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Why did Coursera start an annual fee model?

The pricing makes sense for people who use the platform seriously for more than 7-8 months, indicating the rationale could be value unlocking for high usage customers instead of a pivot to recurring revenues.


In today's post, we understand Coursera Plus and for whom the plan makes sense, try to dig deeper into the rationale behind the move, and take a brief look at the future of education if this hits mainsteam.


What is Coursera Plus and for whom does it make sense?


Last week Coursera added an additional way you could access their courses, giving you access to 90%+ of their courses for close to 28000/yr, or 2300/month. This is the third major pricing pivot for the company that had started accepting payments on a course by course basis(pay per use), then moved to specializations and one free week access with free course audits allowed (freemium) and finally trying out the recurring revenue model.


With a specialization currently costing around 3500/month, if you're doing Coursera courses for more than 8 months of the year, this is a pretty sweet deal for you. There aren't a lot of people however, who would fall in that bucket.


Recurring revenue pivot or value unlocking?


While at first glance this does look like Coursera following the herd and joining the recurring revenue model, a closer look at the pricing seems to indicate that might not exactly be the case. Why is that so, you might ask.


Well, look at the problem from Coursera's perspective. Recurring revenue customers are gold for any business, not only because they provide you stability of cash flows over a reasonably long time frame, increase the stickiness of the customer and consequently the money you can get from them (what VCs like to refer to as LTV), as well as increase the valuation multiples you get on your cash flows, which are perceived to be high quality. So it will make sense to try to get a lot of users onto your recurring business. But, there is a catch. You don't want to lose too much money doing it. Consider for example, that you offer the annual package at 3000. An overwhelming majority of users would latch on to it, and buy the annual subscription, but you would have made a lot more money from them if you had offered the courses individually.


If you are indifferent between recurring revenue and pay per use revenue, you would, therefore, keep the price of your annual pack at somewhere close to, or slightly above (accounting for greater use once subscribed to an annual pack) the average time a person used your product. For Coursera, I would assume that would be anywhere between 2-3 months of focussed use a year, bringing pricing by this method to around 10,000. If you're more bullish about the benefits of recurring revenue, you would keep it even lower. The fact that the firm has kept it almost 2.8x this value seems to indicate that instead of addressing the recurring revenue issue, they seem to be tackling a different one.


Understanding the people this would make sense for, people who use the platform regularly for more than 7-8 months, gives us a better picture of the possible intent of the move. This effectively plays on the value unlocking for your premium base theme. These highly active customers now have an incentive to use the platform a little bit more, get lower payment frictions (pay just once for the year). The company gets better visibility on cash flows and cash in hand at the start of the year!


Mainstreaming the MIT challenge:


The MIT Challenge was when a journalist, Scott Young, completed all MIT CS engineering courses in the span of one year, finishing off subjects at the rate of a course a week. As alternate education mediums such as Coursera and Edx rise, and pivot to these annual membership models, which while expense on the face of it, are extremely cheap compared to what you would have to pay for formal education, more folks will try to club quality material here to complete their own educational endeavors. The MIT challenge could then officially become mainstream, with the options just a lot more broad.


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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.



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