MOOC monetization -- a free sample strategy

The high cost of education has been one of the drivers of interest in MOOCs, and nearly all MOOCs have been free up to this point. We are in the "invest to get users" stage.

I've heard speculation on ways to monetize MOOCs, and would like suggest one I've not encountered -- the free sample model.

We are starting to get some data on MOOCs. For example, Katy Jordan pulled together completion rate data on 26 of the MOOCs that have been offered by Coursera, EDx and Udacity:



MOOC critics point to these low completion rates as evidence that MOOCs are a Bad Idea, but those large enrollment numbers are still encouraging, so let's look further. Here is a plot of the number of views of the first and last videos each week in the Bioelectricity course at Duke University:



As you see, it is long-tail, y=1/x type graph. One way to look at the long tail is to conclude that the majority of enrollees were dissatisfied and the course was a failure. But an alternative explanation is that the folks were not really enrollees, they were browsers, and, like shoppers in any situation, most decide not to buy.

We can also think of their motivation. Maybe some were not interested in "completing" the course and getting "credit" -- they wanted something less complete, less formal. We have data on that from the Duke course as well. As shown here, fun and enjoyment was the strongest motivator.



Similar motivation was reported by students in a programming class. Sixty four percent of the students said they were interested in the course out of personal interest and curiosity, 33% for professional advancement and only 3 percent for university studies.

These three studies are small and limited, but perhaps we should be thinking about MOOCs as entertainment and lifelong learning as well as for formal education and vocational training, which brings us to free sample pricing. We can view enrollment over time as follows:



The spike in the first few weeks is mostly browsers -- people who want to see what the course is like and what the workload is. They would be getting a free sample.

After a few weeks, the enrollment decline slows and we are left with the students who are interested in completing the course. As we have seen, some are seeking formal credit and others entertainment and the joy of lifelong learning. Those people would presumably be willing to pay for the course. How much?

San Jose State University is currently running a trial in which students will get credit for Udacity courses for $150. The results of that pilot study are not yet in, but $150 is less than the University price.

How about the non-credit students? Let's say a typical MOOC runs 10 weeks and the first three weeks are free. What would people pay for seven weeks of entertainment or lifelong learning? Would it be as much as a movie? A hardback book? A steak dinner?

We can noodle around with a simple spreadsheet and get some napkin-sketch revenue estimates. For example, let's assume a for-credit price of $50 for a certificate of completion and a non-credit price of $20. The median number of students completing the MOOCs shown above was 2,777. Assuming that ten percent of those are for-credit students and the MOOC can be offered four times a year, we get annual revenue of $214,000. If we use the mean completion rate of 4,447, the revenue estimate increases to $343,000.

Note that under these assumptions, the bulk of the projected revenue is from the entertainment students, not for credit students.

If an organization offers several courses, are numbers like that sufficient to cover the overhead of management and administration, production, software refinement, community facilitation, hosting and bandwidth, etc. and pay a teacher who is full time on a single course?

A question for any good teacher reading this -- how effective a teacher would you be if you only taught one course and spent full time delivering and improving it?

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Update, 4/17/2013

Coursera revealed that they had revenue of $220,000 in the first quarter after starting to charge for verified completion certificates (http://bit.ly/12nd8Rb).  The income was from students paying between $30 and $100 per certificate.  Coursera co-founder Daphne Koller said prices were "around" $50.

This gives us a first cut estimate of what someone hoping to get job or school credit for a course might be willing to pay.  No doubt, the going price for certified completion will be higher than the price for un-certified completion for entertainment and curiosity.

(Coursera uers who pay for certification have to submit a photo ID of themselves to the company and are also tracked based on their “unique typing pattern” to ensure that people who take tests or turn in assignments are who they say they are).
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Update 5/23/2013

I posited a simple characterization of people signing up for MOOCs as either "browsing" or "enrolling." Phil Hill presents a more nuanced characterization in his blog post on blog student types, classifying students as no-shows, observers, drop-ins, passive participants and active participants. Details are presented in the paper called Deconstructing Disengagement: Analyzing Learner Subpopulations in Massive Open Online Courses.
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Update 11/27/2013

This post in the Chronicle of Higher Education argues that MOOCs have failed in higher education, and are better suited to vocational training and lifelong learning.
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Update 12/1/2013

Prominent MOOC provider Udacity has shifted emphasis from college credit courses toward vocational training and lifelong learning.
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Update 12/9/2013

A University of Pennsylvania study of a million enrollees in 16 MOOCs shows they have relatively few active users and low completion rates.

