In 2021, the unprofitable 2U bought edX, an unprofitable non-profit, for a staggering $800 million. Even to my untrained eye, it seemed like a questionable decision.

In my analysis of the acquisition, I had highlighted the financial strain this acquisition would place on 2U, noting the additional $42 million of annual interest expense due to the loan taken to finance the purchase.

Last month, 2U filed for bankruptcy, primarily due to the significant debt it took on, particularly to finance the acquisition of edX.

Fast forward to 2024, and we’re faced with a harsh reality: 2U is bankrupt, edX seems to have stagnated, and Axim Collaborative (the  non-profit from the sale that retained the $800 million) has barely made a peep.

As one of the few voices who expressed skepticism from the outset (in a business sense), I feel compelled to break down this triple failure and the unfulfilled promises that accompanied it.

From Ivy League to Bankruptcy: A Timeline

2021:

• June/July: 2U announces acquisition of edX for $800 million
• November: Acquisition finalized

2022:

• February: 2U stock drops 50% after Q1 earnings report, market cap falls below edX purchase price
• July/August: 2U announces strategy shift centered around edX, including layoffs and cost reductions
• 2U implements “platform strategy” to unify operations under edX brand

2023:

• March: 2U investor day outlines plans for edX including new subscription models and “funnel builders”
• Axim Collaborative announced with a new CEO
• Q3:
  • 2U announces disastrous Q3 results
  • Market cap falls to less than $80 million
  • USC partnership terminated (costing USC $40 million “break fee”)
  • Additional layoffs implemented
  • CEO Chip Paucek steps down, replaced by CFO Paul Lalljie
• Q4: 2U takes over programs from Pearson’s OPM business

2024:

• January: Another wave of layoffs at 2U/edX
• July: 2U files for Bankruptcy

2U’s Costly Gamble

As we make all of these changes, I’m proud to say that by year’s end we’ll have answered the question from our IPO eight years ago. Yes, you can build a sustainable education business in higher ed at scale.

This quote, made almost a year ago by 2U CEO Chip Paucek, came as he announced a major layoff and the consolidation of different 2U brands under edX. Three months later, he stepped down as 2U CEO and board member.

This type of hubris is something I’ve observed since I began following 2U after their acquisition of edX. 2U envisions a reality that doesn’t exist but acts as if it does.

Here’s an example. In response to a Wall Street Journal article about 2U’s practices (one of many such articles), Paucek wrote a blog post titled “Don’t Let the Skeptic Win.” One line caught my attention: “We’ve helped our partners dramatically lower the cost of their degrees”.

This claim surprised me because a few months later, I investigated the cost of 2U-powered degrees. I found that 20% of these degrees would cost the learner over $100,000, with the most expensive exceeding $200,000.

I would argue the opposite—2U’s business model required degrees to be as expensive as on-campus degrees. Acquiring students is a significant cost for online degrees, and as a company tries to grow to satisfy investors, it spends more to acquire students.

In 2021, 2U spent $456M on sales and marketing, accounting for almost 40% of its expenses. This is why it acquired edX: to optimize these costs and reduce their reliance on paid advertising.

Essentially, edX’s role after the acquisition was to help reduce the cost of acquiring learners for 2U’s various programs: GetSmarter Executive/Professional Education, Trilogy Bootcamps, and 2U-powered online degrees.

Before acquiring edX, 2U’s cost per enrollment was approximately $3,900. They anticipated reducing this cost by 10% by marketing their programs to edX users and would lead to $40–$60M in annual savings.

In my analysis of 2U’s acquisition of edX, I had talked about why this model might not work. I highlighted two key issues: the mismatch between 2U’s high-cost programs and edX’s largely international user base, and edX’s own poor track record in converting learners to their more affordable online degrees

These anticipated savings never materialized. In fact, 2U’s enrollments continued to decline after they implemented the “new marketing framework.”

While they were able to reduce their marketing and sales expenses, this resulted in fewer enrollments. Furthermore, any savings were offset by the annual interest payments on the debt incurred to purchase edX.

This financial burden was so significant that it led to three rounds of layoffs. To generate more cash at the end of last year, 2U resorted to the drastic measure of “Portfolio Management,” terminating certain degree partnerships in exchange for breakup fees. Agreements totaling approximately $150 million were finalized by the end of 2023.

When 2U acquired edX, it painted a rosy picture of reduced student acquisition costs and a “platform strategy” that would revolutionize online education. Reality could not have been more different.

