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John Doerr

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There seems to be something in the water at Stanford University that’s making faculty members leave their more-than-perfectly-good jobs and go teach online.

Coursera co-founders Andrew Ng and Daphne Koller

Stanford computer science professors Daphne Koller and Andrew Ng are on leave to launch Coursera, which will offer university classes for free online, in partnership with top schools.

Mountain View, Calif.-based Coursera is backed with $16 million in funding led by John Doerr at Kleiner Perkins and Scott Sandell at NEA. It has no immediate plans to charge for courses or make money in other ways.

Compared to Udacity, a similar start-up from former Stanford professor Sebastian Thrun that’s creating its own classes, Coursera helps support its university partners in creating their own courses, which are listed under each school’s brand.

Some might doubt that universities would want to share their prized content for free online with a start-up, but Coursera has already signed up Princeton, Stanford, the University of Michigan and the University of Pennsylvania as partners, with a set of classes launching April 23.

Coursera evolved in part out of the hugely popular Stanford classes that Ng and Thrun taught last fall on machine learning and artificial intelligence, respectively. Ng’s course had 104,000 people enrolled, with at least 46,000 completing at least one homework assignment. Of those, 23,000 completed a “substantial” amount of the class, and 13,000 received a “statement of accomplishment,” Ng said. He’ll be offering that class again starting next week.

Koller and Ng are particularly committed to developing pedagogy for this new medium, and have built their own course software and student forums. They describe their philosophy as similar to that of Salman Khan and the Khan Academy, where students are encouraged to take the time to master material at their own pace.

Coursera students help other students — in the fall, the median response time to a question asked on the class forum was 22 minutes — and the system will also learn from the students.

For instance, 2,000 of the 20,000 or so students in Ng’s online class had the exact same wrong solution on one problem set, he said. That’s an opportunity to recognize what’s happening and teach those students in that moment.

Plus, Koller and Ng have also conceived of an ambitious plan to grade humanities classes with thousands of students enrolled.

Coursera’s content is naturally heavy on computer science — where problem sets are fairly straightforward to grade — but it will also offer poetry, sociology and medical courses. These classes will be graded crowdsourcing style, with peer assessment and review. Figuring out how to grade masses of assignments on a subjective scale is a machine learning problem, Ng said.

Another ambitious venture-backed college-level online education start-up I recently covered is the Minerva Project, which is planning to launch its own mostly virtual elite university.

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Editor’s Note: This guest post is written by Doug Pepper, who is a General Partner at InterWest Partners where he invests in SaaS, mobile, consumer Internet and digital media companies. He blogs at dougpepper.blogspot.com.

Everyone expects startups, even successful ones, to undergo a cycle of hype, disappointment and ultimately growth on the way to a sustainable business. But what about new technology markets themselves? Does the growth of a new market follow a similar pattern?

Fred Wilson recently wrote about the twists and turns that startups face (expanding on Paul Graham’s astute “Startup Curve”). I’d like to take those ideas further and describe the “Market Curve” — a similar path that new markets take on the path to sustainability.

The chart below shows the basic pattern. Markets often experience a “Hype Cycle” of overheated expectations followed by a trough — call it “Facing Reality.” If the market ultimately succeeds, the next phase is “Liftoff.” But troughs don’t end until several ingredients are present. First, there must be broad adoption of core underlying technologies that support the market. Second, there needs to be compelling reference applications to drive mainstream adoption. Finally, there must be a pioneering company, typically with a charismatic leader, that leads the market out of the trough. Obviously not all markets are destined to make it out of their trough.

For entrepreneurs and investors the most exciting element of the Market Curve is that, once the trough ends, strong technology markets ultimately prove more valuable than anyone imagined even during the Hype Cycle. Here are a few examples of how different technology markets fit into this curve.

Internet: Broadband Penetration and YouTube

The late ‘90s saw extreme hype surrounding the Internet but the market was simply not yet ready to deliver. With only five million fixed broadband connections in 2000 the underlying technology wasn’t there. Plus there were very few truly compelling applications. The Internet entered its “Facing Reality” trough in the early 2000’s and failed to live up to initial expectations.

