The company — founded by Stanford professor and onetime Google VP Sebastian Thrun — has repositioned its focus from massive open online courses (MOOCs) to certification training on very specific skills. Students can earn what's called a nanodegree and learn things like front-end web developing, iOS and Android programming, or machine learning in less than a year — and for less than $1,000.
It's a just-in-time training approach to higher education with huge global market potential. It is predicted that in two years the number of companies that use MOOCs for corporate training will rise to 28 percent, according to the eLearning Industry's statistics.
The company is hitting its stride. Though it still offers MOOCs in the form of online free courses (with 4 million students enrolled), it is quickly expanding its nanodegree program in the United States and in Europe and Asia. It's already tailored programs for students in India and China and last week launched in Germany.
As recently as a few years ago, Udacity was struggling to figure out the way forward. Founded in 2011, the company had promised to revolutionize higher education through massive open online courses that would deliver high-quality collegiate coursework to anyone with an internet connection on the cheap. But roughly 90 percent of the 160,000 students that signed up for the company's first course on artificial intelligence never finished the class. By 2013 the MOOC revolution — and the company — had stalled. Thrun himself accused his own company of offering a "lousy product."
Like many agile start-ups, the company quickly changed its strategy the following year after spotting an overlooked opportunity in the global marketplace.
Since retooling its curriculum, Udacity has enrolled more than 11,000 students in its nanodegree programs and graduated 3,000 of those. Thrun said in 2015 that revenue was growing nearly 30 percent month over month and that the company is profitable (a Udacity spokesperson declined to provide updated revenue figures). Its most recent funding round in 2015 pushed the company into unicorn territory, boosting its valuation to about $1.1 billion.
"At this point, I feel we have our story together," said Thrun, now Udacity's president and chairman. "We have very clear differentiation, a very clear picture of the customer, and we have enthusiastic customers. And we've built something that I think — unless we have horrible execution going forward — is built to last."
Udacity's nanodegree programs work like this: Instead of choosing a generalized course of study, students select from a buffet of skill sets. For example, offerings include "Full Stack Web Developer," "Ruby Programming," "Beginning Android App Development" and "DevOps Engineer." Students pay $200 per month for the course and can take as little or as much time as they need to finish.
Those who finish within 12 months receive half their tuition back, keeping the cost of tuition below $1,000 for most students (the company says students typically finish courses in six months to a year).
Upon completion, students receive a nanodegree, a credential that may not mean much to traditional academia but is increasingly recognized by technology companies looking for programmers and other skilled workers — particularly those companies that partner with Udacity to create the coursework. AT&T, for instance, has pledged to reserve 100 paid internships for Udacity nanodegree program graduates, and Google has invited top nanodegree graduates to visit its Silicon Valley campus.
While many tech companies in particular have embraced nanodegrees as legitimate certifications, many others either don't know enough about the new credentials or remain skeptical of their net worth. This remains a challenge for Udacity.
In an effort to further legitimize its nanodegrees, the company began tacking a job-placement guarantee onto some of its degrees earlier this year. Though somewhat more costly at $299 per month, Udacity's "nanodegree plus" programs come with a commitment from Udacity to place graduates in jobs related to their coursework within six months of graduation or the company will refund 100 percent of the tuition cost.
Udacity has managed this pivot away from traditional university-style courses and credits and toward low-cost, job-specific nanodegrees by leveraging one of the key lessons learned from its troubled experimentation with MOOCs: that education is about more than access to content. The company has more than 400 project reviewers and graders employed around the world ready to evaluate a students' coursework and provide guidance or mentorship more or less on-demand.
The average time between when a student turns in an assignment and when he or she receives it back with grades and feedback is just 1.4 hours, Thrun said — far faster than at traditional universities. By tapping the gig economy for its graders and reviewers, Udacity can produce a quality experience for students while keeping costs low — something that benefits both the students and the company's bottom line.
"We've changed our model from content provider to content-plus-services," Thrun said. "And we also changed the student. We moved more toward professional education, to lifetime education." There is now almost zero overlap between the conventional college demographic and the Udacity demographic, he said — a fact underscoring Udacity's divergence with other online higher-education companies that still work within mainstream academia's structure.
"This 'skills gap' market is likely to be much more productive and have much more demand than the conventional education credentials market," said Andrew Kelly, director of the American Enterprise Institute's Center on Higher Education Reform. "A lot of young professionals don't want to drop everything and get a master's degree. They want to plot their own course through a series of learning experiences that reflects what they want to do next. It's the just-in-time market versus the one that's supposed to equip you for the rest of your career."
That market is potentially huge. Udacity has already tailored offerings for students in both India and China and last week launched in Germany, marking its first push into the European education market. In parts of the world where higher education and even vocational training are available to only certain strata of society, Udacity could find huge untapped wells of customers eager to boost their hire-ability on the cheap.
While many education-policy experts remain skeptical that Udacity's nanodegrees will disrupt the education marketplace any more than its MOOCs did, the need for something like Udacity is obvious to Thrun. The world is moving too quickly for traditional education models alone to make sense, he said. Not only is technology moving faster than it ever has previously but the idea of the lifetime career is dying as well.
"We're now at this place where we can make the evolution of academic content match the evolution of the world," Thrun said. "Universities are still in this 19th-century mode, a place where things changed slowly and you could teach something for 30 years in a row and it was still hot. That's certainly not the case today."
— By Clay Dillow, special to CNBC.com