Udacity Business Model – How does Udacity Make Money

Udacity, Inc. is MOOCs (Massive Open Online Courses) provider and a for-profit company founded in 2011 with a mission to democratize education. To empower the workforce majorly and upskill them to land jobs they want and build lives they want, it introduced vocational courses. It also offers university-style courses for students as part of their original goal. In fact, the founders named Udacity after the names “audacious” and “university”.

Udacity has played one of the major roles in changing the way of online education. It launched nano degrees for awarding students completing each course, they add a huge weight to students’ portfolio in landing or switching a job. Udacity is not just limited to individuals for enhancing their careers but many enterprises use it to train and upskill their employees. The company charges certain fees for enrolling students and companies.

The company partners with different leading brands and university professors to bring top-notch training courses to its students. It offers more than 200 courses and has over 11.5 million students globally.

Okay enough said. Now let’s get into how did it start, what its business model is, and how it makes money. So, shall we? 

Short History of Udacity

Udacity is an American educational organization that offers on-demand and in-depth courses focusing AI and later expanded its courses to computer science, data science etc for everyone who can access the internet. Having said that, it provides over 200 courses from different programs such as Programming & Development, Artificial Intelligence, Cloud Computing, Data Science, Business, and Autonomous Systems.

The company was founded in 2011 by Sebastian Thrun, Mike Sokolsky and David Stevens who were colleagues at Stanford University. A Ted Talk by the founder of Khan Academy had led to the idea of Udacity. Thrun attended the conference to speak on self-driving cars and after he had listened to the speech of Salman Khan, the founder of Khan Academy, he approached Peter Norvig, the director of Google and also his co-professor at Stanford to make their “Introduction to AI” course to everybody interested. Later he approached David Stavens and Mike Sokolsky to join him and he put $300,000 of his own money to start the company.

Just a couple of weeks later, they made the course “Introduction to Artificial Intelligence” accessible to the world on KnowLabs website and over 100,000 students attended it.

Later they opened two courses on 20 February 2012 on Udacity, entitled –

  • CS 101: Building a Search Engine by David Evans from the University of Virginia
  • CS 373: Programming a Robotic Car by Thrun

Nearly 65,000 students joined the course and that was the company’s first achievement. Andreessen Horowitz, an American private venture capital firm invested $15 million in the company the same year. However, the low course completion rates fluctuated the company’s success, hence Udacity changed its business strategy from free courses to more exclusive courses offering premium benefits for graduate students.

It also laid off 20% of its staff as part of its strategy in 2018 which actually worked well. The company saw double the revenue and reached $90 million in the same year.

Udacity Business Model

Now that you have seen how and when did the online educational organization was built by industry experts. Let us get into how it works and what is its business model to better understand how the company makes money. Let’s get started…

Udacity was originally built to provide Massive Open Online Courses (MOOCs) to every student and employee who wants to jump start or enhance their career in the field they love. Although it later switched from offering only MOOCs to exclusive courses to continue its operations and grow its revenue. However, its primary goal remained the same which is to make the courses available to anyone who can access the internet. All the courses it provides are of university standards.

As mentioned, Udacity offers all its courses in nano degree format where nano degrees means several topics and on completion of these nano degrees, students have to finish the project.

Udacity delivers the best course content that is both practical and highly applicable in their future jobs. It even provides a personal career coach and technical support mentor for each student.

As we discussed already, Udacity also delivers its courses to companies to train its employees and issues certifications.

The courses take 2 to 6 months to finish and as an exchange for learning students and companies using them have to pay a certain fee. The free courses are still available on the website that focuses only on introduction to concepts and the pricing for paid courses varies based on the course. Hence, you can say Udacity’s business strategy is focussed on the Freemium business model to make profits for itself.

Read: Reddit Business Model – How does Reddit Make Money

How does Udacity Make Money?

As you can see Udacity charges fees from students and enterprises for taking its paid courses, that is how it makes money. The pricing for nano degrees (its courses) ranges between $718 to $2400 based on the course chosen and the duration of courses lasting up to 6 months.

Individual students and enterprises can choose to pay either via one-time payment fee or a recurring monthly subscription model. Students can enroll in any program anytime after it is opened.

As of 2018, more than 50,000 students registered for paid programs. The count is assumed to have doubled or tripled this year due to the impact of a pandemic. Moreover, a member of the company stated that they are seeing a 260% growth in revenue. The company also increased its pricing and introduced a premium program that promises guaranteed job placement, although there is a plan to lift this program.

Thus the revised pricing and its business model favored the company and resulted in growth.

Udacity Funding & Revenue

Udacity has over 11.5 million users and generated more than a total of $100 million in revenue as of 2019. It stated it has seen a 260% boost in annual recurring revenue in the first half of the financial year in 2020.

It has raised a total of $235 million in funding in all 5 funding rounds. The company is backed by 12 investors and the major investors include Hercules Capital, Inc., Bertelsmann, Andreessen Horowitz etc.

The company acquired Terminal.com in March 2017, although the amount is not disclosed.

Read:Microsoft Business Model – How does Microsoft Make Money

Bottom Line

So, this is how Udacity makes money and manages its operations. Although it suffered fluctuations a couple of years after its inception, its revenue has grown dramatically after it revised its business model.

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