Aug 22, 2013 · 1 minute

Like many newfangled fields in startup world, massively open online colleges or MOOCs (catch our explainer here) are treated with a mix of starry-eyed hope and sobering skepticism. On one hand, MOOCs put powerful educational resources into the hands of anyone with an Internet connection. And with college costs on the rise and the value of a Bachelor's Degree shrinking, there has to be a cheaper, better alternative, and why not MOOCs?

But MOOCs are plagued by their own set of problems. The completion rate is abysmally low at less than 10 percent. Meanwhile, the Chronicle of Higher Education estimates that the graduation rate of accredited universities and colleges is a little under half. And while the value of a Bachelor's Degree has fallen, four-year college graduates are at a far greater advantage than people who stopped at high school, and most MOOCs do not offer credit toward a degree. As for the ones that do offer credit, San Jose University attempted the for-credit MOOC model through a partnership with Udacity, but suspended the program after only six months. Why? Over half the students failed the final exams.

And yet MOOCs have raised millions upon millions of dollars from VCs and universities like Harvard and MIT. So there must be gold in them thar hills, right?

Not exactly. Dave Cormier, the man who coined the term "MOOC," told the Wall Street Journal, "“Nobody has any idea how [monetization] is going to work.” Even the eternally optimistic CEO of Udacity, Sebastian Thrun, admits the industry is in "a state of experimentation" when it comes to business models.

That said, there are some ideas for monetization, as outlined in the infographic below, like sponsored courses or paid add-ons like private tutoring. The obvious answer is that MOOCs could charge tuition while still undercutting the universities. But first, MOOCs need to formulate a product worth paying for. Thrun is unfazed by the San Jose University setback, telling Information Week that after many mistakes he's finally found the "magic formula."

But until we see the formula in action, we've got companies that don't make any money teaching classes that nobody completes. I think I just heard something pop.

[Infographic by, published under a Creative Commons license]

How the MOOCs Will Make Money