• Course completion rates are very low, averaging 4% across all courses and ranging from 2% to 14% depending on the course and measurement of completion.
• Across the 16 courses, completion rates are somewhat higher, on average, for courses with lower workloads for students and fewer homework assignments (about 6% versus 2.5%).
• Variations in completion rates based on other course characteristics (e.g., course length, availability of live chat) were not statistically significant.
• The total number of individuals accessing a course varied considerably across courses, ranging from more than 110,000 for “Introduction to Operations Management” to about 13,000 for “Rationing and Allocating Scarce Medical Resources.”
• Across all courses, about half of those who registered viewed at least one lecture within their selected course. The share of registrants viewing at least one lecture ranged from a low of 27% for “Rationing and Allocating Scarce Medical Resources” to a high of 68% for “Fundamentals of Pharmacology.” 

Three revenue models for online coverage of live events

With the Olympics and Tour de France, we saw examples of three live streaming revenue models: license fee, advertising and pay per view. Here is a quick look at each.

BBC Olympics, license fee

The BBC streamed 2,500 hours of free, live coverage, but you had to have a British TV license. The TV licenses cost £145.50 per year for a color TV and £49.00 for a black and white TV. The fee allowed you to watch the video streams on any device and gave you permission to store, but not distribute, the content. If you came to the site from a non-British IP address, you were blocked, but that was easily circumvented using proxy servers. In the future, they may be more aggressive about discovering and blocking proxy servers.

Archived footage will be available until January.

NBC Olympics, advertising supported

To view their live coverage of the Olympics, NBC required you to have a cable TV account with an authorized provider and a subscription level with access to several NBC cable channels. (That restriction may have been imposed by NBC's owner, Comcast). On top of that, they showed a lot of ads.

Like the BBC, authorized users were free to view the live coverage on the Web or their tablets and phones. One could circumvent the account restrictions by using the user name and password of a friend with a qualifying account. Again, in the future they might be more aggressive in blockng that sort of access.

NBC's archives are on line at this time, but they have not announced their plans for future access. Since they run ads, they may leave them up indefinitely.

NBC Tour de France, pay per view

For the Tour de France, NBC charged a $29 fee, which, as with the other events, entitled the user to watch on the Web, a phone or tablet. There were no ads, but, unfortunately, access to the archive footage was dropped shortly after the end of the event.

My least favorite this year was the ad support model, which was done poorly. When navigating the Web site, it seemed that every new page view had a pre-roll commercial, and arbitrary commercial breaks in the middle of event coverage were irritating and distracting -- the screen would go black for a few seconds in the middle of an event, then they would run as many as six commercials before resuming the action. To add insult to injury, they boosted the audio volume during commercials.

I preferred pay per view, but many viewers would opt for ads, and there is a lot of room for improving the experience. For a start, NBC needs directors to watch the action and insert ads intelligently. Ad targeting -- showing individuals ads based on demographic, social networking and search signals or asking them for hints as to the kinds of ads they were interested in -- would also improve the experience. There could be hybrid models like allowing the user to choose between pay per view with no ads and paying a smaller fee and seeing just a few, well-placed ads.

Kimiko Ishizaka's novel, replicable business model for an open Bach score and recording

Check out pianist Kimiko Ishizaka's recording of Bach's Goldberg Variations. The recording and digital score are in the public domain, under a Creative Commons Zero license. Feel free to listen to, download and share the music and tweek the score.

Excellent -- but how does one fund such a project? It began as a Kickstarter project that started with a $15,000 goal and raised $23,748. The funds were used to create the new score and produce a studio recording.

The recordings are now in the public domain, and Ms. Ishizaka has a Web site which lists her forthcoming concerts. No doubt her concert income will increase as a result of this project. She is also publicizing the recording by offering a free double CD to anyone who will write a thoughtful and honest review of the recording and publish it on their blog, in a music forum, on a public Facebook page, etc.

