Analyzing the Purdue-Kaplan Marriage

From conference hallways to campus coffee shops, from listservs to the pages of Inside Higher Ed, last week's news that Purdue University would consume Kaplan University spurred conversation and speculation. At a meeting of college admissions officers in Chicago, word of the deal brought gasps. And when the disruption expert Clayton Christensen's speech to a Salesforce.org meeting in Austin was interrupted with the news, his reaction -- in his aw-shucks way -- was: "Holy crud, is that right? That's so exciting."

Now that a few days have passed and observers have begun to get their heads around the stunning developments outlined on Inside Higher Ed by Paul Fain and Rick Seltzer, Inside Digital Learning asked a set of educational technology experts, college leaders and others to predict the Purdue-Kaplan marriage's impact on the online learning ecosystem. The prompt we gave them is immediately below, and their answers are below that. And we invite you to continue the discussion in the comments at the end of the article -- please add your thoughts there.

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In an out-of-the-blue move last week, Purdue University announced that it would buy nearly all of the credential-issuing business of Kaplan University. The public research university in Indiana acquires Kaplan's 32,000 students, 85 percent who are enrolled in fully online programs, and not unimportantly, the company's digital learning infrastructure. The move gets Purdue into the online education space in a big way.

The Inside Higher Ed columnist Josh Kim, an ed-tech expert from Dartmouth and an Inside Digital Learning blogger, argues that all institutions, no matter their size or sector, should pay attention to the Purdue-Kaplan deal because of its implications for the delivery of education online.

We ask you: What does the Purdue-Kaplan deal mean for the online learning landscape? Will it influence how other public institutions approach online education? Challenge the existing leaders in the space? Please tell us what you think is most important/interesting/exciting/troubling about the deal for the future of digital education.

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Frank Britt, CEO, Penn Foster

The reality is that despite the scale and scope of the higher education market place, there remains a sizable number of adult learners that lack quality, affordable and accessible career-focused education. Purdue’s interest in investing in Kaplan is an affirmation of this unmet need in the adult learner market, and the mainstreaming of online education as a primary element of the solution.

While it is the most heralded of its kind and still pioneering, it is not the first. The strategic importance of this novel deal design is that it turns Kaplan into a higher education-focused business process outsourcing (BPO) organization that is then powering a leader in degree programs in Purdue.

BPO remains a nascent and sizable market opportunity across the educational value chain from curriculum conversion and delivery to coaching and career services, and this deal will accelerate a host of innovative private-public sector partnerships that embrace purpose and profit with sensible guardrails.  

America’s call for education reform -- from employers to the blue-collar insurgents – must reflect higher education’s multifaceted mission and very diverse customers (students) and clients (employers). This deal will grant permission to countless other progressive organizations to embrace the advent of online learning and new era of private sector collaboration even closer to the epicenter of the academic enterprise.

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Tressie McMillan Cottom, assistant professor of sociology, Virginia Commonwealth University

Higher education institutions are stratified by prestige. When we are talking about the crises facing higher education it is important to keep that in mind, because not every crisis is true for every type of institution. The most elite institutions will always have more demand than they can serve from among students they wish to serve as long as ours is a capitalist society.

For all the other institutions, there are two major challenges. Purdue's recent proposal to acquire a significant part of for-profit credentialing organization Kaplan is Purdue's recognition of those challenges. First, the likely student at a place like Purdue is a nontraditional student. As I make clear in my book, Lower Ed: The Troubling Rise of For-Profit Colleges in the New Economy, nontraditional students are going to college because the labor market has become inhospitable to those without a degree. For-profit colleges, especially corporate shareholder for-profit college entities, made a lot of money for the past 25 years by tailoring every aspect of their organizational machinery to identify, attract, and quickly convert non-traditional students.

