In the beginning, about 125 years ago, there was the correspondence degree. Correspondence programs, pioneered in higher education by the University of London in the mid-19th century, reached mainstream America in the 1890s. Over the next century, while various universities played with other modalities including radio and television-based distance learning – most notably in the UK, with the Open University – correspondence degrees in the U.S. remained solidly grounded on paper and the U.S. Postal Service.
Before the 1990s, there was little sense amongst traditional universities that distance education should generate a profit or be in any way central to the institution – these programs operated on a cost-recovery basis and were relegated to the fringes (extension or continuing education divisions). While the lack of profit was ironic considering one of the pioneers of correspondence degrees, International Correspondence Schools (today’s Penn Foster), enrolled a total of 900,000 students by 1906, driven by a sales force of 1,200, it also made sense, given the view that correspondence degrees should serve universities’ educational outreach missions. By mid-century, state institutions like University of Maryland University College and University of Wisconsin Extension led the market.
By enabling three forms of interactivity – interaction with content, with the instructor, and with other learners – the Internet proved to be a game-changer for correspondence degrees. Naturally, those closest to correspondence education were the last to see it. Extension and continuing education programs viewed the Internet as yet another in a long line of non-revolutionary technologies like two-way video, and therefore unlikely to make distance education any more central to their institutions’ missions than prior efforts.
This explains why market leaders like UMUC, Wisconsin, Washington and UCLA were caught unawares as for-profit entrants grew the market for distance degrees. For their part, for-profits were not scared of UMUC. At the same time, for-profit domination didn’t happen overnight. By 2000, the Sloan Asynchronous Learning Network estimated that for-profits occupied less than 5% of the market for distance degrees. But for-profits like University of Phoenix, which had grown rapidly over the prior decade by making higher education more accessible, recognized that online delivery represented the logical conclusion of their drive to accessibility. They also recognized they would be able to charge the same tuition which, at scale, would lead to significantly higher profit margins
As an aside, elite universities like Duke, which launched its online Global Executive MBA in the late 90s, and Cornell, which launched eCornell as the university’s vehicle for online certificate programs, seemed to grasp the potential of online delivery better than universities like UMUC and Wisconsin that pigeonholed “online” into existing continuing education or extension activities. Fathom (Columbia, LSE, Chicago, Michigan) and AllLearn (Princeton, Oxford, Stanford, Yale – POSY) are also examples of this, although neither of these ventures had anything to do with credentials. Some traditional universities considered launching online credentials, but were dissuaded by the apparent dominance of extension leaders like UMUC, which enrolled 90,000 students in distance degree programs.
Online degrees fueled the growth of for-profit universities for a decade as they penetrated the huge market of nearly 40 million Americans with some college but no credential. By 2010, there were nearly 3 million students enrolled in online degree programs, 70% of whom attended for-profit institutions. Onground roll-ups like Career Education and Corinthian Colleges had launched online divisions. University of Phoenix executives departed to found Bridgepoint Education and Grand Canyon. An entrepreneur from outside the sector established Capella. And so, from 2000 to 2010, most of these potential customers were targeted with the opportunity to go back to college.
The experience of the for-profits over the past five years has been, in part, a tragedy of the commons: too many fishermen fishing in a diminishing pool. But it’s also been a failure of investment. For-profits focused investment in the areas of marketing and enrollment. As a result, when enrollment growth slowed and reversed over the past five years, the immediate reaction was to redouble the focus on marketing rather than thinking about product development. Programs in 2015 would be easily recognized by online students from the year 2000; many for-profits continue to utilize the same learning management system they did over a decade ago and none have attempted to reinvent online learning based on what current technology is capable of, preferring to continue to deliver a faithful replication of onground higher education: the weekly lecture, discussion and assignment. A failure of investment coupled with a failure of imagination.
Consequently, online degree programs in popular subjects like business, technology, psychology, criminal justice, health and education have become commodities. This is a major reason we saw no growth in the market for online degrees last year: commodity programs are declining, which declines are offset by growth in differentiated programs.
What is a differentiated online program? There are three ways institutions can differentiate their programs. The first is with branding. Recognizing that there are a limited number of prestigious brands in higher education, non-elite brands like Bridgepoint’s Ashford University have partnered with elite and recognizable brands like Forbes for Ashford’s business school. As a result, Ashford’s business programs continue to grow. The second method is with specialized programs. There are many excellent examples of successful specialized online programs. But although there is a “tail” to the online education curve, the tail for 100% online programs isn’t nearly long enough to make a real contribution to growing the overall market; the real tail is in blended programs – a subject for another day. The third is by connecting students to jobs – becoming a “full-stack” higher education company. How to do this effectively online is a conundrum that remains to be solved, although one company in which University Ventures recently made a small investment, ProSky, has hit upon an interesting model by providing onground universities with the opportunity to enroll their students in 10-week project-based online courses in discrete skills areas such as digital marketing, SEO and sales. Employers contribute projects to the courses, monitor student work, and directly recruit students.
Of course, strong brands – including Ivy League schools like Yale – are now entering the market for online degrees via partnerships with OPMs (online program management companies) such as 2U (which is really a blended program management company) Pearson Embanet and Synergis Education (also blended). And the growth of OPMs and the brands they’ve enabled has certainly been a contributing factor to for-profit enrollment decline. But there are only so many Yales. (One, in fact.) And we’ll soon get to the point where another online business degree from another top 100 university will face the same challenges as today’s undifferentiated programs from for-profits.
OPMs now have the opportunity to lead the market for online degrees in the U.S. and internationally. Although they have the luxury of working with stronger brands, they need to avoid making the same mistakes as their for-profit university predecessors. Undifferentiated online degree programs will become commodities. At the right price, there’s a good business in commodities. But that’s a price far below where universities working with OPMs currently price their programs. If OPMs hope to continue to charge premium prices for online programs, they’ll need to make sure their programs are highly differentiated, and likely “full-stack” programs, ensuring that students who enroll will get the job they want, and a reasonable return on their investment in a pricey online degree.
