How Does Udacity Make Money? Udacity Business Model In A Nutshell

Udacity is a freemium EdTech platform, offering MOOCs (courses open to anyone for enrolment). Udacity partners up with companies and universities to offer nanodegrees (short-term online education programs focused on specialized skills in computer science). The user either pays a one-time or subscription fee to access one or all courses. 

Origin story

Udacity is an educational organization offering massive open online courses (MOOCs) in computer science, mathematics, programming, and entrepreneurship to name a few. 

The company creates so-called nanodegrees in consultation with corporations such as Facebook and Intel and respected educational institutions.

The Udacity model was created by Stanford University Computer Science Professor Sebastian Thrun, who together with Peter Norvig released a free online course in artificial intelligence. The course was so popular that over 160,000 students from across the world enrolled. Thrun and Norvig then decided to make affordable and accessible education their new company mission.

Although Udacity began by offering university-style courses, the business now has a focus on providing vocational courses for professional development.

Udacity mission and vision

Udacity mission is to “train the world’s workforce in the careers of the future.”

It accomplishes it by partnering “with leading technology companies to learn how technology is transforming industries, and teach the critical tech skills that companies are looking for in their workforce. With our powerful and flexible digital education platform, even the busiest learners can prepare themselves to take on the most in-demand tech roles.”

Thus its vision is about enabling the workforce transformation.

Udacity revenue generation

The Udacity revenue model is based on charging users a monthly or one-time fee for access to its courses. Here, the user may be a private consumer or a large commercial enterprise. Every course can be taken for free, but only those undertaking a paid course will receive recognized certification.

As noted in the previous section, course content is delivered in the form of a nanodegree. These consist of a series of lectures with associated homework and a capstone project at the conclusion.

A typical nanodegree runs for anywhere between 3 and 6 months, with prices ranging from $718 (AI Product Manager) to $2154 (Self Driving Car Engineer). Udacity is well known in the online education industry for the frequent restructuring of its pricing plans. Such restructuring is in response to criticism over the extremely low graduation rate of Udacity nanodegrees. In effect, the company has had to increase the length and subsequent price of many courses to encourage their completion.


To further increase the course completion rate, each student undertaking a paid nanodegree will be matched with a dedicated mentor who will provide one-on-one support. There is also access to a student community and tools to help students prepare for the job market.

However, this extra level of support has increased some nanodegree prices. Whether students are willing to pay a premium for this service remains to be seen.

Freemium business model

Like many similar organizations, Udacity wants to focus on a freemium model moving forward. This will give potential students free access to introductory courses or in some cases, select portions of their chosen nanodegree.

This arrangement is beneficial for both parties. The student can evaluate their suitability for the course without a large financial commitment. Udacity can reach a broader audience and convert a percentage of them into paying, graduate customers.

Key takeaways

  • Udacity is a provider of online educational content in the form of so-called nanodegrees. The concept was borne from an idea to provide accessible and affordable education to students worldwide.
  • Udacity has a simple means of making money. It charges course participants a monthly or one-time fee depending on course length and subject matter. However, Udacity has been subject to criticism over low graduation rates. Questions also remain as to whether some students are willing to pay a premium for one-on-one support.
  • The freemium business model is seen as the best way forward for Udacity as a means to reduce the risk for both the organization and the customer.

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