Traditional higher education has not been nearly as inert as rhetoric suggests. Not-for-profits have made tremendous progress incubating, adopting and offering new models of learning. But, their attempts to do as at the scale that defines for-profits like Kaplan has been stymied by eroding public investment and the moral obligation to not admit more students than the university can defensibly serve well. For-profit colleges do not have either of those problems. 

Purdue is addressing this issue in a particular context. In the state of Indiana, the work force is aging. This suggests more nontraditional students. And, while the number of underemployed and discouraged workers in the state is down from their recession high, the state's higher education system seems out of step with the population who will be seeking higher education. And with Indiana becoming a right-to-work state in 2012, that means workers who may have previously upgraded their skills in union jobs or used worker power to negotiate for more employer-paid training are less likely to have those options. To stay employable they'll need to go to college ... again and again.

The second challenge to which this acquisition responds is the one that almost all higher education will have to contend with if current trends hold steady: how to expand access to education, cheaply, for workers to get new credentials repeatedly over their working lifetimes. In the Purdue-Kaplan deal (what Matt Reed suggests we call Kooey Pooey, a neologism I like), Purdue officials say precisely this. The state system does not have the money or political will to expand public higher education. They argue that it is cheaper to buy a system than to build one. They may be right. But, what my research shows is that it is far more expensive to buy a legitimate, high quality credentialing system than it is to build one. That is the rub.

The Purdue-Kaplan deal solves one problem -- a supply issue -- but does not solve the other issue, the issue of demand. Higher education expansion solutions range from micro credentials, to stacked certificates and open online courses. None of these solutions solve for the real problem: there is little evidence that the labor market values most of these new credentials. Workers want them because they want the promise of economic security. Firms don't seem all that excited about them for the very same reason.

Purdue is hoping it can launder Kaplan of its legitimacy crisis, ipso facto solving the demand side issue of new credentials. Given that the plan outlined in SEC documents says Purdue will be adopting the marketing operations of for-profit Kaplan, it is unlikely that it will do so. That's because the most egregious legitimacy issues with for-profit colleges stem from their marketing apparatus. As my research of the enrollment process at for-profit colleges demonstrate, the growth model of for-profit higher education models like the one that made Kaplan so successful, does not meet the standard for high quality education.

In the short term, bringing for-profit college faculty and models from the margins and into the public higher education system might be a boon for some actors. Formerly for-profit college faculty might be professionalized and unionized, introducing faculty governance as a check on some quality issues in for-profit college models. Students enrolled in Kaplan may benefit from earning a credential that will now bear the name of a public higher education institution.

But, in the long-term Purdue risks inheriting all the problems of for-profit higher education and architects of the deal demonstrate little awareness of what that means for public higher education.

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Steve Fireng, CEO, Keypath Education

The announcement of Purdue’s acquisition of Kaplan should not come as a surprise (even though Purdue as the buyer is somewhat a surprise). The acquisition brings to mind three major themes in higher education:

1. For-profit schools are under pressure and many are experiencing steep declines.

2. A student’s decision-making process on choosing the right school often includes tax status (for-profit vs nonprofit).

3. Nonprofit institutions have been launching new online programs at a record pace. And using online program management providers to do so….

When I first heard of this announcement my initial reaction was very positive. Purdue benefits from a scaled online environment, thousands of students and technology, all on day one. For those that have recently launched online programs, you know how difficult launching an online program from scratch can be. And while I don’t know the specific reason for Purdue’s rationale (other than what’s been covered in recent articles), I do believe this acquisition reinforces that online education is core to any university’s survival and while many schools have launched a program or a suite, many have not identified online education as a core part of their university growth strategy.

Purdue’s move seems like a win/win on the surface, but one point I have not heard discussed is culture -- and it is one of the most common reasons why acquisitions fail. In my 25+ years in higher education, working at and with both for-profit and nonprofit institutions, I have experienced first-hand the culture differences in these two environments. Not good or bad, just different.

