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Online Enabler 2U is dropping its pricing model

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Most of news coverage with 2U Quarterly Earnings Call Unsurprisingly, the focus Thursday was on the fact that the online program maker laid off 20 percent of its staff and restructured management, a response to both the student declines that have hit much of higher education and its last year’s Merger with educational platform edx.

But at a time when turmoil continues in the online program management industry, where 2U is the standard bearer, other changes announced by the company may be more prominent. Long criticized for income distribution model in which colleges pay 2U 60 percent or more of tuition, and accused by some price increases for online graduate programs, the company announced that it would drop its basic revenue-sharing fee from degree programs to 35 percent and reduce the share of revenue it would receive if its current partners cut tuition from students.

The changes may seem too modest to critics, and they certainly do not reflect 2U’s abandonment, as the largest and most senior player in the online program management industry, of a revenue-sharing model that has been attacked by consumer advocates and Democratic politicians. . Some online development and support providers have moved to a model where colleges pay a set fee for specific services, such as marketing or instructional design, while others have created a blended model.

This is basically what 2U will do now, reducing the share of income he keeps for a core package of services (including program development, “organic” marketing to students through the edX platform, and student support) and charging institutions a higher fee if they want to “stack on” additional services, such as paid digital marketing or clinical internships.

“Our customers want a share of the revenue because it’s in our best interests,” Christopher (Chip) Pawcek, 2U’s chief executive officer, said in an interview Thursday. “But it doesn’t have to be universal. It has evolved and we are evolving with it.”

A 35 percent revenue sharing model will put 2U much more in line with Internet program managers and competitors such as Courserawhich in its own way has evolved from a provider of massive open online courses to advanced degrees.

Like most of its competitors, 2U has historically generated such a large share of tuition revenue because of its initial investment in program creation and the high cost of buying Google and Facebook keywords to sell to students. The acquisition of edX last year was framed in part as allowing it to sell directly to the platform’s tens of millions of users in a way that would lower the cost of finding students. A decline in the income distribution formula suggests that this is happening.

“It creates an alignment of incentives into a true partnership,” said Anant Agarwal, the former CEO of edX, who was named chief platform officer as part of 2U’s organizational shakeup announced Thursday.

The company announced its first partner under the new arrangement: a $24,000 master’s degree in business analytics at the University of Wisconsin-Madison’s business school, as well as a MicroMasters program called Business Fundamentals.

2U has took a strong heat for the high cost of some graduate programs offered by its university partners, with critics accusing the company and its peers of encouraging higher prices so they can “take a bigger share of the profits,” as New America’s Kevin Carey put it in 2019.

Paucek and others opposed the idea, saying higher prices would discourage students from enrolling. Pawcek said Thursday that 2U lobbied some of its university partners to lower tuition, but ultimately decided there was “no better way” to demonstrate its desire for more affordable programs “than for us to reduce our revenue share … It’s like more of a call to our university partners than anything else,” he said.

Universities that lower tuition prices for the more than 180 programs currently run with 2U will share a smaller portion of tuition revenue with 2U. Paucek said he expects some of the universities that do this to release their new tuition rates and terms, adding, “You’d be surprised how low we’ll go.”

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