Sramana Mitra: What was your hypothesis at this point about what was going to be the business model of your company? Did you have one?
Farnaz Ronaghi: Yes. In the beginning, there were a lot of companies who started doing MOOCs but in different flavors. There’s Coursera who seemed like it was trying to replace college education. Coursera had a lot of classes at that level but on general topics all over the place. There’s Udacity who was focusing on Computer Science education.
Our classes in the beginning were similar. Because you can’t really teach soft skills like leadership and innovation, you can’t teach it without human interaction and without peer feedback. We were going to be the provider that is going to offer MOOCs. We were going to try to monetize MOOCs and that was going to be our business.
As we went in and created the company, we discovered very soon that the customers and the brands that we work with are not really comfortable with us offering their classes under our brand and monetizing it. They actually don’t like that experience. For them, their brand comes first. That’s the most important thing. They’re not looking to dilute the brand to scale their offerings. We pivoted a little bit. We said, “We’re more like a white-label solution.”
When you come to the platform, you have the customer’s name and logo at the top. There’s not going to be anything about NovoEd. That’s the first pivot that we made. We were no longer so much of a consumer company. We were a mix of an enterprise and consumer company. Still, we were trying to get a lot of users through the doors of our customers, but we were not the primary brand that the users are seeing. Users were not coming in for our catalog. They’re coming in for Stanford’s catalog. That was the first pivot.
Sramana Mitra: What did the pivot conclude? You were starting to sell the software and white label it on behalf of the university?
Farnaz Ronaghi: Yes, we started selling software to the universities.
Sramana Mitra: What was the business model that you came up with to do that?
Farnaz Ronaghi: Early on, you pay a license fee for the platform and you use it. When we started doing this, we didn’t know the business model very well. We didn’t know how to structure our contract. For our customers as well, online was new. They couldn’t really say whether they want to use our solution for the whole year 500,000 users or whether they want to use it for a small class with a thousand users.
In the beginning, our business model didn’t end up being what we really wanted. It ended up being course-based. It was like, “You find a course development agreement when you decide to run a class with us.” The fees for the class were clear but it was still class-based. When you think of that in business terms, it’s very hard to map that back to recurring revenue. It was more like, “When the customer decides they have a class, then we will offer the class for them and charge them the fees for it.”
That was a nuance that we didn’t understand back then. Over time when we were going for our Series A, we understood the difference between a course-based model and a pure software license-based enterprise recurring revenue. You can imagine that based on all of those findings, we had to pivot again and again until we are where we are.