Human Capital in the “Sharing Economy”

Most of my academic research has focused on online labor markets. Lately, I’ve been getting interested in another kind of online service—namely for the transfer of human capital, or in non-econ jargon, teaching. There have been a number of new companies in this space—Coursera, edX, Udactiy and so on—but one that strikes me as fundamentally different—and different in an important way—is Udemy.

Unlike other ed tech companies, Udemy is an actual marketplace:  instructors from around the world can create online courses in whatever their area of expertise and then let students access those courses, often for a fee but not always. Instructors decide the topic, the duration and price: students are free to explore the collection of courses and decide what courses are right for their needs and their budget. The main reason I think this marketplace model is so important is that it creates strong incentives for instructors to create new courses, thus partially fixing the “supply problem” in online education (which I’ll discuss below).

Formal courses are a great way to learn some topic, but not everything worth learning has been turned into a course. Some topics are just too new for a course to exist yet. It takes time to create courses and for fields that change very rapidly—technology being a notable example—no one has had the time to create a course. The rapid change in these fields also reduces the incentives for would-be instructors—many of which likely to not even think of themselves as teachers—to make courses, as the material can rapidly become obsolete. Universities can and do create new courses, but it’s hard to get faculty to take on more work. Further, the actual knowledge that needs to be “course-ified” is often held by practitioners and not professors.

I recently worked with Udemy to develop a survey of their instructors. We asked a host of questions (and I hope to blog about some of the other interesting ones) but one that I think is particularly interesting was “Where did you acquire the knowledge that you teach in your course?” We wanted to see whether a lot of what was being taught on Udemy was knowledge that was acquired through some means other than formal schooling. In the figure below, I plot the fraction of respondents selecting different answers.


We can see that the most common reason is a mixture of formal education and on-the-job experience (about 45%). The next most common answer was strictly on the job experience at a little less than 30%. Less than 10% of instructors were teaching things they had learned purely in school.

These results strongly support the view that Udemy is in fact taking knowledge acquired from non-academic sources and turning it into formal courses. Given that Udemy is filling in a gap left by traditional course offerings, it is perhaps not surprising that the answers skew towards “on the job training” but it is even more pronounced than I would have expected. I also think it’s interesting that the most common answer was  a “mixture” suggesting that for instructors their on-the-job training was a complement to their formal education.

Online education and ed tech is exciting in general—it promises to potentially overcome the Baomol’s cost disease characterization of the education sector and let us educate a lot more people at a lower cost.  However, I suspect that business models that simply take offline courses and move them online will not create the incentives needed to bring the large amounts of practical knowledge into the course format; by creating a marketplace, Udemy creates those incentives. By having an open platform for instructors, it can potentially tap the expertise of a much larger cross section of the population. Expertise does not just reside within academia and Udemy—unlike platforms that simply take traditional courses and put them online—can unearth this expertise and catalyze its transformation into courses. Any by forcing these courses to compete in a market for students, they create strong incentives for both quality and timeliness.

Although having a true marketplace has many advantages, running marketplace businesses is quite difficult—they create challenges like setting pricing policies, building and maintaining a reputation system, ensuring product quality without controlling production, mediating disputes and so on. But taking on these challenges seem worth it, particularly as businesses are getting better at running marketplaces (see Uber, Lyft, Airbnb, Elance-oDesk, etc.). In future blog posts, I hope to talk about some other interesting aspects of the survey and how they related to market design. There are some really interesting questions raised by Udemy, such as how should instructors position their courses vis-a-vis what’s already offered, how they set prices, and on the Udemy side, how you share revenue, how you market courses, how you have your reputation/feedback system work, how you decide to screen courses and so on—it’s a really rich set of interesting problems.