- 20 Jul 2022
- Managing the Future of Work
MOOC to graduate degree: What the 2U, edX merger means for higher ed and skills building
Bill Kerr: The first massive open online course, or MOOC, took place in 2008. Since that watershed, colleges and other players in the online education space have scrambled to find the most effective sustainable way to deliver classes in skills training. There’s no shortage of courses, but leveraging the new tools to get the pedagogy right is an ongoing challenge, as is providing equitable access through a viable business model. Can schools go it alone, handling curricula, digital infrastructure, and marketing? Many have opted to partner with platform providers. The pandemic has stress-tested online education at all levels, and the results have been mixed. What does it mean for higher education’s digital transformation?
Welcome to the Managing the Future of Work podcast from Harvard Business School. I’m your host, Bill Kerr. I’m joined today by Chip Paucek, co-founder and CEO of digital education company 2U. In 2021, the online program management provider acquired edX, the nonprofit learning platform and consortium founded by Harvard and MIT. edX brings a course catalog of nearly 3,000 offerings, 40 million registered users, and over 150 higher-ed partners. The proceeds of the $800 million deal will go to a nonprofit run by Harvard and MIT, with the aim of opening access to education. We’re going to talk about the merger and what it means that edX in its new guise will operate as a for-profit public benefit corporation. We’ll also talk more broadly about the trends in online education and training, including the emergence of micro degrees, certificates, and alternative credentials. Welcome to the podcast, Chip.
Chip Paucek: Thank you so much. Great to be here.
Kerr: Chip, why don’t we start with a little bit about your background and how you got into online education.
Paucek: I am a first-generation college graduate. I grew up in South Florida and attended George Washington University. When I went to college, I got a Pell Grant to go to GW and a full-tuition scholarship, and I had only been out of Florida a couple times in my life when I got up to university, and it rocked my world in every possible way. It completely opened my world. I would say higher ed really did completely change my life. So one of the joys for me about being CEO of 2U is seeing the power of what great higher ed can do to unlock people’s full potential. I started the company with a small team of people 14 years ago, well before any of the great schools were doing anything online, so the MOOCs didn’t exist yet. Most of online education for higher education was done by proprietary institutions, for-profit universities like University of Phoenix. And we really believed that we could, if we could convince a great school and their faculty to really produce high-quality online education, that we could change the world. Online education—I’ve been doing it for a while now and doing it really before most folks in the space. And I’m very thankful for our first several university partners who really believed in this entire concept well before it was something that was obvious. It all sounds a little silly now post-Covid, obviously. But at the time the great schools were not doing really anything online. So it was very, very controversial when we started the company.
Kerr: There was a lot of wait-and-see, a lot of lack of understanding about what the digital future could look like, and you were a very early mover. Many of our listeners will be familiar with both 2U and edX, but maybe start with a little bit of their respective positions in the marketplace.
Paucek: Sure thing. So 2U partners with great universities to help build high-quality online degrees, online short courses in executive education, and also we’re the largest provider of online technical boot camps run by great universities, really doing technical training at scale. We’ve got 48,000 graduates of technical boot camps, where you come in with no technical training whatsoever, and you actually can fully transition into a full-time job doing coding or doing fintech, a variety of different programs. We partner with some of the best institutions on Planet Earth. Combined with edX, 2U and edX have 38 of the top 50 ranked universities. edX is really an incredible platform, originally founded by Harvard and MIT, offering thousands of free courses and certificate programs with great companies like IBM and Meta and Google. Programs called “MicroMasters” and “MicroBachelors,” where people can not only get a certificate to drive their own career, but also if they’d like to, they can continue their studies by stacking those into bachelor’s programs or master’s programs. edX has about 100 million visitors in terms of traffic. It’s a top five educational website worldwide, founded by a guy named Anant Agarwal, that is now full-time at 2U as our Chief Open Education Officer. So as you bring the two together, you create the largest marketplace of high-quality online programs in the world. You’ve got an opportunity for someone to come in and take a massive open online course and potentially stack that into options for them to continue to unlock their potential in a variety of disciplines. So 2U, it’s not just business and technical training. Over half of our degree programs—by the way, we have 187 of them—over half of our degree programs are in disciplines that you really wouldn’t expect to be done online, things like physician assistant or midwifery. Part of how we do it online is, 2U has a large clinical placement operation to help universities place somebody into a setting where they can go deliver the babies. We think it’s a pretty transformational moment for 2U and for all of higher ed.
