How Does Udemy Work? The Billion-Dollar Business Model Explained

Udemy Stats and Facts: Funding and Major Milestones

• Launched: Feb 1, 2010
• Headquarters: San Francisco
• Founders: Eren Bali, Gagan Biyani, and Oktay Caglar
• Total Funding Amount: $223M
• Valuation at IPO: More than $2B
• Number of Investors: 20
• Business Model Type: Marketplace

The Inspiring Success Story Behind Udemy

Udemy is a platform that was rejected more than 30 times by investors before giving a substantial amount of funding. But, because of Eren Bali’s hard work and strong determination, the platform became the best online marketplace for learning with over $223 million in funding.

Eren Bali’s inspiration to develop a platform like Udemy came from his adolescence. He pursued all his education in a schoolhouse with the help of a computer having access to the Internet. Using just these two resources, Bali learned Mathematics and ended up winning a national gold medal for the same.

In the year 2007, Bali was working as a web developer when he thought about his good old school days and the power of the internet to provide education – particularly for those who lack funds or have limited time. 

To satisfy his quench of doing something out-of-the-box, he created software for a virtual classroom. Bali intended to make it freely available for those in need. After a few days, he moved to Silicon Valley and started a company for his product with his friends – Gagan Biyani and Oktay Caglar.

In the year 2010, the three men tried to raise funding for the website created. However, they failed to do the same on multiple occasions. The trio responded by launching Udemy publicly in the May of 2010 by using their own resources. Their website offered free as well as paid courses taught by experts.

Just after a few months, Udemy was a great success with around 2,000 courses offered by 1,000 instructors and around 10,000 registered users. This induced a new layer of confidence in the trifecta and they attempted another round of funding and this time the results were different. They were able to raise $1 million in the month of August as seed funding.

This was followed by other successful rounds of investment over a couple of years. Finally, Bali had accomplished his dream of democratizing education. Today, millions of people around the world benefit from the edtech platform.

Now that we know the inspiration behind Udemy, let’s scrutinize the business model that the platform follows and makes money from.

Also Read: How to Pitch Your App to Investors in 3 Simple Steps and Get Funded

How Does Udemy Work: Udemy Business Model Revealed

Udemy is an online platform for encouraging the process of educating and learning online. It uses content from instructors to earn profits and focuses on targeting professionals who wish to add more skills to their resumes.

The platform works utilizing a marketplace business model and acts as a bridge between teachers and students where they can meet. The firm just acts as a mediator and doesn’t own any product, just like Uber – the biggest ride-hailing platform – doesn’t own any taxi.

Henceforth, instructors decide the prices of courses provided while Udemy charges a small commission for giving instructors an easy-to-use platform and a huge audience to sell their courses. Its business model is much similar to that of Amazon and eBay, which provide a platform for buyers and sellers to meet.

Let’s find out more about how Udemy operates using a business model canvas:

1) As shown in the above Udemy Business Model Canvas, the company’s sole mission is to help anyone learn anything. It is a platform for helping keen learners accomplish their dreams by acing new skills utilizing an extensive library of 65,000+ courses taught by 42,000+ expert instructors. The platform is accessible both as a website and a mobile app.

2) Students can register on the platform very easily. They just need to create an account just like they do on Facebook and Twitter. Choose their interests and they are all set to browse through millions of courses available. Udemy is so easy to use that students of every age group find it interesting.

3) Udemy’s biggest value proposition for students lies in providing them with the convenience they desire. Using Udemy, the students get the freedom to select what they want to study and how fast. A user can register for a course whenever he/she wants and that too at affordable prices.

4) Another way in which Udemy provides value to its students is by giving them access to immense content to learn from with the help of experts from all around the globe. It has courses listed on its platform related to a galore of subjects ranging from business studies to fine arts. This lets students learn whatever they want. Moreover, the content is available in more than 80 languages.

5) The other crucial part to consider while finding an answer to the question “How does Udemy work?” is the flexibility given to the instructors. Udemy provides brilliant customization by letting them customize the courses they create using cutting-edge course design tools for free. The entire expense of maintaining and improving these tools is on Udemy.