But, by 2005, there were 43 million U.S. broadband connections and addictive applications like YouTube and eventually Facebook. That year Jeff Bezos launched Amazon Prime and convinced mainstream consumers that they could conveniently and safely shop for anything online. Since then, the Internet has proven to be more transformative to our civilization and more ingrained into mainstream culture than ever imagined.

Amazon has surfed the wave of the Internet’s Market Curve almost from the very beginning. Their stock price clearly follows this pattern.

Mobile: The iPhone and App Store

Between 2000 and 2005, nearly every VC firm had Mobile as a core investment sector. And, with few exceptions, those investments were unsuccessful. During that time, mobile networks were slow and unreliable (remember the CDPD network?), devices were clunky and carriers thwarted innovation. Clearly, that all changed when Steve Jobs launched the iPhone in 2007 and replaced the carrier decks with the App Store. And, with more than one billion mobile broadband subscribers globally, the post-PC mobile computing industry is in a “Liftoff” phase that is accelerating beyond wildest expectations.

SaaS: Salesforce.com and Successfactors

When I first joined my VC firm, InterWest Partners, in September 2000, the Application Service Provider (ASP) concept was all the rage. These ASPs offered off-the-shelf software to enterprises delivered over the Internet. However, between 2001 and 2007, adoption was slow because enterprises were more concerned with security risks than the benefits of hosted software.

Over time, Internet security and reliability improved and several pioneering companies, including Marc Benioff’s Salesforce.com and Lars Daalgard’s Successfactors, emerged with proprietary software applications that proved the benefits of SaaS delivery. Today, this market has broadened into a larger paradigm called Cloud Computing with corporations shifting nearly every aspect of their IT infrastructure into the Cloud. This could not have been imagined during the Hype Cycle of this market.

Market Failures: Troughs That Never End

Of course, not every market recovers from its trough. For example, while there are certainly specific nano technologies that are fundamental to many products, a broader nanotechnology market hasn’t emerged. It’s not clear that it ever will. And, in my opinion, Cleantech currently sits at the bottom of the trough. Because of extreme capital intensity, long sales cycles and wavering enterprise and consumer interest in “Green,” this market has become challenged. The question is whether Cleantech will ever emerge from the depths of the trough where it sits today and become the powerful market that John Doerr, Vinod Khosla and many others had hoped.

In the chart below, I show where a number of current technology Markets sit along the Market Curve.

Takeway: Have Conviction During the Trough

The best investors recognize and take advantage of these troughs and the best entrepreneurs lead Markets out of the trough. When SaaS was in the trough, Marc Benioff built Salesforce.com and Dave Strohm invested in Lars Daalgard at Successfactors. When the Internet was in the trough, Jeff Bezos built Amazon.com and Roelof Botha invested in YouTube. In the case of Steve Jobs, he invented a product and pioneered a business model that altered the Mobile market and led it out of the trough. The key is to have conviction about a Market and, as an investor, look for the technologies, products and leaders that will end the trough. Or, as an entrepreneur, launch market leading products and business models to end it yourself.

Marketo is an example of an investment my firm, InterWest, made during a trough. During the late 1990′s, there was a peak of excitement around Marketing Automation with companies like Annuncio, Rubric, Marketfirst and ePiphany. But, the market was not ready. Marketers were not adopting Internet techniques for acquiring customers and they didn’t have sufficient budgets to adopt and implement enterprise software.

By 2006 when InterWest invested in Marketo, the company’s founders believed, and my colleague Bruce Cleveland and I agreed, that the market had progressed along the Market Curve. Marketers had begun consistently utilizing search engine marketing, landing pages, email marketing, and online content marketing … all the activities that are harnessed and optimized by Marketing Automation and Lead Nurturing products. And, the SaaS delivery and business model meant that marketers could quickly see ROI without big budgets or IT resources.

We had conviction that that the Marketo team would create the compelling products needed to lead the Marketing Automation market out of the trough. Today it seems clear that this market will be larger than expected even during the initial Hype Cycle.

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