2U leans into ‘free-to-degree’ pipeline

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After a summer of layoffs and budget cuts, the online learning company 2U shared a more upbeat outlook in its third quarter earnings call on Monday.

A year after its acquisition of the online learning platform edX, 2U is starting to see benefits, including a greater number of learners moving from edX’s free online courses to 2U’s paid online degrees and alternative credentials, said Chip Paucek, the company’s CEO.

“2U is transitioning most activity to the edX platform and we’re seeing material progress internally and externally,” Paucek told investors on the call. “First we completed our organizational realignment, reducing our expense run rate by $70 million. Second, we implemented a new more efficient marketing framework reflected in the $18.7 million reduction in variable/paid marketing spend from Q2 to Q3.”

A major benefit of the edX acquisition is that 2U’s suite of degree programs and alternative credentials no longer have to spend so much on marketing to attract new students, Paucek said. Because edX’s pool of learners is so big, there are now more “organic leads” into paid programs, he said.

“Organic leads are very valuable,” he said. “We typically get over 40% of our students from organic. We expect alternative credentials to benefit the most from this strategy. Why? First, demand is increasing for alternative credentials as leaders look for shorter, less expensive options to advance their careers throughout their lifetime.”

While 2U’s suite of alternative credentials are not yet profitable, they are expected to turn a profit next year, he said.

Historically, 2U has developed more than 4 million leads annually for its degrees and short courses, but only converted 1% to 5% of those into paying customers. Paucek said the company can now convert the rest into paid learners.

“We’re all in on just the notion of free to degree and having steps along the way,” he said. “What we need to do is continue to develop the right technology and the right infrastructure to match people on their pathway.”