"What’s the Business Model for Massive Open Online Courses (MOOCs)? And What Does Online Education Strategically Mean for the Long-Run Rent Structure of Higher Education? Is this Truly Disruptive?"

From another of the blogs we read and don't link to often enough, The Volokh Conspiracy:

Melissa Korn and Jennifer Levitz ask a good question in a news article about so-called “Massive Open Online Courses” in today’s Wall Street Journal: what’s the business model?  How do they generate revenues?  There is a lot of discussion about how online education is going to shake up the cosseted business models of today’s brick and mortar universities, and MOOCs are often raised as a first wave of change.  Coursera, Udacity, edX, and a few others have attracted significant investor support, as well as leading universities, seeking to be the first movers in the field.  I don’t doubt that online education is going to significantly change university education, credentialing, cost structures of universities, and pedagogy.  But the models – including the MOOC model for content delivery – are as yet untested and barely birthed.  And a large question, of course, is how this is supposed to pay its way.

The most popular [MOOCs] enroll hundreds of thousands of students globally, and while they’re taught by star instructors from top universities, they generally don’t carry credit that can be applied to a college degree. While backers say the short, digestible lessons are nothing short of revolutionary, MOOC providers are still figuring out how to keep basic course access free while generating revenue.

One idea has been to match students with employers – a sort of job placement service.  Udacity and Coursera, for example, have been experimenting with this, but haven’t seen much success so far.  The Coursera model allowed online students to opt into a job placement service, where recruiters can “access details of their class performance.”  But Coursera, according to the article, hasn’t finalized a fee structure and in any case only a handful of companies stuck their toes in the water.

What’s the problem?  In the short run, the problem is the usual one of extracting nickels and dimes from massive numbers of online eyeballs, in a way that’s efficient and doesn’t scare away people who, in any case, assume everything on the internet is free.  Maybe online ads, or any of the usual mechanisms for monetizing content on the web.  Over the medium term, the draw presumably has to be not just education, but a credential that goes with it, reflecting a reputation in the wider community about the meaning of the credential – something for which someone will pay.  Maybe that can be badges or certifications; all of this seeks to unbundle the university’s four year degree, as Glenn Reynolds has often noted.

Over the much longer term, the strategic question for the business plan is whether the new competitors intend to compete with the traditional university model or join it.  Business strategy at this long term horizon has to take careful account of the sources of the traditional university’s rents.  There are three (maybe more), at least when it comes to tuition paying undergraduates, particularly in the generalist and non-technical degrees of the liberal arts: “sorting” at the admissions office front end; the credential in the form of the bundled four-year degree; and actual education in the form of knowledge and skills....MORE