How education startup Coursera may profit from free courses

Earlier this week, online education startup Coursera said it added twelve new university partners and raised an additional $6 million. When I spoke with co-founder Andrew Ng, he mentioned that possible revenue models could involve matching students with potential employers or charging students for certificates from partner universities. But a contract between Coursera and the University of Michigan at Ann Arbor, obtained by the Chronicle of Higher Education through a Freedom of Information Act request, provides more clarity into possible ways the startup, which is committed to offering free classes, could make money.
It’s worth noting that, with a total of $22 million venture funding and just 20 people on staff, Coursera has the leeway to figure out how to create a great user experience and profit. And Ng told the Chronicle that the list of revenue possibilities was more the result of “brainstorming” than a definite plan.
“We have a lot of white boards up around the office where these ideas are being written down and erased and written down and erased,” he said.
But the contract still provides interesting insights into what could be ahead for Coursera students and partner universities.
Certification and student-employer matchmaking are two key strategies
As Ng mentioned to me and others, Coursera is exploring certificates that would be branded with a university’s name and sold to students, the contract says. They could be either pdf documents or badges that are shareable on LinkedIn(s lnkd), Facebook(s fb), Google+(s goog) or other social sites. They wouldn’t count towards university credit but would signify completion of a course or a minimum level of performance.
Another flavor of the certification model is that students could pay Coursera to take identity-verified tests at private locations or certified testing locations. This option, which has already been adopted Udacity, could enhance the value of the certificate because it decreases the chance that a student cheated.
The contract also provided more detail into how Coursera could pair students and employers. One option seems to be a recruitment program in which students opt-in to receive in-platform messages and opportunities from employers who have found them through the site. Another scenario involves letting an employer evaluate the performance of Coursera students by inviting them to take an exam or other assessments at the employer’s office.
Other monetization ideas include:

  • Paid human tutoring, grading or other kinds of personal support
  • Sponsorships of courses using “appropriate and non-intrusive visual elements” (translation: ads)
  • Tuition fees paid to Coursera for offering online courses on university campuses.

So far, the University of Washington is the only college using the last option, according to the Chronical of Higher Education.
What’s in it for the universities?
According to the document, Coursera will pay the universities 6  to 15 percent of revenues, which will be determined on a per-course basis and dependent upon the duration of the course, the number and quality of assessments. The company also gets 20 percent of gross profits (accounting for costs and previous revenue). Coursera clearly gets the lion’s share of of the profits, but the burden of attracting students and proving the benefit of its new platform also falls most heavily on the company’s shoulders.
But for the universities, partnering with Coursera at this point, is less about making money and more about dipping their toes in foreign waters. As others have noted as well, it’s also about fear.
After being considered something of an educational backwater, the latest crop of VC-backed startups is driving new consumer interest online education. And it’s making universities sit up and take notice. Last week, Columbia announced that longtime Columbia Journalism School professor Sreenath Sreenivasan would become its first Chief Digital Officer, tasked with driving online education initiatives. Last month, the debate over how online education could change higher education played a key role in the much-publicized ouster (and later re-appointment) of University of Virginia president Teresa Sullivan.
Partnering with Coursera offers universities the marketing opportunity to bring their names to a wider set of students, as well as the opportunity to learn some best practices in online education as they are being created. But, it’s still early days for the revived medium and Coursera’s take on online education is just one of several that are emerging. In time, universities will have to figure out the approach that works best for them.
“This is the tsunami,”  Richard A. DeMillo, the director of the Center for 21st Century Universities at Georgia Tech told the New York Times this week, “It’s all so new that everyone’s feeling their way around, but the potential upside for this experiment is so big that it’s hard for me to imagine any large research university that wouldn’t want to be involved.”