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EdTech & E-Learning

Is The Udemy Marketplace Model Still Valuable To Instructors?

POSTED 05/12/2014
By Robert McGuire

Six months after Udemy changed the revenue shares for online courses, some instructors are still mad. How the new commission structure drove teachers away and how the tension reveals an emerging challenge to the marketplace model.

Part 1

In October of last year, Udemy, the online marketplace where independent instructors create and sell courses to students, announced changes in their commission structure that left a lot of teachers with a sour taste in their mouths.

At first, the changes seemed fair enough. More of the sale price of a course would go to instructors when they recruited students through their own marketing — 100%, up from 85%, minus a 3% processing fee. And on the students it recruited, Udemy would keep 50%, up from 30%. Udemy says it will be using those funds to grow the platform for everyone’s benefit.

Soon, though, exceptions, complications and misunderstandings began to emerge. That in turn inspired a lot of conversation among veteran instructors in the virtual teachers’ lounges moderated by Udemy on Facebook groups and ultimately drove some instructors off the site and into the arms of Udemy’s competitors. In a few cases, Udemy exiled the instructors from the discussion.

Six months later, I decided to ask a variety of teachers — and some of the competing edtech startups that are benefiting from the fallout — what they thought about the changes to the commission structure. I heard responses ranging from outrage to bemusement to sympathy with Udemy. And most of these teachers and competitors said the platform has a value that teachers should keep in mind.

But almost nobody I talked to, except Udemy, argued that the changes have worked in the favor of instructors. In fact, some say online teaching tools are changing in ways that make marketplaces like Udemy less necessary every day, no matter what the terms.

At first, the changes seemed fair enough, but exceptions, complications and misunderstandings began to emerge.

Winners and losers in the crowded Udemy marketplace

The upside of Udemy is that it’s easy for solo instructors to get started. If you have something of value to teach, you can create your course, set a price and start selling it very quickly to over 3 million potential students on the platform already. Those students are pulled into the marketplace in part by Udemy’s heavy promotion of the site and in part by the 8,000 fellow instructors promoting their own courses.

Most of those teachers have only one or two sparsely attended classes. A few use multiple classes to build modest businesses.

And a few hit the jackpot. Early reporting on the four-year-old company featured instructors who went from struggling freelance web developers to earning over $400,000 in new careers as online teachers. In the first year of operation, the top ten teachers totalled $1.6 million in earnings.

What’s not so clear is which of these groups is impacted most by the changes to the commission structure. Mark Lassoff, founder of LearnToProgram Media, and one who defends Udemy’s changes, says, “a lot of the pushback has been from people who went from $1,200 a month to $600 a month and found that enormously unfair. I see the complaining, but I don’t think people understand the bigger picture. Udemy has done the lion’s share of the marketing to procure all these students.”

“I see the complaining, but I don’t think people understand the bigger picture.” -Mark Lassoff

That scenario may resemble what happened with Michael Williams. He has a niche business of speech therapy courses and one-on-one coaching. He publishes a few of those classes on Udemy retailing at $400, and he was earning over $2,500 per month before last November.

“One of the reasons I joined them,” Williams says, “is because I don’t have the marketing power to touch millions of people, but they do. Most of the clients who come and view my courses are from Udemy. So now essentially they’ve cut my income in half, just by that one decision.”

But others say the negative impact isn’t only on solo operations. Dheeraj Vaidya, CEO of edu CBA, which provides investment banking courses, says they were were among the top instructors in their area and saw a 40 to 60% decline.

“We initially felt that this would be a temporary blip,” he says. “However, we realized that the drop in revenue was more or less a fact of life.”

“We realized that the drop in revenue was more or less a fact of life.” -Dheeraj Vaidya

Meanwhile, alternatives to Udemy are springing up that, instead of working on a marketplace model, offer white label and hosted solutions. Companies like SchoolKeep, Fedora and Skilljar aim to make it easy for individuals to build and operate courses at their own web domain. Even Wistia, which was originally only a video hosting tool, is finding that its customers are using it to hack together courses on their websites.

Some of the newest customers at these services have been big sellers on Udemy. SchoolKeep founder Steve Cornwell says, “We’re hearing the most noise from the larger instructors who have been on Udemy a long time and have come to expect a certain income level.”

Fedora’s founder Ankur Nagpal says his eight-month old company hosts 8 of the top 20 instructors on Udemy, “and we’re working on the other 12.”

Fedora says it now hosts 8 of the top 20 Udemy instructors and is “working on the other 12.”

How 50% can turn into 25%

Perhaps more frustrating for some instructors than the actual income changes was the way this announcement was handled. It came out with little notice before it went into effect, and the original announcement didn’t highlight fine print that some feel was crucial.

