The Future Of Online Education: Udacity Nanodegrees

In its 20+ year history, the online education market has experienced quite a few ups and downs. From the launch of lynda.com way back in 1995 (back then, it wasn't even an EdTech company yet, strictly speaking; it only started offering courses online in 2002), to Udemy, with its marketplace for online courses in every conceivable topic, to the MOOC revolution, which promised to democratize higher education — I guess it would be fair to say that EdTech space has tried a lot of things over the years, and has gone through quite a few attempts to re-imagine itself.

On the last point, while MOOCs (massive open online courses) might not have exactly lived up to the (overhyped) expectations so far, the industry continues to live on and evolve, with the startups like Coursera, edX and Udacity continuing to expand their libraries, and experimenting with new approaches and programs.

Most recently, Udacity has shared some metrics that allow us to get a sense of how the company have been doing so far. And, in a word, we could describe it as "not bad at all". Apparently, in 2017 the company had 8 million users on the platform (that includes the users engaged with Udacity free offerings), up from 5 million the year before. Udacity also doubled its revenue to $70 million, which constitutes an impressive growth rate for a company at this stage.

Now, the reason why I believe those numbers are particularly interesting is because of the monetization approach Udacity took a few years ago, when it first introduced its Nanodegrees, a 6-12 month long programs done in collaboration with the industry partners, such as AT&T, IBM and Google, that should presumably allow the students to build deep enough skillset in a specific area in order to be able to successfully find jobs.

While this idea itself isn't necessarily unique - other companies have also been trying to create similar programs, be it in the form of online bootcamps, as is the case for Bloc.io, or the Specializations offered by Coursera, I would argue that Udacity's Nanodegrees offered the most appealing approach. Nanodegrees are developed in a close partnership with industry partners (unlike Coursera's Specializations that are university-driven), and require lower commitment (both from the financial perspective and time-wise) compared to online bootcamps. Finally, the marketing approach of Udacity is vastly superior to that of its key competitors, especially when the Nanodegrees were first launched (they announced it in partnership with AT&T, with AT&T committing to provide internships for up to 100 best students, which was a great move).

Some of the metrics Udacity shared this week were specifically related to Nanodegrees, and provided a glimpse into how they were doing so far. In particular, Udacity has reported that there are 50,000 students currently enrolled into Nanodegrees, and 27,000 have graduated since 2014.

The price per Nanodegree varies quite a bit, and it can also depend on whether the program consists of a single term, or several of those, but with the current pricing, it seems reasonable to assume that the average program probably costs around $500-700. With 50,000 students enrolled, that should amount to $25-35 million in run-rate revenues (strictly speaking, that's not isn't exactly run-rate, but that's unimportant here). The actual number might be a bit different, depending on a number of factors (the actual average price per course, the pricing Udacity offers to its legacy users, etc.), but I'd assume it shouldn't be off by much.

Those numbers ($25-35 million, give or take) are interesting, because they clearly show that Udacity must have other significant revenue streams. There are several possibilities here. In addition to offering learning opportunities to consumers, Udacity also works with the businesses, which theoretically could amount to a hefty chunk of the money it earned last year. Besides that, Udacity also runs a Master in Computer Science online program with Georgia Tech, which is a fairly large program today, and offers some other options to its users, such as a rather pricy Udacity Connect, which provides in-person learning opportunities. and a few Nanodegrees that still operate under its legacy monthly subscription pricing model, such as Full Stack Web Developer Nanodegree. All of those could also contribute to the revenue numbers, of course.

And yet, if you look at Udacity website today, and compare it to how it looked like a couple years ago, everything seems to be focused around the Nanodegrees now, whereas in the past, Udacity felt much more like Coursera, with its focus on free courses, with the users required to pay only for the additional services, such as certificates, etc.. The obvious conclusion to be made here is that apparently Udacity considers Nanodegrees to be a success, and believes that there is a significant potential to scale it further.

One last interesting thing to consider is the number of people who have completed at least one Nanodegree since its introduction in 2014. According to Udacity, only 27,000 people have graduated so far, which is curious, given that it reports 50,000 people are currently enrolled in at least one degree, and most degrees are designed to be completed in 6 to 12 months.

This can only mean one of two things: either Udacity has recently experienced a very significant growth in the number of people enrolling in Nanodegrees (which would explain the existing discrepancy between those two numbers), or the completion rates for the Nanodegrees historically have been relatively low.

Now, the completion rates were one of the key issues for MOOCs, where they proved to be quite dismal. However, the situation for Udacity is somewhat different: here, the users have already paid for the program, so in a way, completion rates are less of a concern (and with the legacy pricing model, where Udacity charged users a monthly subscription, the longer times to completion could have actually benefitted the company). On the other hand, low completion rates might ultimately contribute to the poor reviews, negatively affect user retention, and damage the company's brand, so this issue still needs to be managed very carefully.

Would Udacity's Nanodegrees prove to be a success in the long run? That remains to be seen, but so far, it looks like the company has been doing a pretty good job with those, so the future certainly looks promising.