Udemy's Exodus, Amazon's Gain

To hear the media tell it, the online startup Udemy is the future of global education. The online-course marketplace has been applauded as a solution to the national tech-skills gap and issues of global access to learning, among other social ills. The platform presents a radical democratization of education, arguing that anyone has the skills to teach a class – and should be given the tools to do so. All this, while launching some guys teaching in front of their webcams into six- and even seven-figure earnings. Last year, the top 10 instructors made more than $17 million in total revenue. And the cash keeps pouring in: earlier this month, Udemy raised another $60 million in a funding round from the South African media company Naspers, topping off a total of $173 million over six rounds – in fewer than six years.

But in April, one of Udemy’s most successful instructors departed abruptly, leaving the tight-knit instructor community guessing what had transpired. Alun Hill was one of the company’s golden children featured in the press who, by creating in-demand courses and aggressively marketing them, had earned more than $600,000 on the platform since posting his first course. The Brit and former journalist ended up moving to a fortress on Malta, the tiny island country off the southern coast of Sicily, with his earnings. He still teaches online — but you won’t find his classes on the same platform that launched his online teaching career.

Hill might be the most recent high-profile departure from the site, but he’s not the only one. Udemy has evolved significantly since its early days in 2010, when course creators had nearly-free range. Soon after its launch, Udemy’s founders explained they planned to do to online education what YouTube had done to video uploading — a massive democratization of content. In fact, in an early blog post, co-founder Gagan Biyani wrote that Udemy saw itself more as a content site than an education site. Think of it as a teacher friendly YouTube, which allows anyone to post videos, rather than a Hulu or Netflix dot com with curated, expert-made content. Udemy doesn’t source its material from elite universities like Coursera or from a staff of handpicked educators like Khan Academy. Anyone with a webcam and an idea can post a course, set a price, and hope for students.

“Anyone with a webcam and an idea can post a course, set a price, and hope for students.”

In 2010, Udemy was hosting around 400 courses; six years later, there are more than 40,000. Along the way, the platform introduced waves of new rules to regulate the way instructors created and marketed their courses, each stricter than the last. For early instructors who used to the free-for-all nature of the platform, it was as if their obedient landlord had suddenly started referring to their lease. Some longtime instructors say Udemy has drifted away from the friendly rapport they remember. Instead, they say, there’s a chasm between them and the platform that determines their livelihoods. As one veteran instructor, who posted his first course just a year after Udemy was founded said, “It comes down to trust. They don’t put instructor profitability first or second, or third—or even on the map.”

Course creators interviewed by Inverse say their revenues are down; alternatives to Udemy are cropping up, offering online educators new platforms that resemble the proto-Udemy they miss. Resentment and fear among instructors is rising.

Enter Amazon. The retail giant and growing media presence might be considering a foray into the online education space: four instructors who asked to remain anonymous say they’ve been approached by Amazon to post their courses on the company’s newest service. And after $173 million of investment, the highly leveraged Udemy is going to have to start showing revenue — not just a growing student count that many instructors say is dramatically exaggerated.

How long can the Udemy gold rush last?

If ever there was a banner year for the explosion of online ed, it would be 2012, when the Massive Open Online Course (MOOC) platforms edX, Coursera, and Udacity all launched. The three major course providers all strived to offer free, elite-level education to anyone on the internet — a proposition that caused plenty of angst in the ever-expensive world of higher education. Udemy, which was founded two years prior but didn’t take off until the end of 2012, flips that model: offering education from anyone with a webcam for a fee.

Unlike many other course providers, Udemy doesn’t bother with certificates, and CEO Dennis Yang has said that he doesn’t want to compete with higher education. In the intervening four years since the Year of the MOOC, the online education space hasn’t crystallized – and it’s unclear whether anyone’s able to make money. Six-year-old Udemy, for example, is still unprofitable.

“The first course I created, I had no idea what I was doing, but I made $90,000.”

When Udemy was first gaining momentum, the site had few instructors and almost no rules. It was a total Wild West — and some instructors were striking gold. The headlines — “These Guys are Making Bank By Teaching Online”, “Get Rich Quick: Become a Teacher”, “How a former high school math teacher made $1 million teaching online coding courses” — invited a crush of users onto the platform. “The first course I created, I had no idea what I was doing, but I made $90,000. I had never made that much money in my life, and teachers who work 9-5 don’t make half that,” instructor Miguel Hernandez, who posted his first class on video production in 2011, said. “I wondered, how is this sustainable? This is insanity.” The number of instructors soared from 1,000 in 2010 to more than 19,000, six years in.

