The Khan Academy Business Model – How Does Khan Academy Make Money?

Executive Summary:

Khan Academy is an online learning platform offering instructional videos on subjects like mathematics, economics, computer science, and more.

As a nonprofit, Khan Academy makes money via donations, tuition fees from its Khan Lab School, and compensation for its SAT prep courses.

Founded in 2008 and headquartered in Mountain View, California, Khan Academy has become one of the world’s most frequented online learning platforms. More than 30 million people visit its platform every month.

What Is Khan Academy & How Does It Work?

Khan Academy is a nonprofit organization that creates instructional videos on topics such as computing, mathematics, economics, science, history, art, and more.

Course content is primarily targeted at students below 18 years of age, attending anything from kindergarten to high school.

Videos are created in digestible 5-to-20-minute chunks, tailormade for a viewing experience on computer and mobile devices.

These videos are then accompanied by short quizzes. These quizzes test a student’s understanding of the previously introduced material.

what is khan academy

Besides educating students on various school-related topics, Khan Academy also offers courses on prepping for various tests such as the SAT or LSAT.

Apart from its online content, Khan Academy works together with teachers (free of charge) to develop a better learning experience for their classes – and thus increase their students’ rate of success.

Khan Academy content can be accessed via the firm’s website, its mobile and tablet applications (available on Android and iOS), as well as via its YouTube channel. The nonprofit offers courses in over 40 languages, including English, Spanish, Hindi, or French.  

Khan Academy Company History

Khan Academy, headquartered in Mountain View, California, was founded in 2008 by Salman Khan (CEO).

Khan was born in Metairie, Louisiana, to Bengali immigrants in 1976. For most of his childhood, he was raised by his mother who held a job as a 7-Eleven cashier.

Early on, he began developing an interest in formal and natural sciences. During his high school years, he placed in national math competitions and eventually became the valedictorian of his class.

To fulfill his thirst for high-quality education, he enrolled at the Massachusetts Institute of Technology (MIT).  Khan graduated from MIT in 1998 with three degrees: two bachelor’s degrees in electrical engineering/computer science and mathematics; and a master’s degree in electrical engineering.

After graduating from MIT, he ended up working in tech-related roles in the Valley. When the tech bubble burst in the early 2000s, Khan decided to go back to his notebook and pen – pursuing an MBA at Harvard Business School.

Post-graduation, he became an analyst at a Boston based hedge fund where he would work for 5 years. One day in 2004, his cousin Nadia, knowing of Khan’s knack for formal sciences, asked him to tutor her in mathematics.

Khan started out teaching his cousin using Yahoo Doodle to work through the school assignments. He even added some JavaScript programs that would record her progress during those sessions.

Eventually, when other family members started asking for help, Khan logged his lessons and lectures and began uploading them to YouTube.

His intentions, as he’d later describe, were completely altruistic. He simply wanted to find a way to improve the delivery of his content. What he did not expect was that these videos would eventually take on a life of their own.

During the next few years, Khan uploaded hundreds of videos to YouTube, which began to garner millions and millions of views. In 2009, he finally decided to quit his day job and focus on Khan Academy full-time.

When he first started out, venture capital investors were offering him to invest in the organization, requiring Khan to set it up as a for-profit company. In an interview with GeekWire, Khan elaborated on his reason for pursuing the non-profit route:

“I enjoyed so many people using these videos. That reward felt like so much, that I didn’t want to mess with that vision. I didn’t want to mess with my own incentives, where I was doing it purely out of joy. As soon as you do a for-profit if someone comes to you and says, “Hey, we’ll acquire it for half-a-billion dollars,” that’s tempting, but now we say, no, our mission comes first. You actually can’t acquire us.”

While Khan’s intentions were extremely noble, his pockets soon began to dry up. After all, he funded Khan Academy with his own savings, which began to diminish day by day. For instance, Khan Academy launched its website in late 2008 (while still being employed) to decrease its dependence on YouTube.

Luckily, Khan’s videos made it into the homes of some very influential and wealthy people who soon after began endorsing the socially conscious entrepreneur. Ann Doerr, the wife of venture capitalist John Doerr, made the first-ever significant donation to Khan Academy.

But Khan’s biggest leap probably came in 2010 when Bill Gates publicly endorsed the non-profit in a crowd of over 2,000 at the Aspen Ideas Festival.

Gates would go on to provide Khan Academy with a 2-year grant via the Bill and Melinda Gates Foundation. Today, the Gates’ are lifetime donors, contributing more than $10 million every year to the organization.

