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Why the Chan Zuckerberg-Backed $113 Million Investment in Eruditus Is a Big Deal

Alternative online credentials, globally branded universities and the coming collapse of regionally known high-cost master's programs.

September 3, 2020
 
 

News broke this week that the Chan Zuckerberg Initiative is participating in a $113 million Series D financing round with Eruditus, an online education enabler. (Full disclosure: My institution partners with Emeritus, a division of Eruditus, on several noncredit professional and executive online courses and certificates.)

My guess is that you have not likely heard of Eruditus/Emeritus. The company does not pop up on many lists of OPM companies. One reason for this under-the-radar status of Eruditus/Emeritus is that none of the companies' revenues come from high-priced full degree programs in the U.S.

What should we make of this Chan Zuckerberg-backed $113 million investment in Eruditus? Future historians of higher education may look back on this announcement as a significant, if largely ignored at the time, data point in the transformation of higher education.

We are at the front end of a shift that is channeling demand for master's degrees away from regionally known institutions and toward specialized alternative credentials from globally known colleges and universities.

Online nondegree certificates will enable schools with global brands to increase the supply of credentials that they can offer. In the past, this supply was limited by physical classroom space and the time constraints of core faculty. Nondegree online certificates, such as those enabled by Eruditus/Emeritus (and other OPMs), overcome these supply constraints by both moving the education online and sometimes shifting the facilitation of the courses away from core faculty and on to industry experts.

A quick look at the partner institutions for Eruditus/Emeritus reveals the extent of this strategy of pairing schools with international brand recognition with online courses/certificates available to a global learner market. These universities include: Berkeley (Haas), CKGSB (Hong Kong), Columbia, Dartmouth (Thayer, Tuck), Illinois (Gies), London Business School, MIT (Sloan), Northwestern (Kellogg), NUS (Singapore), NYU (Tandon), Penn (Wharton), Toronto (Rotman) and others.

Today, a large proportion of regionally branded universities rely on the revenue from master's programs to balance the costs associated with undergraduate tuition discounting. The growth of specialized master's programs has allowed many schools to continue to run undergraduate programs that, due to tuition discounting and demographically related slacks in demand, do not bring in enough revenues to cover their costs.

In the years to come, we may see a collapse in demand for master's programs from regionally branded schools. Working adults who previously would apply to a master's program from their local institution may instead choose to receive a globally branded institution's specialized online certificate.

This shift in demand from full degrees to alternative credentials may be driven by the increasing acceptance of nondegree certificates among employers. Companies may be thrilled to hire applicants who can demonstrate skills in an in-demand field, such as data science or project management or finance or software design, rather than filter applicants out by degree status.

As I've argued in the past in "Alternative Credentials, Scaled Degrees and the New Higher Ed Matthew Effect," this trend should be a source for concern for many higher education leaders.

Of course, this idea that nondegree credentials from well-known institutions will cannibalize demand for master’s degrees from regionally branded schools could be wrong. People have many different reasons and needs when seeking education.

At this point, it is difficult to imagine that the attractiveness of the credibility accompanying an accredited degree will fully go away. Rather, it is possible that alternative online credentials from highly selective and well-known schools are finding new pockets of demand. It could be that rather than crowding out master's degrees, these nondegree online certificates that top schools are offering in collaboration with companies such as Eruditus/Emeritus are reaching people who never would have sought a degree in the first place.

From what I can see, however, it seems clear that the demand for high-priced/low-status master’s degrees will erode.

While nondegree online certificates may be growing the market, it seems inevitable that some portion of working adults who once chose to enroll in a master's program at their local college or university will instead choose the convenience, lower cost and targeted credential of an online certificate. (This should be a testable research question.)

Regionally branded schools dependent on revenues from master's programs should be looking now for how to diversify their educational program portfolios.

These schools need to figure out how to differentiate their (increasingly online) master's programs from online certificates and other alternative credentials.

The Chan Zuckerberg-backed $113 million investment in Eruditus may end up being a bigger higher ed story than we now realize.

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