The idea is free-market economics: the best courses with appropriate pricing structures will rise to the top of the charts, garnering good reviews and large followings – and the spam will sink to the bowels of the 40,000-course search results. If a math teacher and hobbyist web developer can teach an engaging course on coding, the mantra goes, he can strike it rich. That’s what happened to Rob Percival, a Udemy darling, who has made more than $2.8 million in course earnings. Meanwhile, offerings like a $20 course “When Do I Clap? An Insider’s Guide to Symphony Concerts” is buried on page 40 of the popular music courses: a virtual Siberia.

But the invisible hand of the market is fraying, say Hernandez and other instructors, as the market becomes saturated with courses created with easy money in mind. New instructors hoping to be the next Rob Percival brought their online marketing skills to the fore, often focusing more on the quality of their promotion than the quality of their courses. Savvy marketers created search engine-optimized course titles to appear higher on Udemy’s search results, hosted webinars teasing their courses, and bought online ads. Hernandez let Udemy take care of marketing classes when he started posting courses on the platform, but he says that strategy is no longer tenable. “Marketing more and more matters,” Hernandez says. “When I see other people doing well on Udemy, you can see they spend 80 percent on marketing and 20 percent on content creation. It’s a tough pill to swallow for content creators — I like to teach! Not marketing!”

Phil Ebiner, who became a full-time online instructor last year, echoed Hernandez’s observation. “I was lucky I got in early when there weren’t as many courses; it was almost easy to put up a course and stand out,” Ebiner says. “Definitely now more than before, marketing matters.”

In an interview with Inverse, Yang, Udemy’s CEO, argued that instructors are motivated by the ability to build a brand and “psychic impact,” beyond money—but it’s clear that for many of Udemy’s top instructors, passive income is the name of the game. Take Jonathan Levi, who teaches Udemy’s 10th-most-popular course and calls himself a “big proponent of passive income.” Levi also teaches a $25 course called “Branding You: How To Build Your Multimedia Internet Empire.” In the course description, Levi lays out his offer: “Like the creators of this course – both bestselling authors, top-earning instructors, and renowned podcasters – you have the potential to achieve financial freedom and design your own independent lifestyle. And it can all start today, simply by understanding and using the same resources and techniques we’ve used to create our own six figure businesses.” In section 7 of the course, Levi instructs students to create online classes and connect them to a “brand ecosystem.” The self-declared “lifehacker” isn’t alone: Malta-based Hill, Ebiner, and even Hernandez have created Udemy courses that teach others how to make money – through Udemy itself.

For a number of Udemy instructors, their courses on the platform make up just one slice of passive income they earn online. Instructor Rob Cubbon, for example, makes the majority of his quarterly earnings through Udemy courses, but the rest comes from classes posted on other platforms, like Amazon Kindle sales for his self-published books about online marketing, advertising on his YouTube channel, and revenue from promoting products on his blog. “It’s a drug, online business,” Cubbon says. “You get really hooked on the income. You see it coming in every month like a paycheck, but it’s not a paycheck.” Instead, it’s a self-reinforcing system of internet money-making, and Udemy’s online courses are just one arm to keep the machine going.

Over the past few years, Udemy’s tightening grip on its marketplace has twice taken instructors’ trust to the breaking point. The first break was in 2013, when Udemy abruptly changed the revenue share model, causing widespread furor. Instead of giving an instructor 70 percent of the revenue when his course was sold with the help of Udemy marketing, he would only get a 50-percent cut. If he marketed the course himself and brought in a student who had never taken a Udemy class before, the instructor would get a 97-percent cut. The second rift appeared this year, when Udemy changed the rules on how instructors could price their courses. Suddenly, the common sales tactic of pricing a course in the hundreds and then discounting it to $25 was banned; all courses would be priced between $20 and $50, and no mega discounts were allowed.

In an interview with Inverse, Yang said that some instructors had asked Udemy to set a stricter pricing policy to reduce student confusion. Heavy discounting looked cheap. But instructors interviewed by Inverse said that Udemy underestimated how much sales relied on discounting tactics. They’ve seen their revenue fall by as much as 50 percent.

