Investment analysis: Coursera or UK Higher Education?

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.

Throughput

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.

Profitability

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.

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Product quality

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).

Product diversity

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.

Other analyses

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?”

Conclusion

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.

8 thoughts on “Investment analysis: Coursera or UK Higher Education?

  1. Hi – I am not sure if this is meant to be a serious analysis but you are making so many errors that this post is downright anti-informative:

    (1) Coursera is an 18 month old startup. It often takes many years for a new business to show a profit. For example it was 5 years before Google had its first profit. Most people were surprised Coursera showed a profit so soon since they do not charge for the vast majority of their classes.

    (2) Enrollment means a very different thing for Coursera than in a traditional educations system. As you correctly note typically only 5% of people who sign up actually finish the class. This is because signing up is the only way to browse the course material. And it is free and is not on your permanent record. Most people who sign up never intended to actually participate in the class.

    (3) The “UK higher education” discussed in the HEFCE report where you get you numbers includes all forms of “knowledge transfer” in the UK including schools, consultancies, research and intellectual property. This such a broad concept of “education” it would both include Coursera itself and many, many activities that have nothing to do with what most people think education is.

    I think I will stop here but I could go on: (4) unclear definition of UKHE “profitability”; (5) confusing UKHE spending with capital investment; (6) not including Coursera course’s professors and staff in student to staff ratios;…

    About the only thing you have correct here is that it is still unclear if Coursera will be a successful in the long run.

    Why all this misinformation? It seems to be a deliberate effort to deceive your readers. You seem to be smart and have access to lots of information. It makes no sense.

    1. Thanks Niels, what a delightful comment. Pitch perfect parody of a corporate shill.

      To deal with the points raised in order.

      (1) Coursera didn’t make a “profit”. Every penny of the small amount of non-venture capital income it made last year will go towards repaying the many investors who are expecting a return. I agree it is rare for a start-up to make a profit (especially one with no business model) but such has been the uncritical praise offered to Coursera that I thought it was worth a mention.

      (2) This is one of the central issues I think – I would agree that “enrolment” means a different thing to a MOOC provider. Perhaps we could decide on a different name for the act of signing up for a course that they could use to avoid confusion? But a free product that 90-95% of people who say they want it, don’t, is – however we spin it – not heartening for the New Glorious Future of Education.

      (3) Knowledge Transfer/Third Stream is an example of an additional revenue stream that universities in the UK are able to access. You’ll find the HEFCE report covers HE activity – that’s what the “HE” in HEFCE stands for.

      (4) It is unclear because UKHE is not supposed to make a profit! But the Coursera “profit” is equally unclear. If I’m honest I don’t think either of them are real “profits” but the UKHE surplus belongs to the institutions rather than Kleiner Perkins Caufield & Byers.

      (5) The figure quoted above (£27.8bn) represents the entire income of UKHE, core and capital. This is why I used the word “investment” rather than funding.

      (6) Coursera don’t employ any academic staff. To be honest I was pushing it by including Ng and Koeller as neither of them have academic roles. “Course professors” are employed by and funded by the boring old traditional education sector.

      I would love you to go on, as these are great examples of some of the arguments that a Coursera shill (should such a thing exist) would use and it has been interesting responding to them.

      Thanks again.

      1. Thanks for the thoughtful reply. I am sorry if I came off as rude or shrill. But I am no shill but simply a happy beneficiary of Coursera’s excellent free courses. Have you taken any? I highly recommend giving it a try.

        I was really just hoping to correct some of the confusions in your original post. Let me redouble my efforts. But first a question: What do you have against Coursera and MOOCs? I have not read the rest of your blog but you seem to have developed an obsessive hatred for them.

