Education

Why did 2U spend US$800 million to acquire edX?

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Higher education is trying to center its collective mind around announcement 2U acquired edX for US$800 million.

There is much to be discussed about what this transaction means for current edX and 2U partners, global learners, and the broader higher education ecosystem.

In our first (and of course original) view of this transaction, we want to focus on two issues:

Why does 2U spend 800 million US dollars to buy edX? Why does edX sell?

Of course, there are many answers to these questions. Actions like this are very complicated. But if we were to list the primary reason for this transaction, it would be “Coursera”.

Coursera’s initial public offering (IPO) on March 31 created a public company that is now worth nearly $6 billion. A well-capitalized online platform company like Coursera poses a potential existential threat to the traditional OPM (online project management) model, at least in the medium to long term.

This is partly because the highest variable costs of online programs that support OPM are marketing and registration management. OPM spends up to 20% of total income to attract paying students. Coursera’s 80 million global learners have greatly reduced their costs.

At the same time, Coursera has been hinting that it will build on its platform strategy in the future and begin to provide more bundled (similar to OPM) services. Whether Coursera can provide a more comprehensive bundle (instructional design, project management, media, and marketing) is an open question, but if they do, it will make them a greater strategic threat to the existing OPM.

This may well be the disruptive innovation that the late Clay Christensen was looking forward to.

For 2U, the idea behind the acquisition is likely to be that the scale of 39 million learners on the edX platform will eventually enable the company to expand faster. As 2U notes In their statement, the combination of 2U and edX “will cover more than 50 million learners worldwide, provide services to more than 230 partners, and provide more than 3,500 digital programs.”

With a larger global footprint in students and schools, 2U can accelerate its growth plans while also potentially reducing student acquisition costs. Through edX’s open non-credit courses and project portfolio, 2U may turn enough of these learners into paying customers for 2U’s non-credit and degree project portfolio, making the acquisition worthwhile.

In terms of edX, Coursera’s IPO makes it difficult for non-profit organizations to fully compete in the platform field.

Coursera has the capital to make long-term investments and big bets. Coursera can now focus on building a three-way platform strategy (learners, universities, and organizations) because it knows that at a certain scale, a benign flywheel will eventually generate profits.

It is always difficult for non-profit organizations like edX to compete in platform businesses that rely on scale. Without a partner like 2U, EdX would not be able to use the open market to obtain the funds needed for its growth, because it needs to spin this benign flywheel. edX also cannot provide the bundled services that OPM currently provides.

For edX alone, reaching a certain scale is always more challenging. If scale is the main motivation for its work, then it makes sense to pair a scaled platform (edX) with a full-service bundled OPM provider (2U).

In this regard, from the perspective of 2U and edX, the acquisition has a certain logic and may even change the field.

More learners on the 2U and edX platforms means that the cost of acquiring each learner will decrease, which may make certificates and degrees cheaper. If certificates and degrees become more affordable, more learners may enter the platform. As the economy of large-scale online education improves, more school partners may sign up.

Again, the online field is not a field that historically passed these cost savings to learners or schools.

As we said, this deal has a lot to do.

We need to consider acquiring a non-profit-scale online platform for schools and learners through profit-making OPM.

We need to consider what this transaction means to edX’s partner universities and the schools that build and run the online courses and programs that make up edX.

We need to consider the impact of this transaction on student data and other issues-and whether 2U has the ability (or not) to market 2U-driven programs to existing and new edX learners?

We all want to know how the Massachusetts Institute of Technology and Harvard will use their new non-profit organizations to further realize the original goal of improving educational opportunities and improving quality through the funds realized through the transaction.

As for this question, if this deal is really beneficial to schools and learners, this is a question that we all must answer together.

Full disclosure: We are all working in schools that integrate with edX, 2U and Coursera.

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