Et 2U, Brute?
It's hard to see how 2U survives & CZI scales back Summit Learning: It's time to go back to the drawing board.
What’s Happening in the Market
Sam Altman was fired by the board of OpenAI, allegedly over disagreements over how fast Sam Altman was pushing the boundaries of ChatGPT. Investors are already clamoring to have him reinstated. But it was the most public display of the tension between those who want to move cautiously with AI (the board) and those that want to move fast and break things (Sam Altman and OpenAI’s investors, including Microsoft). Sam Altman was hired by MSFT on Monday to lead their AI research team.
2U let go of Chip Paucek, their longtime CEO, on Friday. 2U’s stock price dropped below $1 two weeks ago after weak earnings results and the announcement that USC (their top academic partner) was paying $40M to terminate their contract early.
The U.S. Education Department plans to use “secret shoppers” in its efforts to catch student loan servicer mistakes (CNN). This comes on the heels of the Education Department penalizing the Missouri Higher Education Loan Authority, one of its loan collection subcontractors, for failing to send timely billing statements to 2.5 million borrowers.
What We’re Talking About
The Digital Divide: Participation in parent-teacher conferences in NYC declined by 40% last year (Source: Chalkbeat). Remote parent teacher conferences were meant to make these meetings easier to facilitate, but it's harder to navigate for parents with tech constraints, or whose home language isn’t English. For families with multiple children, each school and even each teacher might use different sign up methods, or Zoom vs. Google Hangouts, etc.
You Can’t Replace Student Discourse: We’ve been chewing on Dan Meyer’s substack last week about the Chan Zuckerberg Initiative’s pullback from their $100M bet on digital learning via Summit Learning. It’s a wonderful read, but Dan brings up this thoughtful articulation of why fully digital learning won’t revolutionize the industry the way that billionaires imagine. Namely, that kids want to interact with one another, and teachers can effectively leverage discourse in ways that 100% self-paced curriculums can’t. Fully digital programs are also inherently constructed so that students can display proficiency and then move onto the next skill; but students can always learn something new (whether it’s a way to visualize or articulate an answer) from their classmates.
One Big Idea:
Waking up from the online learning dream
Even before COVID, Silicon Valley technologists were dreaming of digital, remote learning as a way to revolutionize the industry--especially higher education. Venture funding poured into this space. 2U (and their subsidiary EdX), Outschool, Reforge, Byju, Udacity--the list goes on and hits every corner of the globe. People could pursue a coding bootcamp, or get an online degree from EdX, a white labeled degree via a university partner, or via that university directly (a la eCornell).
Brick and mortar colleges were the past! Get in, we’re learning remotely!
Except university enrollment bounced back to pre-COVID levels, whereas the financials for these self-paced online education companies have deteriorated. Byju is getting walloped by creditors, students, the courts, and investors. 2U is trading at $1.26, down from $55.55 at their pandemic peak.
We’re not totally surprised, since the market was oversaturated, and we saw the hype around MOOCs decline in the past. Back at Guild, I took an employer-sponsored data certification through EdX and the London School of Economics. There were maybe 60 students in the class, and only about six or seven of us actually did the homework each week. The lectures themselves were good--but I really didn’t grasp how this was different from MOOCs. It certainly didn’t feel like the future of education, or a particularly better experience than what it was trying to transplant.
So we’re not surprised that these programs aren’t expanding. But we are shocked at the speed of their decline, especially with uncertain macroeconomic conditions. Usually, when the market pulls back, people reskill or upskill and you should theoretically see an influx of customers (this, along with pent-up demand during COVID, explains why college enrollment is back up).
But Byju and 2U are collapsing spectacularly and quickly. It’s tough to get Byju’s enrollment numbers, but 2U has seen declining enrollments and lower revenue per full course equivalent. By their own admission, demand for their coding bootcamps and pricier degrees is dropping like a rock.
2U might be delisted from the Nasdaq. Byju is undergoing irreparable reputational damage in their home market. These companies, along with many of their peers, can’t quite crack the profitability equation. Both companies (and this is true across the industry) require huge customer bases to justify their valuations, and both companies (along with countless other players in the space) have resorted to shady recruitment and sales strategies (like pushing students to take $100K+ in student loans to pursue negative ROI degrees [Source: Wall Street Journal]).
Their burn rate is 10% higher than a year ago, with $850M in debt and $53M cash on hand (source: SeekingAlpha). 2U expects to receive $100M from partners canceling / buying back their programs (like USC). That…isn’t a great narrative for investors though.
Byju is facing a similar debacle as 2U: High debt, worsening free cash flow, higher costs to service that debt, and a business model predicated on growth with shrinking a customer base.
2U will likely be bankrupt soon unless they find a way to raise new capital in a high-interest environment. If you bought $1,000 worth of shares five years ago, it would be worth $23 today.
I’m not sure how I feel about their decline. On the one hand, 2U, Byju, Skill-Lync, and others do pursue predatory practices to pack their students in high density digital classrooms. But on the other hand, they generally do so at a relatively affordable rate for learners (I say generally, because online degrees still saddle students with debt and have lower completion rates, unlike apprenticeships or higher touch models).
Remote learning unlocks economies of scale, but it has yet to prove itself to be better than the traditional classroom experience. Humans are social creatures of habit, and having a set class time, the community of your class, a zone of proximal development—these are all contributing factors to successful matriculations that my EdX class lacked. These also aren’t things that can necessarily be solved by layering in generative AI. Students crave interactions, especially young students. The intrinsic motivation of completing coursework or homework doesn’t hold a candle to the extrinsic motivation of studying and collaborating with classmates or participating in a deep and rich conversation.
I think a more interesting idea could be for universities and colleges to proactively push hybrid degrees: A combination of 70% in-person classes, and 30% remote classes (say, some core classes). This would help defray the expensive cost of a traditional degree (especially since costs of degrees have outstripped inflation), while still preserving the spirit and community of in-person classes.
Have any thoughts on the fate of 2U or digital learning generally? Drop them in the comments or let us know! Have any thoughts on the fate of 2U or digital learning generally? Drop them in the comments or let us know! And thank you for all the responses to our survey about guest writing.