In a recently announced transaction, 2U will acquire all edX assets, including the brand, about 3,500 digital courses, and the website — with its 50 million learners. This development should serve as a wakeup call for other colleges and universities, which must start thinking about how to unbundle the value chain and outsource areas where others possess superior core competencies By partnering and controlling significant parts of value chain instead of resisting them, universities can gain a significant portion of revenues that would steadily migrate toward EdTech companies. Those additional revenues can provide seed capital to universities to drive their own EdTech initiatives. Right now, they’re mere spectators in the game.
Tech company 2U recently announced an agreement to buy edX’s assets from Harvard and MIT for $800 million. How will this transform the business of education, and how can traditional learning institutions adapt?
Three recent developments are noteworthy. First, digital technologies have matured to a point where they can cause disruptive changes to the age-old college education model. For centuries, the principal mode of college education — the classroom model — required students to come together at a predetermined time and location to be taught at an instructor-led pace. Alternative education providers like massive open online courses (Khan Academy and Coursera) and EdTech startups (Outlier.Org, Udacity, and edX) have changed that model. They can leverage the progress in hardware, software, and communication technologies developed by the likes of Oracle, Microsoft, Google, and Zoom, allowing students to conduct digital learning on their own time at their own pace.
Second, tectonic shifts in society and business occur when unexpected events force widespread, coordinated experimentation around a new idea. The Covid-19 pandemic forced millions of simultaneous experiments at most educational institutions around the world. With as little as one week’s notice, classes went digital. That would have been inconceivable before thanks in part to resistance from students, school administrators, and faculty. College education that’s known more for its rigidity and resistance to change received an unprecedented jolt, and the resulting experiment showed that not only are there alternative ways of teaching, but that in some ways, those alternatives are even better. The pandemic also taught universities that it’s possible to provide education without all of the massive infrastructure that has come to be considered an integral part of the college experience, like lecture theaters, laboratories, performance theaters, administrative buildings, fraternities and sororities, etc. Most of those things went away for some period of time during the pandemic.
The third development is that while traditional universities are facing budget cuts and financial pressures, the valuations of EdTech disruptors have skyrocketed, and they’re awash with funds. Byju Raveendran, a former math teacher in India, became a billionaire with his company, Byju’s, valued at $12 billion. 2U will pay $800 million in cash, not stock, for edX assets. In 2020, U.S. education technology startups raised over $2.2 billion. Stated differently, capital is increasingly flowing toward those who plan to transform education and away from those who prefer the status quo.
What can universities and colleges do? First and foremost, they must look to the future and identify which of the following three strategies they want to pursue.
An augmented, immersive residential model, in which students live on campus and interact with students and teachers in person. This model serves numerous purposes, but it’s very costly. It works well for top-tier schools that enjoy brand recognition and have access to rich donors, world-class faculty, prestigious employers, and influential alumni.
A hybrid model based on the idea that universities and students have limited resources. Those resources must be optimally divided between face-to-face interactions, which impose the highest cost on students and universities, and asynchronous virtual learning, which imposes lower costs.
Ideally, universities should conduct only those activities on campus that require research-based teaching, personalized problem solving, and mentorship. Students can use precious time they spend on campus for things that are harder to do remotely, such as electives, group assignments, faculty office hours, and career guidance. Campuses should also be used to facilitate social networking, field-based projects, and global learning expeditions.
In contrast, lectures that require little human interaction must be digitized. Students can watch multimedia presentations using immersive interactive technologies at their own pace. For example, teaching Pythagoras’ theorem is pretty much the same the world over. For such courses, technology platforms can deliver content to large audiences at low cost, without sacrificing one of the important benefits of the face-to-face classroom — the social experience — because there’s hardly any in these basic-level courses.
A fully online model that offers quality education to strictly virtual audiences.
In this new transaction, 2U will acquire all edX assets, including the brand, about 3,500 digital courses, and the website — with its 50 million learners. This is just the tip of the iceberg of the potential market of learners.
For example, many people graduating high school want high-quality education at low cost, without setting foot in a college or university and without giving up their jobs. They don’t want just to watch videos — they want to learn from courses created by top professors from top universities. They want to be tested on the concepts while receiving customized help from e-learning techniques. They want that learning and those test results to translate into formal education credits. They want stacking of such credits to lead to an accreditation that demonstrates competence, ability, and knowledge. And they want all this without having to pay for performance theaters, dorms, study rooms, museums, football stadiums, athletic programs, fraternities and sororities, and gymnasiums.
By entering into this deal, Harvard and MIT have shown that they’re committed to a new business model. That is, they’ll continue their excellence in the residential model for a select few but will also leverage their expertise and teaching resources to provide high-quality education to the masses at affordable prices. To start with, they developed an incredible collection of content in edX, which netted them $800 million. They’ll use that money to further expand their online strategy.
This development should serve as a wakeup call for other colleges and universities. Lamenting a lack of government support and declining enrollments won’t help. They must instead ask how they can orchestrate an ecosystem to offer high-quality education at low cost. They currently follow a vertical integration model where they perform the entire value chain in house, from admitting students all the way to awarding degrees. They must start thinking about how to unbundle the value chain and outsource areas where others possess superior core competencies — for example, to content creators like Outlier.org, outreach platforms like edX, and those in the gaming industry with expertise in artificial and augmented reality and capabilities to create immersive experiences. By partnering and controlling significant parts of value chain instead of resisting them, universities can gain a significant portion of revenues that would steadily migrate toward EdTech companies. Those additional revenues can provide seed capital to universities to drive their own EdTech initiatives. Right now, they’re mere spectators in the game.