Distance-learning ventures propel top universities into for-profit sector: Harvard, Cornell, and Stanford among those lured by $10 billion potential - B2C

Matrix: The Magazine for Leaders in Education, Nov-Dec, 2000 by Karen Singer

As the Internet becomes a part of daily life--and learning --higher-education leaders across America are grappling with tough questions regarding how to best take advantage of opportunities made possible by the new technology.

While some sit on the sidelines, many others are dipping a toe, or more, into the water. They're developing distance learning courses as extensions of existing campus offerings, and forging strategic partnerships with companies specializing in e-learning.

As part of the experimentation, several schools, both public and private, have thrown themselves fully into the fray, by creating for-profit spin-offs for online learning.

"At least 75 percent of universities of any significance are looking at this, or dabbling with it to some extent," Robert E. Mittelstaedt Jr., vice dean at the Wharton School of the University of Pennsylvania, said. "There are plenty of previous experiments, but the Internet is just a better platform than we've ever had before."

And the one that seems to offer the most profit-making potential.

"Reports say somewhere north of $10 billion over the next five years," said Howard Block, managing director of educational services at Banc of America Securities, referring to the market for virtual higher education. Another $11 billion is estimated for virtual corporate learning.

With those kinds of projections, it's little wonder universities have joined the growing ranks of high-profile investors and corporations pouring megabucks into online learning.

Most universities so far seem to be developing and offering online courses under their non-profit umbrella.

But a handful of schools has taken a non-traditional approach, establishing separate, for-profit entities.

"It's a great way to raise equity, particularly because it's difficult for universities to generate a lot of capital to produce growth plans," Block said.

Universities are designed for stability "so some of the attraction of going with a spin-off is you can move a lot quicker," Graham Mercer, director of The University of Michigan Business School's global learning center, said.

Michael Eisenstein, senior vice president of strategic marketing for NYU Online, Inc., agreed.

"The majority of universities move very slowly, and have hundreds of years of tradition," he said. "But their greatest attribute may be their greatest chain."

Especially these days, when there are plenty of investors hot to trot.

Although a slowing U.S. economy resulted in a drop in venture capital investment into education from $647 billion in the second quarter of 2000 from $931 billion the first quarter, according to eduventures.com, Tom Evans, an analyst for the Boston-based education industry research firm, still sees big opportunities for investors in distance learning.

"Maybe 25 percent of workers in the U.S. used to be skilled workers, but now it's 65 percent," Evans said. "There's a much greater need for education, and most universities understand the Web can change the way higher education is administered."

Indeed, corporate training and continuing education are major areas universities are targeting in their for-profit e-learning efforts.

Almost two years ago, for example, New York University spun off NYU Online, Inc., a wholly owned subsidiary offering online corporate training.

NYU has committed an initial $21.5 million to the enterprise, Eisenstein said.

For the first year, NYU Online was run by university personnel, but now has seasoned business professionals at the helm, including CEO Gordon Macomber, former president of Macmillan Reference.

"What we're doing is a complementary strategy to the university, selling non-degree content based on assessment of corporate learning needs," Eisenstein said. "Through those channels, there may be people who want to take degrees from the university, and we will facilitate that effort to bring in people from corporations, but we're not going to make any admissions decisions."

The business model has revenue sharing on both sides.

"All our content will be largely based on consulting engagements with Fortune 100 companies, targeting middle to senior managers," Eisenstein said.

Four new courses, covering financial fundamentals in formats using new techniques for online learning, are being produced with NYU's Stern School of Business. Prices range from $65 to $150 per instructional hour.

NYU Online also is developing a Spanish language version of courses for NYU's school of continuing and professional education, which enrolls around 70,000 students.

STANFORD, COLUMBIA LAUNCH VENTURES

In May, Stanford University's School of Medicine launched e-SKOLAR, a for-profit online medical information service offering search capabilities as well as a program for lifelong learning and continuing medical education certification.

Stanford maintains a major equity stake in the company, which grew out of the school's medical school and engineering department.

Phyllis Gardner, senior associate dean for education and student affairs at the Stanford School of Medicine and chair of the board of e-SKOLAR, has called the venture unique because it gives medical professionals all over the world access to peer-reviewed information and Stanford certification.