#1568 2008 · 2U (2Tor) · higher education technology
Build the University's Online Degree for a Cut of Tuition
the problem
Universities wanted online degrees but could not fund the build; vendors wanted fees universities would not pay.
background
2U, founded in 2008 as 2Tor and renamed in 2012, launched its first client program in 2009 with a structure the S-1 describes as tuition revenue-sharing arrangements under the bundled-services rule.
Instead of licensing software for fixed fees, the company builds and runs the online program — platform, production, marketing, admissions support — and is repaid as a contractually specified percentage of the tuition and fees the program generates.
what everyone would do
License the platform for annual software fees.
what they saw
The university had no capital but owned the credential students pay for. The vendor had no credential but could build the machinery — marrying the two through tuition share meant neither side's scarcity blocked the deal.
the move
Skin in the tuition: the vendor is paid from outcomes (enrolled students' tuition) rather than from the university's budget, so the university risks no capital and the vendor's upside depends entirely on building programs students actually pay for. The financing mechanism is the product — it converts a cash-strapped institution's ambition into a revenue-linked partnership.
why it works
Universities face no upfront cost, so saying yes is easy; the vendor's heavy per-program investment is recouped only by enrollments it helps create; long contracts protect the payback period.
the payoff
Scaled from the first 2009 program to a portfolio of university clients on tuition-revenue-share contracts (SEC S-1).
where it breaks
Revenue shares that consume most of tuition invite political backlash and regulatory scrutiny; the vendor is levered to enrollment trends it does not fully control; and when program quality or student outcomes disappoint, the contract's length becomes a liability for both parties.
what came after
Defined the OPM (online program management) industry, whose revenue-share terms later became a national policy controversy over who profits from tuition.
references
- [1]2U Inc. Form S-1 (2014 IPO registration)SEC EDGAR (2U Inc.), 2014sec.gov