Increase Revenue with Modern Continuing Education Software
How using modern eCommerce principles drives revenue in Continuing Education
In what could easily be billed as a “call heard around the (online) world” 2U has laid out its view of challenges facing online education efforts in general and some challenges of 2U in particular.
Minutes after the company’s July 31, 2019 earnings call, 2U’s stock plummeted 65% and has not really recovered. The takeaways from the call received wide attention both in education circles (including stories in The Chronicle of Higher Education and Inside Higher Ed) as well as on investment sites. There’s also at least one law firm “investigating” it.
While not much of what 2U disclosed is news to us in the online education market, there are many interesting tidbits for those considering online strategy for their institution and planning a way forward. Especially if the strategy involves an OPM. It is important to make a differentiation at this point: OPM model refers to both fee-for-service and revenue-share funding models, depending on who writes about it. I want to be clear that by OPM, I mean revenue-share. Fee-for-service is a separate model, not much different from subcontracting auxiliary services at a university or hiring a marketing agency.
The Implications of 2U’s Stocks on Online Education are Minimal
First, what does 2U’s stock performance mean for online education? Honestly, not much. The stock slide is due to the fact that 2U had a sizable surprise in their projections for the fiscal year 2019. In their Quarter 1 earnings presentation, 2U was projecting a net loss of $77.2M-$79M. However, in 2U’s Quarter 2 earnings presentation, this loss is projected at between $151.5M and $157.5M. The problem here is that this is a very wild, very unexpected swing and, as such, will always generate a strong response in the stock market.
When analysts price stocks, they build their expectations of future returns into the stock price. To build expectations, analysts rely both on companies’ “forward guidance” and whatever independent research is available. So, when companies announce unexpected results, especially relative to their own predictions, stock market reacts immediately. The less outside research available or possible, the stronger the reaction to unexpected news. Ford had a similar experience. A week before 2U’s call, Ford released an adjusted expected earnings report and their stock fell 6.6% immediately. Ford, of course, are a much bigger company in an industry covered by many more analysts, so it is easier for analysts to form their own independent forecasts. It also announced lower earnings, not bigger losses. But in the stock market it is not as much about the size of the earnings as it is about size relative to forecast. So, 2U’s stock slide has much more to do with managing expectations than with online education market in general, or even the health of OPM market in particular.
California’s OPM Ban Remains Underexplored
Second, the only potential OPM-killer—a topic not fully discussed in 2U’s call—is California legislature’s Assembly Bill 1345. This legislation would ban Californian students from participating in programs supported by OPMs. This bill is working its way through California legislature and has been modified but, passing it in its original form, would be a fundamental challenge to the revenue-share model. Note that this bill would also affect fee-for-service arrangements that might have a “slight per-credit charge” incorporated in the contract. 2U focused on the issue of enforcement of Education Department rules in California, which has largely been resolved.
OPMs Are Far From Doomed, But They’re No Longer Alone
The rest of 2U’s disclosures are nothing new nor are they an indicator of OPM model being relegated to the dustbin of history.
The OPM model is not likely to go away, but companies are much less likely to push it going forward as the risk involved in building and launching online programs has increased considerably, as 2U duly noted. Revenue-share is a risk mitigation tool and a funding scheme for institutions that are either unwilling or unable to assume the risk of funding online program(s). In online programs, most of the scale has to be built before enrollments come. Most of the costs must be realized before even a good sense of enrollments is possible to obtain. Furthermore, it is often not easy to use existing university resources to launch online program(s) in the same way that it could be done for on-ground programs. Courses have to be designed in advance and ambitious marketing campaigns have to be funded without really having any experience to estimate the effects of them. So, it is quite possible to have well-funded launch that goes nowhere.
Even two to three years ago, the dearth of online offerings—especially among well-known universities—almost guaranteed wild success for new offerings. Competition for students was not as fierce nor was the competition for resources, such as clicks on digital ad platforms, etc. There were simply not as many players in the game. In hindsight, going online, for a well-reputed university, was akin to proverbial “shooting fish in the barrel.” It is no longer so, and it will be even less so in the future.
Online is no longer a strategy, it is a necessity. Students demand flexibility, and geographic boundaries are no longer protecting institutions in the ways they have for most of the history. Thus, much like evening classes, it will be a necessity for institutions to offer online courses and/or programs and not all of those endeavors will be successful. The risk is increasing, and not all institutions will be willing or even able to bear it. Hence, revenue-sharing agreements are likely to continue, but the basis on which they are made will likely change.
On the other hand, companies are aware of the risks so they are much more likely to offer fee-for-service models. This is nothing new, it is new that 2U has publicly joined this bandwagon. I have met with many OPMs in my role, and most were willing to discuss fee-for-service as long as two years ago while maintaining revenue-share as their main proposal.
Mapping a Future for Online Higher Education
So, what does this all mean for universities developing an online strategy?
First, if you dream of becoming a mega-university like SNHU, WGU, or Liberty, you should most likely stop. Achieving such scale is much more difficult than it was in the past, if not impossible. You need to find a way to succeed with relatively smaller programs and figure out which niches to occupy. Also, please note that not every institution has a stomach for being a mega-university and shoehorning your institution into this model can backfire in spectacular ways.
Second, you must pay attention to price. There is currently a lot of talk around the “death of (fill in the blank) degree”, mostly MBAs. The MBA degree in general is not necessarily dead, but the $100K+, two-year, residential, large enrollment version of the MBA is very much dead. In truth, the $80K+. part-time version is likely dead as well. Boston University is one institution that woke up to this reality and is launching $25K part-time MBA in partnership with EdX. The University of Illinois Urbana Champaign killed its residential MBA in favor of $22K offering through Coursera. This trend is likely to have a similar effect on most $70K+ professional master’s degrees…it is just a matter of time before competition will come for them.
Third, you must articulate clearly what is the value you provide to your students in online space. A degree alone will no longer cut it. How will you make them feel a part of community? How will you help them learn and apply their skills? How will you help them succeed once they leave? Once you have answers to these questions, you need to take a sober inventory of which of these challenges you can tackle yourself, and which ones do you need to outsource.
All in all, online education is no longer for the faint of heart (if it ever was). Risks are real and the question is who will bear them. And if you just became aware of 2U’s earnings call, I suggest you start following 2U closely. Being public, they have to disclose a lot of information and reading their earnings reports and presentations will give you a very interesting insight into the market. You then have to figure out where you are relative to the market and how you can optimize.
How using modern eCommerce principles drives revenue in Continuing Education
Author Perspective: Administrator