Online learning giants 2U and edX to merge

2U and edX, major players in slightly different areas of the online learning market, announced Tuesday that they will join forces.

The merger of 2U, a publicly traded online program management company, and edX, a nonprofit online course provider, has surprised just about anyone who takes online learning, but has let many observers concede the logic of this partnership.

The Union of Forces will give 2U access to edX’s student cache and high traffic website, significantly reducing marketing costs for giant OPM and its university partners and introducing new revenue streams to them. . EdX, which has fought for years to find a sustainable business model, will receive the infusions of capital it needs to continue its work and potentially expand its impact through research and improved technology.

The new partnership adds to a growing list of merger and acquisition deals between online education companies. Experts say that combined, the two companies will also create formidable competition for Coursera, which has about twice as many learners as edX and was valued at $ 7 billion when it went public last spring.

The transaction also draws attention to the growing blurring of the lines between for-profit and non-profit entities in higher education. Throughout its history, edX has aggressively presented itself as an alternative to for-profit players like Coursera. Today it is owned by one of the largest education companies on the planet.

A win-win

2U will buy the assets of edX, which include its brand, website and marketplace, for $ 800 million. The proceeds from the transaction will go to the nonprofit that remains at Harvard University and the Massachusetts Institute of Technology, the two institutions that founded and governed edX. Under a new name and changed mission, the association’s goal will be to advance the platform and reach of edX. Together, the two companies will reach 50 million students and more than 230 universities and partner companies and offer more than 3,500 digital programs, a Press release declared.

The EdX website alone is valuable; in 2020, edX had 39 million registered users and its marketplace was visited 120 million times, according to a set of slides 2U released for investors.

“They are one of the top 10 websites in the world for traffic, which gives them enormous leverage across all of their products,” said Trace Urdan, Managing Director of Tyton Partners, a consulting firm and banker. investment in education. “They can market study programs to these students, and not just randomly. They know what the interests of these students are and what their skills are. It’s really, really powerful from a marketing standpoint.

2U predicts it could convert 0.03% of edX users to paid 2U customers, reducing marketing costs by nearly $ 400 per signup and saving the company $ 40 million at 60 million dollars a year. (Note: This paragraph has been updated to reflect that 2U could save $ 400 in marketing costs per registration.)

EdX’s assets will also allow 2U to compete more directly with Coursera in the direct-to-consumer online education market, according to Michael Horn, co-founder of the Clayton Christensen Institute, a non-profit think tank.

“Coursera has this amazing direct-to-consumer business that not only generates income but also makes the marketing of their education programs more efficient and allows them to do creative things,” Horn said. “All of a sudden now 2U has something – not on the same scale, but certainly important.”

Coursera has used its own user base of nearly 80 million learners to help its university partners dramatically reduce the prices that students pay for their degree programs, such as with the iMBA program launched by the University of London. ‘Illinois at Urbana-Champaign in 2015. It is too early. to say whether 2U will seek to use the lower student acquisition costs made possible by edX to similarly lower the prices of its partner’s programs, which operate on the high-end of online offerings.

For edX, the merger with 2U gives access to something that it has struggled to secure: capital. Harvard and MIT each invested $ 30 million in the nonprofit when it was founded. Since then, edX has been in the red for years. At the end of fiscal 2020, edX reported revenue of $ 84.7 million and operating loss of $ 17.4 million.

EdX needs to have access to cash in order to thrive, Urdan said.

“Their owners are two large, wealthy and elite institutions, but they are not necessarily interested in continuing to inject additional capital into the business,” he said. “You get to a point where you say, ‘Wow, that turned into a real business; it is not just an academic experience. But we’re not really ready to deal with it in that regard, so we have to find a home for it.

Everything that makes up edX as it currently exists – the employees, the website, the brand, etc. – will go to 2U as part of the $ 800 million transaction. 2U intends to retain all edX employees who do not remain with the association at Harvard and MIT. The nonprofit shell left behind at the two universities will receive a new name and a new mission, centered on “reimagining the future of learning for people at all stages of life, tackling educational inequalities and continuing to advancing next generation learning experiences and platforms ”, according to a press release. The association will also support Open edX, the technology developed by edX.

“The nonprofit will aim to do what edX was unable to: invest at the scale necessary to maintain Open edX as a new, world-critical open source learning platform,” and address the next big research challenges in e-learning, ”said a MIT FAQ page about the transaction said. “It could, for example, invest in the potential of artificial intelligence to make online learning more responsive and personalized for the individual learner.”

2U will fund the acquisition with cash on hand, which includes the proceeds of a recent $ 475 million secured term loan. The loan includes the ability to repay debt at par if the transaction fails, said Paul Lalljie, chief financial officer of 2U.

The boards of directors of 2U and edX have both approved the transaction, and it is expected to be finalized within 120 days.

For-profit acquisitions of nonprofit businesses are particularly tricky, Urdan said.

“They can be really, really complicated because the price isn’t the dominant factor,” he said. “So the directors of edX, if you will, are more concerned with its mission as a nonprofit than with maximizing revenue or maximizing price.”

As part of the deal, 2U pledged that it would continue to offer free versions of online courses, protect the intellectual property rights of faculty and university course providers, and protect the privacy of edX learners, EdSurge reported. 2U will also contribute to the open source platform, Open edX, created by edX and which will be maintained by Harvard and MIT.

The pandemic – and the increase in demand for e-learning that has come with it – has boosted edX’s user base. The association has struggled to meet growing demand, Anant Agarwal, founder and CEO of edX, said at a press conference on Tuesday.

“After the pandemic, more and more of our partners were asking for more services from universities to help them create content,” Agarwal said. “EdX just didn’t have the resources to create a full service organization. “

But along with the growing demand, the value of the nonprofit has grown, making it a great time to sell edX assets.

“Right now, the opportunities have never been greater,” Alan Garber, president of Harvard University, said at the press conference. “The combination of the partnership with 2U, which is indeed mission aligned, and the creation of the non-profit association has just created the most spectacular opportunity to advance education. “

Coursera, 2U and edX’s biggest competitor, should be concerned, according to Urdan. Historically, edX has taken second place behind Coursera when it comes to online course offerings. When the company successfully completed an initial public offering in March, investors were excited about its short-lived business, which saw increased demand during the pandemic.

With edX’s new access to capital and 2U’s expanded marketing and recruiting capacity, the combined entity poses a greater threat to Coursera.

“It changes the dynamic, it changes edX as a competitor for them and it changes 2U as a competitor for them,” said Urdan. “So this is a significant development for Coursera.”

Doug Lederman contributed to this article.