American MOOCs (massive open online courses) have always been geared toward large emerging markets so it is no surprise that leaders such as Coursera and EdX are now hurtling into China. It seems deceptively easy: MOOCs deliver course content from US universities through free or low-cost alternatives. They partner with Chinese University counterparts or ISPs to gain channel access to students, some “localized” content and participation, and to provide the level of service necesssary to ease network management and course application in the Chinese context. Then at some point they begin to monetize at scale. China’s deep demand for US college education (approaching 300,000 students physically in the US this year) will, by all accounts, assure this online.
If this sounds promising you might first want to sort through China’s graveyard of US-based technology company failures. These are companies who often failed, or at minimum found it difficult to build a viable online business model in the Chinese context, including Google plus Android, Yahoo, EBay, Zynga, Groupon, Facebook, MySpace…the list goes on. MOOCs such as Coursera will argue that they are not online or even technology businesses but rather just a delivery platform for unique US educational content. That may be true–and it is doubful they will face the onerous regulatory restrictions of Facebook or Google–but it ignores some fundamental facts in China.
Coursera and any other MOOC will face the same operating and competitive market challenges to their ability to build a viable business in China that everyone else has–and make no mistake, MOOCs are a “business” whether they know it or not, particularly as they move from aspirational degree education to massive online training with fewer barriers to entry. They will also confront education-specific issues in a highly protected environment. In China this will be cut-throat competition at both the content and price levels; partner and channel management challenges; adjacent market entrants (local and global); regulatory and credentialling issues; fake MOOC certificates; student and employer complaints; and many other fun days ahead.
I do not intend to distract from the profound opportunities to delivery US education to Chinese students online. China is on the cusp of dramatic changes across its educational landscape, whether in transnational education, study abroad, adaptive and peer-to-peer learning, or the deepening penegration of online education from K-12 through to adulthood. I am personally immersed in these endeavors and believe in their future. But ambition at the individual foreign company level requires a dose of reality in China, no matter how un-Silicon Valley that may sound, and the preventative medicine should be taken early.
Here are a few considerations.
Affordability and Demand is Only a Base Case.
China is today the world’s largest higher education market with almost 27 million students enrolled at undergraduate level and this does not include millions more pursuing vocational (non-academic track in China), post-graduate and adult education, the last all potential MOOC students. The future pipeline is also unquestionably strong: a youth population (15-24 years) of over 208 million; 101 million primary school enrolments; and 97 million secondary school enrolments as of 2012. The equation is complete by adding the well-known fact that approximately 390 million internet users in the country.
Coursera’s initiative to build a Coursera Zone partnerhip with Netease, a major Chinese ISP, looks to widen the MOOCs potential student reach in China and provide the requisite services (including lanaguage translation) to deliver education effectively. The attraction of enrolling a deep pool of students and doing it quickly through embedded Chinese internet companies must be encouraging after Coursera’s early results in India, where as of March 2013 almost 2.5 million out of 2.9 million students enrolled were from India, or 86 per cent of the company’s total! These are top line numbers and do not account for either affordability and course retention rates (and courses in India are offered largely for free, a major draw) but do indicate massive early intakes and the potential for equally dramatic moves in China, where affordability is less of an issue in relative terms. Is it too good to be true?
With demand and affordability metrics out of the way, a major challenge for MOOCs in China (and in the US) will be on the product front, specifically: what is their ability to provide accredited degrees and, less so, courses that are credit-recognized by other educational institutions and employers? From an economic perspective, higher education is basically a large cartel which holds competitors at bay through accreditation (although pricing is less controlled than more tightly coordinated cartels such as OPEC). China may prove even more vexing to new entrants for several reasons. First, unlike US universities, Chinese universities are more concerned with so-called capacity building including the addition of curriculum and teaching capabilities at their core campus. MOOCs may indeed provide some online know-how and add to course diversification on a supplementary basis. However at some point MOOCs may pose a threat to taking enrolled or potential students away from Chinese University offerings (here are few examples of Coursera partnerships) including non-degree offerings provided by such institutions. Second, China’s Ministry of Education (MOE) works with educational institutions in terms of approvals and credit recognition and it is difficult enough for foreign Universities to achieve this let alone MOOCs, which are not even classified as educational institutions of higher learning. They will have difficulty getting through the door let alone recognized by the MOE once they move to gain any type of accreditation.