Todd Charron is a business consultant and coach who was insistent enough about clarifying the fine print that he was eventually banned from discussion boards moderated by Udemy. He says, “When they put the new change in, they tried to make it sound simple, but it’s really insanely complicated. There are whole lot of catches on there. Instead of students to the course, it’s people to the platform.”

To illustrate, Charron outlines a scenario where his marketing drives a customer to his course. In the past he would earn 85%. The headline suggests he would now earn 100%. But, he says, “if they’ve previously signed up with Udemy, it doesn’t matter if they got the coupon code through me, it’s still 50-50.”

And in some cases, the cut is even deeper. If potential students ever signed up on the platform through certain ads that Udemy put out, “they’re saying, ‘No, they originally signed up through a Facebook ad two years ago. Sorry, you only get 25%.’”

Much of the discussion after the announcement, inside the Udemy discussion groups and outside, was about trying to get these details straight. One blog post from a frustrated teacher featured an annotated payment report and a maze-like flowchart with his attempt to track when he was credited with a sale.

One blogger posted a maze-like flowchart with his attempt to track when he was credited with a sale.

“There used to be a clear incentive,” Charron says. “If I want to get more, I try to market my course. But now I can do the exact same amount of marketing and not earn more. If I convince you and a friend, one of you might earn me 25%, and one of you might earn me 97%, and there’s nothing I can do to influence that outcome.”

Communication breakdown

Williams says the lack of communication was the deciding factor for him moving away from Udemy: “It’s their business decisions, but I don’t think they necessarily favor instructors. I understood it, but I didn’t like it, because they made a decision that affected us without asking us or talking to us about it beforehand. They just did it.”

Similarly, Vaidya says, “the policy changes that sometime seem to be ad hoc in nature frustrate the instructors. As a training firm, it become difficult to formulate a strategy.”

Charron says, “You could see that the policy was evolving as they were putting it out, and not in a good way. For example, the ad portion was not in the original announcement.  Naturally, there were some instructors who were confused.”

“You could see that the policy was evolving as they were putting it out, and not in a good way.” -Todd Charron

And the emerging Udemy alternatives have been hearing this message, too. Nagpal, for example, says, “The biggest thing was the intangible of broken trust. I think the actual revenue shares are less important than the way they handled it. They made the whole thing seem like a positive. People aren’t stupid. Don’t try to put such a positive spin on it that you’re obscuring the bad news.”

Kicked out

As dialogue continued in Udemy-hosted Facebook groups, Udemy and some teachers apparently didn’t see eye-to-eye on when the dialogue was constructive. A few found their comments deleted, received warning emails and were ultimately booted out.

Charron was one of those, and he chronicled the devolving relationship in a post on his site that now leads the Google search results for “Udemy criticism” and that has a lengthy discussion thread of its own.

“There were some instructors who were upset,” he says. “And there were instructors who were supportive. There was all that. All the discussion I saw was civil and constructive. Then some of those dissenting voices just started to disappear.”

A few teachers found their comments deleted from discussion groups and received warning emails.

After he posted what he describes as corrections of misstatements about the new policies by Udemy support staff, he was asked to discuss his concerns via Skype with one of those support staff, and things went downhill from there until he was exiled also.

Charron describes that as censorship and an unnecessary p.r. blunder: “If they had just let people vent in there and clarify and just listened to the feedback, it probably would have died down fairly quickly, and you wouldn’t have a post like mine that gets search engine traffic.”

Udemy’s response

Udemy has a different take on its relationship with teachers, of course, and CEO Dennis Yang responded to my questions in writing through a spokesperson.

CEO Dennis Yang named several investments Udemy is making to grow the marketplace to 10 or 100 million students.

The new revenue share, he says, “was designed to reward instructors for being active marketers toward their own success and give Udemy the opportunity to make longer-term investments in sustainable growth. That means taking the community from the 2.5 million students we have today to 10 or 100 million students learning from tens of thousands of instructors in the future.”

To do that, Yang identified several tactics Udemy is using. They’re doubling the marketing team from 10 to 20, developing analytics that help instructors understand the audience better, expanding into mobile platforms (which serve 30% of the course consumption now), expanding internationally, expanding their organization-level customers and making the course discovery tools for visitors more personalized.

Asked about trends in online learning that Udemy may be adapting to, Yang says, “The revenue share change was not a response to changing market trends nor did it have anything to do with the health of Udemy’s business (which has been and continues to be very healthy). The change was a reflection of Udemy’s ambitious goal to help more students learn, to help more instructors teach and be successful, and to fundamentally democratize education.”

