"Remember the moment we hit 10,000. Where will you be when we hit 20,000?"
Wednesday was a momentous occasion for 2U, the cloud-based, software-as-a-service online learning platform that has become the darling of the online learning world. The company hit its 10,000th student -- and lest anyone forget, banners around its suburban Washington offices served as a reminder, with photos of employees forming the 1s and 0s of the critical number. Upon arrival, Education Dive was told that CEO and co-founder Chip Paucek would be a moment, as he was on the building's sixth floor leading a dance party with a boombox on his shoulder. Clearly, company culture is key here.
"The people are pretty incredible and they work hard. And celebrating the successes when you have them is super-critical," Paucek told Education Dive when he entered the room, dressed in a green Hurley t-shirt and jeans. "I think a lot of people are so focused on the problems—and don’t get me wrong, I focus on the problems—but you’ve really gotta celebrate the successes."
Extremely approachable, Paucek suggests the interview be moved from the meeting room to a spot with more light. That turns out to be his office, an open space with several sofas arranged around a coffee table in front of several large windows behind his desk.
Paucek is a first-generation college student, having put himself through George Washington University—an experience that he says convinced him of American higher education's ability to fundamentally change lives. A three-time CEO, he's overseen Smarterville, Inc., maker of Hooked on Phonics, and served in numerous other executive roles elsewhere. His current company—originally named 2tor, after a fellow co-founder's dog—assists higher ed institutions in taking degree programs online through a combination of dynamic course content, blended experiences, and live face-to-face classes. And he's currently enrolled in the MBA program offered by the University of North Carolina, Chapel Hill.
But more on that in a minute.
Over the course of an hour, he discussed the company's recent ups (which also include a successful IPO) and downs (the disbanding of its Semester Online consortium), as well as the state of online education and where he sees the space heading.
EDUCATION DIVE: So, you just hit 10,000 students today and you're having a dance party.
CHIP PAUCEK: If you could have seen the sort of jubilation in that room. We’re too big for the building now. We used to do it and we’d fit in quite nicely and we could all do the cha-cha slide—but it’s a real part of our culture. It’s not the spontaneous dance parties. It’s the fact that people would want to participate in something to celebrate something we’re actually all doing together. It’s pretty awesome.
What does it mean for the company to you?
PAUCEK: Online education done the right way can be incredibly powerful. The students in these programs are becoming true members of their university community in a way that typically doesn’t happen with online education. So 10,000 for me is a milestone, just from the standpoint of "It’s a real number of people." I mean, it’s bigger than most private universities.
We still feel like we’re kind of just getting started. So for us, six years in, it’s a great day for our team. But we didn’t IPO the company because we sort of thought we arrived. We IPO’d the company because this is a big story and we’re in the early innings. On the roadshow, we told a lot of investors that we felt like we were in the second inning—pretty early. Sometimes it’s hard to see that because the last six years have been really challenging, but it really is the early days of what’s going to happen in online education.
We feel like we’re leading the charge for real online education, not the free stuff. And what I mean by that is free content’s been available to everybody in every library for thousands of years, so the fact that we offer the type of instruction online that they would normally get in a campus is pretty powerful.
How have your previous experiences at companies like Hooked on Phonics and Sylvan Learning shaped what you’ve done with 2U?
PAUCEK: I am one of many what I would say “redemption stories” in the company. And what I mean by that is this is my third venture-backed company, and I’m not shy to say that it’s really the first one that has truly succeeded. So I am a story of a lot of lessons learned, applying them in my 40s [because] maybe I wasn’t as able or willing to apply them in my 20s. People who worked with me back then get frustrated when I say that because the companies both did a lot of good.
My first company, Standard Deviants, the PBS show, did very well and we sold 5 million DVDs, but the company itself didn’t return capital to the shareholders. The company itself was never successful. In the case of 2U ... I will take credit for focus. And that is the hardest thing for entrepreneurs to really learn. You can’t help yourself. You inherently, really from a wiring-in-your-brain standpoint, are predisposed to want to go for it and try something new because that’s how you’re wired.
The fact is, when you find a successful model, treasure it and cherish it and make it work. For us, we’ve stayed utterly focused on building the world’s best online degree programs, period. And we will stay that way because there’s so many to do, there’s so many opportunities for us to pursue in that specific niche.
