Has the Online Programme Management bubble burst?
Rewind just a mere four years and the online programme management business was the unicorn of the education sector. Business was booming as universities leapt on the bandwagon to take their learning online.
Back in 2015, the business was estimated to be worth US$1.2 billion in the US and only set to get bigger. The growth was global, but the US remained the largest market by a huge margin with the rest of the world only adding US$400 million collectively to the market in 2015.
Five companies reportedly controlled about half of the online programme management market: 2U, Academic Partnerships, Bisk, Pearson Embanet, and Wiley Education Solutions. These frontrunners were cashing in while designing, running, and marketing new virtual learning programmes for colleges.
2U, which went public in 2014 and was valued as high as US$1.5 billion just one year later, quickly added several prestigious institutions to its list of partners since launching in 2008, including Georgetown and Yale Universities.
Eliminating the back row in #highered is more than a metaphor, it’s our mission. With great universities, we build, deliver, & support 250+ digital & in-person world-class educational offerings including grad programs, certificates, short courses, & boot camps. #NoBackRow pic.twitter.com/EFDPI89hky
— 2U (@2Uinc) July 3, 2019
Various reports at the time suggested students studying online at public and non-profit colleges gave an average of about half of their tuition to for-profit online programme managers.
Because an online Bachelor’s degree can easily cost US$60,000, those for-profit companies, by taking 50 percent of student tuition, can make as much as US$30,000 per student per awarded degree. And it’s often more.
Given the booming business, companies had ambitious plans to expand, whether that be within the United States or overseas. Things were moving fast and the online programme management game was a good one to be in.
But even back then, when they sun was shining and the many were certainly making hay, there were storm clouds gathering for the OPM market. One that few providers prepared for.
More providers, more problems
The market size itself has continued to boom with remarkable growth rate projected in the future.
In 2018, it was worth US$2.2 billion in the US market alone. This year, that’s expected to rise to US$2.6 billion and keep going. By 2025, projections place the US market for online programme management at a huge US$5.7 billion, with a global value of US$7.7 billion. That’s an annual cumulative growth rate of 14 percent – a figure most industries would kill for.
So, what’s the problem? you may ask.
While the market is growing, so too are the number of providers. The number of universities however, is not. And many institutions are choosing to go down the route of providing their own platforms for online learning.
The competition for student enrolment is fierce. And, after several bad experiences, universities are getting more selective with their admission choices for online courses.
In May, market leader 2U foretold of the coming issues. The company ended the first quarter of its 2019 fiscal year with hike in revenue, up 32 percent year-on-year, but increased marketing spending on its graduate programmes widened its net loss from US$14.9 million a year ago to US$21.6 million for the period.
At the time, 2U CEO Chip Paucek revised down its annual revenue guidance for its graduate schemes, citing increasing selectivity at institutions that was causing a reduction in the admission rate for some of its longer-running programmes. Average enrolment in the company’s top five graduate programmes was projected to be 20 percent lower in 2019 than in 2017.
But that was just a warning sign of what was to come.
Tumbling stocks, nervous stakeholders
In July, one investor phone call from Paucek sent the company’s stocks into free fall and sent investors running for the hills. In just 24 hours, 2U’s stock fell from US$36.50 to just US$12.80 – a decrease of almost 65 percent.
Investors were reacting to the news Paucek had decided to share with everyone – Online education is increasingly competitive, student acquisition and marketing costs are going up, and the regulatory landscape is becoming more complex.
With all of these headwinds working against them, the company simply wasn’t growing as they had initially hoped.
2U lowered its year-end projections to a net loss of between US$157.5 million and US$151.5 million — compared to the annual net loss of US$79 million to US$77.2 million it forecast in the first quarter. In 2018, the company posted a net loss of US$38.3 million.
In an increasingly difficult marketplace there was a growing acceptance amongst the big players that diversification was key if they were going to survive.
In response, there has been a glut of acquisitions with big names snapping up smaller companies in a bid to diversify, and quickly.
Diversify or Die
2U has been busy acquiring companies that offer non-degree-level credentials. In 2017, it acquired GetSmarter, which offers “online short courses for working professionals,” according to the announcement.
The acquisitions were an early acknowledgment by 2U that its business model had to change.
Another OPM making similar moves is Zovio, which rebranded from Bridgepoint Education in early April as part of its ongoing shift from a college operator to a learning services provider.
So far this year, the company has also acquired a coding boot camp, Fullstack Academy, and a tutoring platform, TutorMe. It also received IRS approval to spin off its Ashford University into a separate non-profit.
— VU Engineering (@VUEngineering) July 9, 2019
The mass sweep of acquisitions signalled an understanding within the market that it is diversify or die time – a sobering thought for companies that just a mere 24 months ago were riding a wave of growth.
But given the environment, it’s perhaps not surprising that the big names are having a hard time.
Not only are college enrolments flatlining, but the US economy is going through a boon, making it more tempting to for young adults to go straight into work and start earning rather than stay in education.
While a good economy is great news for everyone else, for OPMs it spells bad news.
Howard Lurie, principal analyst for online and continuing education at Eduventures, told Inside Higher Ed that the health of the economy and the number of people enrolling in online programmes are counter-cyclical.
During the last recession in 2008, online providers did well, Lurie explained. But there is no guarantee that future recessions will have the same impact, as there are many more ways in which learners can get credentials online now through alternative providers.
But this is where the investment in non-degree credentials should start to pay off.
With the need for lifelong learning in today’s job market, adult learning is now the fastest growing sector in higher education. Non-degree offerings and professional development courses are the offerings that are going to fuel this growth.
Despite the rocky few months, the market remains robust. While the relationship between universities and OPMs will likely keep changing, shifting as colleges gain the capacity to take many of these programmes in-house, there is still great potential for growth if online programme managers can remain fluid and flexible in their approach.
The market may be shifting, but it’s still there for the taking. While the bubble may have had a wobble, it certainly hasn’t burst.