Harvard and MIT sell to a for-profit company, and pursue their mission with a new model.
When Harvard and MIT unveiled a partnership in May 2012 to provide public online courses free worldwide, they chose a nonprofit model in part to stave off the for-profit enterprises launched by Stanford computer scientists: Udacity and Coursera. Now, edX has succumbed to those very market forces. Its founding partners announced on June 29 that they have agreed to sell essentially all of its assets to 2U, a for-profit online-course manager, for $800 million in cash (see the news report at harvardmag.com/edx-sale-21).
As an aggregator of courses, edX has succeeded. Provost Alan M. Garber, its board co-chair, told The Harvard Gazette that edX offers more than 2,800 courses from 194 partner education institutions, and that 39 million people worldwide have used them. The pandemic accelerated growth: during calendar-year 2020, edX reported that cumulative course enrollments had risen by 29 million, to 110 million (an average of about three per each of the then-35 million users). But the conditions under which edX was founded have changed, as have the economics, and some of its most important pedagogical goals have not been realized. The sale, Harvard and MIT leaders hope, may help to remedy the latter: the proceeds will be invested in a nonprofit that will maintain edX’s software platform and pursue some of the partnership’s initial objectives by new means.
• Financial logic. According to MIT’s disclosures on the pending transaction, MIT and Harvard each invested $40 million in edX, which had also drawn down $15 million from lines of credit each founding partner extended to it. (The $40-million investments are not redeemable by Harvard and MIT—they are the nonprofit’s start-up capital—but the loans will be repaid from the sale proceeds.) During fiscal year 2020, according to 2U, edX realized revenue of $84.7 million—it derives income from partner institutions, student fees for course-completion certificates, hosting in-house training programs for businesses, and other sources—but reported an overall loss of $17.4 million. (Results for 2021 are not yet known.)
Course technology is changing rapidly, requiring large investments, and marketing to prospective users is also costly. edX’s private competitors play in a different league entirely. After several rounds of venture funding, Coursera, the company most like edX, raised more than a half-billion dollars in an initial public offering in March, and reported first-quarter revenue exceeding edX’s 2020 annual total. 2U, which principally manages universities’ online degree programs, expects revenue of $1 billion this year—and had no trouble securing a $475-million term loan to help pay for the acquisition. From its perspective, edX’s millions of users are appealing candidates for 2U’s core degree programs (for which students typically pay institutions’ full fees, generating revenue for 2U). If even a tiny fraction enroll, 2U explained in an investor briefing, the company can reduce marketing expenses per enrollment 10 to 15 percent: tens of millions of dollars per year. It expects the acquisition, which may close this fall, to augment earnings on a cash basis by fiscal year 2023. As MIT president L. Rafael Reif put it in his announcement to his community, it is “time to stop straining to keep up with supercharged commercial course-aggregation platforms.”
• Sustaining edX operations. A business’s purchase of a nonprofit organization poses complexities. Subject to government approval, 2U is buying the edX brand, website, and marketing system—consistent with its financial aims—in the form of a “public-benefit company.” Among the conditions it agreed to are “continuation of a free track to audit courses”; protecting institutions’ and professors’ intellectual property in their edX courses; maintaining edX-partner agreements; protecting the privacy of users’ information; and continuing to develop the open-source Open edX software platform. Those stipulations must be observed for five years. They enable faculty members who wish to do so to maintain their edX courses in their present form—knowing that they can reach students, on at least some level, for free, consistent with edX’s initial mission.
For their part, Harvard and MIT will organize a new nonprofit entity that receives the $800 million from the sale (because edX is nonprofit, neither institution can treat the funds as part of its ordinary assets), and maintains ownership of Open edX. Few details about the nonprofit’s organization or means of operation appear to have been worked out, and fewer still have been disclosed; it will apparently have a joint governing board consisting of four representatives each from Harvard and MIT: for now, the same people who serve on edX’s board.