As for the strained relationships, Yang says, those are with only a few teachers out of over 8,000. They are able to offer their point of view, and they will benefit from a new Instructor Council structure to be set up this summer.

The new revenue share, Yang says, “was designed to reward instructors for being active marketers toward their own success.”

“But,” he adds, “we have community guidelines that instructors need to adhere to while on the platform or in the Facebook community. One of the unfortunate side effects of managing large, diverse and growing communities is that communication becomes less intimate — from one to one, to one to many. We may not get things right all the time, but we’re always open to feedback.”

Udemy’s defenders

Fedora and Udemy have at least one major client in common, Mark Lassoff, a top seller on the platform, and he has no serious quibble with the revenue share.

“If I’m negotiating, the commission’s always too high,” he admits. “I always want a bigger slice of the pie. But if Udemy goes out of business, that does nothing for the people on it, and Udemy is heavily leveraged with investments from V.C. They needed to be profitable, so they needed to make a change as they got out of the course acquisition mode.

“It wasn’t an arbitrary decision they made. It was a decision made on the needs of Udemy to survive and compete out there in the market. They’re going to do what’s in their best interests, and that’s what they did. I don’t fault them one bit for that.”

Alex Genadinik, a teacher of a handful of marketing and SEO courses, sees it that way, too. He prefers to put effort into his other channels than to promote his classes. “I did sell a course which is regularly $19 for which I only got $1.50 after Udemy commissions and discounts,” he says. “But I am still happy to get that because they got me that student.”

“If I’m negotiating, the commission’s always too high. But if Udemy goes out of business, that does nothing for the people on it.” -Mark Lassoff

I also heard differing opinions on whether Udemy’s new investments will yield results for teachers. Lassoff says he expects to see the lower share made up for in volume as new students are acquired. Williams and others say it hasn’t happened yet and they don’t expect it to.

Cornwell says that in his discussion with clients, the notion that more marketing by Udemy will pay off in volume is getting mixed reviews. “We’re not hearing overwhelming support of that from the instructors who have a very targeted curriculum,” he says.

“They believe they’re actually doing all of the marketing, and the people they bring in take their course and then enter the Udemy ecosystem. For the instructors who have a very broad curriculum, we’re not hearing that concern as much.”

Part 2

Wall GateNever pay retail

The tension over revenue share and customer relationships will presumably be resolved by the passage of time and market forces, with the most valuable content going to where it can get the best price. But some instructors are considering more fundamental aspects of the relationship that would still be an issue even if they earned 97% of every sale.

The first of these is concern over discounting. Udemy’s revenue share is based on the sale price, not the retail price, and students may be learning to expect that there’s always a sale price. 85% coupons distributed by email are common, and coupon codes are always easy to find on RetailMeNot.

Students may be learning to expect that there’s always a sale price.

Add in the coupons instructors use to market their classes, and to the casual visitor Udemy can seem awash in discounting, something several teachers raised as a concern.

Vaidya says that is “really scary as Udemy is now perceived to be a discount online store. With this, the possibility of refunds is very high if the customer bought the course at full price.”

Patrick Campbell of Price Intelligently, which provides pricing research and consultation to SaaS and subscription tech companies, says this is a dangerous game, regardless of the commission: “Discounting is typically the path of least resistance to increase volume, with some pretty significant implications for the business as a whole.”

Customers are trained to expect discounts, “and then your margins are going to shrink pretty significantly. It’s usually an indication that someone doesn’t really know their customer. Of course, a discount’s going to move the needle in most cases. But if you know the customer, you can sell on value, which means putting the right course in front of the right person, so you don’t have to cut those margins.”

Campbell points to an illustration in another sector. The emerging rideshare model is similar to Udemy where a marketplace of providers is impacted by the decisions of the platform. Uber and Lyft have been in an intense price war, “But they still guarantee to [drivers] a certain hourly rate. They say, ‘We’re lowering the price, but we’re still going to fill that void for you, because we’re trying to fill the platform with users, and we don’t want to piss off the other side.’”

The price war between Uber and Lyft is similar to Udemy’s discounting in that it affects the providers.

The walled garden problem

Instructors also have to consider if a marketplace makes sense for them on any terms. Like many online matchmakers, Udemy is a walled garden where it is difficult for teachers to carry on a relationship with students outside those walls.

Yang says Udemy “always encourage top instructors to experiment with complementary channels.” But from the perspective of many teachers, Udemy owns the contact information on students enrolled in their classes, and the messaging functions limit teachers to promoting Udemy classes.

Sandi Lin, founder of Skilljar, says what she’s hearing from her customers is that Udemy has “become much more strict about the ability of instructors to link off to their website or promote any of their other products.”

