University of Dayton
Administrators at the University of Pittsburgh decided a year and a half ago to incorporate an online component into the institution’s professional master of business administration and executive M.B.A. in health-care programs, as a complement to the face-to-face programs. The institution wanted to scale quickly, and determined that developing the online programs internally wouldn’t be cost-effective.
So they brought in a few online program management providers from two distinct categories. One offered the more established revenue-sharing model, in which a vendor typically spends its own funds to design, market and provide services to take an academic program online in exchange for a cut of revenues over a decade. The other requires an up-front fee for each service provided, with no long-term revenue-sharing requirement. The latter proved less financially risky and more consistent with the institution’s mission, according to Bill Valenta, assistant dean of online M.B.A. programs.
“It gave us that sense of comfort that we may take control of our program, and we could deliver our program to the level of quality that our students both expect and deserve,” Valenta said.
Pittsburgh eventually teamed with iDesign to develop blended learning courses in its M.B.A. programs. The institution controls marketing and course creation, while iDesign provides the technology infrastructure and insights from its instructional designers.
The university’s choice points to a key narrative in the OPM space. The fee-for-service model offers institutions flexibility to pursue shorter-term arrangements and retain course autonomy in exchange for investing more up front. But experts say revenue sharing -- in which institutions pay 50 percent or more of the online program’s revenues to the OPM provider -- will continue to dominate, because it offers a broader range of services long term.
Observers differ on the degree of momentum the fee-for-service model is currently riding, but most agree that it is attracting more interest from institutions looking beyond their internal capabilities to go online -- and that more companies want to meet that interest.
“I think that the very successful revenue-share providers who have long-term contracts will hold on to that model. They’ve made huge investments in their own technologies and services and staff. They’re built to go long over time,” said Howard Lurie, principal analyst of online and continuing education at Eduventures, a Boston-based higher education research firm. "But I think there are other providers who may not have made that investment who may be looking at some ability to be flexible.”
The OPM market is at least $1 billion, according to Lurie, who notes that the number could be as high as $3 billion based on the investor valuation of the largest and most successful providers. Those numbers are based on publicly available contract data, and the higher-end estimates reflect investor projections, he said.
Hard data breaking down the OPM market share aren't yet available (although Eduventures plans to release a report later this year). But observers say growth has slowed in recent years from its explosion in the last decade. Consolidation, particularly among the smaller players in a market with more than three dozen participants, could be forthcoming.
Student demand is also a wild card -- if the economy weakens, interest in online education could surge, according to Lurie. Though some contend that the OPM market has peaked, it should not be counted out, argues Trace Urdan, managing director for Tyton Partners, a consulting and financial advisory firm focused on education markets.
“Easy growth comes first, then the more difficult growth comes after that,” Urdan said.
Institutional buy-in presents another ongoing challenge. According to Inside Higher Ed's 2017 Survey of Faculty Attitudes on Technology, to be released next week, instructors are almost uniformly wary of OPM providers influencing their work -- and digital learning leaders have misgivings as well. Of those surveyed, only 5 percent of the former and 4 percent of the latter believe institutions should hire OPM providers to develop, produce and manage online degree programs. More than 50 percent of both groups believe institutions should not work with OPM providers at all.
Fee for Service Grows
According to Valenta, OPMs offering revenue-sharing models to Pittsburgh spoke of 10-year contracts, takeover of the institution’s marketing efforts, and rapidly expanding enrollment to students nationwide. Those ideas struck leaders as out of step with the mission to maintain the quality and rigor of Pittsburgh’s M.B.A. programs while broadening their reach, mainly to students in nearby Pennsylvania counties.
Valenta said Pittsburgh opted for a fee-for-service contract in part because students expressed concerns about the university moving its M.B.A. programs online.
“I think that we have a student base that is becoming increasingly aware of what high-quality online programming is, and what may be programming that they’re disappointed in,” Valenta said. He added that with the iDesign deal, “We were [entering the online space] well aware that we could say to our students very genuinely that we’ve thought this through and we weren’t compromising quality.”
Cedarville University, in Ohio, jumped into online programs about four years ago with consulting from Emerge Education, a Philadelphia-based company that provided marketing and recruiting assistance for the institution’s graduate programs. After a few months, Cedarville considered initiating a partnership with one of four OPM providers under the revenue-share model.
But the university determined that its capabilities were strong enough that a more expansive contract would be an exorbitant investment. Instead, according to Janice Supplee, Cedarville’s vice president of marketing and communications, the institution entered into a fee-for-service arrangement with Emerge to extend its help on recruitment and marketing.
“A fee-for-service agreement allowed us to bolster the areas where we needed additional support while carefully stewarding our resources,” Supplee said. “Further, the fee-for-service agreement had a shorter duration, which gave us time to build our internal capacity and did not lock us into a long-term contract.”
