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SCOTTSDALE, Ariz. -- Colleges and universities are expected to pay at least $1.1 billion in 2015 to companies that helped the institutions take their academic programs online. The research firm Eduventures estimated in a recent report that the market for these "online program management" providers, which others call enablers, could more than double by 2020.

Not if John Katzman has his way.

Katzman is a serial entrepreneur who started the Princeton Review and more recently the education search website Noodle. He also counts among his creations 2U (formerly 2tor), which has been among the highest profile of the enablers, making a splash with an initial public offering last year. Katzman left the online platform in 2013.

2U and the two dozen other companies that have emerged over the last 10 to 15 years (more rapidly in the last 5) typically work by making an up-front investment in building an online academic program, then providing an array of services (admissions and enrollment support, marketing, online course development, and student services) in exchange for a large share of the subsequent revenue. (See a chart below of how Eduventures groups the current providers.)

The collective footprint of the companies has increased significantly, but with that expansion have come growing complaints about the providers’ revenue share (often in the 60 percent range) and the long-term nature of the contracts, which typically lock colleges in for a decade. (The enablers respond that they’re taking on most of the initial financial risk and need the long-term deals to ensure that they get paid out.)

While some of the rumblings of complaint have urged colleges to forgo their use of third-party providers, Eduventures and other analysts say that comparatively few institutions have the expertise and the financial and other resources to do so, and predict continued growth in the market.

Katzman both believes that many institutions will continue to need help from online enablers and agrees with some of the criticism of them. That’s why he describes his newest venture (which he unveiled Wednesday at the annual A.S.U.+G.S.V. Summit here) as the “first of what will be a generation of enablers on a different model.”

The Noodle Partners model differs in a few key ways. Unlike most of the existing providers, which have built their own technology infrastructures to provide the enrollment and instructional design and student services they offer to colleges, Noodle Partners will essentially stitch together a network of service providers that have agreed to comply with a set of technology and business standards. Noodle will be something like a general contractor, and institutions will pay fees to the various vendors, rather than agreeing to share a cut (often significant) of the revenue as it flows in. Katzman cited a few examples of the types of companies he is negotiating with to be part of the network, but said no contracts with them had been signed.

Getting the various contractors to use a common set of standards -- and riding herd on them to keep down the costs of integrating their products together -- is one of several ways that Katzman asserts Noodle Partners will be able to keep the up-front cost to colleges of building out each online degree and nondegree program under $2 million. Strategic use of the increasingly available and improving open educational resources, massive open online courses and other low-cost but high-quality content (together with homegrown material developed by a college or university’s faculty) will also drive down the cost of producing the programs the partner network would help the institutions build.

And while the current online program management companies fund the academic programs they create for colleges with funds raised by venture capital or private equity firms -- expensive money, the costs for which the enablers must recoup from their college clients over time -- Noodle Partners will expect the colleges themselves to use their own funds (or borrow it, at a much lower interest rate than the 15-20 percent the private capital costs) to finance the programs’ creation.

That up-front investment will be more than offset, Katzman argues, by how much more of the revenue institutions will keep over time. A college that uses Noodle Partners will get transparent quarterly bills from the various providers in its network (one from the company driving the enrollment, one from the L.M.S. provider, etc.), and those bills will, over the course of the program’s life, amount to under 30 percent of the total student revenue it produces, compared to the 60 percent that many current enablers get.

“The direct cost of most of these programs is 20 percent of the revenue,” Katzman says. “If an enabler is taking 65 percent, that leaves only 15 percent left for the institution to use for all the other things it wants to do. If only 30 percent is going out of house [to Noodle Partners, in his example], that triples to 45 percent the amount you can have for administrative costs.”

He adds: “Spending the [up-front] money yourself is going to save you tens of millions down the road.”

The Outlook

Katzman’s track record and his personal persuasiveness would lead many an education technology observer not to bet against him in this new venture.

But the recent Eduventures report and other analyses of the online learning market suggest some potential impediments to the plan.

While the Eduventures report envisions the online provider market continuing to grow, its list of reasons for anticipating that growth includes at least one -- “lack of institutional capital and other resources” -- that could work against Noodle Partners.

“Many colleges do not have the financial resources, the capacity to develop services from scratch or the risk profile to take on brand-new program expansion,” Eduventures wrote. “O.P.M. providers are able to fund these capital-intensive start-up activities by leveraging economies of scale by working with multiple partners, and are able to defray some of the costs by taking on the risk on behalf of their institutional partners.”

Kenneth Hartman, who analyzes online learning for Eduventures, had a more anecdotal example. He described a recent discussion with a college administrator contemplating going online for the first time and having no infrastructure in place to do so. “Someone has to take on the risk of starting a new program, and I can guarantee you, this institution, like a lot of them, is not going to want to take on that risk. He doesn’t have that money lying around.”

Hartman also said the significant use of open educational resources that Katzman projects could raise a yellow flag for some faculty members about the quality of program content.

“Like with so many things, the devil’s in the details,” he said. “Show me how you’re going to cut the administrative costs, the marketing piece, the instructional costs. At the end of the day, it’s going to be about the quality and how they’re going to sell it.”

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