If, over time, MOOCs will not compete seriously at the degree level in China then they will become training platforms: high volume, low priced, non-accredited (but possibly recognized selectively in the workplace), for particular skill sets. This is potentially a solid and attractive revenue model for companies such as Coursera with its lighter regulatory oversight and scope for unbridled growth. But it also forces companies like Coursera to compete in China “outside of the cartel” and will therefore require sharper commercial instincts and agile execution in the face of low barrier competition.
Competitive Pressures Have Yet to Begin
What are they up against? From an Asian competitive perspective, recent articles suggesting Coursera or EdX as being thefirst Asian MOOCsare nonsense. They are not even the first MOOCs in Greater China, depending on definition of degree and class size. Hong Kong’s Open University has been delivering degrees to students in China, and across Asia, since 1989. What began as more correspondence education is adapting to new online technologies which, after all, are not proprietary to the American MOOCs. This was the path led by University of Phoenix long ago. Within China, the online arm of China Radio and Television University (CRTVU), or Aopeng, is China’s largest online education platform with more than 2 million students. There is also publicly listed ChinaEdu, another company that provides online delivery of Chinese college degree. Both companies operate learning centers, provide online student services, as well as testing. I doubt that they will sit by and allow US MOOCs to scoop up the market.
Moreover, while it is true that Chinese competitors are supplying Chinese university content and not, say, a leading Artificial Intelligence (AI) course from Stanford, they do operate significant online service platforms and it would be folly to believe that they cannot be repurposed to use Western educational content. In fact, it may only a matter of time before competitive foreign University contracts are signed. Chinese competitors, particularly in non-degree or more mass market education offerings, will most certainly seek to enter the market that Coursera is targeting and will compete ruthlessly.
Delivering At High Volume and on Local Terms
Distribution, branding and localization are other critical issues. The Netease deal noted earlier provides Coursera with immediate leverage to market through a widely used ISP network and online education marketplace open.163.com. The Coursera Zone link will essentially be their Chinese portal. The move is in sync with trends in China where other ISPs, such as giant Ten Cent, are entering the education market based on loyal existing users in the target segment (18-40 year olds, see here).
Initially this makes strategic sense. However over time it is not inconceivable that ISPs and others in China will seek to go direct to education providers in US or elsewher, or what could be called the “double middleman” problem. Strip all the hype away and Coursera is an online agent and in this context so is Netease, both with some online infrastructure and scale. If Coursera wants to maintain viability over the long-term they will need to build their brand (Coursera Zone) on the back of Netease while keeping the partnerhship thriving and complimentary. Assuming the uptake in enrolments is massive, and profitable (“free” only goes so far in any Chinese partnership), the ability for Coursera to manage the partnership on a commercial basis will be tested.
Finally there is language. Coursera says it will deliver some courses in local language (including some Chinese language course delivered by Chinese University partnerships) and is working to provide course translation and various other localization services. Theoretically English is less a problem in China as it is embedded in the gaokao, or higher education exam, although aptitude can differ widely. One question is whether Chinese students taking foreign courses will want any Chinese translation at all. At the degree level, major foreign degree programs delivered on-ground in China – Nottingham, NYU, Monash, U London, among many others, are specifically offered in English. This is the attraction for China’s top end students. MOOCs delivering in English would seemingly be well positioned at the top end of this student market. However lower language capablities in China often equiate with lower gaokao scores and overal academic prowess. Is it these students that are slated to take Artificial Intelligence courses?
We are about to find out.