The providers of massive open online courses have rapidly expanded in the past year, aided in part by a series of potentially lucrative no-bid deals with public colleges and universities, including for services that may extend beyond the MOOC model.
At least 21 universities and higher education systems in 16 states have signed agreements with Coursera, Udacity or edX without going through a competitive bidding process, according to interviews and open records requests by Inside Higher Ed.
The deals include contractual language that could be used to divert untold amounts of taxpayer or student tuition money to outside vendors.
Representatives of the state-run institutions cite a variety of reasons for why they signed the deals without seeking formal proposals from competing vendors: Almost all of the agreements have little or no upfront costs for universities. They are also non-exclusive, meaning universities can take their business elsewhere. And MOOC providers, new to the higher ed scene, are said to offer unique products.
Some university officials said they were simply experimenting with MOOC technology or said they had no plans to make money from the arrangements – two positions that suggest they are unsure if MOOCs can ever be profitable. Universities have talked about using the MOOC providers not just to offer MOOCs, but to serve as a platform for other online education, to deliver remedial education, and to provide services similar to those of learning management systems -- in other words, all functions provided by various companies and nonprofits, with contracts typically awarded through some sort of procurement system.
While MOOC providers have been able to escape competitive bidding and sign major deals at large and prestigious institutions in a relatively short period of time, traditional technology deals by state-run institutions can require lengthy evaluations, said Phil Hill, a technology consultant who has advised higher ed institutions on learning management system procurements.
"We're in this situation that is sort of nonsensical,” Hill said. “So you have very strict procurement processes for pretty easy decisions, like a $30,000 piece of software. Yet at the same time you have a multimillion-dollar decision that is completely going outside of the procurement process."
A New Business
MOOCs are the subject of much hype and an increasing amount of scrutiny.
The MOOC providers paint a vision of the world in broad and visionary terms – free or cheap education for everyone that is as good as or better than traditional on-campus courses.
But Coursera and Udacity are both companies funded by venture capitalists seeking to turn a profit. Even edX, which touts its nonprofit status, has made clear it needs to make money.
Though MOOCs gained attention as free classes for the masses, the providers each have nascent business models that demand outright payments (the University of Texas System paid $5 million in a no-bid agreement to join edX ) or seek to share in tuition revenues (Udacity expects to make $2 million  from a three-year partnership with the Georgia Institute of Technology that was also not competitively bid). In contracts with elite institutions, Coursera offers to host courses for free but then requires up to 94 percent  of any revenue generated. In contracts with non-elite institutions, the company can generate revenue by asking universities to pick from a menu of different fees  depending on how they want to use the courses.
At times, the MOOC providers claim to be offering what no other companies can, including software that can support a large number of users or gather data on students. Or they have other unique attributes that no company can match: Coursera, in particular, now has a one-of-a-kind catalog of several hundred courses from dozens of its partner universities, including universities who partnered with the company as a result of no-bid agreements.
But, at other times, universities may be planning to use the MOOC software much as they use a traditional learning management systems, or LMS: to offer an online class to a relatively small number of students.
LMS makers, including Blackboard and Canvas, have rolled out features designed to let universities offer MOOCs. Last week, Blackboard said  it would host MOOCs for existing customers for free and called some MOOC providers’ revenue-sharing terms “onerous.” Blackboard charges universities a per-student fee to use its LMS. Without competitive bidding, it's unclear how universities will be able to tell which product -- a traditional LMS or a new MOOC platform -- would be cheaper.
In what for now seems like the largest of the revenue-sharing deals , Georgia Tech is working with Udacity to offer a low-cost online computer science master's degrees to perhaps 10,000 students over the next three years. They estimate the program will draw $19 million in revenue in the third year of the deal, which could become a model for future ventures.
Of the estimated $4.7 million in profits that year, Udacity will take 40 percent, or $1.9 million.
In Georgia, state laws generally require competitive bids for all goods or services that cost more than $25,000.
But a Georgia Tech spokesman said the university’s research arm – the Georgia Tech Research Corp. – was not required to use a competitive bidding process before it signed the deal with Udacity.
“Georgia Tech is not purchasing any goods or services under the agreement,” said university spokesman Jason Maderer. “The collaboration was established to provide an educational opportunity that previously didn't exist.” (Georgia Tech currently uses Sakai, a traditional LMS, to offer a traditionally priced online computer science masters degrees to fewer than a 100 students.)
Udacity declined to comment for this story. The Georgia Department of Administration, which oversees public purchasing in the state, did not respond to repeated requests for comment about the Udacity deal.
Likewise, when the University System of Georgia decided to partner with Coursera, it did not bid out the deal, a spokesman for the Georgia Board of Regents said. That’s because the board does not consider itself to be purchasing any goods or services “nor is it obligated to pay Coursera any sum under the agreement," the system said in a statement.
However, the agreement says  the state system will pay $3,000 per course if it decides to develop courses with Coursera and pay fees of up to $66 per student to use Coursera. If the system developed just nine courses, the costs would be greater than the $25,000, the general threshold for competitive bidding in Georgia.
The terms in the Georgia system contract are identical to a series of recent agreements Coursera announced with public universities and higher ed systems in nine states .
Those deals, which were much-touted by Coursera as a vast expansion of the company’s reach, appear to be largely if not entirely the product of no-bid agreements.
A spokesman for the State University of New York – one of the largest systems in the world – said the system sought approval from the state comptroller and the attorney general to enter into a no-bid “single source” deal with Coursera. The request was submitted for approval a few weeks after SUNY announced its partnership with Coursera. It has not yet been approved, SUNY spokesman David Doyle said Tuesday.