For-profit schools have a strong focus on the front end (marketing and recruitment) of enrollment management, spending up to 30 percent of revenue in marketing. For-profits are typically open access, accepting most students that apply, and have built significant resources to support these students. (NOTE: I don’t think this is bad.) Compare this to a traditional school like Purdue that spends more on branding, sports, and campus infrastructure to support their students -- who I am certain went through a rigorous screening process to get accepted.

Meshing the culture of access and the hyper focus on front-end marketing will be the single biggest threats to this deal. Is the new combined entity to remain open access? How will it deal with current population that don’t fit into Purdue’s culture? How will it spend marketing dollars to recruit new students? All questions (and there are many, many more) that need to be answered to make the integration of Purdue and Kaplan successful.

Over all, I am in favor of this trend and hopeful this acquisition will be successful,providing opportunities for more students to further their education.

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Gordon Freedman, president, National Laboratory for Education Transformation

Unfortunately, this marriage has all the earmarks of an infatuation that is not likely to survive. First of all it, is not a purchase. It is an agreement to buy until the point of full purchase in six years. Until then it is a business arrangement. This is easier to understand and accept than an outright purchase.

That said, you can imagine creating a matrix of possibilities that might come out of combining two entities with very different DNA. On the positive side, one could imagine Purdue running a little more efficiently and offering more options to its combined on-campus and online students. One could imagine the online operation getting better faculty and using new tools in the technology and data science to provide better service and student success for all students. Let’s call this wishful and cross our fingers.

The more likely scenario is that this is the first of many survival and competitive moves to guarantee student acquisition through very sophisticated marketing by being a hybrid -- sort of the Prius model -- both gas and electric. The question here is who is running the show? For-profit companies manage by fiat, educational institutions don’t have chief executive officers in the same sense. Presidents raise funds and manage fiscal and other issues. Provosts run the academic program. And, who are the shareholders? Also, does the state have the right to drop its funding level if the online business soars?

Given the predatory demand to acquire students, the question is how does the Purdue brand survive as a careful academic institution on one hand and a rock-and-roll marketing operation on the other? It would seem sensible for a regulator to ask or require that the two entities be put into a new type of holding company, perhaps a public benefit corporation that answers both to its combined and clarified mission and to “shareholders.” 

I see the strong need for the management and decision-making to be re-engineered. Simply putting these two entities under one roof without major management transformation to handle the variety of likely issues seems dangerous. We know that many public universities have or have run for-profit operations or very aggressive revenue-generating arms, such as UMUC and the University of California Irvine Extension. But these are still under the day to day thumb of the central campus.

My hope is for transformation of some new and interesting hybrid sitting in a new type of singular entity devoted to a full range of options for students and employers.  Otherwise, running parallel operations seems like it will hinder both entities and leave the students on sidelines and a cause of form of higher education brand confusion.

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Sally Johnstone, president, National Center for Higher Education Management Systems

Purdue’s planned acquisition of Kaplan University is fascinating. Can Purdue’s brand really help Kaplan (even transformed) attract students at a sufficient pace to keep it financially viable? Is Kaplan’s on-line infrastructure really going to propel Purdue into the global market place?

Will current Purdue students gain anything from Kaplan’s inclusion within the university? Will current Kaplan students really see many changes in their curriculum or learning environments based on the acquisition? How will their regional accreditor deal with this? As I said, it will be fascinating to watch what will unfold. 

As more and more American states back away from funding their public colleges and universities, it puts higher education leaders into the role of entrepreneurs that serve the enterprises for which they have accepted responsibility. They must seek new models that may be able to generate resources they can no longer expect from traditional sources. 

The argument that President Daniels makes, that moving into an online environment is the only possible way to meet Purdue’s land-grant mission for the people of Indiana, is logical, but will the focus really be on Indiana students? When creating WGU Indiana he expected it to be a means of helping Indiana’s population gain equitable accessible higher education opportunities. Will Purdue offer something different with its online capabilities? 

I look forward to watching what develops very closely.  If the gamble, as Bob Shireman describes it, pays off, perhaps we will see more college and university presidents seeking to acquire full-blown external entities to preserve their existing institutions.