Kerr: One can see how they’re both in a Venn diagram, since there was some overlap, but they also had their rather distinct offerings that they were bringing in, and the alignment of mission. But maybe dig a little deeper, and was there any particular feature that led to the merger? Was it the capability of going all the way from the free offerings up through your existing at 2U degree-connected programs?
Paucek: When Harvard and MIT became convinced that 2U would not only uphold the long-term mission of edX but would actually expand it, that’s when the deal got very serious. I start with mission, because we really are two companies, one for-profit and one nonprofit, that we’re really aligned on helping people unlock their full potential and doing it through the lens of higher education and institutional independence and quality faculty, faculty IP. All the things that were built into edX were really represented at 2U. Now, from a business point of view, there’s no question that, with 44 million learners and the kind of traffic that edX had, it was an awesome opportunity for 2U to help people move from free to degree over time, or from free to a short course. So you might be taking a free course where you can learn on edX, and you might be interested in taking that to the next level, and either jumping right into a certificate program of some kind or going to a master’s program. 2U has an incredibly broad portfolio of services that we offer the great university. edX was historically not able to do that. So you bring this set of enabling functions, you bring a very large number of partners. We had historically worked almost exclusively with high-quality universities, and edX also brought these incredible partnerships with companies like IBM. The IBM MicroBachelors is very popular. In today’s world, you need to be able to meet the learner where the learner needs to be met. That means you have to go beyond just the degree. We think the degree is incredibly powerful, and today we actually think the degree is as valuable as when we started the company. But it’s a story of “and,” not “or.” So not every learner needs or can access a full degree, and sometimes they need something smaller and faster to help them progress in their career.
Kerr: At a more practical implication, micro level, you’re taking edX from being a nonprofit into a public benefit corporation. Can you describe a little bit of what change that’s evoking and how quickly is the change being felt in terms of the way edX operates? Is it a gradual transformation?
Paucek: So, first of all, we announced it last summer. It took a good amount of time to close, because it had to go through not just regulatory approval, but because you were buying the assets of a nonprofit, it had to go through approval at the state level. It was approved, so by November, we could really start. I will tell you, there was concern in the early stages about the entire notion of going from a nonprofit to a for-profit. That’s part of the reason we agreed to operate edX as a public benefit entity within 2U. I’m not sure how familiar you are with public benefit corporations, but effectively, it’s a class of purpose-driven organizations that balances the interests of shareholders with other stakeholders. And edX, obviously, has a lot of other stakeholders—students, universities, partners. And one of the things that I often talk about when I talk about 2U’s bottom line, a large company like Salesforce can get to social good through philanthropy. At 2U, we have to have it come through the product. In other words, the double bottom line is part of the day-to-day of the company. As a for-profit education company, if you don’t produce value—ultimately outcomes for the students, and in our case, for the universities—that’s a bit of an existential question. You have to produce quality for students, otherwise long term you won’t survive. So for us it was an easy transition. There was a lot of initial concern or stress, for good reason, at the board level of edX to make sure that people understood that we were willing to uphold the mission of edX long term, and that there might be an immediate negative of the notion of going from nonprofit to for-profit. And, look, there were a couple of stories about it, but I have to say, overall, all of the faculty stayed. That was one of the big risks at the time of the transaction, was would people stay on the edX platform, because you can’t make faculty keep their courses in the edX platform. I think we were able to make a pretty compelling argument that we would be able to bring more resources to bear and provide more services to the overall community of both faculty and universities. Honestly, not only did people not leave, but we actually gained a lot of additional faculty, new university partners, at the time of the combo. The 2U side, many of the 2U partners that weren’t on edX got very excited about participating in edX. If you go to edx.org today, you can see now the expression of, for the first time, all of the 2U programs that we power are represented in one single place.
Kerr: I want to zoom us out a little bit here. In 2008, when you started 2U, there was very little in the way of online education. Obviously, over the last two years, many of us have become deeply acquainted with online education. Tell us a little bit about the journey through the pandemic, both for 2U and edX, particularly, but maybe also trends that you keyed in on in terms of online learning.
