Can Venture Capital Deliver on the Promise of the Public University?

Image copyright (c) 2011 by Sage Ross

An open letter to Daphne Koller, co-founder and co-president of Coursera and professor of computer science at Stanford.

Dear Professor Koller:

Because I share your vision of creating a world in which all have access to an excellent and empowering education, I would like to propose a new online course for you to make freely available through the Coursera platform. Its title is “The Implications of Coursera’s For-Profit Business Model for Global Public Education.”

The goal of the course will be for enrolled students to understand the real relation between Coursera’s visionary mission—“to offer courses, in partnership with the world’s top universities, to everyone for free”—and the logic of the strategic business plan that led Coursera to be named “The Best Startup of 2012” by TechCrunch last January.

Your company’s compelling pitch to consumers suggests that the private sector—that is, venture capitalists and not taxpayers—can deliver a more equal world, in which income will be based on skills and knowledge people actually acquire rather than credentials for which they are eligible and can afford to pay. It is natural to hope that in this more equal and also more productive world, incomes could rise for everyone willing to acquire the necessary academic knowledge and take tests to prove it. This, in fact, was exactly what was promised by the original California Master Plan for Higher Education, paid for by taxpayers, when it was adopted in 1960.

My proposed Coursera course will ask students to discover for themselves how and why John Doerr and other venture capitalists are willing to provide an even greater abundance of knowledge in the service of greater economic and social equality than the State of California, which clearly has the means to spend much more than it has cost your company to reach a worldwide enrollment in the millions.

As the course progresses, my more diligent students will come to see that reducing income gaps through education is not the main problem that Coursera and other Massive Open Online Course (MOOC) providers are trying to solve in their pitch to investors. That problem is, rather, how and when to price the content that you are giving away in your current (pre-public offering) phase of development.

Using Coursera’s model of dividing lessons into twelve-minute “chunks,” I will help students see for themselves why its courses can’t presently be priced for much more than the $50 a few students are willing to pay for “certificates of completion.” The reason is that free MOOCs weaken the link between scarcity and quality on which the business model of all higher education, both public and private, unfortunately depends. By doing this MOOCs open a potential market for mass higher education that is much larger than that of public universities and also threatens those universities’ ability to charge as much as they do for keeping high-quality credentials relatively scarce. What price points in higher education can you take as the baseline for monetizing your product when, as you often say, online courses can scale up from hundreds of students to millions at “near-zero marginal cost”?

The next lesson module would show my students how Coursera and its competitors might try to solve the pricing problem on their own through years of costly experimentation in building their own “brands.” Your interactive platform is ideal for allowing students to test the possibility of making access to particular MOOCs artificially selective in order to see how much people are willing to pay for this or that made-up credential. Students would quickly come to see that without legitimation by state government, the existing price points you could use for calibrating your educational products would be those of the for-profit higher education industry, which already has trouble establishing that its offerings are worth what students pay. You could probably pay some of them to say that your courses are equivalent to theirs (plus or minus an allowance for the convenience or inconvenience of having to show up). But financially speaking, this would amount to licensing your courseware to them or buying their existing customer base at a discount.

My students would soon see that a quicker and surer solution to the pricing problem is to peg yourselves to public colleges and universities, such as those of the UC, CSU, and California Community College systems. These colleges are no longer free and accessible, as most MOOCs now are, and they provide three elements for a successful business model that the MOOCs currently lack:

An access spread (based on their level of selectivity)

A price spread (based on their tuition)

A brand spread (based on their overall reputation and that of particular programs)

An expected value spread (based on their anticipated effect on future earning)

My pedagogical aim at this point is to help students think about the socioeconomic spreads created by our public educational system as a potential source of private profit. The first step is to break spreads down into rank orderings and the size of gaps between ranks. This type of thinking already allows businesses selling educational services (such as standardized test preparation and student loans) to identify which students have the opportunity to jump, say, two ranks in a given scale, such as brand or expected income, by overcoming only one gap in another scale, such as SAT scores or tuition payments.