The score is also online and open. You can download it, modify it, or "play" it on the site, as shown here.

Appropriately, the score was produced using the open source MuseScore notation software from Musescore.org.

I am not a musician -- not even a great lover of music -- but I find this project and the Musescore tools and community totally exciting!

Ms. Ishizaka is experimenting with new ways to make a living as a musician in the Internet era. (Her effort reminds me of Louis CK, who marketed a recording of his comedy concert direct to the consumer). One can imagine 1,000 scores and recordings. Kickstarter cannot provide funding for all of them, but universities, foundations and organizations like the National Endowment for the Arts and its world-wide counterparts surely could.

Superbowl streamed -- pirates do IPTV better than NBC

When I reported that the Superbowl would be streamed this year, I saw it as a milestone on the road to IPTV.

I was one of the 2,105,441 people who watched the stream on NBC.COM. I tuned in out of curiosity, but after watching for a few minutes and taking a few screen shots, I turned my computer off and watched the game on TV. (NBC reports that the average veiwer remained online for 39 minutes).

I was not impressed. The action was in a small window surrounded by ads and statistics on a black background. The viewer could switch camera angles by clicking on the insert window on the upper right.

IPTV done poorly -- by NBC

It was too busy and too small for my taste. There were also seemingly constant commercials and other distractions. I did not tune in at the very start, but by the third quarter, the Internet stream was a quarter behind the TV broadcast.

On the other hand, spokesmen for NBC and the NFL were pleased.

Kevin Monaghan, SVP, Business Development & Managing Director Digital Media, NBC Sports Group was pleased by the "record traffic that grew throughout the event." He was also happy with "record high engagement numbers" referring to nearly two million camera angle switches.

Hans Schroeder, NFL, SVP, Media Strategy and Development called the live stream "a tremendous success."

They might have been pleased, but I expected more because I have seen better live streaming of a sporting event. The basketball game shown below filled the laptop screen and was identical to and only four secnds behind the TV broadcast shown behind it.

IPTV done better -- by pirates

One small hitch -- the basketball game was pirated.   NBC and the NFL should check out the music industry experience with pirates. A good way to stop pirates is to offer people convenient, high quality content at a reasonable price.

Perhaps TV executives should think of pirates as market research consultants who are showing them what the public wants.  NBC needs to learn from the pirates that the distinction between "TV" and "the Internet" is broken -- it's all bits.

Louis CK goes direct to the consumer on the Internet

Comedian Louis CK is distributing a high quality, DRM-free recording of a recent concert on the Internet.

After four days, he has sold 110,000 copies at $5 each

After deducting production, Web site and transaction costs, he has a profit of around $200,000 (so far). He says that is less than he would have made had a large record company produced the video, but the public is getting more this way:

• They are paying $5, not $20 for a CD.
  
• They can make all the copies they want to.
  
• They can watch it on any device they have access to.
  
• It is not restricted internationally.
  
• The record company does not have their personal information for marketing purposes.
  

There has been some piracy -- you can get it for free using Bit Torrent -- but clearly many people prefer the convenience and karma of a purchase. Louis CK points out that the concert is all new material, which to him is life-and-death intellectual property, and he reserves the right to go back to a record company in the future. I hope he doesn't.

<aside to Louis>
Louis, don't forget that this is only the first four days of sales. You have also gotten a ton of favorable publicity -- I must admit that I had never even heard of you before this and now I am going to buy the video. You also learned a lot about producing concert videos and Internet marketing, so you will have better margins on the next one.
</aside to Louis>

This is a cool example of Internet going around the (fat) middle man. Even if you don't buy the video, you should read Louis CK's insightful, humorous summary of the deal.

Kickstarter -- "wisdom of the crowds" project funding -- like the Altair

Kickstarter is a Web platform for funding projects in music, film, art, technology, design, food, publishing and other creative fields. People post project proposals on the Kickstarter Web site along with a financial goal. The public is invited to pledge financing for the project, and Kickstarter holds the pledges in escrow until the goal is reached.

The funds are only collected if the project meets its financial goal within a set time.

The folks who pledge funds do not get equity in the project, like a venture capitalist would, but they can get perqs like T-shirts or products, depending upon how much they pledge.