Paucek: What happened in Covid, by making everybody urgently move online, that really wasn’t in any way high-quality online education. Putting somebody in a Zoom, even though—by the way, we were an early Zoom partner. But you have to create a curated path of instruction for somebody when you’re doing high-quality online ed. So giving them interactive tools to be able to learn, le’s say, 2U runs the physician assistant master’s degree at Yale University. Let’s take an extreme from the Yale PA program, like a cardiac unit, where you’re learning about how the heart works. Well, there’s things you can do online that are a lot easier than when you’re being talked to in a lecture. So taking people on a curated path of instruction so that when they get to class, you’re actually in a discussion instead of being lectured to—every 2U program is built that way, and I would say, that’s how you get high-quality online engagement. Now, we also are a big believer in small class sizes in our degree programs. We have a huge, robust science-backed learning design and development team that works with each university partner to craft the degree programs. Now all of that can now extend to the edX audience of university partners. One of the reasons you’ve seen some of the edX clients immediately offer to do more with 2U is, we bring this very large collection of service activity for the schools to unlock their potential, and it’s gone over really well. Now, on the business side, Covid did cause .... In mid-2020, you were at this peak of at-home, and you’ve seen this in places like Netflix, where their numbers went through the roof, and edX did get a big boost of activity during that time period. Now we’re leveling off to a more normal demand environment. Now that we’re through what was this stay-at-home period, we do think that there will continue to be very robust demand for high-quality online ed. Roughly, only 2 percent of the world’s higher ed is delivered digitally, so you’re talking about long term edX creates a platform for us to be able to market our programs to everyone in the world. But marketing is not the only thing 2U does. You’ve heard me mention clinical placement; people have no idea we’re doing that. High-quality learning design; people really don’t know we’re doing that. So it’s more than just about the marketing story.
Kerr: Chip, as you think about the range of partners that you’re working with, the specificity of some of these fields of study, along with the accreditation that comes with them, to what degree is it a bespoke offering versus commonalities across the work of 2U and edX? And then, what are some of the support services that you are providing into the organizations?
Paucek: We’ve called it 2UOS, a combination of technology, people, and data, to help power and build really high-quality online education. It ranges from full learning design—so producing the actual content on behalf of the great faculty; so the school brings the faculty, we bring everything else—to high-quality marketing and recruiting service for a university to help expose their program to people that might be interested, and then as they get interested, helping them work through what is a fairly complicated application process. The university makes all admissions decisions, the university handles all financial aid, the university grants the degree. But 2U does have a meaningful role in helping people not only come to the table and make their application, but once they’re in a program, once the university has admitted them, supporting them through their learning journey on a 24/7 basis. We do clinical placement at scale. We have about 60,000 agencies under contract to put somebody either in a social work clinic or a doctor’s office or a hospital. We have programs that range from speech therapy to marriage and family therapy to physician assistant, as I mentioned, doctor of physical therapy—many different programs you wouldn’t expect to be done online—and that clinical component is a big part of it. We do provide the learning platform. We’re quite excited about what Open edX will mean as we come together with edX. So there are many different types of learning management systems, and depending on the university partner, 2U has a multiple .... We approach the educational technology with care. I would say, we’re excited about how Open edX could integrate into our offerings over time. Open edX is the open-source platform that the edX learner uses when they’re taking a massive open online course. It hasn’t been built specifically for degree programs, but we think there’s a great amount of potential there. We also provide privacy services, cybersecurity services, career engagement, helping students actually get jobs and get exposed to employers. edX didn’t have many of those services on their own. As a nonprofit, 2U will do over $1 billion in revenue this year, so we are bringing resources to bear that would have been difficult for the nonprofit to do on their own.
Kerr: As you think about the person that’s the opposite side that is choosing to bring 2U—and now the expanded version that includes edX—inside, what’s the typical sticking point? I’m sure you’ve had a number of conversations with potential partners and had to walk them through the sticking points. But is it legacy systems, is it demand generation? What’s the point that you frequently talk about?
