Additional Points on 2U’s Acquisition of edXAuthor Phil Hill /2 Comments/by Phil Hill
2U completed its acquisition of edX yesterday and released some additional news worth sharing.
2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today announced it has completed its previously announced acquisition of substantially all assets of edX, a world-leading online learning platform and education marketplace. The acquisition brings together the unique strengths and complementary capabilities of two major forces in online education to create one of the world’s most comprehensive free-to-degree online learning platforms.
2U is the parent company, with edX operating as its global online learning platform and primary brand for products and services. Together, 2U and edX will now serve more than 230 partners—including 19 of the top 20 ranked universities globally—and offer more than 3,500 online learning opportunities to over 40 million learners, including free courses, executive education, boot camps, and undergraduate and graduate degrees. The transaction will immediately expand learner access to affordable, career-relevant online education from the world’s best institutions, while providing university and corporate partners with the technology and support to deliver high-impact, high-quality digital education that reaches millions of learners worldwide.
The common theme is 2U’s shift away from a primarily grad degree based OPM to a new Online Education Platform company, which I described in these three posts and with the following graphic.
Beyond completing the deal, there are several clarifications and news that came out yesterday (several quotes below come from Doug Lederman’s Inside Higher Ed coverage, which I recommend reading in full).
- Anant Agarwal will remain with the company in a new position of Chief Open Education Officer, reporting to the CEO.
- 2U and edX succeeded in retaining all 160 edX institutional partners, and “27 of 2U’s roughly 80 partners have agreed to join the edX consortium and offer free open courses for the first time.”
- At least one edX partner (Boston University) is creating a new low-cost degree program based on both edX’s and 2U’s support.
- edX will become the primary brand, and 2U is investing millions to boost the brand.
- All membership and annual fees for edX partners are being eliminated.
Personal vs. Institutional View
Lederman devotes a significant portion of the IHE article discussing “the path to a stunning deal” while focusing on the sense of betrayal that many individuals felt based on the news of a nonprofit organization – one many of them had contributed to – sold for $800 million. “I, for one, feel an acute sense of loss, frustration and, yes, disappointment,” and “I’m extremely disappointed with this development,” and the like. Michael Feldstein wrote a post in September elaborating on this frustration, particularly focusing it on Harvard’s and MIT’s role.
My sources inside these institutions, particularly MIT, tell me there’s quite a bit of internal upset and foment over the transaction. I suspect that this internal reaction is what the two universities were responding to in their series of vague missives about all the good they’re going to do with the money in the weeks following the announcement. I don’t get the sense that the administration has a grip on how much external reputational damage they have done, particularly with other institutions that had put their time and money into EdX. Sooner or later, that will come back to bite them.
MIT and Harvard betrayed their commitment to their partners and to the ostensibly public-good mission of EdX. In the process, they burned through an enormous amount of social capital among their peer institutions.
And yet . . . no institutions have left the edX program, and we’re already seeing 2U partners joining edX, and one edX partner (Boston University) leveraging 2U resources as well as edX to create a new program.
What I think helps explain this situation is the difference between individual and institutional perspectives. Lederman has a great quote that captures this dynamic:
“Philosophically, I don’t think anyone’s opinion has changed—edX sold itself to the highest for-profit bidder,” said an official at one edX partner college, who requested anonymity to express personal rather than institutional views. “But in the cold light of realism, edX was primarily a marketing partner, and it will arguably be a better one in combination with 2U.”
Individuals still have the same philosophical issues with the deal, but institutions for the most part do not. From an institutional perspective, there is a net positive. edX with a strategy. edX with financial investment and without the dreaded membership fees.
And those fees are nontrivial. Membership for schools joining edX were reportedly as high as $250k – $1 million, although edX was known to waive the fees in certain cases, and annual fees were roughly $50k. For FY2020, “membership dues” accounted for $6.7 million of edX’s $84.7 million total revenue. But from 2U’s financial perspective, $6 – $12 million dollars is a small price to pay for goodwill with institutional partners, as described by IHE.
