Tuesday evenings at 9:00 pm, Chip Paucek flips to a screen on his computer and joins a group of 16 students working online on their master’s in business administration degree from the University of North Carolina’s Kenan-Flagler Business School. They hail from all over—St. Louis, Oregon, Moscow, Baltimore. The professor plugs in from Mumbai.
“Getting an MBA has been a lifelong dream,” says Paucek, age 44. He pauses. “I just didn’t figure that I’d be taking a company through an IPO at the same time as working on my degree,” he adds.
Paucek is chief executive and cofounder of seven-year old 2U in Landover, MD. 2U is the Aesop’s tortoise of the online learning world. While high-flier Coursera says 13.5 million people have tried out its courses, by last December 2U had served the equivalent of 12,343 full-time enrolled students. Count the number of fully accredited diplomas awarded last year, however, and you get a different score: Coursera: zero. 2U: 1,422. And a year after its NASDAQ debut, 2U has soared more than 107% to a market valuation of $1.2 billion.
Most fascinating: 2U’s success may have less to do with the technology it offers and more to do with the support the company provides for its partner schools and their students. “This is about bringing the campus to life online as much as possible,” Paucek says. “We’re not just about creating Masters students but about creating ‘Tar Heels’ and ‘Hoyas,’” he says.
Long-term success for Paucek and 2U will involve several tests: The company will have to continue to erode the stereotype of the will-o’-wisp nature of online learning and demonstrate its students are earning meaningful degrees. And it will have to grow, turn a profit and cut its costs even as it serves more and diverse students.
That means year 2016 is circled on Paucek’s calendar: It’s when he hopes to earn the master’s degree from UNC that he started in 2012. And it’s when many are counting on 2U to reach break even or better.
In March,Stanford University President John L. Hennessy opened the annual American Council on Education conference with a few predictions about the role of technology in education:“My first prediction,” Hennessy said, “is that online education technologies will dominate for certificate and credential-based courses, both for skills training and post- graduate professional education.” Including “professional masters degrees,” he added.
That’s what 2U has been doing since it got started in 2008, cofounded by John Katzman, Jeremy Johnson and Paucek. Their idea: Give the leading non-profit universities the same firepower to scale as the rapidly growing for-profit schools. Students anywhere in the world could apply. Schools would manage admissions and develop the coursework.
It would not be a cheap venture: Students would pay the same tuition, whether they were online or on campus. The schools would commit to at least 10-year contracts with 2U. And the company would invest the resources to make the learning feel as intimate as possible: its technology platform would put each student into a “Brady Bunch” style of boxes.
ONE CLASS IN PAUCEK'S ONLINE MASTER'S DEGREE PROGRAM
The first 2U students earned their degrees in 2010 from the University of Southern California’s Rossier School of Education. According to 2U, 83% of the students who have begun a 2U master’s program have either graduated or are still in the program.
What’s turned out to be pivotal are the support services that 2U layers around its programs: from coaching faculty on how to teach online, to staffing an eight-person office that ensures that each university has the right authorizations to teach students in every state, to finding local internships for all students and even to helping schools recruit students. In the case of Rossier, 2U even advanced funds to help the school roll out its Masters of Arts in Teaching program.
And then there’s support for the students. For Navy assistant air operations officer-turned student,Maxwell Keith, 2U had to figure out how to get enough bandwidth to deliver live classes even when he was onboard an aircraft carrier. For a social work program at Simmons, where the professor traditionally started the program by sharing a meal, 2U ordered up “care packages” for all the students. Live signing is available for hearing impaired students; live narration is built into written programs for blind students.
The technology display has surely helped make the courses feel more like a one-to-one experience rather than a lecture hall. “The line of questioning felt exactly the same as if I were standing in front of the course and talking with them,” says Michael Nemeroff, a software analyst with Credit Suisse, who put in a guest appearance in one of the classes that Paucek takes earlier this year. “It felt more intimate because you see everyone looking at you.”
“Technology enabled the online program,” says Elizabeth Peters, a Chicago resident who is finishing a one-year master’s degree with the University of California, Berkeley, “but the support is what made the experience so great.” When she and her team of students called the helpdesk at night because a glitch was preventing them from submitting their problem set the next day, technicians solved the problem overnight. “So it’s a combination of technology and service that makes our being online meaningful,” she says.
At American University, online grad Emily Ham, who is also a lieutenant in the US Navy in Brussels, gave a keynote address: “The vast majority of you have no idea who I am,” she told her fellow graduates. Even so, “over the past two years I've been enrolled in [International Relations] Online – for those among you who are skeptical of online education, let me assure you we have shared many of the same experiences.”
“The program definitely exceeded all expectations that I had,” Peters says. “The quality of the fellow students, and the investment from 2U and Berkeley in making us feel like part of a community even though we weren’t on campus, made all the difference,” she says.
“The technology is replicable,” says 2U’s Paucek. “It’s much more about representing an institution online in way that has never happened before. Why shouldn’t the degree fit around you--rather than the other way around?”
For its first two years, 2U served USC’s education and social work schools; USC represented the majority of 2U’s annual revenue through 2013. This year, 2U added Master’s of Medical science degree at Yale University, its first Ivy League school, to the roster of 20 programs it serves at 13 schools. Not everyone cheered: Students and grads of the relatively new physician assistant program struck up a letter-writing campaign to protest the program, charging that the online program would “devalue the degree.”
Paucek says that the most meaningful responses he gets come from the schools that have been working with 2U. “Many of our partners have decided to move more and more of their programs online with us on a long-term basis. That's the biggest endorsement you can get,” he says.
Five schools a year is about what Paucek says 2U can comfortably handle. But that pace could pick up with the addition of Jim Shelton, formerly deputy secretary at the Department of Education who joined as “chief impact officer.” Shelton has said he believes that 2U has the opportunity to grow not just fast but in areas where there is great need.
In a letter to friends, Shelton noted that so far, “many of the online and technology enabled solutions have been sub-par.” By contrast, 2U’s policy of partnering with leading institutions and focusing on driving quality results “…have the potential to set the standard for the sector, especially as time and data allow more insight,” he wrote. “There is every reason to believe that 2U is at the front end of the long awaited transformation of the education and training sector and has begun its work in one of its most viable segments,” he added.
Wall Street is purring too. “I’m confident they can keep up the growth for some period of time,” says Corey Greendale, a senior vice president specializing in research and investment at Chicago-based First Analysis. “We estimate enrollment in [2U] partners’ programs currently represents less than 0.3% of total U.S. graduate degree enrollment,” he told EdSurge. “We don’t think it’s a heroic assumption that they could get to 1 to 2% of the total U.S. graduate degree market,” which is more than 2.9 million students, according to government statistics. And 2U is helping grow the market, he adds.
That said, both Paucek and analysts are watching for up and coming competitors. “Where there’s a good business, chances are someone will try to replicate it at a cheaper price,” observes Mike Tarkan, a senior analyst at Compass Point Research. “But as long as they continue to deliver on what they said they’ll do, this is a good story.”
“You can build something great if you have the will of the organization behind you,” Paucek reflects. It’s been the determination of the universities to build strong programs that has helped drive the program forward. “One of the things about the model that’s clear: We only succeed if the students graduate.”