Coursera will profit from “Free” courses, competition heats up.

Are MOOC’s really about FREE education? Coursera reveals how it intends to generate revenue off of “freely” available MOOC’s. In fact, many MOOC companies are launching business models where students and institutions will pay.Competition heats up between MOOC’s and traditional LMS companies.

To be clear Coursera, Udacity and others are simply learning management systems bundled with high quality content. In fact “It’s an LMS [learning management system] that’s wrapped around a very high-quality course,” says Daphne Koller, a Coursera co-founder. “It’s not just the box, it’s a course in a box.”

New Learning Management Systems have joined the party with engaging new experiences and points and badges systems for credentialing like Adrenna -who announced themselves at this years Educause, in early October Blackboard announced new programs for online program development as well as Coursesites as a MOOC, Instructure announced the canvas network, and Desire 2Learn and others have already begun positioning themselves as full service providers with services to develop content and program development offerings. Expect a collision in the near future as venture supported companies duke it out to capture more revenue in support of college and university online competitiveness.

According to contract documents, Coursera will pay the universities 6 to 15 percent of revenues, which will be determined on a per-course basis and dependent upon the duration of the course, the number and quality of assessments. The company also gets 20 percent of gross profits (accounting for costs and previous revenue). Coursera clearly gets the lion’s share of of the profits, but the burden of attracting students and proving the benefit of its new platform also falls most heavily on the company’s shoulders, much like a 2U model formerly 2tor.

So what’s the MOOC model? Here are a few contracts for those interested in reviewing the approach (available through web searches via public postings from the institutions) .

There are 8 possible monetization strategies that MOOC providers like Coursera, or Learning Management System providers could adopt:

  1. Certifications - students pay money to receieve a certification after they have achieved competency from their free learning. (i.e. a badge or pdf document provided by a university or from a recognised badging system)
  2. Authentic assessments - students pay money to have their learning assessed and certified at a physical testing site. i.e. assessment centers
  3. Recruitment - companies pay money to access student course results to identify potential employees that match the company’s recruitment needs.
  4. Screening - companies and educational institutions pay money to gain access to student records to verify that a level of knowledge or expertise has been attained. This would allow access to the company’s recruitment processes or ensure a university course acceptance.
  5. Human tutoring - students pay a tutor to help them achieve the desired learning outcomes from the free courses.
  6. Corporate learning - companies pay money to get customized courses using the free content and to access special features that help their employees gain necessary skills.
  7. Sponsorship - sponsors pay money to have their appropriate advertising appear beside course materials. (i.e. textbook publishers)
  8. Tuition fees - students pay tuition fees for advanced level learning (afer completing the free introductory course) or gaining specialised skills relating to high paying jobs.

Sustainability is not assured with the MOOC organizations until they can find an economic model that rewards all stakeholders. It might in fact be easier for existing LMS companies to pursue these models as the technology already exists on campus. Simply put companies like Blackboard, Desire2Learn, Moodlerooms and others are quickly devising strategies to develop high quality courses in addition to their current capabilities. Rest assured Providence Equity owners of Blackboard and NEA are in the midst of evaluating this possibility. Possible business models as stated by bloggers over at quora.com could be:

  • Freemium - Where you split the learning options along the lines of Bloom’s Taxonomy and make free those courses that target “Knowledge & Understanding” learning outcomes but charge a premium for those follow-on courses that target higher cognitive skills like “Applying, Analyzing, Synthesizing, Evaluating and Creating”. The cost of premium courses would have a link to improving career and income prospects for the learners so they would have a clear cost/benefit understanding of the return on the investment in their learning making the payment choice more acceptable.
  • Value-add – Where you separate the knowledge from worked examples and activities so you can give away all the knowledge for free but learners wanting a greater understanding of how the knowledge could be applied and to ensure that learning had taken place would need to download a paid for eBook that contained worked examples, activities and answers to the activities. The free course could mention the eBook as milestones to complete in the learning process.
  • Corporate Social Responsibility (CSR) sponsorship – Corporations donate money to the MOOC that helps learners attain a higher education as it equally helps the corporation to demonstrate their CSR. Corporations could set eligibility criteria for their donation that secured some increased value for the brand. i.e. only sponsoring learners from a geographic location, ethnic group, social status or industry work preference. To get the best ‘bangs for bucks’ with this model, course costs per learner would need to be priced low (less than $100). With the expected volumes in online learning this price can deliver a profitable model for the MOOC as well as allow the corporate brand to speak of the more emotive ‘number of students educated’ statistic, rather than the less impressive and objective ‘money spent’ one

With a total of $22 million venture funding and just 20 people on staff, Coursera believes it has the leeway to figure out how to create a great user experience and profit. And Ng told the Chronicle that the list of revenue possibilities was more the result of “brainstorming” than a definite plan.

However, with Blackboard’s new ownership and leadership in software development, and Desire2Learns freshly minted $80 Million from NEA (New Enterprise Associates), expect to see new learning experiences evolve from learning management vendors that rival current competitors. The Gilfus Education Group an independent third party think tank out of Washington, DC - predicted the student experience as a competitive driver in 2011 for 2012.