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Under Thrun, Udacity Revamps its Strategy


From Excitement to Turmoil

After a successful funding round in 2015, Udacity’s valuation passed $1 billion, raising the company to unicorn status — a status that carries high expectations for growth.

These expectations were largely met over the next couple of years. Between 2016 and 2017, Udacity registered important year-over-year increases in key metrics:

  2016 2017 Change
Annual Revenue 29 million 70 million +141%
Paid Students (mid-December) 13 thousand 53 thousand +308%
Total Nanodegree Graduates 3 thousand 18 thousand +500%

Udacity’s Self-Driving Car Engineer Nanodegree greatly contributed to this success. Launched in late 2016, it attracted over 10 thousand students in 2017.

But in 2018, numbers weren’t as positive. Many students graduated, but paid enrollments in December were down, and revenue increase was lackluster compared to the previous year:

  2017 2018 Change
Annual Revenue 70 million 90 million +29%
Paid Students (mid-December) 53 thousand 50 thousand -6%
Total Nanodegree Graduates 18 thousand 65 thousand +261%

So overall, Udacity continued to grow, but at a pace that perhaps fell short of expectations.

Price increases likely played a role in enrollments drop. In 2018, the price of many Nanodegrees doubled. Some even tripled.

And pay cuts to Udacity Mentors, who are in charge of assisting students through their Nanodegree, surely weakened student support. Having completed three Nanodegrees in 2018, I can (anecdotally) attest to this.

In a clear sign of turmoil, Udacity laid off 25 employees in August 2018 — that is, about 5% of their workforce. But the cost-cutting measure may not have sufficed, because two months later, Vishal Makhijani stepped down as CEO of Udacity.

Trying to Right the Ship

Following Makhijani departure, Sebastian Thrun, Udacity co-founder and former CEO, retook the reins of the company on an interim basis. And more recently, Lalit Singh, former VP at Hewlett Packard Enterprise, joined Thrun as new interim COO.

According to TechCrunch, Thrun sent a high-spirited internal email in January 2019, calling on Udacity employees to persevere, be creative, and take risks. “I really wanted to wake up people to the fact that our trajectory was not long-term tenable,” he later explained.

Thrun is trying to steer Udacity back on track to profitability by focusing, among others, on cutting costs, improving student support, and speeding up Nanodegree production.

To attain those goals, Udacity has put in place a number of measures: they laid off 125 employees — that is, about a fourth of their workforce; they hired new Mentors and extended their role to include weekly video calls with students; and they adopted a leaner approach to course development, involving small but fast-moving content creation teams.

Will It Be Enough?

When Dhawal Shah, BestCerts CEO, analyzed Udacity’s 2018 track record, he noted a distinct lack of major hits among Udacity’s new Nanodegrees — an assessment later confirmed by Thrun himself: “In 2018, we didn’t have a single blockbuster.”

By accelerating Nanodegree development, Thrun certainly hopes to shorten the time Udacity takes to find its next big hit. But Udacity now spends much less on Nanodegree production, which raises a question: can they both cut costs and maintain quality?

And if Mentor responsibilities increased, whether their pay increased accordingly isn’t clear. The new remuneration model relies heavily on bonuses tied to student retention rates. But can mentors realistically hit the metrics required to unlock those bonuses?

Under Thrun, Udacity is rapidly changing. But with rapid change comes significant uncertainty. As Thrun puts it, “the fruit remains to be seen.”