The Online Education Industry – Past, Present, and a Glimpse of the Future
The years 1999-2009 represented unprecedented growth in online education dominated largely by for-profit institutions. High demand from students, bolstered by easy-to-receive federal financial aid and innovative methods of marketing, meant schools operating as businesses found vast territories of new opportunities, similar to the westward expansion in the United States during the mid-nineteenth century.
During the last few years, the industry has come to a crossroads. The West having been “won,” schools developed more structure to operate within new parameters and a new environment. The slowing demand for education from students (as compared to incredibly high demand during the recession), higher competition, more regulation, and a drastically different landscape have led to a period of change.
Gone are the old days. The tactics that worked so well in the past are far less effective today. Not only has the online education industry changed, but so has the consumer’s mindset about debt (all at a time when the Internet has evolved as well). Consider the early growth period of the Internet (2001-2003). Google wasn’t close to Yahoo in size and was virtually unknown. Social media didn’t exist, email marketing was effective, paid search was financially reasonable, and Internet “consumer reviews” were mostly non-existent.
The challenges schools will face in the future will be more complex. So, what will the “next” phase of online education look like in 2014 and onward? Signs of the future are already here and include:
- The rise of the brands - the “non-profit revolution”
- For-profit and non-profit partnerships
- Increased education price sensitivity
- Growing interest in non-degree training
- More fragmented and competitive landscape
What do these factors mean? How can your institution best position itself for the future?
The Rise of the Brands - the "Non-Profit Revolution"
You do not need to look very hard to see glimpses of innovation in the work of schools like Liberty University and Southern New Hampshire University. An increased number of traditional universities are adopting online learning. Some are making a concerted effort to proactively target the working adult; this is a remarkable departure from the past. Those universities with top-down support and vision stand to benefit the most. This is indeed a revolution as the changes will have far greater impact than most assume.
Liberty University has used online learning to not only spread their theological message globally, but also to dramatically improve the traditional campus experience. This includes a steady and constant state of building, improvement, and growth. The campus today has become a high tech learning masterpiece with no signs of slowing down. Liberty University’s Law School is a great example, with their unique replica of the United States Supreme Court (a sign of where their students may one day preside).
Despite the fact that most universities have brands that are well respected and widely known (regionally or nationally), the ability to leverage these brands to more effectively connect with adult students has largely been a missed opportunity. However, proactive schools with progressive leadership are finally responding to the growing groundswell of interest in online offerings.
The rapidly expanding number of schools offering online programs, resulting in the proliferation of the total amount of programs offered, is a double edged sword. On one hand, students have many more options from which to choose. On the other hand, the amount of competition between schools vying for these students is increasing faster than demand. It is certainly not too late to enter the online education space. However, schools must be even more selective about the programs they offer, astute in finding their niche, and effectively marketing their value propositions.
Over the next 10 years, we may see schools that have invested heavily in online programs fail to hit the lofty projected milestones and enrollments needed for financial sustainability. New entrants into the marketplace will continue, but only the strong will survive. Ensuring your school is one of the stronger institutions will be critical for sustained growth. We welcome the opportunity to help institutions identify these items. Please email firstname.lastname@example.org for more information.
For-Profit and Non-Profit Partnerships
There is a growing trend, the concept of for-profit companies partnering with a non-profit university to help take on-campus programs online, that is being seen as “the future” by many think-tanks. The for-profit typically is responsible for the marketing and enrollment management functions, usually the areas that schools are least able to do themselves, and the school then admits and teaches the student. While this is an over simplification and generalization of the partnership, and each has its subtle differences, they all have these roles in common.
Companies such as EmbanetCompass (recently acquired by Pearson PLC), Deltak (recently acquired by Wiley), Bisk Education, Comcourse, and GlobalHealth Education are viable options for universities looking to move programs to an online format. These companies are strong in areas most schools are weak: the marketing and enrollment phases of online programs. Given the premium paid for recent acquisitions in the education space, the “smart” money seems to agree that these types of education partnerships may be the better vehicle for schools eyeing to get into the online education space. This is beneficial to the school because these companies bear all the risk during the marketing and enrollment phases, often spending millions before any revenue is earned by the educational partner. These arrangements usually involve a tuition share between the school and the company. Typically in the range of 50/50, this number can vary depending on additional amounts of work taken on by the company.
Schools looking to launch a program or group of programs online would be wise to explore their options with these organizations. They can greatly increase the time to market with new programs and their no-risk models mean the school can play it safe.
