Why online education won't kill your campus

FORTUNE — The country’s higher education system seems ripe for tech industry disruption. Student debt is out of control. Graduation rates are unacceptably low. And employers still can’t find enough new recruits with the training they’re looking for.

Enter online learning. Specifically, Massive Open Online Courses, or MOOCs, have been heralded as a savior for students disadvantaged by an inefficient, often rigid, and increasingly pricey higher ed system. The cost advantage of recording one lecture and broadcasting it to thousands of students regardless of location is undeniable. And the potential social benefits are huge. Andrew Ng, founder of leading MOOC-maker Coursera, said in a recent interview with Fortune he hopes the flexibility and practicality of free courses on-demand will make “a great education a fundamental human right.”

There’s plenty of interest so far: Coursera raked in $43 million in Series B funding in July and has more than 80 universities and other institutions offering courses on its platform, broadcasting to millions of students. The top three MOOC-makers — Coursera, Udacity, and EdX — all appear on the cusp of convincing major institutions to offer some of their courses for credit. Cue many, many articles expressing deep angst that the traditional on-campus learning environment as we know it could cease to exist.

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But all that fretting (or celebrating, depending on what side you’re on) may be premature: The MOOC business model seems to have a few issues of its own. Take, for example, a recent competition put on by Boston consultancy Fuld & Company, in which business school students from the Massachusetts Institute of Technology, Boston University, Dartmouth College, and Northwestern University staged a “war game” between the education world’s power-players du jour: Coursera, land-grant institution University of Florida, web-savvy New England school Southern New Hampshire University, and for-profit behemoth University of Phoenix. The winner of the $5,000 grand prize was the team that presented the best plan for the future of higher education, and the best strategy to make money from it. Coursera, despite being easily the sexiest company at the competition, did not take home the grand prize. (Though it did come in a close second.)

The problem: the business model. “Wondering how they could monetize this technology, that was a big concern,” says Fuld & Co. founder and president Leonard Fuld. The team proposed providing a variety of online courses, and then making money by charging universities. They likened themselves to Netflix, spreading a small amount of high-quality, specialized content to a large subscriber base. In real life, Coursera is planning to charge universities licensing fees (with some of the revenue going back to the original school that created the content). Right now, though, the bulk of the company’s revenue comes through selling verified completion certificates. The program, called Signature Track, allows users to pay a fee in order to verify their identities — which the company does by matching the images on their webcams to the individual way in which they type. (Your unique typing style is like a fingerprint, Ng says.) The company announced in September that it brought in more than $1 million since starting to offer the service nine months earlier.

That’s a sign Coursera has big potential, but it’s not exactly the wholesale disruption many in academia had feared was imminent. In fact, MOOCs have suffered a series of public setbacks in recent months. At San Jose State, a pilot program offering support for students in three online math courses was put on hold after disappointing retention rates. At Colorado State University-Global Campus, which was hailed as the first large U.S. college to grant credit for MOOCs, not a single student signed up to take and exam and get credit for the heavily discounted online computer science course. And in July the director of postsecondary success at the Bill & Melinda Gates Foundation, a big online education supporter, wondered aloud if MOOCs are a “viable thing or just a passing fad.”

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The winner of the Boston games? The decidedly anti-faddish 100-year old University of Florida. Their pitch was deeply embedding online education into existing curricula. The team proposed that they would eventually outsource many introductory courses to the web, which echoes what many existing colleges are hoping they will eventually be able to do with MOOCs. The advantage: Putting intro courses online could make it easier for vastly more students to get credit for standard 101 classes, which are both easily taught online and a bottleneck for credits required to graduate. That could also free up professors’ time to teach smaller advanced seminars — or, more darkly, allow schools to hire fewer teaching staff. Overall, the University of Florida team’s winning idea was less disruption and more blended learning. That, of course, is nothing new.

Though they may yet wreak havoc on brick and mortar institutions (particularly on expensive middle-tier liberal arts schools offering no clear route to employment), online education seems to be a ways away from becoming the terrifying disruptor many thought it would be. If anything, right now MOOCs and other online courses are augmenting current offerings rather than destroying them. As for killing the physical campus, when I floated that scenario to Ng, he didn’t jump at the idea. He said he still values the “coming of age experience” provided by four-year universities, and the support system they provide. We’re still a long way from knowing exactly what MOOCs are capable of. But will they one day live up to the hype and destroy the traditional university as we know it? Says Ng: “I hope not.”


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