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Joshua Kim, director of digital learning initiatives at the Dartmouth Center for the Advancement of Learning (and Inside Higher Ed blogger)

Are you chatting with your campus colleagues about the big Purdue / Kaplan news?  (See Purdue's Bold Move).

My guess is that reactions from folks who work at smaller schools will fall into 1 of 3 categories:

Category 1: Interesting - but probably not that big a deal for us.

Category 2:  Interesting - and important for us to understand and discuss.

Category 3: Not only not interesting - but another example of the blurring line between the non-profit mission of higher education, and the growing corporate and market-based thinking that ruining this country.  

(Okay - I might be overstating things some with category 3, but you get the point).

So how are your conversations going?

Read more from Josh here.

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Paul LeBlanc, president, Southern New Hampshire University

What does the Purdue-Kaplan deal mean for the online learning landscape? Will it influence how other public institutions approach online education? Challenge the existing leaders in the space?

As in all complicated matters, the answer is “It depends.”  If the new entity can effectively leverage the Purdue brand, harness Kaplan’s operational prowess, eliminate any of the bad practices associated with for-profits (which Kaplan was already doing in its case), navigate its political hurdles, internally and state-wise, and reconcile its mission imperatives (To make money? To grow? To provide access? To serve a different student profile?) -- a lot of big “ifs” -- it can be a powerful player in the online landscape.

That is an increasingly competitive landscape, as OPMs help more non-profits enter the market (and for a while anyway, this is mostly an OPM deal, albeit an odd one), so it is not a game changer per se. But if Mitch Daniels can pull it off (never underestimate him), the new entity can certainly be a major player. How major will come down to who it seeks to serve, is willing to serve, how its brand is positioned. There are other related questions:

• Will the diploma say Purdue or something like “New Entity, in Association with Purdue University”?
• Will the main campus accept credits from the new entity?
• Can Purdue’s best known programs, mostly in STEM, be successfully offered in an online and open access environment?

Taken together, the answers to those questions will suggest how big a player an eventual “New Entity University” can be.

As I understand it, this is essentially an OPM deal in its first phase, with an option for Purdue to purchase Kaplan at some point. Things get a lot cleaner and less risky for Purdue if they actually control everything, but I have no idea what that would cost (presumably some multiple of Kaplan’s net revenue or EBITDA), how they might structure the sale, and if the first phase somehow provides a model for purchasing without the use of taxpayer dollars (if that is a political requirement).  It’s not a play available to many other potential buyers, since there are only so many large for-profit online providers like Kaplan out there.

In some ways, the bigger story here is that this deal vividly signals the broader paradigm shift of non-profit higher education taking back from the for-profit sector a large part of its market. In this individual case, if an actual acquisition occurs, literally swallowing up and eliminating a major for-profit. That’s not say that for-profits will disappear. For example, Phoenix is now privately held and out from under shareholder scrutiny and demands, so has the space to reinvent itself. Also, OPMs represent a significant for-profit presence within higher education, largely out of sight and under the umbrella of their nonprofit partners. But fundamentally, online education will be increasingly dominated by nonprofits.

Finally, no matter how the deal eventually plays out, the Purdue-Kaplan announcement further legitimizes online education. That was the single biggest contribution of MOOCS (“If Harvard, Stanford, and MIT are willing to offer education online, then it must be okay!”) and the Purdue-Kaplan announcement continues to build the legitimacy of online education. 

That presages the most important implications of the era in which we now find ourselves. An era in which nonprofit IHEs that once looked down their nose at online education will now seek ways to enter that market. In which for-profit IHEs will have to reinvent themselves to stop their death spiral and remain players in the online market.  And in which students will have more good choices for where and how they get their online education.

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Howard Lurie, principal analyst, online and continuing education, Eduventures

Purdue’s acquisition of Kaplan University is, indeed, a bold move, but it may be less “out-of-the-blue” than many think. 