The bankruptcy filing in 2024 was the final nail in the coffin, proving that the edX acquisition was not just a misstep, but a catastrophic error that sank the entire company.

EdX’s Stagnation

• Anant Agarwal (@agarwaledu) June 29, 2021

As misguided as it was, 2U has been very specific about how edX fits into its plans: reducing their user acquisition costs. That’s why 2U spent $800 million in cash to buy edX. EdX is a marketing channel for 2U.

EdX’s reason, on the other hand, was a bit vague. 2U has some marketing expertise that would somehow help edX catch up to Coursera.

Even before the pandemic, Coursera was increasing the gap between itself and edX. The gap only widened after the pandemic. Coursera gained almost as many learners in 2020 alone as edX did since its launch nine years ago.

I had argued that edX’s rationale for the acquisition was flawed. 2U’s “marketing engine” is built around higher-priced programs involving high-touch activities like sales. This approach is unlikely to benefit the majority of edX’s lower-priced course offerings or help it catch up to Coursera.

Competing with Coursera would require significant investment – potentially hundreds of millions of dollars – which 2U may struggle to provide given its new debt from the acquisition. Even if 2U had the money, it’s unclear why they would take that risk.

2U acquired edX primarily to leverage its marketplace (the website itself) and popular brand to market expensive programs like boot camps and degrees. This is exactly what happened.

Most programs now featured on edX’s homepage were previously 2U offerings. In fact, 2U rebranded their bootcamps as “edX bootcamps.”

The rebranding of Trilogy Education’s (acquired for $750M) boot camps as “edX bootcamps” is now backfiring, as recent Ofsted reports criticized the program’s management and outcomes, leading to negative publicity. These shortcomings have led to low course completion rates and few learners securing jobs.

This mismanagement reflects poorly on the edX brand, potentially eroding its reputation for quality education. The association of the edX name with these problematic bootcamps amplifies the negative impact.

From an outside perspective, it appeared that a significant portion of edX’s efforts went into promoting 2U programs. Unfortunately for both 2U and edX, edX’s declining SEO performance made it increasingly difficult for 2U to monetize its $800 million acquisition effectively.

With each round of layoffs and reorganization, edX’s CEO, Anant Agarwal, received a new title at 2U, progressing from Chief Open Education Officer to Chief Platform Officer and finally to Chief Academic Officer. It’s unclear how many of the original edX crew remain. I know that many of them have left or been laid off.

While trying to locate the post about the acquisition on edX’s blog, I realized that the entire edX blog has been removed. However, you can still read the post on the Internet Web Archive.

The very qualities that made edX unique—its non-profit status—were eroded, leaving it a mere shadow of its former self. Its future now rests in the hands of 2U’s creditors.

Axim Collaborative’s Hollow Legacy

Axim Collaborative is the non-profit organization that retained the ~$800 million from the 2U acquisition. It’s the only cash-rich entity in this story, yet three years later, it has little to show for its wealth.

To clarify the somewhat confusing sequence of events:

1. The original non-profit edX sold its brand and most assets to 2U.
2. The remaining non-profit entity was temporarily renamed “The Center for Reimagining Learning.”
3. Last year, this organization was officially named Axim Collaborative and appointed a new CEO.

Organizationally, Axim Collaborative is essentially the continuation of the original edX non-profit, minus the assets sold to 2U. It kept the sale proceeds and the Open edX platform, which wasn’t part of the acquisition.

Notably, some of the same MIT and Harvard leaders who made the decision to sell edX now sit on Axim’s board. These are the same individuals responsible for the disastrous sale.

During the original acquisition announcement, the non-profit was positioned ambitiously:

However, recent tax returns suggest another reality. According to its 2023 Tax Return (fiscal year ending in June 2023), Axim is sitting on $735 million. In FY 2022, it made $15 million from investment income and had expenses of $9 million.

The promised focus on artificial intelligence and personalized learning seems to have evaporated, especially ironic given the recent AI boom.

Axim appears to have become primarily a grant-giving organization. Besides supporting Open edX, there’s little evidence of using its “substantial resources” for innovation as initially promised.

For perspective, Axim’s current assets exceed the total amount edX spent during its entire non-profit phase.

Instead of being an innovator, Axim Collaborative seems to be a non-entity in the edtech space, its promises of innovation and equity advancement largely unfulfilled.