It was with much fanfare that xMOOC big-beast Coursera announced that it has turned a small annual income, equivalent to a little over £140k, from its own activities. This represents the first gleanings of a return on venture capital estimated at around £10.4m ($16m) over one year of operation.
However, Coursera also claimed an enrollment of 3.2m students worldwide, putting it at a similar size to the entire UK HE system. It was with this in mind I started on the partially insane task of doing a direct comparison of the two systems for investment purposes.
The primary business of both systems is deliver courses (deliniated units of learning) to students. UK HE claims just under 2.5m students – lower than the 3.2m students claimed by Coursera – but boasts a drop-out rate of just 7.4% (giving a total of 2,311,893 course completions). On the other hand, the drop out rate of Coursera is estimated at 95%, suggesting that around 160,000 students are successfully taught to the completion of a course of study.
These successful Coursera students are spread across 313 courses, which compares with 51,116 courses offered by UK HE. It is also worth noting that the average “course” of study in UK HE is three years in duration and leads to an internationally valued qualification. In comparison, Coursera offers courses lasting around 6 weeks, which do not currently lead to any recognised qualification.
The primary difference is in cost – Coursera offerings are largely free, whereas UK HE can charge up to £27,000 for a three year course (though this is paid via a government backed loan). The huge price differential (coupled with differences in the nature of the courses) suggests that there is little, if any, market overlap – despite many inflated claims about Coursera in the press.
UK HE ran an operating surplus of £1.1bn in the year 2013, most likely down to a non-core income of £2.9bn from businesses and charities. This is based on a total income of £27.8bn from all sources, including students and government.
As discussed above, Coursera achieved £143,743 of total operating income outside of venture capital injections. For the purposes of this comparison we will call it an operating surplus, even though it does not take into account the return on investment expected by existing venture capital contributors.
UKHE therefore makes an operating surplus of £481.78 per successful student, compared to 90 pence per successful Coursera student.
Assessing the quality of higher-level learning often uses a staff:student ratio as a proxy for quality, drawing on decades of research. In employing 181,385 academic staff, UK HE can offer one educator per 14 students.
In examining the Coursera staff list, I was able to identify two (2) members of staff that I would consider to be academics – Prof Ng and Prof Koeller. This offers a slighly less impressive 1 to 1.6m staff:student ratio.
UK HE is ranked highly by many global university rankings. Indeed, it contributes 11 courses to Coursera (which is famously selective concerning contributing institutions).
Coursera has begun to move into paid learning certification, and has partnered with ProctorU to provide paid proctored examinations which may lead to university credit. Income streams are limited to the purchase of additional premium services by students. But its primary assets are a bespoke teaching platform and the range of user data generated by its students (the latter may be monetised by selling to future employers, though this is not yet a proven market)
UK HE offers a huge range of courses at undergraduate, postgraduate, pre-university and professional development levels – both on and offline, along with a range of free courses aimed at community outreach. It has a substantial estate, which is used to generate income via event hosting and management, and is also active in research and development – winning contracts from private and government sources. Primary income is from tuition, and numbers and investment remain steady despite recent funding method changes.
Return on investment
On the basis of the figures presented above, for every pound of the operating surplus generated by UK HE, £25 has been invested (primarily by government)
For every pound of the operating surplus generated by Coursera, £73 has been invested (primarily by venture capital, who will be seeking a return on their investment). It is notable that Coursera must also return a percentage of any profit to institutional partners, as compensation for their investement of brand goodwill and staff time.
Financial ratings agency Moody’s has recently downgraded the ratings of two UK universities (De Montfort and Keele) to Aa2, in line with their recent downgrade of the UK more generally. A third, Cambridge, maintains a triple-a rating. Despite this, the UK HE sector is clearly percieved as investment-worthy by Moody’s – concerns are related to the activities of the current UK government rather than any failings within the sector itself.
Coursera has not been rated by Moody’s as it has not issued – and is unable to issue – any bonds. It would be unable to raise money via this means as it has an insufficient credit history.
Venture Capital Analyst Sramana Mitra notes:
“What worries me about Coursera is that a high-growth business model has not emerged yet. How long will VCs continue to support the business under those circumstances?”
I stand shoulder-to-shoulder with David Cameron (did I just write that?) and the rest of the UK government when I conclude that the UK HE sector represents a far better investment in this market. It is more efficient at providing courses of education – providing a wealth of diversity and choice, and an industry standard accreditation product. It also has a greater diversity of income streams, and has shown long-term sustainability.
By comparison, Coursera appears to have significant issues with the viability of its core product. Student attrition rates suggest that although their courses are initially attractive, they have very limited long term appeal. Attempts to generate further income have centred on enticing completing students to pay for premium services rather than improving their core offer. I would see Coursera as a very high-risk investment, and one that already has a number of prior investors (financial and in kind) with a call on any ongoing profit.
I need hardly add that anyone taking investment advice from Followers of the Apocalypse probably needs to have a chat with a grown up first.