Changing landscape for online education challenges for-profit providers

The entry of non-profit American university and college brands – particularly those with elite reputations – into online education is beginning to reshape the competitive landscape in US higher education, and may prove especially challenging for private for-profit institutions. For the last few decades in the US, there has been a relatively easy dividing line when it comes to non-profit education providers and private for-profit ones. Generally:

• Non-profits (e.g., Harvard, Duke, University of Georgia) court younger students interested in full-time programmes and the prestige of a degree.

• Private for-profits (e.g, Kaplan College, University of Phoenix) are aimed at a wider prospect group interested in gaining credentials and specific courses for career enhancement, often on a part-time basis.

As in other countries, the presence of both streams in the higher education market has served important functions such as increasing the capacity of the American higher education system, increasing the accessibility of higher education, and catering to a wider group of students than would be possible if there were only a public non-profit sector. And while the private for-profit sector sometimes gets tarred with charges that too many of its institutions prioritise revenue and enrolment levels over student outcomes – or that it enables students in carrying too great of a debt burden (a criticism most recently levelled in a high-profile American Senate report) – it is also recognised for:

• allowing time/responsibility-pressed adults to study more flexibly (e.g., by distance and/or part-time), thereby opening their careers to exciting new potential;

• being early adopters of new trends and technologies, pushing the limits of the higher education system as a whole.

In fact, it was American private for-profits that opened important and lucrative markets for themselves when they began investing heavily in online education in the early 2000s. Online courses helped the University of Phoenix for example, to become one of the largest higher education providers in the US over the last decade, culminating in enrolments of 600,000 students in 2010 spread across 200 global campuses.

But over the last couple of years, with growing interest in internationalisation and finding new revenue streams, prestigious American non-profit universities have decided to compete – aggressively – in the online space heretofore dominated by for-profits.

One of the big trends now is for elite universities and colleges to join together to deliver “MOOCs” (Massive Open Online Courses) via collaborative networks like Coursera (in which 33 universities have participated, including Princeton and Brown) and edX, a collaboration between Harvard University and MIT (Massachusetts Institute of Technology.) Coursera and edX courses are (currently) free, and backed by venture capital, but the investors in them obviously count on developing a revenue model downstream. While they may not be making money right now, they are already likely taking money – and market share as well as international markets – away from private for-profits. The Times Higher Education recently covered a new report called “Shifting Ground: Technology Begins to Alter Centuries-Old Business Model for Universities”:

The report warns of negative effects for smaller colleges that are ‘left out’ of emerging high-reputation online networks. Institutions that are unable to join such networks, or fail to carve out an independent niche, are ‘likely to experience credit stress’ driven by declining student demand, the report says. ‘Over the long term, they will lose market share to universities with a stronger brand and a national draw,’ it concludes.

Perception of online education is changing with entry of non-profits, students becoming more sophisticated

The report, authored by credit rating agency Moody’s, also notes that the entry of the elite universities into free online education is influencing mainstream perceptions of distance education:

"The entry of elite universities [into the online domain]...will help legitimise this form of delivery and reduce the stigma that has historically been associated with distance education."

is collapsing the traditional divisions between students who would normally attend a for-profit and those who would normally choose a non-profit. Inside Higher Ed just covered a new report by the Parthenon Group, a strategic consulting firm, called, “Are the Sleeping Giants Awake? Non-Profit Universities Enter Online Education at Scale.” The study on which the report is based comprised 1,200 students who attend fully online programmes at both non-profit and for-profit American institutions. (Please note: the online courses delivered by non-profits in the study are not free, unlike MOOCs; these are courses delivered for a fee to students, but often a lesser one than at for-profits). It found that “student profiles were nearly identical at non-profit and for-profit institutions, with similar ages, incomes and attendance patterns.” Inside Higher Ed quotes Carol Aslanian, an expert on online education and senior vice president of market research services at Education Dynamics, as saying students at for-profits and non-profits are now “more alike than different.” With more choice, and the option to take flexible delivery courses from non-profit colleges and universities with strong brands – something that would have been much less available even a couple of years ago – students are going to be thinking more carefully about the institutions from which they take online courses.