Indeed, the many steps 2U and edX are taking in announcing the completion of the deal include starting a “multimillion-dollar” marketing campaign Wednesday to promote the companies’ partner institutions and their academic programs. That is among the numerous financial sweeteners 2U is offering, including ending the fees that edX partners pay to participate in the consortium and investing $1 million to fund the creation of 10 new courses in “essential human skills for the digital age.”
There will continue to be personal dismay at the deal, but “in the cold light of realism” the institutional perspective prevails.
Change of Identity
While 2U leadership has been very clear with investors and the broader community about the branding aspects of the deal, I don’t think the significance of this change has been widely understood in EdTech markets. CEO Chip Paucek likens the upcoming changes to Alphabet (parent company) and Google (product company), but there is a major difference here. 2U is the company brand, and most customer- and partner-facing branding will be under edX. According to 2U in an email interview, the platform, marketplace and all 3,500 offerings will be under edX at closing, and the company expects that all of 2U’s partner facing programs and services will move under the edX brand as well, over time. Alphabet was never a customer-facing brand, just a new parent company name, but 2U is a brand, a strong one, and it is going away.
This branding is not just a matter of semantics, and the changes coincide with the business model shift towards an Online Education Platform, or as 2U calls it a “free to degree online learning platform.” In that model the platform offers a full spectrum of offerings, from free MOOCs, short courses, professional certificates, bootcamps, sub-degree certificate stacks (think micro-bachelors or micro-masters as popularized by edX), all the way to fully-accredited degrees. Most or all of this spectrum is intended to offer credentials that have some value in the workforce.
I wrote last week about the Wall Street Journal article on the University of Southern California and its online Masters of Social Work program, where tuition was as high as $115,000 per year. 2U as a brand is associated with masters or professional degrees at elite institutions, which means by and large expensive programs. 2U as a company has evolved over time, even offering lower-priced bachelor programs at the London School of Economics and Morehouse College, as well as short courses and bootcamps and certificate programs. But the brand identity is closely tied to its roots more than its current reality. And this comes in a time of heightened scrutiny – both regulatory and in activist media campaigns – of the OPM market, with 2U as the poster child. 2U as a brand is not toxic, but it is a target. The rebranding will serve the purpose of leveraging edX’s global reach and of changing the perception of 2U’s core business and associating it with lower-cost educational offerings. Per IHE:
“I should be [most protective] about the 2U name—I made the logo years ago,” [2U CEO Chip Paucek] said. “But edX is a worldwide global consumer brand, and we’ll be embracing that in every way. I’m happy to have 2U recede into the background.”
The 2U name has, of course, become a mixed bag. The company’s critics, including some who now have a perch in the Biden administration, believe it has enabled (if not encouraged) its partners to charge high prices for their online degrees, so some observers will be skeptical when Paucek says—as he does frequently—that the purchase of edX will allow it to help drive online prices down.
Marketing to edX’s learners will enable 2U and its degree-offering partners to lower the costs of their various credentials by as much as 25 percent, and the creation of more microcredentials—including in the bachelor’s degree realm—will lower what learners spend even more, he said. The tagline for the combined company appears to be “free to degree.”
“We do this right,” Paucek said, “and this will drive down costs.”
Many will be watching.
Boston University’s online Master of Public Health program is schedule to start taking applications in Summer 2022, and the program cost is set at $24,000. That is the same price that BU set on its edX-based online MBA launched two years ago. According to 2U, there will be more news on “disruptively-priced” programs, including master’s, in the next few months.
2U as a company has made significant strategic changes in the past three years, and with the edX deal complete, it will spend a lot of money and effort working to change the market perception of the company. Expect more edX messaging, and lower-cost program news, and more emphasis on the platform model. In an ideal world, the growing discussion around regulation of OPM and related markets will also focus on the direction the market is heading and not on old perceptions.
Hi Phil, Thank you for this post (I am long COUR and, less confidently TWOU) and for your blog. Really appreciate your generosity in sharing your expertise! Cheers, David Harper, bionicturtle.com
Thanks for your coverage of this potentially watershed moment in online education. Making it possible for anyone anywhere to rise academically was the dream behind EDx. The success of this new venture will be determined by whether it keeps that dream alive or kills it.