35% Commission – Is enough finally enough?

Just when I thought I was out, they pull me back in. Why are you always doing this to me? Honestly, I was perfectly OK to not write yet another flame and rant post about you but maybe, just maybe this will be the final one.

In an email to all teachers of the platform Marina Tognetti, founder and CEO of Myngle announced the new commission model that will be launched January 1st 2011. It will be topping at a whooping 35%, yes thirty five that is.

So here I am, back on the battlefield. Sure, I know from the past posts on that topic that it apparently takes a lot to get teachers so mad that they quit with the service and often I felt like talking to myself. But this time the Myngle team might have overtightened the screw.

Before I get to the commission disaster let me quickly tell you about to other interesting things. One is that Myngle finally buried the entrance to the caves or “the lower deck” as I used to call it. The forum is now officially closed and teachers are welcome to join the Ning network. Three years of discussion, moaning and groaning but also valuable input are gone. Well, not gone as you can still reach the forum via its direct link but I suppose that is only a matter of time.

Secondly, Myngle had the chance of getting an online deal on Groupon Netherlands. According to Myngle 1.4 million people receive the Groupon daily deal in the Netherlands. In my opinion they totally blew this chance as they set up an offer that even I could not understand. One month of language learning but only 3 live lessons included? I mean, even with Gaius Julius Cesar being Pontifex Maximus of the Roman Empire and screwing up the calendar so badly that no one knew which month it was, months still had more than three days. Anyway, long story short, in the end Myngle sold 125 units which is a conversion rate of 0,001%.

But now comes the best part. Starting from January 1st 2011 the revised commission structure of Myngle is as follows

I have a hunch why they are doing this but first let us put the new system to the test, shall we? According to Marina Tognetti’s email

[…] you will also be earning more per class.

Well, to me it is pretty obvious that the only way to earn more than before is to sell the 100 lesson package. The 50 lesson package has the same commission as before and with all other options the teachers will lose money if they don’t cut the reductions they offer for buying packages which is not really an option.

If I had to guess, Myngle is brushing up the service for a new funding round. Personally, I would be shocked if they were even close to being profitable and looking at that email again, we can read that the decision was taken based on

[…] the input of our teachers, our management team and investors […]

Looking at the first comments in the Myngle Ning the teachers seem to be rather upset and not really the ones who said “raise the commission” and quite frankly, why on earth would they? To me, the decision is clearly coming from the investor side. None of the live teaching platforms has really outperformed until today and there is still the big question why Jon Bischke sold eduFire to CamelBack Education after only two and a half years. I think, he took the chance to get out of this niche. Remember, live lessons are FNACs. Maybe he will tell us one day.

This new commission structure is clearly built to get cash flow which is of course in the interest of investors. Remember, if a student buys a package upfront the money does not go directly to the teacher who sold it. The money is administered by Myngle and the teacher gets paid for the lessons he / she gave during the month. Therefore there is money on the Myngle bank account that can be spent for marketing or running costs. Works well for the platform as long as new students sign up for packages every month.

Don’t get me wrong, this is a totally normal business model but shaping the commission in a way that teachers are forced to sell 50 + lesson packages to students who are in most cases not interested in such a big number of lessons is like working for an insurance company and selling crappy, overpriced life insurance packages. Myngle wants its teachers to sell, teaching is just a by-product.

For me Myngle has finally hit solid rock bottom. This is a last, desperate move to get liquidity and / or prove the business model in general but looking at the rather small number of loyal teachers who are left teaching on the platform, I don’t see what this should lead to. Why not raise the commission to 75%, it doesn’t matter anyway.

Leaving you with the great Al Pacino, I really hope that this was my last post on this matter. I am tired and it is not good for my blood pressure.

One last thing.

“If you have the same problem for a long time, maybe it’s not a problem. Maybe it’s a fact.” – Yitzhak Rabin

If live online language teaching platforms don’t work… – Think about it.

Related Links:

  1. Groupon Netherlands Myngle Offer
  2. Myngle Ning
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  • http://twitter.com/darienbrown Darien Brown

    AS A DISCLAIMER: I'm writing these thoughts based on virtually no knowledge of Myngle's history with regard to these issues. So I might be totally off-base. That said…

    To be honest, I think that the commission structure doesn't have a lasting place in education. Myngle is probably starting to feel this but is responding to it improperly by not canning it altogether.