Do they think their revenue will rebound? “Ask me again in three months,” says, Ebiner, who draws most of his income from the service. He says that he supports Udemy’s decision, even if it’s painful in the short-term.

“This is not going to last forever.”

These two announcements underlined an uncomfortable reality that was easy to forget in the early, more lucrative days of Udemy: the fire hose of easy cash that veteran instructors drank was controlled by a spigot, and that spigot was controlled exclusively by Udemy. One instructor, who ended up teaching online full-time after the success of a Udemy course, says that he had just signed a mortgage on a house when he heard about the revenue share change. “I freaked out,” he says. “This is not going to last forever.” Another said that he watched his revenue drop from five figures each month to the low thousands. The change jolted many instructors into diversifying away from Udemy – making courses that they posted separately on their own “online academies” and just uploaded on Udemy for an extra sales boost later.

Writing instructor Steve Alcorn said that he started hosting his courses on his own website, which he made using the Squarespace-like service Teachable, after the revenue share change. That personal site starting making Alcorn such a steady income that, when Udemy announced its newest price change, he was able to pivot away from the platform almost entirely. Of the pricing changes, he says, “I interpreted that as the beginning of the end for them, as those deep discounts are the main way online intangibles get sold. It strikes me as once again the action of very inexperienced people who are flailing around trying to find something that works.” Now, he says, he doesn’t have much use for Udemy.

The site-wide pricing cut this year didn’t just pose an immediate revenue crash for instructors — it posed essential questions about what Udemy’s idea of its future is. Rumors abound in the instructor community about a move toward a subscription service, which would turn the current revenue share model on its head. (Yang says that he had no plans to do so “at this point”). Other instructors worry that the explosion of teachers on the site could trigger a pricing race to the bottom, like the pricing collapse in the App Store that made most apps free, or a meager 99 cents. “I think content by definition tends to be free,” one instructor says. “I think eventually it’s all going to be very cheap and it will be very difficult to charge for content.”

Already, it seems like the early mover advantage that allowed instructors like Hill and Percival to make six and seven figure incomes is waning. With so much competition on the site, and with less marketing help from Udemy, instructors say that it’s much harder for newcomers to gain traction. Yang says that the top instructors in aggregate have made more money in 2016 than in 2015 so far. But few new instructors seem to strike gold anymore: out of the instructors of the top 10 most popular courses in the past year, the newest instructor had joined the platform two years ago.

Meanwhile, alternatives to Udemy are mounting. Instructors are broadening their platforms, posting courses on sites like Stacksocial and Skillshare, or creating their own course platforms with Teachable. If Udemy instructors become increasingly responsible for their course marketing, it’s not clear what the benefits of letting Udemy take a cut are. Why not host your own courses, as Alcorn does, and take 100 percent of the earnings?

In May, Amazon launched a new service called Amazon Video Direct, which allows content creators to post videos on the platform and accrue earnings in royalties, ad revenue, or sales. Some instructors who teach on Udemy’s platform say they have been approached by Amazon to post their courses on the new YouTube-like platform. (Amazon did not return Inverse’s request for comment). And while Video Direct’s interface isn’t tailored toward teaching like Udemy’s, instructors say they’re excited to watch the platform develop.

Says Cubbon: “You have to pick the right horse. With Amazon coming in with Video Direct, that’s a big thing in my world.” Almost all of the instructors approached by Amazon who spoke with Inverse asked to remain anonymous so as not to endanger their budding relationship with the giant. “You can bet that Amazon will get the platform right,” Cubbon added.

Amazon’s potential entry into the education tech scene wouldn’t necessarily spell the death of Udemy. Like Alcorn, the writing teacher, Udemy instructors are often posting their courses across platforms to maximize their profits — a practice that Yang says Udemy tries to “be friendly to,” even though he acknowledges it “changes the tenor” of the relationship between instructors and their host. Amazon could become just one more of those channels for online instructors trying to keep the money flowing. But to encourage old instructors to keep making courses and to draw new talent, Udemy will have to figure out what its value proposition is – to a now-disgruntled base of instructors.

In February — four months before raising another $60 million — Yang told Time that Udemy had no plans to raise another round of financing. Instead, he said, “we plan to get to profitability and control our destiny over the long run with the current money that we have in the bank.” It seems there’s no end to the funds pouring in to bankroll the company. But for instructors trying to make a living, it may be another story.