncalda, Coursera’s CEO, said in an interview that the company had adopted the new approach in response to requests from university partners that want to expand the sort of low-cost degrees they create with Coursera, but say the current financial terms leave them without enough revenue to invest in the growth.

“We’re seeing universities wanting to move beyond the experimentation phase they’ve been in the last few years, and they want to move beyond dabbling and start thinking about scale,” he said. “They’ve said, we want to go big, but we can’t do it with you if it stays at 40 percent. Can you guys figure out how to help us do that?”

Maggioncalda and Betty Vandenbosch, Coursera’s chief content officer, said the company can afford to do this because, as online programs grow, many of the university’s costs grow almost proportionally with the revenue, in terms of faculty compensation, student services, and other line items. Coursera’s marginal costs, by contrast, shrink as programs grow — “so as we get bigger, we can share some of our cost savings with the universities,” Maggioncalda said.

Two current Coursera partners — the University of Illinois at Urbana-Champaign and the University of Colorado at Boulder — say they plan to take advantage of the new fee structure.

Jeffrey Brown is dean of Gies College of Business at Illinois, which has three degrees with Coursera (the university also has a master’s in computer science). Among those is the iMBA, which Gies created as an alternative to its in-person M.B.A. and has since replaced it.

Brown said Illinois was one of the institutions that wanted to expand its programs with Coursera but found the economics daunting.

“If [the business school is] going to start a fourth program, it would make a lot of sense to do it with Coursera,” he said. “But we’re doing all of the instruction, so our costs tend to go up more with size than theirs do.”

Brown and Maggioncalda acknowledged that one way that institutions could take in more tuition revenue to hit thresholds that would increase what they get back from Coursera would be to raise the tuition they charge in their programs. But Brown said Gies was headed toward hitting the first threshold already and “didn’t need to play games” with tuition to get there.

“In fact, if anything, the fact that we’ll be getting a larger share of the revenue dampens the need to raise prices, because the programs will become more profitable for us,” he said.

Coursera’s leaders concede that they aren’t giving its partners more money out of the goodness of their heart. Lowering the companies’ fees for big partners is likely to give universities more incentive to consolidate their affordable online degree programs on Coursera (rather than on 2U/edX, Noodle, or another platform) at a time when the competition for this market is heating up.

“It’s better for universities,” said Vandenbosch, “and it’s better for us.”