SUNY is in the midst of an ambitious effort  to enroll 100,000 new students over the next several years. SUNY Chancellor Nancy Zimpher has said the system could allow up to a third of the credits for certain SUNY degree programs to come from outside institutions, including MOOCs.
Some faculty members, including SUNY faculty representatives, have complained  that university officials across the country quietly executed agreements with Coursera and left professors in the dark.
In a recent telephone interview, Coursera co-founder Andrew Ng said “in the past” the company had wanted administrators to keep things under wraps and “once you announce it to all your faculty, word will get out very quickly.”
Ng also issued this statement in response to a summary of this story and a request for comment: “We did not ask any of our partners for exclusivity, but instead plan to make sure they have such a good experience working with us that they choose to stay with us.”
Some institutions said they did not have to bid the MOOC agreements and they did due diligence even though the agreements were not competitively bid.
In October 2012, the University of Texas System decided to join edX at the cost of $5 million. The deal  was not bid but a task force “fully evaluated competing models and providers,” said Texas Chancellor Francisco Cigarroa in a statement. The university system’s Board of Regents also approved the deal in October 2012 .
“The decision to select edX was based on several key factors including edX’s not-for-profit status; the commitment to excellence of the founders; the opportunity to collaborate with peer institutions; and edX’s commitment to both online and blended (hybrid) education and learning research,” he said in a statement. “The $5 million investment in the platform was determined to be a better value than the costs associated with developing our own platform, and because the implementation will include input from us, it will result in a product superior to a ‘purchased’ platform from a private vendor.”
EdX said in a statement that it is “happy to take part in whatever review process each institution deems appropriate.”
“We have made presentations, alongside other MOOC providers, to many institutions,” edX said. “We seek to provide a thorough outline of the benefits of edX's open source, non-profit, campus- and research-focused platform and allow each institution to make an informed decision.”
The University of California, Irvine did not go through a competitive bidding process before it partnered with Coursera, but spokeswoman Cathy Lawhon said the university’s decision to enter into a contract is “always a formal process” even if there aren’t public bids. She said the university’s director of material and risk management is delegated to do such deals and he signed off on the Coursera agreement.
Lawhon said the work with Coursera is an extension of the university’s work with open educational resources, which involves the distribution of course materials through other online venues, including YouTube, iTunes U, Merlot and Connexions.
“UC Irvine is knowledgeable in this area,” Lawhon said in a statement. “The campus has been a leader in the Open Educational Resources (OER) and OpenCourseWare (OCW) movements for more than 10 years and the Coursera agreement is just one among many ways we use the newest technologies to make our top-level curriculum and teaching available worldwide.”
Other universities said they signed the deals with MOOC providers just to get a taste of the MOOC software or for other reasons that are unlikely to generate money.
The Tennessee Board of Regents and the University of Tennessee System signed a deal with Coursera to try an 18-month pilot project to evaluate the company’s software.
“This agreement will helps us evaluate the technology and analytical ability of the platform without committing a large amount of funds before knowing if it has the ability to enhance what we are already doing,” said Monica Greppin-Watts, a spokeswoman for the Tennessee board.
She said the state plans to consider other platforms besides Coursera as well.
Some universities have no intention of making money or claim to be using the MOOC providers for their own ends – two approaches that could suggest the MOOC providers may stand to see little revenue despite their numerous high-profile partnerships with major institutions.
The University of New Mexico, which uses Blackboard as its traditional LMS, signed an agreemen t with Coursera on May 29. But despite revenue-sharing terms spelled out in that agreement, Provost Chaouki Abdallah said he does not think the university and the company have an agreed-upon monetization strategy.
“There is no financial contract where money would change hands – yet,” Abdallah said in a telephone interview.
He said the university could eventually go with another company.
The University of Colorado system is in a similar boat. Spokesman Jeremy Hueth said the Colorado system signed an agreement with Coursera. But before the system decides to produce courses or license material from Coursera it will need to negotiate another agreement with terms that may deviate from the fees Coursera states in its standard contract.
The University of Washington has signed agreements with Coursera and edX. In a statement, vice provost David Szatmary said the agreements were merely a "marketing agreement" to allow the university to promote itself on the two platforms. He said no money has changed hands.
“While there is some language in the agreements that state that there may be some revenue-sharing in the future, at this point that revenue-sharing is moot, since no revenue is coming in for the foreseeable future,” he said. Szatmary said “neither Coursera nor edX has developed a viable revenue model to monetize these free courses.” If they did, he said the university would need to approve any future efforts by the two to make money using his university’s content.
On the other hand, some universities are beginning to see small amounts of money flowing to them. The University of Illinois at Urbana-Champaigna had received about $1,500 from Coursera by early June, according to the university. Illinois decided to partner with Coursera because, among other things, it felt the company was “working toward development of a sound business model or models,” said university spokeswoman Robin Kaler.
Pennsylvania State University, the University of North Carolina at Chapel Hill and the University of Virginia have all signed agreements with Coursera but have no immediate plans to make money from the deal, according to university officials from each institution.
San Jose State University, a high-profile hotbed of experimentation with MOOC providers, has a revenue-sharing agreemen t with Udacity to offer for-credit online classes. That arrangement was not publicly bid, San Jose spokeswoman Pat Harris said. The university signed a contract addendum in April. The university expects to receive $40 per student, though students paid $150 per class.
Wayne Brown, the founder of the Center for Higher Education Chief Information Officer Studies, said he found it a “little troubling” that public institutions were not competitively bidding projects of such scope as their partnerships with the MOOC providers. He said the initial low-cost or no-cost terms may be the rationale for avoiding a public bidding process.
“But I would think any time you are selecting from a number of different providers and institutional resources are going into it -- I would think you would do an RFP or something,” Brown said.