Context is king, and it provides a way to understand the birth of this new institution. In the wake of last month’s acquisition of Education Management Corporation (EDMC) by the Dream Center Foundation, Purdue’s move blurs a once-sharp boundary between for-profit education providers and non-profit universities. Given both the enrollment headwinds experienced by Kaplan University, and Purdue’s market positioning as a premier public institution serving traditional students, there’s a strong whiff of pragmatism here. 

Purdue is poised to become one the largest providers of exemplary educational experiences to non-traditional learners.  Kaplan secures a long-term commitment to do what it does best – recruit, enroll, and support these learners. Most importantly, current students and future graduates could benefit in the job market from an affiliation with a widely recognized, Research-1 institution. 

Going forward, as this acquisition enters the inevitable phase of review and approval, how several questions are answered will significantly impact the working adult, online education marketplace.

1. In what ways, if any, will the online student experience improve at this new institution? It bodes well that Kaplan has been recognized its scale and, and that Purdue has been attempting to innovate in learning analytics technologies and competency-based education (CBE).  However, the next challenge will be knitting these capabilities together, in ways that do more than simply combine branding and platforms. This could be a unique opportunity to leverage significant existing investments, infrastructure, and expertise.  Let’s hope that this positively impacts the most important characters in this drama: the students.

2. This acquisition may also represent a not-too-subtle birth announcement of a new model of Online Program Management (OPM) services.  We’re eagerly anticipating how Kaplan will fulfill its 30-year, contractual commitment to the new institution to provide technology support, financial aid administration, help-desk services, and marketing. The real palace intrigue, however, may be played out among other OPM providers and their clients.  Does Purdue’s acquisition confirm the suspicion that the online enrollments will slow, and even decrease more sharply among for-profit schools?  Kaplan appears to opting for a corporate identity as a dedicated OPM provider, rather then as it’s own institution. Will Kaplan be successful in this new role? What might competitor OPM providers glean from Kaplan’s entry and experience in their backyard?

3. Finally, what does this mean for Purdue’s Land Grant brethren? Purdue asserts that this represents a reaffirmation of the original mission of a public land-grant institution in broadening access to an affordable higher education.  If broader access results in increased revenue, will Purdue continue to honor its commitment to traditional, in-state students? Will other Land Grant institutions see Purdue’s acquisition as a formula for greater fiscal solvency, a way to expand impact, or both?

If we’ve learned nothing else, it should be to expect the unexpected.  This acquisition certainly fits that prescription.

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Matt Reed, vice president for learning, Brookdale Community College (and Inside Higher Ed blogger)

I’ve been thinking and reading a lot about the Purdue/Kaplan purchase, and I’m still confused.

The short version is that Purdue, a respected public university in Indiana, bought Kaplan University, a mostly online for-profit college. The idea on Purdue’s side, as near as I can tell, is to get a ready-made boost in online market share at minimal cost; if it goes well, it may even wind up turning a profit that will bolster Purdue’s traditional campus operations. On Kaplan’s side, it’s a way to get academic legitimacy, and to escape the regulatory scrutiny to which for-profits are subjected. But it’s still a sort of for-profit, since it will get a cut of any revenues above expenses (if only there were a word for that…) after a few years.

Read more from Matt's post here.

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Robert Shireman, senior fellow, The Century Foundation

In an essay in The Chronicle of Higher Education, Shireman calls the arrangement "a dangerous, long-term marriage between a public university and a firm answerable to Wall Street investors."

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Peter Smith, Orkand Chair Professor of Innovative Practices, University of Maryland University College

The Purdue-Kaplan agreement is a bold move on both institutions’ parts. Purdue instantaneously becomes a major player online learning space with a sophisticated online academic model that has been recognized by the North Central Association. All this supported by world class backroom support services provided by Kaplan going forward. To paraphrase President Daniels, Purdue will save time, money and the potential for mistakes in design and implementation by forgoing their own developmental process and beginning on day one with an established academic model and programs that are supported by proven, high quality back room operational services. 

