Online education, rebooted

April 10, 2014, 3:36 PM UTC
Photo: Gabriela Hasbun

Fortune: You’ve been a Google executive and Stanford professor. Where did you get the idea for Udacity, your online-courses startup?

Sebastian Thrun: In 2011 I attended a TED talk by Sal Kahn, whom I adore. He explained how his Khan Academy’s math advice reached tens of millions. I was about to teach an artificial-intelligence course at Stanford that would reach 200. I suggested to [fellow teacher and Google executive] Peter Norvig we should take it online. We sent a message to 1,000 individuals about an AI class. We expected 500 to respond: 160,000 signed up.

How did the students perform?

The remote students outdid our classroom students. The best Stanford student came in No. 413. The whole exercise cost less than 60¢ a student. That made me believe it’s time to try something radically new in education.

What’s the pitch for Udacity?

Udacity is obviously an experiment. We want to understand what the strengths of the digital medium are relative to the in-class medium. We started the company and invited various instructors to work with us. A lot were young people right out of college who had a knack for video. We want to exploit the strength of the medium: Students come to “class” when they like.

Establishment academia wasn’t crazy about you.

In its first iteration we tried to work within the system, with the California State University system, to bring education to students not yet in it. While some loved the access, others were concerned it would erode the cost structure in existing education.

So you pivoted away from serving universities and toward corporate customers.

Some companies like Google, Cloudera, and Facebook approached us. They have a desire to get young new hires ready to start their jobs. They also want their existing employees to make sure they stay current. For example, Facebook has a class they’ve taught internally for data scientists. We’ve digitized it so everyone can be as good a data scientist on par with Facebook.

How do you make money?

We are a freemium business. Courseware is free, and we offer fee-based services to students, including study-buddy mentoring and experts who will look at your code and assess it. A full course costs roughly $100 to $150 per month. You get a lot of personal love: If you get stuck, a human being will help you within 30 seconds.

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This story is from the April 28, 2014 issue of Fortune.