Cedarville’s needs have evolved several times since the partnership began, but Emerge has been adaptive, Supplee said. Though still relatively small at 417 students across five programs, graduate enrollment at Cedarville has grown in each of the last five years.
Emerge has “provided training for new staff and worked alongside us as a partner, not just a vendor or contractor,” Supplee said.
Revenue Share Lives On
The fee-for-service arrangement still represents a small fraction of the market among institutions seeking help from an outside vendor, however. The University of Redlands, a private nonprofit institution in California with approximately 4,700 students, concluded in late 2015 that online programs needed to be part of its offerings. University leaders examined both models, but discounted the fee-for-service options fairly quickly.
A robust instructional design program and a significant investment in infrastructure rose to the top of administrators’ priorities, according to Andrew Wall, dean of Redlands’ school of education. Signing a fee-for-service agreement while making improvements to the university’s technical infrastructure would have been far less cost-effective than a traditional OPM deal, he said.
“Our [desired] partnership was all about finding someone that wanted to deliver programs in that realm in a way that we thought would meet the mission,” Wall said. “That wasn’t where the fee-for-service was at. That alignment wasn’t there.”
The institution eventually chose Keypath to deliver an M.B.A. and a master's of arts in education. Wall expects both online degrees will lead to modest, if not spectacular, enrollment increases.
Eric Spina, president of the University of Dayton and a former high-ranking administrator at Syracuse University, dealt with a revenue-share arrangement with 2U at both institutions, and found both experiences rewarding.
“They can bring a lot of people and a lot of resources to bear relatively quickly in areas where it would take the universities a long time to staff up and staff up well,” Spina said.
Both Dayton and Syracuse had online programs prior to partnering with 2U. But the company’s promise of robust marketing was attractive to midsize institutions that couldn’t afford a large-scale campaign, according to Spina, and 2U also provided admissions counselors, enrollment management, course development, instructional design and course material production.
The Dayton M.B.A. program launched earlier this month, but Spina said it’s already off to a much stronger start than anticipated, with 107 students enrolled compared to a projection of 40 to 45 students. At Syracuse, Spina said 2U left space for faculty members to make their mark.
Revenue Share Isn’t Perfect
Lurie believes colleges and universities interested in revenue sharing often look at fee for service as well, if only to weigh the long-term benefits of revenue sharing against the possibility of keeping more services in house.
“There are more institutions with greater interest in a fee-for-service option, but they don’t always have the wherewithal, meaning the budget and the capital to execute a fee-for-service plan,” he said.
And generating substantial revenue under that model is an uphill battle, said Ray Schroeder, associate vice chancellor for online learning at University of Illinois at Springfield.
Schroeder said he’s heard from people who work for OPM providers that deals with institutions often follow a predictable pattern: five years of productivity followed by a “divorce that’s messy.” Issues of copyright ownership start to crop up, and leaving the ironclad agreements midstream can be challenging. The highest-profile parting in that vein came two years ago when the University of Florida canceled its contract with Pearson.
That wasn’t Spina’s experience, though -- he said those issues were worked out ahead of time and haven’t generated controversy among instructors.
Moving Abroad and Diversifying
As the OPM market diversifies in the U.S., providers are beginning to flourish abroad. Steve Fireng, CEO of Keypath, said his company is focusing its attention on universities overseas, which make up approximately half of its clients.
“We just think that what’s going on in the rest of the world is where the U.S. was seven or eight years ago,” he said.
Fireng continues to see the revenue-share model as the most fruitful course for his company, though Keypath recently offered institutions a fee-for-service option.
Andrew Hermalyn, 2U’s executive vice president of university partnerships and programs, said 2U expects to work on more interdisciplinary degree programs and nondegree certificate courses, as institutions diversify their online programs beyond the more traditional master’s programs.
Pearson’s OPM arm has seen demand for revenue-share agreements increase in recent months; the company established more contracts with institutions this year than in the previous year, according to Paul Gleason, chief operating officer for Pearson Online Learning Services.
Likewise, Pearson’s fee-for-service options have generated steady interest for the past decade, with no noticeable increases in recent years, Gleason said. Five institutions currently take advantage of Pearson’s services under that model.
More than half of institutions going online have chosen not to partner with an outside company, Gleason said, adding that a large part of the market, therefore, remains untapped.
Analysts including Phil Hill, partner at MindWires Consulting and co-publisher of the blog e-Literate, believe OPM providers will continue to thrive in the foreseeable future -- with revenue sharing continuing to lead the charge.
“I view it as a crowded marketplace with more options available,” Hill said. “I realize that sounds a bit Pollyanna about market forces. If you have a good niche in this space -- if you’re an OPM provider and your school is making revenue by your partnership with them -- 50 percent of something is better than 100 percent of nothing.”