Online degrees and their market are being unbundled
Founded in 2010, Sqore is a student recruitment platform founded in Sweden. The platform aims to enliven the student recruitment experience with skills assessment, gamification and a modern interface to help students choose the right university and provide a new marketing channels for universities for international students. Today, the platform has 1m registered users, 200 partnering institutions and has just raised $4m in new funding.
Sqore is part of a broader trend of digitisation that is transforming how universities engage with online both as an operational tool and for delivering of education. Nowhere is this trend more apparent than in the slightly obscure world of online degrees, where a quiet revolution is transforming the market led by the twin engines of digitisation and the embrace of online learning by universities.
To understand why this trend is happening we have to roll back to what the archetypal online degree deal looked like. Most universities did not offer online degrees and those that did tended to do so to generate revenue. In the US (the primary market) this was driven in part by a large secondary market of students who had not completed their degrees and were working. Private providers stepped in, using online as a way to allow such people to complete their degrees in a flexible manner. The second market was international students. Universities sought to boost revenue by recruiting foreign students, online, in theory, offered a way to capitalise on a brand (for lesser universities this brand was simply that they were a US university) and teach students for similar fees without the capital costs of building new campuses. Such approaches — most infamously the University of Phoenix — gave online a reputation of being second rate and to which elite universities tended to avoid.
For those that did engage however, online tended to be a hands-off operation, independent of the core university operation. At the time, universities were setup to teach exclusively on-campus and were a university to decide on online, it expected the provider to do everything — provide the upfront financing, marketing and recruitment, course design, LMS and for the main student support. That made it capital intensive and led to a narrow market of providers who could possibly provide all this (Pearson, Academic Partnerships, 2U etc). Furthermore, to make such a deal profitable, providers had to sign universities up to 10, 15 even 20 year contracts where they would take 50% or more of all the revenue at least until they had recovered their costs. Online degrees deals were long and capital intensive affairs.
Those, often unhappy affairs may well be a thing of the past, the rise of online learning and digitisation is unbundling that model in a manner that will transform the online degree market. The first shift was the advent of MOOCs in 2012, led by Computer Science professors from Stanford and rapidly joined by Harvard and MIT, there was a rush of elite universities into online courses. MOOCs were critical in changing perceptions of online learning within universities and among the public at large — if Harvard offer them they must be legitimate.
To build the MOOCs, universities needed to build in-house capabilities: instructional designers, video production teams and academic staff familiar with teaching online. MOOCs also began to tentatively change aspects of on-campus teaching. Blended learning, where part of the course is conducted online to make better use of classroom time, began to be used at MIT and others soon after.
So far, so good but was any of this actually impacting the online degree market? The University of Florida Online deal with Pearson may well have turned out to be the turning point. University of Florida Online, egged on by legislators high on MOOC enthusiasm, pushed for an ambitious online programme that would see the state university become a regional powerhouse in online learning. A huge deal was signed with Pearson in 2013 and yet only 2 years later, the deal was cancelled. To be sure, this was a complex deal and part of the problem was disappointing enrolment numbers but what University of Florida has done since is a testament to the changing nature of the online market.
After cancelling the contract, University of Florida re-evaluated the entire online program. They scaled back the ambition of enrolment numbers and instead focused on targeted steady expansion based on building in-house capabilities. Today, UF Online has 400 courses and with 70% year on year growth, modest compared with the original aims but entirely their own business. By bringing the capabilities in-house they can retain the revenue and are already modestly profitable. They are now innovating in online by attempting to create a virtual campus — to help online students have some of the social interactions campus life brings. Today, 800+ universities have produced at least one MOOC. Many have produced over 100. A revolution in their online capabilities that would’ve been unthinkable prior to MOOCs.
This revolution however has not stopped at just the creation of online courses, each part of the Online Degree value chain is being digitised by new third party providers. Nowhere is this more relevant than in the student recruitment. If there in one thing OPM providers bring above all else it is the students who make up the bottom line, 47% of 2U’s cost are in call centre recruiters. The digital market has not missed this opportunity. Last year IDP a major Australian education service provider acquired Hotcourses a British course listing site with 66m annual visitors and QS, the University rankings provider, acquired Hobsons a student recruitment service provider. Both were seeking to capture market share by taking key sources for browsing students. Other providers such as iVent are even more innovative, creating virtual open days to help universities market and recruit. To be sure, this market is heating up more because as University budgets come under strain and domestic student supply in developed country slows, Universities are looking for scalable ways to attract international students. Yet the trend is broader, reflecting millennial preferences for online as the default mode and the proliferation of digitization to every business operation, service and product.
Digitisation is not stopping at recruitment and courses, predictive analytics are helping universities more efficiently support at risk students and bots are being used to help with basic student course support. Many of these are in their nascent stages but all are contributing to a thriving market of products and services that more easily enable universities to do online, in-house.
Yet perhaps the biggest revolution lies beyond the unbundling of the provision of the degree and with the beginning of the unbundling of the degree itself. The idea is not new and many commentators twigged onto this when MOOCs first arrived. They were premature, the early signs are only now starting to emerge. Coursera now have 4 online degrees and 6 more planned many of which can be taken in chunks of Specializations in a pay as you go format. You pay for one Specialization (typically 5–6 courses) then on completion you can do the nextone for credit. edX have launched their MicroMasters which allows anyone to take the first third of a full masters online, if they pass an exam they are eligible to turn the MicroMasters into a full masters on campus. In its first iteration, MIT’s MicroMasters in Supply Chain Management had 200K people signed up to one of the open courses, 19K certificated, 800 paid $1350 for final assessment of which 623 passed, 40 were accepted onto the full masters. Stackable, Pay As You Go degrees tip the online degree model on its head, the service model rather than requiring full on intensive staffing based around terms and rather a constant, granular service model built around people studying around work.
Where does this leave the traditional providers? In all likelihood a diminished role will follow, less deals and those deals will be multi-party. This is already happening with many universities running whole degree programmes themselves (often conducting one with an OPM provider to learn how first).
The new normal, at least initially will be multi-party deals, rather than a turnkey solution providers will play a smaller role, still focusing on student recruitment but likely partnering with MOOC platforms to help with marketing and platform and other providers for services. However the longer term future could look more like the Purdue/Kaplan deal whereby providers switch to consultancy services. That may be possible but it would still mean a huge downsizing of their existing business model and its uncertain that they will all be able to make this transition. This is what disruption looks like.