    A commission structure means not having control of your pricing and — by extension — your company's marketing. My guess is that their goal in raising the commission isn't necessarily to just make more money, but to allow room for marketing initiatives to take place. Think about this: if Myngle suddenly had the opportunity to strike a bulk deal with a company trying to train its staff on languages, but their commission was locked at 18%, that's their only wiggle room. They might not be able to offer a good enough deal, or at least the deals they sustain won't be profitable.

    A 35% commission structure tells me that they're trying to generate the flexibility that fixed pricing affords. The problem is, it's a compromise between two contradictory systems. Fixed pricing (and fixed pay) works extremely well, but it only works if the company is tasking itself with all matters and costs related to student/customer acquisition. Ease and consistency is the benefit of lower pay.

    A commission, however, implies that teachers are central to sales and marketing. And if teachers are doing the sales and marketing, that means the company is generating less value: all they are is a platform, and platforms are cheap and plentiful. Commissions, therefore, need to be kept low to maintain users.

    By bumping commissions all the way to 35%, it is clear that they are trying to have their cake and eat it. If it lasts, they will fail, and the fact that they've switched from a lower-commission-rate structure implies that they've already found that to be non-viable. I expect that — assuming this switch doesn't torpedo them completely — their switch to a fixed-pay system is inevitable.

    • http://kirstenwinkler.com KirstenWinkler

      The key to this structure is the decrease in percentage if you sell more lessons at once as a teacher. It's all about cash flow, nothing more, nothing less.

      Teachers are “punished” if a student takes one lesson, pays one lesson or takes 10 in advance, or 30. Only 50 lessons paid upfront will have the 18% commission.

      I think they are already sinking, bottom up.

      • Jamie Dick-Cleland

        AS A DISCLAIMER: I'm writing these thoughts based on virtually no knowledge of Myngle's history with regard to these issues. So I might be totally off-base. That said…

        I think that Myngle has a serious dilemma, in the form of: 1. I know that the current business model is not viable in the long term and 2. I have set up ALL of my company's strategy and marketing, tech build, product development around a system which operates with variable pay rates for students, teachers and I derive income as a percentage of their income.

        So I don't really want to admit it, and it will cost too much and create too much havoc to trawl it over to a new business model. I'm big and hefty so we have to do it in phases.

        Exciting times

        • http://twitter.com/darienbrown Darien Brown

          Jamie, do you have a technical co-founder who built your system? If you do (and I really really hope you do) it's always best to confront these issues as rapidly and as early as possible. Wouldn't mind having a chat about this if you want to figure out what the right move is for you.

          • Jamie Dick-Cleland

            Darien, I have a very strategic co-founder who managed the tech build, couldn't agree more r.e confronting issues early. I could definitely have a chat about this in Jan.

          • http://kirstenwinkler.com KirstenWinkler

            You hit another problem here. Myngle is build around the opensource version of the Dimdim classroom, so the centerpiece of the platform is not their own code, same problem that eduFire has with Adobe. Plus most of the development is done by a company in Vietnam.

      • http://twitter.com/darienbrown Darien Brown

        I don't know that it's fair to draw that conclusion. A change that dramatic probably means that either they need to change the model because it's fundamentally unsustainable or because it's necessary to raise more funds. Either way, it's a survival issue, not a greed issue.

        The fact remains that they're still trying to utilize their teachers as the front-line of sales and marketing, in spite of deeper commission cuts.

        I view Myngle as being held together by a patchwork of stop-gap measures that prevent the marketplace system from falling apart. The setting of minimum rates was meant to prevent the unnecessary race to the bottom inherent to these models as most teachers don't know how to compete with other teachers any other way than through price-cutting… This new change seems to try to account for the margin issues.

        My gut says that they need to stop patching holes and just bite the bullet and restructure completely. I don't think the marketplace model will scale.

        • http://kirstenwinkler.com KirstenWinkler

          Oh, there is no doubt that this model is unsustainable and not scalable. We discussed this amongst the teachers in the Myngle forum in late 2008 already (no one wanted to believe it, of course). The easiest way is to calculate how many classes need to be taken per day on the platform to gain the fixed costs of the company which is another issue from the start. Myngle massively invested in people who were not developers. Plus the management team is based in Europe whereas the development is outsourced in Vietnam. I think you as lean startup entrepreneur know what that means.

          The marketplace is dead for months since there are basically fixed prices and fixed discount rates.

          I agree, we simply have to face the fact that this model is broken.