Inherent in the model, she says, is a natural limit that most sellers can reach. “It’s a little bit like Ebay,” she explains. “It’s a way to get started and to experiment,” which leads to more buyers and sellers and the market becoming successful. “Those are good things for the industry. But for one particular instructor — especially people with great content — it’s becoming much harder to stand out from the noise.”

“For one particular instructor it’s becoming much harder to stand out from the noise.” – Sandi Lin

Escaping the walled garden

As a result, providers are emerging that help teachers run classes on their own websites. Think of the shift as similar to the difference between a home-based retailer selling through eBay versus using an ecommerce software provider like Shopify to integrate search, checkout and payment tools into their own website. In the realm of online education, the later model is becoming easier.

Customers in this emerging model may be consultants, coaches and authors. They typically put hosted courses up as one channel alongside others like books, newsletters, speaking or mobile apps. To build these businesses and cross sell, they want to know who the students are in their classes.

Chris Savage, CEO of Wistia, says, “Some of our early customers were making courses and doing a lot of custom development to make it work, and we didn’t even know it. More people come to us to own the whole chain of the process. There are many people who realize the way to make the most money is to maintain control over the course. The idea of building content businesses is coming back into the forefront.”

“There are many people who realize the way to make the most money is to maintain control over the course.” -Chris Savage

Williams, a Skilljar customer, says when he put courses on his own site and marketed them, “I discovered that with very little effort in two weeks, I can earn close to half of what I was earning at Udemy with a lot less effort. I’m getting more of the money. And I’m charging less for the course. Yeah, I won’t have access to as many people, but I’ll reap more of the rewards. And I believe my students will be more serious.”

Lin and Cornwell also mention the trend toward teachers wanting to control pricing, marketing and student engagements, but Ankur Nagpal, founder of Fedora is even more emphatic. “It doesn’t make economic sense for an instructor to take their audience to a marketplace like Udemy,” he says. “It doesn’t add up. Education and ecommerce are converging. From the instructor’s perspective, you’re still in an ecommerce business. We want to empower to build not just great quizzes and great lectures, but also tools to build out a sales funnel for the product.”

Nagpal and his business partner spotted this market opportunity during their experience as Udemy instructors themselves with courses on growth hacking. They were making $2,000 a month, and “for a lot of people that is where their bar of success is. It made us money. It’s just that scaling that is really hard. There was no plan I could outline to go from $2,000 a month to $20,000 a month.”

“There was no plan I could outline to go from $2,000 a month to $20,000 a month.” -Ankur Nagpal

Where the trends are

Nagpal’s experience both as a Udemy instructor and as a competitor is interesting. He and his partner thought they deserved a bigger audience than they were ever going to get through Udemy. So they set out to build and market their courses on their own website, decided there was a need for others in the same position and shifted to building that solution. But all of that predated the changes in commission structure at Udemy, and the changes just increased the number of inquiries he got from potential customers.

Which shows, he says, “There are two strands happening. There are instructors moving to a hosted solution, and there’s the revenue change. And while they are correlated, I think both trends would be existing independently of each other.”

Lin points out something that is hard to remember when you’re in the thick of the emerging online learning economy — that it is emerging and still relatively immature. Every day it gets easier to create and sell courses. Therefore, she says, we’re still in a phase where, “you’re going to see a lot more experimentation. It’s so early that nobody can be an expert at online learning.”

“There is a point where you need to sit back and look at the overall distribution.” -Steve Cornwell

Should you use a marketplace to sell online courses?

Lin compares leaving Udemy to leaving the “The Hotel California,” because, students buy lifetime access to your content. You can unpublish your courses so no new students sign up (or raise the price to an absurd number, as some have done), but you can’t remove the content entirely.

But none of these competitors encourage anyone to leave Udemy entirely. Nagpal says one of his customers, against his strong advice, quit Udemy “in a rage, even though it was making him money. He was really really annoyed with that entire experience.”

Instead of giving up on the marketplace model, all of these hosted solution companies advise using it in a limited way. Cornwell says, “I don’t think there’s a point where it makes sense to be completely exclusive one way or another. There is a point where you need to sit back and look at the overall distribution. The more niche of an audience you have, for example if you teach Cisco certification courses, that is where we see the diminishing value of the marketplace model and the increasing value in your own branded school.”

Likewise, Lin, says she encourages people to experiment with Udemy along with their own website but to think about how to keep building relationships through channels you control.

“What is the strategy around building a following?” she says. “We have one instructor who is a self-published author and he has an online course that goes along with his book. He’s out promoting that book and giving workshops. He’s not out promoting his course specifically. He’s out promoting himself, and people are buying the course, because they like what they’re seeing otherwise.”

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