I think that the next phase is going to be what I call separation. Certain companies are going to actually figure out how to unlock the productivity and the innovation that comes from this, and a bunch of other companies will not. That will then lead, I think, to a next phase, which is recognition. Recognition that the leaders are pulling away from the laggards, and then there’s going to be a scramble that happens where companies say, what’s happening? Why am I losing? Why am I not getting kind of leverage that these other companies are, and then they’re going to try to pile in and catch up? Now, I might be wrong, and I don’t know the timing of it, but one of the things we’re dealing with here is institutions and individuals who are frankly overwhelmed by how fast things are changing, and how much certainty exists in so many facets of the business.
But as the leaders pave the way, I think there will be sort of pathways and roadmaps to say, this is what you’re supposed to do to figure this out, and I feel pretty confident that learning and training is going to be a major part of what separates the leaders from the laggards, and it might be a matter of time, but I see this as almost inevitable. I mean, I just think scaling is going to be a really important part of taking advantage of this new technology.
Stephen Sheldon: Very helpful. Thank you. And then there’s just a follow-up on the consumer segment. I guess I wanted to ask a little bit about gross margins there. You’ve seen it. It looks like it stepped up pretty nicely sequentially over the last two quarters, so it’s kind of the second half of the year. I know year-to-year comps get a little tricky with the things that you talked about, Ken, and I’ve been talking about last year, but just generally, how are you thinking about gross margins, I guess, on the consumer side as we think about 2024 and going forward?
Ken Hahn: Sure, Stephen. One of the things that’s happened there, the biggest reason for that more recent improvement, we’re not forecasting that into the mix necessarily going forward, but we have seen a shift towards some of the lower payout degrees where we’ve worked with our partners and provided funding. It coincides with our change in free cash flow definition, by the way, because we’re hopeful that we’re going to do more of that going forward, where we fund some of the content, and as a result, we get higher margin business as well as proprietary great content, which we like, as you know, most of our content is not proprietary. People tend not to multi-source. We’re the biggest platform and the biggest channel, but when we can get it for the cost of funding, and we’re also, by the way, figuring out quickly how to produce that content much more cheaply.
So it’s a great thing for us. The more we do of it, I’ll do those deals all day long, but that’s the primary reason. So a couple of our big, almost everybody’s on a 50-50 rev share, but there’s a few where we get better terms because we’ve funded on the front end, and as a result, get paid back. So you see a little bit of a shift that in Q3, Q4. We’d like to rinse and repeat, and we’ll continue to do that where we get the opportunity. It’s a great payback for Coursera.
Stephen Sheldon: Great. Thank you.
Operator: Thank you. And your next question comes from the line of Jeff Silber with BMO Capital Markets. Jeff, your line is open.
Jeff Silber: Thanks so much. I was intrigued when you talked about the partnership you’re having with the New York State Department of Labor. Are there any other state thinking of doing what you’re doing there? It sounds like a really interesting initiative.
Jeff Maggioncalda: Yes, thanks, Jeff. We are certainly talking to many states about this. And if you just read, obviously, if you read the news and you hear what’s happening in terms of perceptions of college, the ROI of buying a college degree, state funding of state schools, and also the need for services for big portions of the population that are being displaced and left behind, this kind of a program that says, look, we’ll put something at scale and efficient to people who need upskilling. And we will also create pathways to make more relevant and affordable the degrees that are being offered, especially for state institutions. We’re seeing a lot of interest. And by the way, it’s not just in the U.S. In Kazakhstan, I think I might have mentioned a few quarters ago, we see national governments buying Coursera for campus licenses and giving them to public and private universities throughout the country.
We also mentioned the University of Texas system, which is not yet tied up with the Department of Labor there. But you can see state by state, sometimes with educational systems, sometimes with the government, oftentimes in collaboration, putting together these systems. What I think is really, I mean, there’s a lot of things exciting about it, but one of the things that’s really great is there’s been a real challenge. You talk to almost anybody in government who recognizes that higher education systems are not fully meeting the needs of either students or employers. And then you say, well, how do you help an entire system adapt quickly to the new needs of employers and the new needs of students? Educational institutions are not highly adaptive, but let’s just not built that way.
