Conventional wisdom says – and most analysts agree – that online higher education will continue to grow like a weed, with annual growth exceeding 20%. But how to square conventional wisdom with increasing signs that the online market is plateauing? A new report from Eduventures based on a survey of 1,500 U.S. adults found virtually no increase from 2006 to 2012 in the number of adults planning to enroll in online programs. Eduventures surmises two reasons for this: (1) the medium isn’t materially more appealing today than it was 6 years ago; and (2) prospective students find it expensive. According to Eduventures, most adult learners for whom convenience was the major draw have already enrolled in online programs. A report from Parthenon released last March confirms this: cumulative starts over the prior 5-year period were nearly 50% of the most addressable market (defined as adults under age 35 with some college but no degree).

So where will online growth come from? A report last week from Moody’s indicated that massive open online courses (MOOCs) represent a “pivotal development” in higher education and could revolutionize the industry. Coupled with Coursera’s announcement of 17 new university partners, MOOCs appear to be a likely source of much, if not most of the promised growth.

But of the four potential drivers of growth for online education, MOOCs address only two: the two easy and less powerful ones.

First, there’s price. Online programs are typically – and typically unjustifiably – priced at the same level as onground programs. By going free, MOOCs address affordability with a flourish.

Next there’s product. Have MOOCs made the medium more appealing? Superficially, yes. By attracting elite brands to online education, online has moved from low-prestige and ancillary to strategic and core for most universities. But in terms of the learning experience itself, it cannot be said that MOOCs are a significant step forward. Some MOOCs have incorporated basic elements of gamification into the product. And probably the most significant advance is in the area of peer grading. But accounts of plagiarism accompanied by sub-10% course completion rates signal that MOOCs aren’t matching their revolutionary price with revolutionary product.

Next there’s the question of expanding online learning beyond the U.S. By solving for price, one would think MOOCs check this box as well. And so they do. 74% of Coursera’s 1.3M enrollments are from outside the U.S. – 190 countries in total.

Finally, there’s the opportunity we discussed in our last letter: expanding online learning beyond adult learners to traditional age college students. While there are no firm reports as to the age of MOOC students, anecdotes in the media suggest that the typical profile is an adult outside the U.S. who is employed in the field and seeking a challenge or refresher from an expert. There are no indications whatsoever that traditional age students are fleeing college campuses to jump onboard the MOOC- wagon.

So where does that leave us?

Growth Criteria	MOOCs
Price	☑
Product
International market	☑
Traditional age students

Today MOOCs are checking the two easy boxes. They are not yet Online Learning 2.0. The hard and important stuff is still to come.

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“We think we know how to teach because humans have been doing it forever, but in fact we’re just beginning to understand how complicated it is to do it well.”

- Ken Koedlinger, Professor of Human-Computer Interaction and Psychology, Carnegie Mellon University

What MOOCs have not done is to apply research to the two key questions of how we can best use technology to improve learning outcomes and engage traditional age students. It’s fun to blame MOOCs for many things, but this is not one of them. The reason: There isn’t a whole lot of research to apply.

It is estimated that less than $1B is spent in the U.S. each year on education research, with the federal government spending about $700M and universities, foundations and the private sector spending about $300M. That may sound like a lot, but it’s not. Consider that medicine and education should be two sides of the same coin. Both are services that developed democracies have decided all citizens are entitled to regardless of birth, station or resources. Medicine advances human health and happiness. Education advances economic productivity and happiness. Then consider that $140B is spent in the U.S. each year on medical research.

How to explain the 140:1 ratio? If medicine is more important than education, it’s not 140 times more important. The answer can only be that medical research is easier. Whereas health typically can be directly measured and quantified, education cannot. Education can only be measured derivatively. Derivative measurement adds a degree of subjectivity and difficulty to the question of whether learning has occurred. No such equivocation is possible when the question is discrete and relatively straightforward to investigate with control groups: whether a weight loss regimen has been effective, or whether a new drug lowers cholesterol levels.

The other reason is related but distinct: there are clear and willing payors for improved medical outcomes. Employers and government fund insurance plans that cover proven treatments. Innovation in medicine is amply rewarded as better outcomes are met with fistfuls of private or government insurance dollars. In contrast, while employers are undoubtedly incentivized to make sure their workforce is adequately educated, there is no “education insurance” for employers to buy whereby the insurer would cover remediation of the educational needs of employees.

Employers struggle and there is no such thing as education insurance because education is harder to measure. So there is no clear definition of a “proven treatment,” or an “educational standard of care.”

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If medical research far outpaced education research over the past century, look for education research to at least keep up over the next hundred years. The reason: big data.

Big data will make education much easier to measure, and make education research more like medical research. Think about the challenge posed in a recent New York Times Magazine article by Ken Koedlinger at CMU.

“To maximize retention of information, it’s best to start out by exposing the student to the information at short intervals, gradually lengthening the amount of time between encounters. [As different types of information require different schedules of exposure,] there’s no way a classroom teacher can keep track of all this for every kid.”

While a classroom teacher or a researcher seeking to investigate this spacing issue in an onground environment won’t make much progress, online delivery can produce terabytes of data that could provide the best answers for every learning objective.

Or consider the question of whether learning can be improved through instructor gesturing, facial expressions, and eye gaze. Also impossible to measure in a classroom. But it becomes possible through pedagogical agents or avatars in online classrooms producing terabytes of data for analysis.

A ton of educational innovations are coming down the pike as a result of big data, which effectively turns “learning” – heretofore somewhat ineffable – into a living, breathing body that can be monitored: closer to medicine than education has ever been.

It is for this reason – the “massive” element – that MOOCs may prove to be important. With mass comes big data. And with big data comes better product and engagement of traditional age students. But massive courses aren’t the only path to big data. Smaller courses with much higher completion rates could prove to be a better source of data.

Regardless, in the coming years education research will allow us to check the two hard boxes: product and engagement of traditional age students. Real growth for online education – what we call Online Education 2.0 – will come when we’re firing on all four cylinders, not just two.

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.