The Chronicle of Higher Ed reports on February 21, 2014  . . .

Online-Education Platform 2U Inc. Plans to Go Public

2U Inc., an online-education platform that counts the University of California at Berkeley and the University of Southern California among its clients, filed plans on Friday for an initial public offering of up to $100-million in common stock.

The company did not disclose the stock’s IPO price. The money will be used to expand student enrollment and to fund technology and content development, the company said.

2U develops and services cloud-based education software used by colleges to deliver courses, and sometimes entire degrees, online.

In the filing, the company reported a net loss of $28-million in 2013 and revenue of $83.1-million, up from $55.9-million in 2012. Enrollment in its clients’ 2U courses nearly doubled in 2013, to 31,338, the company said.

The stock will trade on the Nasdaq under the ticker symbol “TWOU.”


There are a couple of things that puzzle me about the OESP (online education service provider) market. 2U’s plans to raise 100 million through an IPO has rekindled my interest. Maybe you can help.

I understand that these services address the confusion among academic and administrators about how best to go about building a successful online program. I get how the upfront investment by the OESP reduces short-term financial risk for the institution. And I get how these institutions don’t feel confident that they can pull together a marketing program that will draw enough students. I get it.

What is less clear is why more investment has continued to flow into the OESP business model from investors during the past couple of years when, firstly, the success of the business model appears to be dependent on the client institutions having a nationally recognized brand. (Schools without a nationally recognized  brand cannot achieve one through heavy ad spending and still achieve a sufficient net revenue.) The list of institutions with national reach that are open to the OESP model is quickly depleting. The big names have all been approached. Some signed on. The slice of pie left for these new companies is thin and getting thinner. (Clients will likely look unfavourably on the OESP signing agreements with their competitors to offer similar programs – as noted in 2Us well-written SEC filing.) While enrolment in online education continues to grow, this may not offset the already clear limits of this particular approach of serving the online education market.

Secondly, institutions that see online learning as a fundamental part of their mission will continue to (a) invest in internal resources and (b) deploy these resources in a centralized model. As the internal investment level increases, and the institutions develop greater internal capacity, it will make less and less sense for the institutions to invest in a third-party service provider. Why, in other words, would  University X – which is directing more and more resources to its increasingly centralized online course development services, online learning unit, and student support systems – turn to an online service provider. Yes, they may see value in working with an OESP in 2014, but the value should decrease over time, as internal investment and capacity increases.

Isn’t, then, the total market shrinking, along with the value of the services?

See, also, OESPs and (Non) Disruptive Innovation


Keith Hampson, PhD is the founder of digital / edu / strategy, a research and consulting service that helps colleges, universities and education businesses develop better strategies for maximizing value. 


  1. __As it relates to the value of OESP services, Keith, – while I was reviewing 2U’s Bi-directional Learning Tool (BLT), described by the Content Officer, Ian Van Tuyl, it struck me that 2U lacks Design Leadership in its’ talent pool. And as I looked to see if or how Faculty recommended Textbooks were integrated into the platform, I downloaded a Brandeis Psychology course syllabus looking for any references to access and use of readings and Textbooks recommended, since I didn’t see Textbook content shown in 2U’s screen shots of the videos, quizzes and lectures. Syllabus: _ Introduction to Psychology – psychological_and_sociocultural_perspectives_on_health_brandeis.pdf _ In Ontario, I see “Ontario Online” as an emerging OESP model, similar to a number of Educational Jurisdictions who are at various stages of developing cloud-based software-as-a-service solutions that enable their colleges and universities to deliver their high quality education to qualified students. You likely have seen this “Leaked memo” re: Ontario Online _


  2. Thanks very much for this, Don.
    Regarding OESPs, I don’t have an opinion as to the quality of their services. My main interest (and the basis of my notes, above) is in the viability of this type of education business. I know many of the OESP clients are very happy with the arrangement. My suspicion, though, is that the value of this type of service will decline in the next few years as more schools develop greater capacity to build and grow programs, using a range of service providers (rather than the one-stop shop model of OESPs). No doubt OESPs will evolve to meet the changing market, but from my vantage point today, it looks limited.
    With respect to “Ontario Online” . . . yes, I’m very familiar with this on-going project (starting back in 2011, I believe, and currently under its third Minister, TCU). My understanding is that the focus of this project will be shared courses and related services. The province seems focused on reducing duplication of services/costs.


  3. Keith, I think you ask two good questions, but there might be a hidden assumption involved – namely, is the market defined by current services the one that will exist in a decade (same customer definition using same services). This is particularly relevant on the second question re. institutions investing in their own centralized services.

    The OESP market to date has been largely defined by outsourcing major components of master’s level programs signed by colleges. Over time, this is shifting to university-wide needs often at the bachelor’s level. As the shift occurs, the market seems to be moving more from revenue-sharing joint ventures into flexible bundles of services.

    I think the bet from investors is that schools will continue to need support from companies to develop effective online programs, even if the definition of support changes over time. So they’re betting that companies like 2U will have the knowledge to adapt but maintain their brand. Second, the bet is that the expansion of online programs will continue, even in schools that already have a few master’s programs online – organic growth.

    That’s my guess on answers to the questions posed (not an endorsement of whether the bets will pay off).


  4. Phil – Thanks for this.
    I don’t disagree with your assessment of where the OESP model is headed. I’ve heard much the same.
    My questions were directed at the current model, which remains – as of 2014 – the bread and butter of this industry.
    I will add one thought . . . many of these bundled services address competencies and resources that institutions should consider crucial if they plan to take online edu seriously. Online education is not going to “go away” – and these agreements with OESPs may inhibit the development of internal capacity in these key areas.
    On the other hand . . . I am big believer that schools ought to focus on what they do best. And currently, most institutions are not set up to do all of the things necessary to provide students with a great digital experience.
    Again, I’m arguing with myself.


  5. Keith, now that I’m reading the SEC-filed prospectus, some of my answers may not apply specifically to 2U. Some notes:
    – They are positioning the platform as the primary offering with bundled tech-enabled services as secondary.
    – The filing does support statement of master’s programs today, expansion to undergrad (and PhD) and international as teaser.
    – They specifically tout their revenue-sharing long-term contracts (10 – 15 years), which contradicts my statements about the market shifting.

    Hmm, more here to dig into.


  6. And Keith wins the award for his first question. From prospectus describing risks to business plan:

    “Our market may be limited based on the types of nonprofit colleges and universities we target for online degree programs. We primarily market degree programs to selective nonprofit colleges and universities, a market that is necessarily limited.”

    OK, I’ll leave you alone for now :} I should do more research and put into a blog post.


  7. Thanks for this, Phil. Great insights, as always.


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