Such products, unlike yours, are not directly educational. But they do help students think of education as a matter of arbitraging among the choices available to them—or in marketing terms, “becoming better choosers in an uncertain and unequal world,” which means becoming potential customers for products that provide them with options for greater mobility among jobs, cities, countries, and so forth.

The best students in my course would instantly grasp the opportunity for MOOCs, such as Coursera, to harvest the economic value of the data generated by US public higher education by adding to the spreads I just described a new, potentially global database of ranks and gaps based on their capacity for near-continuous online testing of student performance. These performance records could be compared with those of students in a public university system without Coursera students needing to be in that system.

Eventually, all students in my Coursera class will learn that the data they now provide to the company for free—perhaps so it can grade them—is the private property of Coursera, which can sell it back to them in the form of “services.” These could include their own performance records and also different “views” comparing them with the records of students at better universities, with higher test scores, and with advanced degrees. The possibilities for renting this information back to students are endless, not to mention the added possibility of developing other markets for the user-assessment information that Coursera will “own.”

My students will thus come to understand that the for-profit logic of their online educational empowerment depends on the fact that while they are consuming information, they are also producing information that Coursera can correlate with other data to predict what prices students with particular profiles will eventually be willing to pay. Coursera’s big idea, as you have described it, is that assessment every twelve to fifteen minutes helps students learn. This model of user-interaction is similar to that of LinkedIn when it was free, that is, before it went public. Today, LinkedIn users can still perform searches on other people for free, but they must pay for access to information about who has searched for them. From such comparisons my students will learn that there’s a lot of money to be made if you can first “grow” your database by giving content away and then “rent” it back to a customers, including those who provided the data, in return for seemingly free use of the platform that collects it.

How, my students will ask, could such a scheme possibly fail? They will learn that the foremost obstacle to immense profitability for Coursera’s investors is establishing the equivalence of the certificates of course completion to academic credit that has an already-established price-for-quality. Coursera’s investors will also need someone, such as the taxpayer, to continue to maintain an educational system of high enough quality and high enough price for there to be a global market for Coursera’s claim to provide a near-equivalent for less.

Here they will get a lesson in politics because, fortunately for Coursera, there are now five bills pending in Sacramento that would require (in various ways) that UC, CSU and state community colleges give “full academic credit” for online courses that are “equivalent” to their own. By performing this service for MOOCs, state government would rationalize its decision to maintain the ranking (brand) of its public universities and colleges while restricting access and raising tuition. This means that such legislation is likely to pass in some form.

But Coursera’s long-term financial future is subject to political risk because the legislative climate can change. Right now it is in your favor because of the publicity generated in this early (too-good-to-be-true) phase of your development. Later, it may be less favorable, as educational outcomes based on measures of success that do not take MOOCs themselves as the standard are studied. If some students think we should go slow on MOOCs until we better understand their optimal use in university instruction, I’ll have the opportunity to teach them some important lessons about the role of money in politics. They will learn that the governor is certainly involved in rushing through MOOC legislation as (almost certainly) are the kinds of venture capitalists who are backing Coursera.

Here I’ll take advantage of the opportunities Coursera’s platform provides to link students to the venture capital higher education blogs. From these they will learn that if any major public university system, such as California’s, is required by law to grant equivalent academic credit for a MOOC, the problem of how to monetize enrollment and credit will have been solved. So, ultimately, the success of Coursera depends on your ability to create a climate of opinion that will allow the money in politics to do its work behind closed doors.

Students attuned to the possibilities that this political solution offers should be forgiven if their minds begin to race at this point in the course. There could be virtual UC degrees packaged by bundlers who charge “tuition” for certifying that virtual “students” have qualified by the numbers for UC admission and completed coursework equivalent to that for which UC will be required to offer credit. And then there will be unbundlers who charge “tuition” for comparing students’ performance in a MOOC with that of UC students taking the equivalent course for a degree. At this point the job of a public university will be to maintain its ranking and raise its price so that the MOOCs and their bundlers can profitably market the university’s “brand” to the wider world.