For example, I recently wrote a short post on a Kickstarter proposal for the TouchFire keyoard overlay, which claims it will improve touch typing on the iPad. Folks who pledged could either make a small contribution to encourage the idea or pledge more to get a T-shirt or purchase a TouchFire from the first production run.

TouchFire set a fund raising goal of only $10,000, and 3,146 people pledged $201,400 -- twenty times their funding target. (Since it was oversubscribed, the first production run is sold out, but you can place an order for one from the next batch at touchfire.com).

Kickstarter is a cool “wisdom of the crowd” way to raise capital, and the crowd seems to like this idea.

People also like the idea of Kickstarter. As of October 11, over a million people had backed projects, 166,823 of those had backed more than one, and they had pledged over 100 million dollars. To put that in context, the 2011 fiscal year budget for the National Endowment for the Arts is $154 million.

Kickstarter reminids me of the MITS Altair -- the first mass market hobbyist PC. MITS was a near-broke calculator company when they brought out Altair kits, which were featured on the cover of the January 1975 issue of Popular Electronics magazine. MITS financed the kits by asking for payment in full at the time you placed your order. I guess they cashed the checks, bought the parts, stuffed them in baggies and sent them out.

I sent my check and got my kit. There was no Kickstarter process to hold our checks in escrow, we were enthused about the Altair and trusted MITS. Those were different times.

Open networks benefit both ISPs and the public

We have spoken of the economic inefficiency of the service-oriented business model of the US telephone and cable companies. They see themselves as selling video, telephone, and Internet service -- the so-called "triple play."

We see the social cost of this business model when we compare the US with other nations, where access network operators open their networks to competing service providers. We pay a lot for inferior broadband connectivity.

It is not surprising that the telephone and cable companies are trying to increase their profit at public expense, but there is ironic evidence that this service-oriented business model may also be hurting them. In a nutshell, the argument is that the owner of an access network can make more money by opening it up to all service providers. True, they would forsake the monopoly profits of being the sole supplier of telephony, movies or television on their network, but they would make it up in wholesale and retail sales volume as many companies compete to sell these and other services.

If this is the case, open networks are a win-win proposition. Both the public and the cable and telephone companies win.

Yankee Group analyst Benoit Felten will present a one-hour webinar on this topic on June 30. The presentation will be archived, so you can listen later if you miss it.

For further discussion of this "dumb pipe paradox" see Brough Turner's blog.

Television: single service; Internet: multiple services

In a recent post, we spoke of the ISP's service-oriented business model, contrasting it with the unfettered delivery of information (bits) on the Internet.

As an example, we cited the NBA playoff games being streamed over the Internet as well as broadcast on television. We noted that the service-oriented business model maximized carrier profit at the expense of consumers and the national economy.

In addition to being economically efficient, the Internet allows us to combine the game coverage with services like the LA Times chat room shown here:

This and other services like providing expert commentary, statistics, alternative play-by-play reporting, supplementary video, etc. would add to the viewer experience and create an online community of fans.

Would you enjoy chatting with other fans while watching a sporting event? Would you rather watch a sporting event on broadcast television or your computer screen? Which would you prefer if the Internet speed increased to the point where it could match the size and resolution of your television set?

The information-service business model is costing us dearly

The incumbent Internet service providers have a service-based business model, differentiating between Internet, telephone, text-message, basic television, premium television, voicemail and other services.

This enables them to vary prices to maximize their profit and discourage competition. For example, they charge exorbitant fees for text messages and discourage Internet video by charging extreme prices when download caps are exceeded.

This differentiation between types of data or service is arbitrary. It is all bits.

For example, the NBA playoff game on Sunday was televised and streamed over the Internet. Both came over the same cable:



As we see, the television coverage, including the ads, is being delivered over the Internet with a four second delay. The Internet image quality is below that of the television signal, but that will improve when US Internet speeds catch up with the rest of the world.

The incumbent telephone and cable companies profit from their service-oriented business model, so they will resist becoming information utilities, delivering undifferentiated bits.

Can they sustain that position in the long run? Would we tolerate a water company that differentiated between drinking and washing water or a gas company that differentiated between heating and cooking gas?