There’s a bunch of lessons, but that’s the most important one. I did way too many things, and when you spread your energy that thin, you’re not going to be successful. In this company, we are laser-focused. It’s the reason you won’t see us running around doing a lot of acquisitions. It’s not our business. Our business is building incredibly high-quality online degree programs, and they’re getting better and better. We have to innovate a lot to do that because nursing is very different from business, which is very different from international relations. They all have their own needs. But staying focused is a big part of why we are here, frankly.
Speaking of successful models, the big topic in online ed in the last few years has been MOOCs, but it doesn’t really seem like any of the big providers have found a viable, long-term model.
PAUCEK: They have not.
Where do you see the state of online education right now and who you see as competition?
PAUCEK: Well, it’s pretty remarkable just how much attention the MOOCs got when they launched. I think there was so much hype before there was a lot there, and I also learned the hard way in my previous life: Build good bones before you crow about it.
I don’t think the MOOCs could have ever possibly lived up to the hype that they came out of the gate with. I also happen to not think that they are the disaster that people now think they are. The truth is in the middle.
It’s pretty obvious to us why they are suffering from the kind of low retention that they have. Right now, our retention is at 84%, which for online is kind of off the charts. It’s because of that great interaction with faculty. It’s because you’re becoming a real member of the community. We convinced our board a long time ago that there’d be this long-term correlation between our financial success and the student outcomes, and in online education, that’s not always been the clear correlation. There are a lot of companies that made a lot of money with an outcome that really wasn’t very good.
In online education, you will continue to see more investment in what I would say is a comprehensive approach like ours. There are 2U competitors—we sort of joke about them as 3U, 4U, and 5U. But in the history of venture capital, anytime something works, there’s a lot of new things funded in that space.
I worry that the downside to the MOOCs are preconceived notions of online education. That is the company’s biggest challenge. It’s good to have Harvard’s name or Stanford’s name associated with online education in general—I’d rather have them associate Harvard’s name than some of the for-profit schools—but it’s not this. You’re talking about live classes, weekly, average class size of 10.4. You’re super-engaged. Our whole metaphor of “no back row,” it took us a long time to come up with something that would describe what it felt like to be in a program, and that’s how it feels.
Online education is here to stay. We’re way past the point of this being an experiment. The USC School of Social Work, our partner, is now the largest school of social work on the planet. It works. When done this way, it works exceptionally well.
That might have sounded like I’m anti-MOOC, and I’m truly not. I actually think that for professionals, having self-paced content to help you learn a particular subject is awesome. But if you’re in one of our degree programs, you are fully engrossed in the experience.
Can you tell me about your experience in the MBA program?
PAUCEK: So, the MBA. I’ve always wanted one. It doesn’t really make sense. I’m a three-time CEO. I don’t need it for my career. But I had read balance sheets for 20 years, but I had never made one. I really wanted it.
As we were bringing Chapel Hill online, I fell in love with their approach. The school’s very focused on leadership development, and it’s really powerful. As a kid growing up in south Florida, the brand resonated with me. UNC was an aspirational school.
First, I convinced my wife, and then I convinced my board, that I was not crazy. After my next class, I’ll be halfway through. Interestingly, my board limited me to one class a term. That alone demonstrates how powerful this is, because why shouldn’t it be flexible? Why shouldn’t you be able to take it when you can?
I can tell you, I didn’t do this to eat my own dog food. I’m a real student. It’s not easy. What’s fascinating is I’m not as much of a unicorn as you would expect. You’re offering people the ability to do something that they really want for their own particular outcome, whatever it is, and they don’t have to pick up their life, move, and quit their job. We have the head of the ER for D.C. General Hospital, the general counsel for the Charlotte Bobcats NBA team, a Disney Channel actress that’s like a child prodigy with 100,000 Twitter followers—these are all real students. You get to know these people super well.
(Paucek greets a passing employee who was a classmate of his in the program.)
The program has turned into a real recruiting opportunity for 2U. I will tell you, it’s not a light commitment. It has impacted my personal time, without question. But the great thing is I’ve taken classes from Dubai, from Dublin, literally all over the world. My travel schedule’s pretty crazy. It's pretty cool.
You mentioned the IPO earlier. Did the success exceed your expectations? And how do you feel about the buzz surrounding 2U since?
PAUCEK: It’s nice to hear, but I’ve learned one way or the other to not pay too much attention to what gets written about us. I don’t want to give you every lesson learned from my existence, but one of the other things in my first run as a CEO, when I was 23, is it’s really easy to believe your own press. My dad said that to me, “Don’t believe your own press.”