And what a world my Coursera course on Coursera will open up to your students! Your presentations here and elsewhere celebrate the hundreds of millions of potential students in India and Africa who have no access to a UC and Stanford-”quality” education, and can now get it for free through Coursera. This is indeed quite wonderful. With the addition of my course, they will also be able to see that this “free” knowledge is not for the sake of more equality but rather the entering wedge for enormous corporate profits, which are likely to increase inequality still further and to reduce the eventual economic value of the career options those students are seeking online.

Students in my course will also realize that once all the students in the world can get an “equivalent” education, Coursera will be able to set a price for it. And that price will likely turn out to be much more than the world’s students currently pay to attend the for-profit training institutions that line the streets of the emerging markets. Coursera’s potential success in capturing “millions of students rather than hundreds” through its currently “free” course offerings will very likely remove from availability for expenditure in domestic economies a significant share of the trillions of dollars the people of the earth are willing to spend on education. (Isn’t that what you mean when you say that India will no longer need to build new universities to meet the high demand from applicants who can now get US-quality instruction online?)

If my course is as successful as I hope, you may soon be approached by satisfied students who ask you the following questions: Will you and Coursera’s co-founder, Andrew Ng, be able to resist the pressure from your investors to charge more than zero for educational products that can be dynamically priced in changing markets? Will you reinvest the hundreds of billions you have shown you can make to achieve more global educational and social equality? Will you eventually teach students the difference between the ability to arbitrage successfully among immediate choices and the many other forms of sustained thought that may be harder to measure than twelve-minute chunks of attention? Could you envision a “capstone” course that helps students become more reflective about the limited conception of education-as-arbitrage at which Coursera excels?

A few students in my course may then ask themselves another question that their successful analysis of Coursera’s business logic suggests: should the public be willing to pay Coursera’s for-profit, market price for academic content, just as it does for the cable TV services that have replaced the public airwaves? Isn’t this another version of the question of whether the internet itself is really “public” when it ceases to be free?

A large part of Coursera’s appeal lies in your own nearly socialist vision of an informational Common to which access should no longer be restricted based on the scarcity of places at existing colleges. I personally wish that this part of your vision were coming from the leaders of UC. Instead, they are trying to sell students on paying higher tuition because of the demonstrated role of elite universities in generating income inequality, while also persuading the state legislature to increase “access” (enrollments) so we can generate even more revenue from that tuition.

Here I agree with Coursera’s implicit criticism of public higher education. Public education has all but lost sight of its egalitarian mission while raising its prices at three times the rate of inflation.

I disagree, however, with Coursera’s suggestion that privately financed MOOCs can fulfill the promise once made, and now abandoned, by the public system. The free educational “Common” that Coursera’s business model promises is already built to be enclosed as private property. The question for those of us who teach in public higher education is not whether we can or should resist the creation of a truly “free” informational Common but whether we can keep education as a necessary knowledge commons public in innovative, egalitarian ways that run counter to what you and your rivals are planning and doing.

I do not mean subjecting that commons to direct control by a state government that has already been captured by those who want to give away to private companies the remaining value of the public system.

What I do advocate is government investment in and protection of a system of providing common knowledge for the greater good of all, in the way that public university systems once hoped to do. It’s possible this could be done through platforms such as yours, but only if the information that you are gathering and appropriating for private ownership were socialized on a global scale.

A true educational Commons would be a force for reducing academic hierarchy and income inequality. I’m all for that. You say you are too. But is that what you are telling your partners in finance and university administration? Or are you telling them that they can accumulate even more of what they already have—money and prestige—while appearing to give it away? I will know my course has been successful when my students understand that Coursera’s business model, while offering free higher education (along with the promise of greater social equality) globally, is an exciting venture capital investment opportunity that will ultimately increase privately held wealth and lock in existing educational hierarchies.

Bob Meister

P.S. Would you be willing to co-teach this course with me? I’m sure that together we could reach a very large audience indeed.

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