• A new start on fulfilling edX’s mission. Based on their statements about the sale, Harvard and MIT expect to emphasize distinct, if complementary, priorities as the new nonprofit takes shape and determines its strategy and modes of operation.
MIT created the initial software on which it built online courses, the backbone of edX’s platform. In its description of the successor nonprofit, MIT emphasizes continued technology development: “The nonprofit will aim to do what edX could not: invest at the necessary scale to sustain Open edX as a fresh, vital, open-source learning platform for the world, and tackle the next great research challenges in online learning. It could, for example, invest in the potential of artificial intelligence to make online learning more responsive and personalized to the individual learner.” MIT professors can maintain their edX courses, or move them or create new ones on MITx Online, the system it is developing and branding (based on Open edX) for its future large online courses, and those focused on campus instruction.
As Harvard has deployed its own systems (Harvard Business School Online, courses mounted on the Canvas learning-management system, and even fee-based 2U offerings), the University has become agnostic about platforms. It will maintain faculty interest in deploying the sorts of massive, open online courses that are edX’s forte—but for on-campus use, the other platforms, and other course formats, matter more.
For all its millions of course enrollments, edX fell short of boosters’ frothiest claims about transforming education. It has reached audiences around the world (international learners represent about 80 percent of those who have signed up)—meaning that its domestic impact is perhaps smaller. Rather than extending higher education to those who have lacked access (an important initial goal), most of its users already have a college degree. Faculty members who have taught HarvardX courses have incorporated what they learned into their on-campus pedagogy—but the larger effect of technology on teaching and learning at Harvard was brought about by the forced migration to Zoom during the pandemic.
So in describing the transaction, it is notable that Harvard emphasized social goals. Garber talked about tackling inequities in education “through research and through partnerships with universities and community colleges and other educational organizations that work directly with learners, many of whom may be disadvantaged.” Bharat Anand, vice provost for advances in learning (also an edX director, and the leader of HarvardX), put the objectives for the nonprofit-to-be this way: “[M]aximize the impact of online learning experiences for learners everywhere, with particular focus on under-resourced and historically disadvantaged communities; partner with a range of organizations to help prepare the workforce for the future; and develop next-generation learning experience platforms.”
That may point to a grant-making mode of operation. Hypothetically, if Harvard endowed the roughly $400 million of net proceeds attached to its ownership of the nonprofit, that would generate $20 million in cash available annually to pilot high-school and community-college programs, workforce-development initiatives, and technological tweaks (think of those MIT AI enhancements) that make online learning more effective for cohorts who are less able to use it, or to make the most of such courses, today.
That would be a whole new way of thinking about what HarvardX has meant. Unsurprisingly for an elite university, the courses offered today (search at online-learning.harvard.edu, filtering for Harvard X) are clearly aimed at sophisticated users—and for the most part reflect professors’ interests, rather than needs of more basic learners who want to acquire a marketable skill. Focusing on a social mission would presumably mean drawing on the expertise of the Graduate School of Education, the Business School’s Managing the Future of Work Project, and more—and engaging deeply with their partners and others.
In announcing the sale, President Lawrence S. Bacow and MIT’s Reif jointly expressed the ambition that “the nonprofit that emerges from this transaction will enable us and our partners to support innovation that enhances learning for all and, we hope, play a catalytic role in closing the learning gap that exists for far too many.” As a stand-alone entity, edX did prove many of the technological concepts that Bacow’s predecessor, Drew Gilpin Faust, embraced in launching the nonprofit nine years ago. In the period between his Tufts and Harvard presidencies, Bacow devoted considerable energy to studying the potential and limitations of such technologies. Now he is in a good position, with significant resources, to promote some of his hopes for elevating Harvard’s civic role and leadership in addressing one of society’s greatest needs. How the new nonprofit takes root, and whether it succeeds, may be as interesting, and over time, more important, than the edX story to date.
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