The Gates endorsement (and subsequent donations) helped to accelerate Khan’s endeavor – and propelled his persona to extreme heights. In early 2010, media began calling him the “world’s teacher” and the “Messiah of Math”.

Not everyone was agreeing with that sentiment, though. A 2012 article by the Washington Post outlined how many of his video lectures entailed significant errors.

Despite these hiccups, Khan Academy’s popularity continued to rise. The increased awareness allowed Khan and team to raise more money, which in turn was invested in a variety of features and products.

For instance, in 2012, Khan Academy launched its first tablet application on the iPad. Other devices and operating systems, such as Android, would follow on.

The organization furthermore began partnering up with other companies and educational institutions to offer better learning solutions. In 2014, Khan Academy announced a partnership with the College Board to bring free SAT test prep software to the masses.

On the backbone of these partnerships, Khan Academy even launched its own physical school called Khan Lab School. The school promotes an independent learning environment where enrolled students can pursue any topic they deem interesting.

In 2020, the company experienced exceptional as well as unprecedented growth as a result of the coronavirus pandemic.

Before the pandemic, 18 million users were visiting the platform every month. Traffic increased by 250 percent ever since, urging CEO Khan to publicly ask for more donations to keep the business afloat.

And people have followed through. Elon Musk, for instance, decided to donate $5 million to Khan Academy in January 2021. Other prominent investors have followed ever since.

Today, Khan Academy offers over 4,000 hours of educational video content. The nonprofit organization employs close to 1,000 people. Sal Khan still records a third of all Khan Academy tutorials.

How Does Khan Academy Make Money?

Khan Academy makes money via donations, tuition fees for its Khan Lab School, as well as from SAT prep services.

Let’s dive into each of these income streams in more detail below.

Donations

The bulk of Khan Academy’s income originates from donors. An overview of the current donor base can be found here:

how does khan academy make money

Some of the most prominent donors include Google, Bank of America, Bill and Melinda Gates, AT&T, Oracle, The Walt Disney Company, Elon Musk, and many more.

Khan Lab School

Khan Lab School was launched in 2014. It’s a private school that offers a differentiated learning experience to students from age 5 to 18.

The school acts as a testing ground for many new approaches to class-based learning. Sal Khan hopes to eventually share his learnings with educators around the world.

Khan Academy generates revenue via tuition fees that it charges for attending the school. Enrolled students (or rather their parents) currently pay $29,000 in annual tuition.

The money allows Khan to hire teachers, acquire educational aids such as tablets or painting material, and afford rent.

SAT Prep

In 2014, Khan Academy started offering SAT preparation courses as a result of its partnership with the College Board.

The partnership gave Khan Academy access to actual test questions. This would allow the team to spot weaknesses in the current test setup and create a sophisticated learning program to prepare for the SAT.

Furthermore, Khan Academy launched an accompanying software that determines weak areas in a student’s submission.

An article published by Forbes revealed that Khan Academy grosses $10 million a year from its prep courses (also including the LSAT or Praxis). In all likeliness, its partners compensate the organization in exchange for providing free preparation courses.

Khan Academy Funding, Valuation & Revenue

According to Crunchbase, Khan Academy has raised a total of $16.2 million across 5 outside funding rounds. The organization’s main backers are the Amgen Foundation as well as the Omidyar Network.

Neither a valuation nor revenue (or in this case: donation) figures were ever announced by the non-profit.

Nevertheless, the nonprofit does disclose the number of donations it receives as well as who’s donating. In 2020, Khan Academy has received donations of $62 million from the likes of the Gates Foundation, Netflix CEO and founder Reed Hastings, Google, and many more.

Furthermore, the organization grossed another $10 million from providing prep courses on the SAT, LSAT, and Praxis.

Who Owns Khan Academy?

Nonprofit organizations, just like Khan Academy (which’s registered as a 501(c)(3) nonprofit organization), do not have an ownership structure.

As such, when it receives donations, its shareholding structure is not altered. In contrast, many for-profit startups use equity financing to fund the first few years of their operation.

Being a nonprofit offers a few benefits. First, nonprofits are exempt from paying income tax on net income (but they still have to pay state and property tax). Second, because nonprofits do not have owners, they don’t face pressure from investors to report profits. Third, nonprofits are oftentimes able to attract employees that work on a voluntary basis.

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Hi folks, my name is Viktor! By day, I lead a tech team of 10 folks for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..