          • http://twitter.com/darienbrown Darien Brown

            Haha, I guess I misunderstood your point entirely. Turns out I really wasn't adding anything to the conversation. :)

          • http://kirstenwinkler.com KirstenWinkler

            Your input is always valuable. I had to remember all those things :)

            When I joined Myngle in April or May 2008 it was a totally different company. Then it went downhill for the teachers with more and more restrictions.

        • chinamike

          Darien,

          Maybe others would disagree but I don't think Myngle ever was a true marketplace and if it was, conditions quickly changed.

          Myngle wanted to be a so-called marketplace but it quickly turned into a school. As a school it ignored what makes schools great at the lower end…quality controlled processes and at the upper end….excellent teaching.

      • chinamike

        I agreed it is probably about cash flow. Which means it is also probably about profitability. Why do I say this? Because I have seen this scenario repeated again and again. When a school starts showing marketed preferences for large amounts of money up front (and doing so with large discounts) it is a sign that perhaps the next step is to go belly up. I have seen it happen in Japan, Taiwan and China.

        The ones that suffer are the students who pay these ridiculous amounts of money up front and don't get it back when the business goes belly up. As a teacher I would demand (to the extent possible) that all accounts like this (that are basically future promises) are placed in a secure account where the money is 100% safe. Every teacher teaching at Myngle should ask for a strict accounting of this money and verifiable guarantees of its safety.

        If Myngle would guarantee that the future income would not be coMYNGLED (oops) with the money being used for present outlays then I would accept this statement at face value. They could be tempting teachers to find ways to keep students longer and pay teachers for actually finding ways to do so. This is a real incentive. But will it work? Only if the student's money is 100% safe. But as a teacher I would want to be 100% sure that this money is 100% safe and that in fact the investors are not benefitting from pinching money from the future to pay the present. When this happens you begin down a slippery slope with no end and if investors are actually calling for this and the company does collapse I wonder if European laws could call these investors to account.

      • Chris

        I like your comment: Myngle wants its teachers to sell, teaching is just a by-product.
        Teachers aren't generally interested in selling, certainly not for other people. I don't mind working for someone else as long as I'm getting a fair whack. I don't even mind working for language schools as long as they are doing something for me – providing the students for a start.
        Remember when Myngle asked teachers to “bring us your students”? I wonder what Alan Sugar would say to all that….

        • http://kirstenwinkler.com KirstenWinkler

          Hey Chris, yes, I do remember :) And not to forget “turn your offline students into online students” on Myngle, of course.

  • jcampbell1

    Don't all of these site suffer from a huge amount of poaching? I can just pay for one class, and then hire the teacher outside of the site. I understand Myngle's predicament, and there is no good solution. It is universal problem for market places where you repeatedly purchase a service from the same individual. Marketplaces only work as a business model when you pair lots of people for short term transactions e.g. Stock photos, logo designs, ebay, etc.

    • http://kirstenwinkler.com KirstenWinkler

      Hey there. Sure, but as you said this comes from the student's side in most cases as for them there is no benefit in taking classes on a platform. If they can make a “deal” with the teacher and save something both sides are likely to meet outside the walled garden.

      The problem is that the business model is always client / student centered whereas it is vital to bind the teachers to the service in order to earn the commission. But teachers are most often left alone with poor service and the call to pull and sell.

      • Chris

        Obviously the platform must offer the student something that the individual teacher cannot. The platform must look at the issue from the student's point of view.

        • http://kirstenwinkler.com KirstenWinkler

          I don't agree. In my 3+ years of online teaching none of my students did care about the platform. What counts is the trust / relationship to the teacher.

          Therefore a platform must offer reasons for a teacher to stay and pay the commission, not the other way. It all went downhill when Myngle changed their model to a client centered approach and they did not care about the teachers anymore.

  • Andreas

    Maybe an interesting side note: German online learning company Learnship initially went for the B2C market as well. They quickly added a white-label B2B service, offering language courses to large companies. The service is branded by the large company's personell department's CI, providing a nice user experience for the employee. In addition, they negotiate large bulk packages with the company. As far as I know they either have their own teachers or their own teaching material to assure a certain level of quality (but I am not sure on that).

    • http://kirstenwinkler.com KirstenWinkler

      Hi Andreas :) With such a concept we are in the discussion of “quality”. I am sure Mike has to say one or two things on that. I suppose that the Learnship teachers are all well trained, certified and follow a certain curriculum.

      Myngle never really succeeded in implementing such a system as they still tried to keep the idea of an open marketplace somewhat alive.

      • chinamike

        I was actually quite disappointed that the marketplace idea failed.

