Most of the media coverage of 2U’s quarterly earnings call on Thursday unsurprisingly focused on the online program activation company laying off 20% of its employee base and restructuring its leadership, a response to both the declines in enrollment that have rocked much of higher education and its merger last year with the education platform edX.
But in a time of continued turmoil for the online program management industry, in which 2U is the standard bearer, other changes announced by the company might be more notable. Long criticized for a revenue-sharing model in which colleges pay 2U 60% or more of their tuition, and accused by some of driving up the price of online graduate programs, the company announced that it would reset its base revenue-sharing fees for degree programs to 35% and reduce the revenue share it takes if its current partners reduce the tuition they charge students.
The changes may seem too modest to its critics, and they certainly do not reflect 2U’s abandonment, as the largest and most prominent player in the online program management industry, of the revenue sharing that consumer advocates and Democratic politicians have attacked. . Some online development and support providers have moved to a model where colleges pay flat fees for specific services such as marketing or instructional design, while others have created a mixed model.
This is essentially what 2U will now do, reducing the share of revenue it retains for its core set of services (including curriculum design, “organic” marketing to students through the edX platform and student support) and charging institutions more if they want to “stack” additional services such as paid digital marketing or clinical placements.
“Our customers want revenue sharing because it aligns our interests,” 2U chief executive Christopher (Chip) Paucek said in an interview Thursday. “But it doesn’t have to be a one-size-fits-all solution. It has evolved and we are evolving with it.
The 35% revenue share model will put 2U much more in line with online program managers and competitors such as Coursera, which has evolved in its own way from a provider of massive open online courses to degrees. Support.
Like most of its rivals, 2U has historically taken such a large chunk of tuition revenue due to its upfront investments in building programs and the high cost of buying Google and Facebook keywords to market to. students. Its purchase of edX last year was designed in part as allowing it to market directly to the platform’s tens of millions of users in a way that would lower its cost of finding students. Changes to the revenue sharing formula suggest that is what is happening.
“It creates an alignment of incentives in a true partnership,” said Anant Agarwal, the former CEO of edX who was named director of the platform during the 2U organizational shakeup announced Thursday.
The company announced its first partner under the new deal: a master’s degree in business analytics with the University of Wisconsin-Madison School of Business, priced at $24,000, as well as a MicroMasters program called Fundamentals of Business.
2U has taken intense heat for the high cost of some of the graduate programs offered by its university partners, with critics accusing the company and its peers of encouraging higher prices so they can “suck up the biggest profit share,” as Kevin Carey of The New America put it in 2019.
Paucek and others have pushed back on that idea, saying higher prices discourage students from enrolling. Paucek said Thursday that 2U pressured some of its college partners to lower their tuition, but ultimately decided there was “no better way” to signal its desire to more affordable programs “than reducing our revenue share… It’s like more of a call to our university partners than anything else,” he said.
Universities that reduce tuition for the more than 180 programs they currently run with 2U will share less tuition revenue with 2U.
Paucek said he expects some of the universities that do so will release their new tuition rates and requirements, adding, “You’ll be surprised how low we’ll go.”