Paucek: It depends what we’re talking to them about. I had a great provost a long time ago say to me, like, when we were a small company, we were trying to figure out how to approach the faculty in the school. There was so much resistance at the time. We were very controversial way back in the day, because people weren’t putting their degrees online. He said to me that it’s not a fear of change with the faculty, it’s a fear of loss, a fear of identity loss. I never forgot this. They’ve done something a particular way, and they’ve done it really well for a really long time. Universities stand the test of time in a way that companies don’t. If you go back 25 years and look at the Dow, it’s all different. Universities—in the case of my first partners, UNC and Georgetown—had 100 years on Coca-Cola. They were founded in 1789. Companies don’t last like that. So this whole notion of fear of change was really more about fear of loss. And we found that if we brought them along, if you really capture the will of the faculty and you could capture institutional will, you’ve really got something. I would say that is consistent across all of these programs. You don’t get to be faculty at a school like this unless you’re pretty damned good at what you do. They’re dedicated to their craft, and they’re quite good at it. Now, what we find that happens when we start redesigning a course with a faculty member—and we saw this really extensively during the Covid time—is it does bring people along in a way that ends up having a pretty profound impact on how they’re going to teach their campus course. Each product is different, but I would say the faculty commonality is clear across the board. We do think over time the schools could benefit by pooling resources in a variety of ways. We’ve started to do this in some disciplines. An example of this is, we have something in our social work programs. We now have a bunch of social work programs, and we have something in our social work programs that allows people to do a virtual field practicum before they go into the field. It allows students to be in a Zoom environment with, believe it or not, an actor who is portraying somebody with a particular issue, and the faculty member is with them while it happens. It’s so powerful to see, because if you think about what happens when somebody is in a clinic for the first time, they’ve taken a year of social work, and they go out into a clinic, and they’re dealing with somebody that’s returned from the war with PTSD. That’s very real, it’s very hard. So the first time they’re out on their own is stressful. So if you were able to do that in a virtual environment to start, we actually think that level sets in a way that’s notable. It’s been recognized by the industry as like a meaningful contribution to the field of social work. That’s an example of something that should be done across the programs. But the commonality is great faculty.
Kerr: I wanted to also circle back to something that you mentioned when describing edX’s advantages and just have you elaborate a little bit more on it, which is the open-source nature of its work. Say a little bit more about why that’s significant.
Paucek: Well, open-source technology, you get the benefit of the community of folks that are literally using and activating the technology in the field, and they continue to contribute code back to the overall open-source system. We’ve been a big believer in open-source tech, but Open edX allows us to work with the remaining foundation, the foundation that will be run by Harvard and MIT, so effectively that we acquired the assets from, and 2U will continue to work with the open-source platform. Now, edX historically has been the largest producer of code for Open edX, but Open edX is used by hundreds of millions of people. As an example, the state of Israel has a big, Open edX deployment. There’s Open edX deployments for countries all over the world. We will continue to be a very large contributor of new code to the platform, and because of 2U, we will extend that into some places that edX didn’t normally play. As an example, a lot of the work for 2U is to figure out how to embed technology into Open edX that allows our degree programs to thrive—instead of just a massive open online course, to actually use it to deploy on the university side for degrees. And the remaining foundation, which we don’t specifically have a role in, a big part of their charge on a go-forward basis is going to be to continue to innovate the platform. So it’s sort of a best-of-both-worlds here. You’ve got the commercial interests of a for-profit company, 2U, and then you have the nonprofit foundation, both contributing to a code base that should get better and better over time and benefit the rest of the learners worldwide that are using Open edX.
Kerr: That will be a very valuable collaboration.
Paucek: No doubt.
Kerr: And let me also look around and see whether there’s other potential collaborations. You bring a lot of 2U’s university partnerships, and edX had a lot of academic business connections that you described before. How is the merged company going to think about the ecosystem of partners and ways that it can expand that?