        But you are right, when you become a school you need to dedicate yourself to the idea of quality in a number of areas including curriculum, instructional quality, standards, and metrics. And that is just the floor, to reach the ceiling and shoot for the stars you need to hire inspired and inspiring teachers who are empowered to constantly improve.

  • Frank van Zierikzee

    “I really hope that this was my last post on this matter. I am tired and it is not good for my blood pressure”: It almost sounds like you are angry and have something personal with/against Myngle. It ocurred to me that you talk negatively about myngle in almost all of your threads about that platform. Did you have something personal with the people from myngle? Has something happened between you and Myngle?

    • http://kirstenwinkler.com KirstenWinkler

      The reason why a bigger number of blog posts might not be in favor for Myngle is because I am in the teacher camp. Myngle is one of the European / world wide leaders in this market and therefore decisions they take have an influence on the market as a whole. In talks about online language education most people know Myngle and what they do.

      Since early 2009 Myngle's strategy is clearly targeted to please the students and not the teachers. As I said, for teachers the selling part is more important than the actual teaching. For me they treat their biggest asset not as they should do.

      What makes me tired is the fact that most teachers, if not nearly all, somehow feel the same about this issue. But in the end they will still work under the new circumstances because they think they have no other choice.

      In the end it's my opinion, you can agree or not. Time will tell who is right and Myngle can still prove that I am totally wrong. Might happen, who knows :).

    • chinamike

      Frank,

      From the beginning Myngle was a ground-breaking company. For teachers it had the potential to change their professional lives. As such, it is a company that merits attention and yes, on occasion, criticism.

      This may have no effect on Myngle but it may persuade others to adopt a different course.

  • Rickinalbi

    I am sorry to say that I have had almost nothing but problems as a teacher with Myngle. Their new commission schedule is simply icing on the cake, and motivated my decision to terminate my relationship with them. I should note that among other problems, Myngle offered a “one free course” promotion, to which I subscribed. Students would book classes, but virtually no one showed up. I mentioned this to Myngle, and they told me that their rate of no shows for this program was somewhere around 80%. I have neither seen nor heard anything to suggest that this rate has improved significantly, though I understand that Myngle may have taken steps to address this problem. A company that would continue to offer a program like this and knowingly waste it's teachers' time is, in my opinion, a disgrace.

    I am a big fan of online education, but definitely not of Myngle.

    • http://kirstenwinkler.com KirstenWinkler

      Thank you for your thoughts on this Rick.

      No shows are a general problem in live online lessons. There were some discussion if a system that would charge the student for this first analysis and then recredit him/her after booking an actual lesson would fix this. italki has a system like this and it seems to avoid “fun” bookings.

      • chinamike

        Kirsten I wonder if italki followed the conversations on the Myngle forum and actually learning something from the often very heated and very informative discussions? Wouldn't it be ironic if it were a competitor who benefited from all that openess?

        • http://kirstenwinkler.com KirstenWinkler

          Everything is possible. Depends on where the discussion about that was located as the teacher section was behind closed doors. Otherwise they would have needed a “spy” :).

          But yes, the similarities to what we discussed back then are interesting. italki suggests to take 1 credit for the analysis / first talk although I think teachers are free to opt out and still give it for free.

      • Rickinalbi

        Kirsten.

        I agree. Some systems don't have such a system. Moreover, no shows at a rate of 80% is beyond the pale. And while the teachers suffer a loss of time if a student does not show, Myngle suffers nothing. Again, I am sorry to say that I have extremely little positive to say about that organization.

        • http://kirstenwinkler.com KirstenWinkler

          I think italki are the only ones offering this. The 80% come from bad targeting of customer regions, I think. There has always been a tremendous base of North African / Arabic accounts on the platform. I don't think that those people do it for a bad reason, they just try stuff out and I am sure that the language barrier plays a role here and of course tech problems.

          I had many discussions with some friends I have over there about willingness to pay, infrastructure, how tech savvy they are, social media etc. Was quite enlightening.

    • chinamike

      Rick in my opinion (I'm biased, I was actually asked to leave Myngle) the problem with Myngle is that they started out strongly in the student's corner (as a teaching marketplace) but as they transformed into a school (kicking and scratching as it happened) they didn't undergo a similar transformation in terms of their attitudes towards their teachers and their product offering.

      Bigger yet was their whole problem with pricing. They jacked prices around so often it made your head spin. They were marketing driven not product driven. They figured if they could somehow just tweak the prices correctly that they would get an avalanche of new customers.