You can get caught up in people talking about how great your company is, but we’re pretty focused on the right things. So I’m thrilled that people are happy with how it went. We brought in $100 million to fully fund the plan, and to build new programs. Syracuse is a direct result of having that capital. We were able to launch our second MBA program.
I think what you’re going to see over the next 18-24, months is a good number of ed tech companies are going to follow in our footsteps. There are a couple of companies out there that are getting big enough that they can do it. We would love company, because there really aren’t ed tech companies that are public, except, obviously, Blackboard. You’ll see many more coming over the next couple of years.
All of the programs are graduate except Semester Online, and that...
PAUCEK: Didn’t work?
Yeah. What did the company take away from that experience, both positive and negative?
PAUCEK: Ultimately, it was an extremely complicated consortium of 10 great universities that all had different sort of agendas, but they’ve all become great relationships.
It’s hard enough to do this with one school and go through intense faculty governance. Doing it across 10 schools and trying to navigate credit sharing across institutions—something that really had never been done before—was hard. We probably underestimated how hard it would be.
But it was a pilot, and going into it, everybody said you can’t do undergrad and you can’t do the humanities through the 2U approach—asynchronous instruction on your own time and then you go to class. It is flipped. You’re not going to class to get the lecture, you’re going to class to be engaged by a professor about what you already learned. We totally proved that wrong.
It was only 100-200 students. It’s still running right now, by the way. People feel like we shut it down. This is the last cycle for the summer. That led to our first undergrad degree with Simmons College, an RN-BSN. And you will see us doing more undergrad over time, without question.
From a pedagogy standpoint, it worked. But from a business model standpoint, the credit-sharing was too complicated.
Earlier I asked about the current state of online education, but where do you see the space going in the next five to 10 years?
Some people have had bold proclamations of two-thirds of colleges going out of business—I think that’s a joke. There are a group of universities clearly under significant pressure, and you cannot continue to increase costs the way they have. But what we think is happening is the schools that do this well will win.
A bit of a reshuffling of the natural order is occurring. It doesn’t surprise me that Harvard is now starting to get much more active. You kind of have to. Frankly, we thought that was obvious 6 1/2 years ago. Most people didn’t agree then. Today, you really need an online strategy. It’s a strategic issue, not a question of technology.
You’ll see it get better. Our programs are significantly better than they were six years ago, because every year, we’re investing another $20 million in tech. It’s a real commitment.
You’re gonna see more schools jump into the space. The reason that doesn’t worry me is higher ed, globally, is $1.7 trillion. It’s a huge market. We don’t think there will be an Amazon.com of education. We just don’t buy it. It’s always been inherently very local. It still today is very local, even though you’re going on the Web. There’s room for a lot of people.
I do think that you’re going to, pretty quickly here, see the massive open online courses start focusing on something that’s a little less massive and a little less open. I don’t think they have much of a choice. At some point, somebody’s gotta pay the bill.
On the MOOC front, it’s interesting because, in his keynote at CES, Anant Agarwal had suggested that edX would become part of a blended or flipped model that facilitates on-campus courses. Whereas, Coursera and Udacity, both for-profits, are moving into paid courses—which, to me, feels a little closer to Udemy—and with paid certificates.
Udacity is now out of the MOOC business. They’ve fully pivoted to Silicon Valley content for Silicon Valley companies, so they are totally out of the space. Coursera is what I would say is maybe the remaining true believer of the MOOC movement, because you’re right—edX doesn’t have the burden of $80 million in venture capital. They don’t have to create a multiple. You don’t take the money without strings, and edX needs to become sustainable, but they don’t have to build a huge business. Coursera and Udacity both have taken venture money.
I happen to think Udemy, of the ones you mentioned, is off to the best start. They’re generating real revenue. It’s more of a self-serve marketplace. They build great technology that allows people to create great courses, inexpensively, and the courses are pretty good. I know the founders of all of them very well. Ed tech’s not that big, so we all know each other.
But I don’t think that a MOOC will be able to create long-term monetization off of just pure eyeballs. It’s not Pinterest. It’s not Facebook. The numbers are significantly smaller, and you’re not consistently using it. So they’re going to have to charge for something. Now they’re moving to certificates and making it more expensive. That doesn’t shock me.
We see real value in the power of the degree. Soup to nuts, whether it’s a $50,000 degree or a $75,000 degree—whatever the degree is on the campus, providing that full experience with everything that they would get on the campus and, to some extent, more—we like our business model.