Paucek: Well, the power dynamics in the world have shifted from institutions to learners and employees. You can see this across many different industries. You need to take telehealth consumer, the consumer nature of what’s happening, industries where you can download movies and music and TV. So there’s no difference between that and higher ed, where it really is all becoming much more learner-centric. To do that, you have to meet the learner where the learner needs to be met, when they need to be met. In other words, you need appropriate educational content for them. That doesn’t mean that it’s always going to be a two-year degree or an undergrad degree. They might need technical training. They might have completed their degree, and they might be in a job and they need to learn about the blockchain. There’s a lot of people walking around talking about crypto, but they really don’t know what it is. Giving that kind of training is not going to be done with just a degree program. And, candidly, it won’t be done just by great universities. The role of some excellent companies, as we transform into a platform company, putting the needs of lifelong learners front and center is our North Star. Not only are we now serving 44 million learners on the site, but you’ve got over 4,000 programs to offer those learners to help them unlock their potential. Some of those will come from companies, not just from university partners. We’re doing, I mentioned IBM and Meta, and we’ve got a great series of short courses with the Economist, where people can learn [business] writing with the Economist as an example.
Kerr: You’ve got a span of potential credentials that you’re going to be linked into …
Paucek: We do.
Kerr: … from degrees to micro degrees to licenses and so forth. Rather than trying to go through each of them in particular, is there one, Chip, that you think is underappreciated, or a place that you really anticipate when we look at how the labor market considers credentials in five years or 10 years, this particular credential is going to have a lot more impact?
Paucek: Yeah. Our technical boot camps, we’ve got some incredible research out from Gallup that shows how strong the ROI is for these technical boot camps. What I think is interesting is, we’re doing it at a scale that really no one else is in the United States. Most boot camp companies are tiny, and 2U, we produce 48,000 graduates. So one of the ways that we’re unlocking value for people is something we call “access partnerships.” This is helping universities fill workforce needs through the creation of partnerships with local workforce agencies, and in some cases, nonprofit and government funders, because reskilling and upskilling is such a huge need. We’ve got access partnerships with many different universities: University of Central Florida, University of Denver, University of North Carolina at Chapel Hill, University of Oregon, University of Utah. Even in the UK with the University of Birmingham, where you’re tying together the local workforce board, a funder and a great university partner to allow people that need technical training to get it at a substantially reduced cost.
Kerr: Let’s focus back on 2U. What’s your big roadmap for the next five, 10 years? What are the things you are prioritizing on your horizon?
Paucek: Well, we are transitioning to a platform company. If you think about where 2U was, most of your listeners probably have never heard of the company, even though we’ve been a public company for a very long time. I’ve been a public CEO for eight years. We’ve always been behind the scenes. As we transition to a platform company all unified under the edX brand, it’s a really significant transformation for the business. edX is a worldwide brand. So, over time, you will see us continue to lean into that brand more and more and more, creating greater opportunities to help people unlock their potential with more and more different types of programs—think stackable education—is a really big deal; we think being able to have people have educational experiences that ultimately lead to additional experiences by stacking those together. We’ve got some great stackable credentials right now. We just announced Harvard’s first MicroBachelors, which we think is a great opportunity. We have MicroMasters now in negotiation with over 30 different 2U university partners; in other words, schools that came from the 2U side. This is all about really creating great opportunities for learners to find affordable ways to drive their future. The internet will allow us to make education less expensive. That is what’s going to happen. You will see that more and more, and edX, candidly, as a platform allows us to drive costs down, because a big expense for 2U is the marketing expense of meeting new learners, and edX brings in many learners organically. So there’s a great opportunity for us to drive additional affordability over the next half-decade. Now, if you keep going out, I think the notion of online and offline is a little silly, to be honest. You don’t go online shopping, you just go shopping. You don’t even realize half the time where you’re shopping. So we think that blended notion is not just the future, it’s kind of now. We’re seeing it in some of the most forward-thinking university partners we have. We’re doing this really interesting project with the University of California–Davis right now. So this notion of being blended, it’ll continue to take some time because change is hard for people, but there’s no question that over time giving the learner the ability to have the best of both worlds is pretty critical.
Kerr: Chip Paucek is the co-founder and CEO of 2U. Chip, thanks so much for joining us today.
Paucek: Thank you.
Kerr: We hope you enjoy the Managing the Future of Work podcast. If you haven’t already, please subscribe and rate the show wherever you get your podcasts. You can find out more about the Managing the Future of Work Project at our website hbs.edu/managingthefutureofwork. While you’re there, sign up for our newsletter.