6) Udemy also provides marketing insights to instructors to help them decide what courses they should offer. These insights include courses that are most in-demand, which gaps they need to fill, and what problems users are facing with most of them.

7) Udemy also has a solution called “Udemy for Business.” It is a service for providing business-related courses for allowing organizations to train several employees at once. Some of the big names benefitting from this feature are Pinterest, IBM and T-Mobile.

So that was all about how does Udemy work and provides value to both of its stakeholders, i.e., students and instructors. Next, let’s now find out how does Udemy make money and profits using this amazing business model.

How Does Udemy Make Money: Udemy Revenue Model Revealed

Udemy provides two types of courses on its website – free and paid. Using a wide range of free courses on its portal which are short and precise, it creates value and boosts word-of-mouth marketing. However, with paid courses, the elearning platform generates revenue.

The principal revenue stream of Udemy is the fee it charges students and instructors for hosting courses, which are as follows: 

• The platform earns 50% of the total fee if it promotes the course taken by the student. The remaining 50% goes to the instructor. However, if an instructor markets the course himself, she will get 100% of the share and doesn’t have to pay anything to Udemy.
• The platform earns 25% of the fee if it promotes the course and the student comes through the affiliate link. Out of the remaining fee, 50% goes to the affiliate and 25% to the instructor.

Another source of revenue for Udemy is its B2B solution called “Udemy for Business” for large organizations that need to address their greatest human resource challenges like training and skill development. It offers two plans for every company. These are Team Plan and Enterprise plan.

Here’s how these plan work:

Team Plan: This plan is for organizations with 5-20 employees and a yearly membership is required to choose this plan. It costs $240 per user and has a base requirement of at least 5 users. So, it will cost you a minimum of $1200.

Enterprise Plan: It is intended for organizations with more than 20 employees. When a business enrolls in this plan, Udemy assigns it a Dedicated Customer Service Partner. However, it’s unclear precisely how much you will have to pay for this plan. This is likely because Udemy works with the companies to close a deal that works for both.

These plans also have a 14-day free trial period so that companies can see if they work for them or not. Now that you know all about Udemy, how does Udemy work, its business model, revenue model, and the story behind its success – let’s see what you can learn from this brand to establish your own in the Edu-Tech industry.

Also Read: How Do Apps Make Money? Mobile App Monetization Models Revealed

3 Lessons You Should Learn from Eren Bali Before Stepping into the Edu-Tech Industry

1. Network is Very Crucial for Entrepreneurs

As explained above, raising funds was not easy at all for Bali and his teammates despite having an amazing idea. So, if you are planning to start a venture – it is nothing good than starting to make your network so that you don’t face problems like Udemy in securing a substantial amount of funding.

In the business ecosystem, network and presence with strength are valuable approaches to help you with building solid relations and an incredible venture.

2. Get to Know Your User

When thinking of e-learning it’s easy to restrict yourself just to schools. Obviously, it’s the basics of EdTech development but it’s really a wide industry.

Research shows that 77% of organizations in the USA utilized e-learning platforms in 2017 for the skill development of their employees. It is mentioned here because becoming more acquainted with your users is one of the urgent strides to take at the start of product development. It is never a good idea to not know where you can find your users.

3. Your Idea Should be Good and Controversial

Here is what Eren said in one of his interviews:

And, we couldn’t agree more. Getting acquisition offers is not a bad thing. But, if you dream of a successful venture your competitors should not fear you at the very early stage. Else, your startup is likely to make a small exit to a big company.

Wrapping Up

That was all about how does Udemy work and makes money. In the Edutech market, it is a fascinating and evolving concept that centers around the exchange of information, as opposed to getting a degree or diploma. If you are too planning to step into Edu-tech – there is no better time than now. Edtech platforms like Udemy, Coursera, and Codecademy are increasing in popularity with each passing day. So, what are you waiting for? Let’s get started today!