Increased Education Price Sensitivity
It is natural to think that online programs, being free from the necessities of hard physical assets like buildings, parking decks, and other related teaching appliances, would be less expensive than traditional education. In theory this is true, but due to complexities this hasn’t been the case in the past. First, traditional colleges and universities still have costs to cover for the buildings that support online research and development. Second, the cost of marketing and enrollment management processes could top 30 percent of any proceeds generated from offering online programs. Additionally, the costs of running and maintaining an online program are often far more expensive for schools that attempt to marry the old way of doing things with this new medium. Most don’t realize the efficiency savings that can be achieved by better streamlining the processes and work flow. In some cases, it has proven difficult to carve out different tuition structures for online programs without upsetting the “apple cart” with respect to normal tuition levels. All in all, schools are still finding their way. The savings schools could expect by using the online format have not reached their potential, although they seem to be approaching this goal.
Another largely unknown fact to the average student is the impact on the cost of education caused by government policies. In the past, some of the for-profit online schools have set their tuition rates to allow for the maximum that can be covered by financial aid. When the amount of financial aid goes up, tuition rates often follow. How does this work? There is a rule commonly referred to as 90/10 which essentially says that no more than 90 percent of a school’s proceeds (i.e. revenue) may come from federal financial aid programs. The other 10 percent must come from other sources, such as self-payment by the student, military benefits, or from the student’s employer. The purpose of this paper is not to debate its merits or detractions, but this practice has led to a general awareness of the increasing costs of education. When you consider that state funding is drying up for traditional campus-based schools and placing pressure to increase prices, you arrive at a situation that is likely to become more and more volatile as time passes.
Today we see the awakening of students and lawmakers to the fact that education should be more affordable. Schools like Southern New Hampshire University, Liberty University, and Fort Hays State University, have offered degree programs at a fraction of costs found elsewhere - sometimes less than half the price of a degree from many of the for-profits. Each school has its own way of keeping costs down. In the cases of Southern New Hampshire University and Liberty University, some have even been able to find resources to advertise their value proposition to students around the world.
Some schools can’t afford to (or don’t wish to) market nationally. Others, like Liberty University, have made good use of a well-orchestrated marketing plan and a winning enrollment management process that is helpful and responsive to prospective students.
Ultimately, students will vote with their pocketbooks. The higher priced degree programs will suffer as more choices become available and students become aware of lower priced programs. The for-profits will need to shift their tuition rates radically or risk “death by a thousand paper cuts” from smaller, more affordable online programs offered by established brands. Will Fort Hays State University be the David to The University of Phoenix’s Goliath? Most likely, no. However, the for-profits, such as The University of Phoenix, Kaplan University, and American Intercontinental University, will start to suffer in small geographic areas where there is lower priced competition from better known brands. As the number of these affordable schools increase, so will competition and loss of market share by the for-profits, city by city, state by state, and region by region.
There are several key ways institutions can focus on good value at a lower price:
1) Transform the marketing and enrollment processes.
If your university plans to offer online programs to adults and intends to simply marry the traditional way of marketing, enrollment management, and admissions from your traditional undergrad, then consider yourself warned: this will be a costly mistake that could risk the entire online program.
The working adult has hundreds of programs to choose from, and this number keeps growing. To be successful, your programs must have unique traits in program curriculum, a well-known school brand, lower price, better learning platform, and more in order to gain interest from potential students. Then it’s up to best practices in enrollment management to properly communicate and, forgive the word for those faint of heart, sell your program to the student. Not only is this a foreign concept to many schools, but the process is also becoming more complex as the competitive landscape continues to advance.
2) Grow programs to create economies of scale.
This is becoming more important than ever. Programs developed must pay back initial Research and Development, and then become self-supporting in order to maintain sustainability. Prior to development, the key is to better research the programs on which to focus. You must ensure the market is big enough to allow for success. Without scale, all the processes and programs that need to be put in place may prove too costly.
3) Add innovative methods to reduce the cost of tuition.
Innovation abounds and is increasing at a fast pace. Sophia.org represents an exciting example, offering 11 college courses that are approved for three hours of credit by the American Council on Education (ACE); students can take these courses for less than $399 each. This equates to a cost per credit hour that is less than most community colleges. Schools that promote the ability for students to transfer in these credits can lower the price of earning a degree. Sophia has a partner program for schools to allow these less expensive course options to be included in a special “lower cost” degree tract aimed at the most disadvantaged students. For more information about partnering with Sophia, please visit Sophia.org.
