Massive online courses are succeeding with Professional training to solve trained professional shortage for big companies

Higher education is an enormous business in the United States–we spend approximately $400 billion annually on universities.

Sebastian Thrun attracted a stunning number of students–1.6 million to date into using his Massive Open Online Courses (MOOD). He was obsessing over a data point that was rarely mentioned in the breathless accounts about the power of new forms of free online education: the shockingly low number of students who actually finish the classes, which is fewer than 10%. Not all of those people received a passing grade, either, meaning that for every 100 pupils who enrolled in a free course, something like five actually learned the topic. If this was an education revolution, it was a disturbingly uneven one.

“We were on the front pages of newspapers and magazines, and at the same time, I was realizing, we don’t educate people as others wished, or as I wished. We have a lousy product,” Thrun tells me. “It was a painful moment.” Turns out he doesn’t even like the term MOOC.

A recent study found that only 7% of students in this type of class actually make it to the end. (This is even worse than for-profit colleges such as the University of Phoenix, which graduates 17% of its full-time online students, according to the Department of Education.) Although Thrun initially positioned his company as “free to the world and accessible everywhere,” and aimed at “people in Africa, India, and China,” the reality is that the vast majority of people who sign up for this type of class already have bachelor’s degree.

Statistics 101, taught by the master himself and recorded that summer, is interactive and full of accessible analogies. Most important, it is designed so that students who are not particularly adept at math or programming can make it through. Thrun told me that he tried to smile whenever he was recording a voice-over, so that even though he couldn’t be seen, his enthusiasm for the subject would be imputed to his online students. “From a pedagogical perspective, it was the best I could have done,” he says. “It was a good class.”

Only it wasn’t: For all of his efforts, Statistics 101 students were not any more engaged than any of Udacity’s other students. “Nothing we had done had changed the drop-off curve,” Thrun acknowledges.

He then set about a number of other initiatives to address this thorny problem, including hiring “mentors,” many of them former academics looking for a change, to moderate class forums and offer help via live chats. But he also pursued the more obvious way to incentivize students to finish their courses: He offered college credit. In late 2012, Thrun proposed a collaboration to California Governor Jerry Brown, who had been struggling to cope with rising tuition costs, poor student performance, and overcrowding in state universities. At a press conference the following January, Brown and Thrun announced that Udacity would open enrollment in three subjects–remedial math, college algebra, and elementary statistics–and they would count toward credit at San Jose State University, a 30,000-student public college. Courses were offered for just $150 each, and students were drawn from a lower-income high school and the underperforming ranks of SJSU’s student body. “A lot of these failures are avoidable,” Thrun said at the press conference. “I would love to set these students up for success, not for failure.”

Viewed within this frame, the results were disastrous. Among those pupils who took remedial math during the pilot program, just 25% passed. And when the online class was compared with the in-person variety, the numbers were even more discouraging. A student taking college algebra in person was 52% more likely to pass than one taking a Udacity class, making the $150 price tag–roughly one-third the normal in-state tuition–seem like something less than a bargain. The one bright spot: Completion rates shot through the roof; 86% of students made it all the way through the classes, better than eight times Udacity’s old rate. (The program is supposed to resume this January; for more on the pilot, see “Mission Impossible.”)

But for Thrun, who had been wrestling over who Udacity’s ideal students should be, the results were not a failure; they were clarifying. “We were initially torn between collaborating with universities and working outside the world of college,” Thrun tells me. The San Jose State pilot offered the answer. “These were students from difficult neighborhoods, without good access to computers, and with all kinds of challenges in their lives,” he says. “It’s a group for which this medium is not a good fit.”

What is working – Professional training

Over the past year, Udacity has recruited a dozen or so companies, including Autodesk, Intuit, Cloudera, Nvidia, 23andMe, and, which had sent a couple of reps to discuss a forthcoming course on how to best use its application programming interface, or API. The companies pay to produce the classes and pledge to accept the certificates awarded by Udacity for purposes of employment.

Udacity won’t disclose how much it is making, but Levine of Andreessen Horowitz says he’s pleased. “The attitude from the beginning, about how we’d make money, was, ‘We’ll figure it out,'” he says. “Well, we figured it out.”

Thrun, ever a master of academic branding, terms this sponsored-course model the Open Education Alliance and says it is both the future of Udacity and, more generally, college education. “At the end of the day, the true value proposition of education is employment,” Thrun says, sounding more CEO than professor. “If you focus on the single question of who knows best what students need in the workforce, it’s the people already in the workforce. Why not give industry a voice?”

Physical university and online partnership

This January, several hundred computer science students around the world will begin taking classes for an online master’s degree program being jointly offered by Udacity and the Georgia Institute of Technology. Fees will be substantial–$6,600 for the equivalent of a three-semester course of study–but still less than one-third of what an in-state student would pay at Georgia Tech, and one-seventh of the tuition charged to an out-of-state one.

It’s a bold program, partly because it is the first accredited degree to be offered by a provider of massive open online courses, but also because of how it’s structured. Georgia Tech professors will teach the courses and handle admissions and accreditation, and students will get a Georgia Tech diploma when they’re done, but Udacity will host the course material. Thrun expects the partnership to generate
$1.3 million by the end of its first year. The sum will be divided 60-40 between the university and Udacity, respectively, giving the startup its single largest revenue source to date.

he program won’t ultimately cost either Udacity or Georgia Tech anything. Expenses are being covered by AT&T, which put up $2 million in seed capital in the hope of getting access to a new pool of well-trained engineers. “There’s a recruiting angle for us, but there’s also a training angle,” says Scott Smith, an SVP of human resources at the telco. Though Smith says the grant to Georgia Tech came with no strings attached, AT&T plans to send a large group of its employees through the program and is in talks with Udacity to sponsor additional courses as well.

MOOCs as they’re currently offered may not be enough to upend the higher-ed system on their own, there’s lots of promise for “blended” courses in which the online material is supplemented by regular meetings with teachers or tutors who lead discussions and proctor exams. These meetings could be handled remotely using teleconferencing technology, or they could be done in person at local testing centers, in either case adding that human component that remains the weakest link in how these courses are offered today.

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