There are many wrinkles to be ironed out. But the undeniable quality of the Kaplan academic model is illustrated by the findings of the last accreditation review (available, I believe, on the Kaplan website) which also recognized the quality of the extraordinary academic team led by President Betty Van Den Bosch, who have developed and operated that model. They will be transferred to the Purdue operation.

These factors suggest to me that the issues which need to be resolved going forward will have more to do with how the transition is handled organizationally, including:

• what the support services model going forward looks like, and
• how the support services and academic programs, now in different organizations, are articulated for efficient and qualitative operations.

Although my former colleagues at Kaplan have said less publicly about the agreement, it appears to me they have chosen a different role in the online higher education space going forward. The “new” Kaplan aspires to be the provider of back-room services to online, digital programs, beginning with Purdue. This approach allows them to do several things:

• First, they can perfect and fine-tune these services to an even higher level of quality.
• Second, they can support any post-secondary program, proprietary or non-profit, that wants to get into the business of online, digital learning or improve the quality of their services in the field.
• Third, they can adapt their services to the world of online, digital post-secondary education as it continues to evolve and change

For the last two years, I have been writing and speaking about the future of on-line, digital education and the appearance of a new organizational model: the “networked university.” Instead of a vertical stack of programs, services, and processes, all developed and managed by the university, the “networked university” operates more horizontally, pulling in high quality resources through contracts with third parties while focusing on the academic quality which is their ultimate responsibility.

The hard truth is that, in the rapidly developing digital age in education, no single college or university can excel in all aspects of a digitized operation. The pace of technological change, the intellectual capital needed to convert that change to programs and services, and the cost of continually renewing and improving services in that environment suggest a new eco-system for digital learning; one in which independent centers of quality are harnessed together in a network of services to support high quality programs for on line learners. (Think www.civitas.com, www.d2l.com, www.2U.com, www.everspring.com, www.practice.xyz for starters.) 

The Purdue-Kaplan agreement is today’s exhibit A for this emerging model. Two recognized and accomplished organizations are adapting to the world around them and securing their respective futures by working together in a networked organizational solution. 

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Gene Wade, chairman and CEO, UniversityNow

Purdue is not the first public institution to make a serious investment in online higher education. There are already several large and well-known online public university brands in the market. Nor is Purdue  the first public university to leverage the services of an online program manager to operate the non-academic aspects of its online programs. Indeed, most public and nonprofit universities that operate large online programs already do this.  What has grabbed the headlines is that Purdue has effectively acquired a for-profit online university.

While the operational challenges of the arrangement are real, with good management and leadership they are surmountable. More importantly, students will surely benefit from having more flexible options and a solid public brand on their university diplomas.  

The most challenging aspect of the arrangement, and likely the one that will determine whether it ultimately succeeds or fails, is whether it is embraced by the higher education community, especially faculty, accrediting agencies and regulators.  

In short, having a for-profit company manage an online program for a public university is not a big deal at all. However, having a public university acquire another university (for-profit or nonprofit), and jump-start its online university effort, challenges higher education’s cultural norms in a really big way.  

Navigating this is the real challenge facing Purdue and Kaplan.

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Audrey Watters, writer and blogger, Hack Education

I’m waiting for Tressie McMillan Cottom’s analysis of the (rather shocking) news today that Purdue University is buying Kaplan University (and supposedly turning it into a public university-of-sorts) before I say too much. (I’m thinking this has a lot to do with “skills,” “the employability narrative,” privatization, and prestige – but really, I’m leaving that part for Tressie.)

I do want to jot down some notes about the Kaplan Inc business and its network of investments, people, products, and practices. Kaplan is, after all, one of the companies that I have long thought might be a powerful “ed-tech mafia” akin to how some describe PayPal founders and early execs and their influence in the direction Silicon Valley has taken.

Read more from Audrey here.