The prestige of the brand will factor into decision-making in a way it simply hasn’t before: “Heightened competition virtually assures the emergence of a more sophisticated student consumer,” the Parthenon Group study concludes.

Increased demand for technology and marketing services among non-profits

The study also notes that non-profits’ entry into the online competitive fray is creating new demand for suppliers who can help them with technology and in recruiting students more aggressively than they have in the past. From Inside Higher Ed:

As nonprofit colleges have moved into online education, most have tapped technology vendors to help them do it. The study said these ‘online enablers,’ such as Embanet/Compass, Bisk, Deltak, Academic Partnerships and Pearson, help colleges do much of the heavy lifting that for-profits do themselves, like course development, IT support and even generating ‘leads’ among prospective students. That support industry will only expand, the study predicted.

With all this change afoot, it is undeniable that the private, for-profit sector in the US is under pressure. Already, the giant University of Phoenix has experienced staggering declines in attendance (reportedly as much as 30% in 2011 alone) – this has been attributed mostly to “operational changes amid criticism of high debt loads and low job prospects for university students” but it is almost certainly also a result of increased competition in the area – distance, course-based education for older adults – it used to dominate. Furthermore, the University of Phoenix recently announced the closure of 115 of its brick-and-mortar locations along with plans to lay off 800 of its employees. It remains to be seen how long the non-profits’ crowding of the for-profits will last in the online delivery area; it is typical in many countries for there to be periodic shifts in the market share occupied by the two different streams. It is unclear how successful online collaborative networks like Coursera and Edx will be in monetising their products as they go forward, and how successful non-profit colleges and universities will be in recruiting students to their online courses, developing and maintaining the technology required for high-quality course delivery, and establishing a balance between on-campus and distance branding, pricing, and enrolments. However, just this week, there were signs that those non-profits that are going online in a serious way are in it for the long haul. Inside Higher Ed reports:

A consortium of 10 [American] top-tier universities will soon [Autumn 2013] offer fully online, credit-bearing undergraduate courses through a partnership with 2U, a company that facilitates online learning.

The consortium’s name is Semester Online, and the big news here is that:

• The courses are credit bearing (unlike MOOCs, which at best deliver a certificate)

• They will be enrolled with selective criteria (not open to everyone, unlike MOOCs)

• They are priced normally – similar to an on-campus course at one of the participating universities (unlike MOOCs)

• They aim to replicate their offline equivalents, with “a mix of recorded lectures and online course materials and live, instructor-led, video-based discussion sections …. The sections will aim to mimic a seminar-like environment where students can look their classmates and instructors in the face and engage with them directly.”

The Inside Higher Ed article on Semester Online importantly notes:

Although they are not designed to achieve the scale of MOOCs, if successful the Semester Online courses could allow their home institutions to gradually expand their enrolments, and tuition revenue, without having to buy new property and build new buildings.

The Semester Online consortium includes Brandeis University, Duke University, Emory University, Northwestern University, University of North Carolina at Chapel Hill, University of Notre Dame, University of Rochester, Vanderbilt University, Wake Forest University, and Washington University in St. Louis. (Editor’s Note: It has since been announced that Duke has backed out of Semester Online, bringing the university count down to nine). As Tony Bates points out in his blog, this is not the first consortium of this type. The Canadian Virtual University is a consortium of nine Canadian universities that has been offering online and distance education courses and joint programmes for over 10 years. Even more dramatically, Open Universities Australia is a consortium of over 20 universities that offers complete degree programmes online, and operates on a fully cost recoverable basis, and indeed makes a profit for the partner institutions. It has been operating since 1993 and has served over 200,000 students since then. Clearly, the US Semester Online consortium definitely suggests a long-term rather than one-time shift in the markets American non-profits are now targeting. For-profit institutions that want to survive the shift will be those that can quickly develop new strategies for differentiating their programmes to increasingly discriminating students – in the US and abroad.