        Now to the points in your response:

        (1) You entire post was about their “profit” and while neither of us know their plans for a business model this is completely normal for startups. For example Google did not have a business model when it was 18 months old or three years old. Lastly if you think there has only be uncritical praise of Coursera you are simply wrong. Take a look at this (not that I endorse much of it):

        http://mitsloan.mit.edu/shared/ods/documents/High-Costs-of-Free-Online-Education.pdf&PubID=5082

        http://chronicle.com/blogs/innovations/whats-the-matter-with-moocs/33289

        http://chronicle.com/blogs/onhiring/a-massively-bad-idea/37193

        (2) Enrollment simply is something different for an online FREE class with OPEN admissions and NO COMMITMENTS than it is for traditional education. Hey you hate MOOCs. Why don’t you go sign up for all the classes you can and never finish. Get you friends to so this to and you maybe can get completion rates down to 4%. Yayyy! Can you see how much harder that would be in traditional settings? Apples and oranges.

        (3) The HE in the HEFCE report is some kind of strange invention. The normal definition is this:

        Higher, post-secondary, tertiary, or third level education is the stage of learning that occurs at universities, academies, colleges, seminaries, and institutes of technology. Higher education also includes certain college-level institutions, such as vocational schools, trade schools, and career colleges, that award academic degrees or professional certifications.

        Source: http://en.wikipedia.org/wiki/Higher_education

        It does not mean IP, consultancy, contract research, or “facilities and equipment related services” as the HEFCE seems to imagine. Did this not seem strange to you too?

        (4) If HE is not supposed to make a profit why are you making this ridiculous “profit” comparison? Don;t blame me for your silly ideas. There are both for-profit and non-profit higher education institutions just like for-profit and non-profit MOOCs (e.g. EdX). Not sure what you have against Kleiner but most of their investments lose money that just how venture capital works. If fact they have been struggling lately. In the past the many, many losers have been made up for by the occasional Netscape, Sun or Amazon. Like most startups Coursera will likely fail to be a investment success. However MOOCs are here to stay.

        (5) Income is not the same as investment. Perhaps this explains your confusion. An investment is something that generates income not the income itself. For example Kleiner’s investment in Coursera (they bought stock in the company) is intended to generate income in the future. Funding means spending.

        (6) Yes Coursera does not directly employ the professors and their staffs of mostly graduate students that actually teach the classes with the exception of Ng and Koeller who are both founders of Coursera and the instructors of courses on Coursera (Ng teaches Machine Learning and Koeller teaches Probabilistic Graphical Models). They are also top academics in their fields. And other top professors from top universities teach the courses on Coursera not the staff who runs the website.

        I hope this helps but I kind of doubt it. Again what is really your problem with MOOCs? They are likely here to stay but also likely to be just one part of a much larger education ecosystem. Don’t worry traditional education is not going anywhere.

        1. I don’t think I have a problem with MOOCs (I’ve participated in several at varying levels) or Coursera (I’ve had less-than-amazing experiences before but I’ve signed up for the Improvisation course which I am looking forward to).

          I do have a problem with MOOC hype, and I think a lot of what I have written here reflects that.

          I don’t want to pick through those points again – clearly we see a lot of these points differently and I don’t think another round of comments is going to change that. But one thing that you said – “Apples and oranges” – resonates with what I think I was trying to do with this post.

          I love public education – and to me that means education in public. This means that I love public lectures, academic blogging, co-journalism, community outreach events and, yes, short “taster” courses offered to the public. And to me the MOOC is a form of the latter – so I have every sympathy with the idea.

          What has put me off is the ridiculous end of the hype machine, the picture of Coursera et al as an all-crushing behemoth that will “disrupt” and destroy all traditional higher education. Where as I think free online taster courses can and will endure (though they are expensive, and institutions will need to think carefully about whether they are sustainable in their current form), my suspicion is that the apocalyptic hype will look as embarrassing as all those news agencies embedding reporters in Second Life now does.

  2. Very nice analysis David. Two points – 1) it’s very hard to extrapolate early company’s performance to later ones – think Apple. 2) what often goes unremarked is who is paying the academics who run the moocs? As you say there are few academics on the payroll of coursera, so those running the courses must be in the employ of unis. This is fine if they’re complementary to each other, but not viable if they’re predatory.

  3. Hi Martin – point 2 is the killer and is why I get so annoyed by Coursera. It’s a parasitic system, using resources (staff, branding, goodwill) from the host system against the host system.

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