Other innovations include systems that help streamline internal processes. Leadxchange.org (http://leadxchange.org) offers a powerful Lead Management System that is priced well below that of its competitors. It is a web-based program that enables schools to better manage student inquiries from outside marketing partners or internal web pages. The ability to more deeply analyze data and make more informed marketing decisions is becoming paramount as costs and competition increase. The Leadxchange system also offers other powerful tools to make marketing and enrollment management easier. It can be easily integrated into the university’s CRM or other outsourced solutions such as Velocify. Information can be found by visiting http://leadxchange.org.
4) Move to a competency-based program.
A competency-based program affords an added option for lowering the cost of a degree. Schools such as Southern New Hampshire University and Capella University are currently testing the virtues of this type of education, as this model may be difficult for schools to adopt. The model used by Western Governors University is also quite different and should be further researched by those looking for ways to provide education more cost effectively. Western Governors’ system allows students to pay for a period of time, typically six months, and grants students the ability to take as many classes as possible during that time. The student is therefore able to reduce their effective cost per credit hour. In each case, students who prove their proficiency in certain classes can test out while earning credit and accelerating the time required to earn a degree.
Growing Interest in Non-Degree Training
Businesses and students demand programs that are more focused and aligned to the needs within the marketplace, faster to complete so that learnings can quickly be applied to the job, and less expensive than full degree programs.
For-profits lead the way with short 3-4 class tracks that target a highly specific area such as “digital marketing” or “leadership.” Often, these programs carry credit that later transfers into a degree, but usually only at the offering institution. While still expensive on a per credit hour rate, the total cost is far less than a traditional degree and is often completely covered by the student’s employer.
Non-profits are not blind to the needs of the marketplace. Liberty University has a growing list of accelerated certificate programs that can be started and completed quickly, which allows learners to become proficient in subject material and more effective at their jobs within a short period of time.
While there are certainly benefits to the general education of a student in a broad range of liberal studies that make up the traditional campus-based degree, degrees and training for the adult are much more targeted at their learning outcomes. Businesses sadly, but understandably, don’t place an emphasis on how well-rounded a student may be in worldly knowledge. Instead, they place that emphasis on how effective they can be at their prescribed job and its impact to the bottom line.
Schools that are early movers on these shorter non-degree programs, which are priced competitively, marketed accordingly, and provide the outcome the student is looking for in a short period of time, will find success in the years to come.
Much More Fragmented and Competitive Landscape
We are seeing the rise of affordable, non-profit institutions with legacy brands. While most will not have the marketing horsepower of schools like Liberty University, Western Governors University, or Southern New Hampshire University, we must remember they too started small.
The proliferation of many more online programs, over 17,000 at last count by our research (2014 Study of Online Education Opportunities), will place a greater emphasis on connecting with potential students and quickly conveying the school’s value proposition early in their decision-making process. While we can’t fathom what online marketing will look like 10 years from now, it will likely allow schools a greater ability to reach the ideal student more effectively through improved targeting and segmentation.
Proper program offerings will also be key. Matching the programs available with real needs in the industry through close dialog with businesses will help make programs more impactful to tomorrow’s workers. Additionally, the types of programs offered will see changes, as demonstrated by the accelerated certificate programs developed by many of the for-profit schools. The “degree” isn’t going away, but there exists a very real need within the industry for shorter “certificate” programs that are narrowly focused on particular skills. Schools that can quickly create and launch programs to fit these needs will be successful; to stay relevant the programs must be able to change and evolve frequently.
The future of online education remains bright. All the trends are pointing in positive directions and we remain bullish on the industry growing, innovating, and becoming better. The long view is that online education is here to stay and will continue its upward momentum. The future rests with the schools and providers who can bring together innovation, highly targeted and relevant curriculum, reasonable pricing, and quantifiable value for students and businesses alike.
About the Author
Approved Colleges Founder and President Tony Huffman is a 13 year veteran of the online education industry. Huffman was the first employee at eLearners.com. During his 10 years with the organization, where he led the sales and account management efforts of the company, he interfaced with online universities throughout the nation. Later, he spearheaded the development and launch of Test Drive College, a revolutionary program designed to allow students to take a free, transferrable, for-credit course prior to enrollment at an online university. Upon his departure, he consulted with online universities to help them better understand all facets of the marketplace. In 2012 he started Approved Colleges LLC, which provides robust information for potential students, compiles industry information, and offers businesses a way to better train, assess, and educate their workforce through http://business.approvedcolleges.com. He may be contacted at email@example.com for advice and consulting opportunities.