      The trouble is that they were a school and didn't understand the implications of what that meant. I think they thought they could create demand simply by tinkering with the pricing structure and marketing messages rather than deal with the central issue of quality (teaching, platform, communication, content).

      So, in the end, we see yet another market based tweak. On the surface it seems to encourage teachers, but it probably also has had the opposite effect of driving teachers away.

      What this new pricing structure suggests is that Myngle wants to attract Superstar teachers (teachers who can get students to pay for 100 lessons at one go). The trouble with Superstar teachers is that they neither check their intellect nor their ego at Myngle's digital door when they accept a job. Go figure….

      • http://kirstenwinkler.com KirstenWinkler

        Even I could not sell 100 lessons in one go, and I am pretty good at selling. The maximum package I am offering are 30 lessons and that's attached to a fixed lesson plan based on a course book.

        There is a lot that can happen in 100 lessons. And with all the new options that came on the market since 2007/2008 there is no need for students to make such a long term contract. At least nothing that I could imagine.

      • Rickinalbi

        Last night, I asked to be taken off Myngle. The great irony is that the only thing Myngle has done with any reasonable efficiency is to honor my request. And I am shocked, quite frankly, that they would ask a teacher to leave, absent extremely unusual circumstances.

        I agree much of what you said, and would argue that Myngle's problems run far, far deeper than what you describe.

        Interestingly, I received a message from Ms. Tognetti asking me to explain in more detail my many issues with Myngle. I have already replied. It shall undoubtedly be interesting to see how Myngle responds.

        • http://kirstenwinkler.com KirstenWinkler

          Marina should take a look at the old forum threads, that should give her a good idea already.

          Just out of interest and as you are a quite successful online teacher, what are your expectations to a service such as Myngle, eduFire, Lingueo, Learn2Lingo, …?

          • Rickinalbi

            Kirsten,

            I would hope that Ms. Tognetti is intimately familiar with those threads.

            Your question about expectations is a difficult one to completely answer, and I hesitate to do it in a comment post for fear that it will be incomplete. I will think about this and get back to you. Obviously, ease of use and strong teacher support (essentially, a form of strong customer service) are essential and are areas where Myngle currently seems to be lacking.

  • http://www.facebook.com/people/Steve-Cooper/1243073036 Steve Cooper

    Thanks Kirsten for covering this important issue, and I really value everyones' thoughts and passion! I would love to hear what y'all think is the best businesss model for Myngle moving forward because they have put a lot of time and hard work into their great produce and it would be a shame to see them lose any traction.

    DISCLAIMER: We own eduFire, but I believe in the abundance mentality, so I want everyone to succeed!

    • http://kirstenwinkler.com KirstenWinkler

      Hi Steve, thanks for stopping by and leaving a comment. The real problem goes much deeper than just commission rates and in order to not lose traction you first need to have some.

      I will have a chat with Ryan Bush next week and if you like, we could have one, too. In the meanwhile you could find this post on FNACs interesting: http://www.kirstenwinkler.com/…/

    • chinamike

      Steve,

      While Kirsten might shirt this issue I will face it square on :)

      When Myngle decided to become a school (at about month 6) they should have decided to become either “best of breed” or “best bang for the buck” (inexpensive). Both of these models can bring success.

      In my experience what “best of breed” schools do is act as a proponent for a particular brand of education either in the form of materials or methods. Schools can acquire a reputation for excellence (and consistency) based on either of these two factors. The ability to insure that teachers follow best practices with respect to materials or methods is a key component of the “best of breed” methods and/or materials approach.

      I won't go into the “best bang for the buck” model other then to say one component of this is to drive down teachers' salaries.

      Factors of lesser importance are: the quality of teachers when they enter, times classes are offered, the availability of placement testing, payment details, and location. You will notice many of these factors Myngle has already aced. Oh, let's not forget consistency and communication which Myngle has failed miserably.

      Myngle needs to decide if they are going to shoot for excellence or “best bang for the buck”. My feeling is they set out to do the first but have relentlessly moved towards the second claiming as they went that such wasn't their intention.

      I hope in this you can see a perscription for the future.

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  • http://www.vikramadhiman.com/ Vikrama Dhiman

    Mighty interesting thread this one. Interesting post too.

    Marketplace as an idea finds acceptance but the final product hasn't been proven yet in the Education field.

    Interesting comments by Darrien on commission structure. Not sure if I understand them completely but isn't commission structure the basis of all marketplaces?