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Does Online Education Need to Be Free to Succeed?

A prominent venture capital fund—Union Square Ventures—reckons so, but it adds that academic credentials will also remain vital.

Here at Technology Review, we’ve been doing some research for an upcoming business report on digital education. It’s an area that’s been receiving a lot of interest from venture capitalists and entrepreneurs—the general idea being that technology will “disrupt” education as we know it, and maybe create a few billion-dollar companies along the way (see “The Crisis in Higher Education”).

According to Dow Jones VentureSource, VCs invested $217 million in digital-education companies during the first half of 2012—more than they did during all of 2010. The explosion of new companies is creating a complex environment, as this map of the dozens technology companies active in K-12 schools makes clear.

So which of these startups will end up mattering? Today, the venture firm Union Square Ventures took the unusual step of blogging about its “investment thesis” in online education. Union Square’s bottom line: the best investments will be companies that give educational content away for free.

The strategy is similar to what social-media companies like Twitter have done (Union Square was an early investor in Twitter). First they build huge audiences. Later, they worry how to make money. While that makes sense to investors, it’s also deeply threatening to textbook makers and brick-and-mortar schools. How can they compete against free?

Venture funds usually keep their investment strategies top secret. But Union Square has become an influential VC firm—some would say the most influential—in part by stoking interesting debates that grab entrepreneurs’ interest (see “Fred Wilson on Why the Collapse of Venture Capital Is Good”). Union Square says the disclosure is the first of several future discussions about its work on “specific markets, industries and technologies.”

To accompany its analysis of the education market, Union Square provided a reading list of news articles whose arguments it apparently found persuasive. There are also links to video lectures by the founders of several ambitious digital education startups, including Ben Nelson of the Minerva Project and Daphner Koller talking about Coursera.

In their blog post, Union Square reveals another conclusion that could console educators worried about virtual competition. It says that unless people can turn “free” online courses into actual academic credentials, or into a career, digital education will remain “aspirational and removed from the day-to-day of many people.”

In other words, without a diploma to hang on your wall, free isn’t worth much. 

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