The warning signs are everywhere: Sweet Briar was an early warning, and it highlighted the plight of small private colleges in largely rural areas. However, colleges in bustling education hubs like Boston are not safe, as evidenced by Mount Ida College.
As leaders scramble to find a way to ensure the survival of their institutions, many strategies have emerged, but none more strongly than providing online classes and degrees. More colleges and universities are considering implementing online programming as their proliferation continues, but one reasonable question is whether institutions are ready for it.
In other words, what are the key considerations in the push to go online? There are no obvious answers to any of these challenges, but each institution must consider the options in front of them and clearly define the answer best for their organization and success.
- The Field of Dreams is Over: If You Build It… They Might Not Come
While successes online are fairly well documented, failures are not as public The online space is getting more and more crowded, so you must define what it is that differentiates you. Is it price point? Student engagement? Student outcomes? Placement rate? In other words, why would a student choose your online MBA as opposed to the other 281 programs currently ranked by US News and World Report Online MBA rankings?
The same care that goes into differentiating your on-ground programs should go into differentiating the online ones as well. Possibly more, since location might be a differentiator for your on-ground programs but is rendered meaningless in the online space.
You must decide whether to focus on faculty quality, affordability, or ease of access. While all three would be nice, there are tradeoffs to be made, and you must decide which side of the triangle to emphasize. Without student support and placement efforts you will be dead in the water. Curriculum is not likely to be a differentiator as information is widely available and advantages are difficult to maintain in this realm.
- Build vs. Buy
This is the age-old question that every business faces, and institutions of higher education are no exception. In order to successfully go online, you need to have a very strong digital (and other) marketing effort and have front-end resources that will engage leads as they become applicants, and eventually students. You need IT infrastructure to support the effort—not just an LMS, but also 24-hour tech and student support that extends over the course of the program and possibly beyond. Finally, you can have your full-time faculty teach the courses or you can opt for adjuncts, and even that can be “bought” as the failure at Eastern Michigan University amply illustrated.
The question is whether you want to build this structure. Keep in mind that you might need everything from front-line people to middle managers and executive officer(s) to organize it all. Some of these resources are not difficult to employ, others are harder. Also, most of these are fixed costs which will quickly consume your budget as your program(s) grow, likely necessitating years of losses until you reach scale. Building in-house capabilities has many advantages, and buying has disadvantages and vice-versa.
If you decide to buy, you have one more consideration:
- Revenue Share vs. Fee-For-Service (For Those Who Buy)
Keep in mind that, given point 1, there is now considerable risk in putting a program online, especially if it isn’t resourced properly. Most likely you will have to buy at least some of the above-mentioned services (e.g. a call center), which begs the question of whether to engage in a revenue share agreement or a fee-for-service one. Generally, both types of agreements tend to be multi-year commitments.
Revenue share agreements usually involve an Outside Program Manager (OPM) firm and the share can go from 50/50 to 70/30 in favor of the OPM. In return OPM funds all non-academic activities (generally speaking).
Fee-for-service comes in two flavors. Vendors either sell a service directly, or companies sell their management services where they manage vendors on behalf of the university, but the university foots the bill. Revenue sharing was the norm for a long time, and the model is now being challenged as universities are writing fairly large checks for services that they feel they could have obtained more cheaply. Sensing the trend, most large providers will discuss fee-for-service arrangements if asked.
Making The Decisions That Suit Your Institution Best
While the challenge of differentiation deals with institutional DNA, let’s be clear that build vs. buy and revenue share vs. fee for service are risk management and financing issues. Launching an online program can take anywhere from $1M to $5M over the span of a few years. The question is whether your institution can part with that money and possibly never recover it. In other words, how comfortable are you with this risk? Can you afford to take it? If not, maybe revenue share is the right model. If it all works, it will seem like you are over-paying, but this is the nature of risk. If the launch fails, you will not be left holding the bag. Alternatively, can your institution finance this initiative at all? Revenue share resolves the financing issue and shifts vast majority of the risk to the partner. Fee-for-service requires you to obtain financing and shifts the risk to you. Your answer to number 1 will then inform the answer to 3. If you think that your online program is a “sure thing” fee-for-service makes all the sense in the world. If you are not sure, revenue share might be the answer. The willingness of companies to engage in fee-for-service might be a signal that they estimate that risk has increased considerably.
Regardless of the answer and the model chosen, you must take considerable care to align your incentives with those of your partner(s). While you cannot (and should not) pay your marketing partner based on your enrollments, they need to be kept in the loop on your conversion rate so that they can better optimize their efforts. You should not stop at measures of web activity and engagement with collateral (CPC, CTR, website visits, etc.). The same should be done with the call center, and you might want to do some mystery shopping from time to time. Most importantly, make sure that the risk and reward are aligned. If you are entering in a fee-for-service arrangement there should not be any provisions tying pay to performance, such as per-credit fees, no matter how small they are, unless the partner is committing to take a corresponding hit if goals are not met. In other words, risk and reward must be matched.
While online programs carry a lot of promise and will soon become a necessity, you still must differentiate your program, and decide how to source it. There are no easy answers, but thinking through the challenges outlined above is a necessary first step. My recommendation is to include both the business and academic side of your institution not only in initial planning but also in any negotiations you enter. If you put in the hard work and make hard choices up front, the running of the program should be smoother.
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