Sebastian Thrun, co-founder and chief executive officer of Udacity Inc., stands for a photograph after a Bloomberg West Television interview in San Francisco, California, U.S., on Friday, March 14, 2014. Udacity Inc. provides and promotes digital education services offering free online courses in computer science, mathematics, general sciences, programming, and entrepreneurship with lecture videos, quizzes and homework assignments. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Sebastian Thrun
© Bloomberg

It is less than a quarter of an hour’s drive down Route 101 from the village-like campus of Stanford University to Mountain View, the Silicon Valley home of Udacity.

This was the journey Sebastian Thrun, the online education company’s chief executive and co-founder, made in 2012 when he cleared his desk at the computer science department to focus on a way of teaching business skills differently.

His new life as a tech entrepreneur is about as different to his tenured faculty post as Udacity’s modern headquarters, in an office block next door to the sprawling car park of a Target hypermarket, is from the Spanish colonial architecture of Stanford.

While this new life among the tech industry’s elite may make some professors wince, the 48-year-old Mr Thrun, a German expat, looks every inch the Valley entrepreneur when we meet, with his shaved head, black T-shirt, jeans and flame red running shoes.

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“The beauty of Silicon Valley is that people are literally fearless,” Mr Thrun says, after we settle into one of the glass walled meeting rooms, named after characters in the Doctor Who and Transformers franchises.

The belief that the education market is ripe for “disruption”, as it is put in the Silicon Valley vernacular, has led to a mushrooming in ed tech start-ups seeking to create new platforms for teaching. Downloadable videos, known as Moocs (massive open online courses), for example, are now a tool for delivering learning to anyone with Internet access.

With Google X – a semi-secret facility dedicated to making technological advancements, including driverless cars and Internet-connected glasses -also on his CV, Mr Thrun is seen as the market’s most innovative thinker. He is credited with creating the first big Mooc hit, Introduction to Artificial Intelligence, while he was still teaching at Stanford.

Udacity is one of the “big three” in the market, alongside neighbouring start-up Coursera and Boston-based EdX, which between them boast the largest collections of Moocs.

Although his presentations at the time were extremely low-tech, recorded on a digital camera in his living room, 160,000 people from 190 countries signed up to the course within days, including young men dodging attacks in Afghanistan.

The power of networks and sharing

As Moocs evolved, however, it became apparent that as few as three per cent of students signing up to courses would complete them. So while others tried to copy Mr Thrun’s model, he was among the first to claim that Moocs were not actually the panacea to the market they had first appeared.

Instead, he created a model at Udacity based on supplying credentials, called nanodegrees, that cost a fraction of the cost of traditional programmes and are endorsed by employers.

“We want to be the Uber of education,” Mr Thrun claims, following the start-up convention of comparing one’s business model to the current darling of the VC community.

There is some justification for this metaphor given that both Udacity and Uber use a network of freelancers paid per piece of work they perform. In the case of Uber, this means taxi drivers, while Udacity uses the marking skills of academic staff, cross checking nanodegree students’ work through a process of peer review.

The list of academics on Udacity’s books is now in triple figures, many of whom are retired computer science professors. “We have a guy in South Africa who makes $11,000 a month,” says Mr Thrun.

The selling points of such “sharing economy” models are not just that they provide work to professionals and enable companies to expand operations relatively easily, but that they create a network effect where the service gets better the more people get involved.

Mr Thrun’s premise is that the way people learn and the way companies are prepared to fund this has changed so dramatically that old models of teaching need to be replaced with more flexible techniques.

Flexibility is key to competition

The first of Udacity’s online courses, in web development and data analytics, was launched in September 2014 through a partnership with US telecoms provider AT&T. To date, some 5,000 people have enrolled on it with AT&T offering 100 paid internships to those completing the course. Some 20 other tech companies have since become Udacity partners, including Google, Salesforce and Cloudera.

“We get 90 per cent finishing rates on courses,” Mr Thrun boasts. However, he cannot afford to rest on his laurels as competition in the market is heating up (see sidebar). There is also a need to keep Udacity’s business model flexible, given that online teaching is still an evolving market, where the one certainty is that no one has yet gained a clear lead.

Rewards for educational innovation

Mr Thrun knows what he doesn’t want for his company; professors in tenure, which he claims limits the ability to react to market demands. “Android has over a billion users now, but you would be hard pressed to hear of a single college that provides courses in Android.”

He is clearly keen to stimulate more blue sky thinking about solving the education challenge he has set himself.

“What I have done instead is hire some very young people. Almost 50 per cent female. Average age is 28.

“I want people with fresh ideas. People with a passion for it. What I do is just unleash their potential.”

Being in Silicon Valley’s heartlands, where working on a start-up is the norm, is vital for this reason, explains Mr Thrun. He claims it would be harder to develop such a business in another part of the world and certainly not in an existing academic institution. “People in education are risk averse,” he says. “They want to build Steinways. I like to think of us having the impact Ikea has.”

One of Mr Thrun’s ideas to stimulate creative thinking in Udacity has been to reward suggestions with bottles of wine. In less than a month, he has given more than 12 away. “I want to make it almost mandatory what people can do without fear,” he says.

Edtech competitors find partners to scale up

Down the road from Udacity, Coursera has been building partnerships with commercial organisations and the world’s top universities, including Stanford (photo of campus on left), to offer free courses online for the masses.

NovoEd, also created by former Stanford professors, is building similar partnerships for online learning.

These companies have considerable war chests to fund the competitive battle. Coursera has raised more than $85m for its effort, an increase on the $55m Udacity has raised since its launch three years ago.

In his defence, Udacity co-founder and chief executive Sebastian Thrun says: “Taking on all of education is like boiling the ocean . . . My ambition is to make the experience of working at Udacity the best experience of people’s lives. But letting go of people [is] a liberation. I make them a task to find a new job. Many times I find people say thank you for firing me . . . It doesn’t always work but I think it works most of the time.

“I have an ego but I don’t [say] I know everything. A lot of the decisions I have made were bad decisions,” he adds. “People in the Valley are both arrogant and extremely humble.”

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