Carving your slice of the 'virtual' education pie: thinking about going virtual? Better bone up on the for-profits to see what you're up against - Online Education

University Business, July, 2003 by Rebecca Sausner

It's common knowledge that there have been flops in the virtual university market--both for-profit ventures and not-for-profits that invested millions only to pull the plug after a year or two. Still, the market for distance education continues to grow rapidly, from enrollment of 1.6 million students in 2001 to 2.2 million in 2002. According to International Data Corp (www.idc.com), no less than 150 institutions were offering online undergraduate degrees by year-end 2001, with 200 offering graduate counterparts; year-end 2002 figures are bound to be higher still. In the past year, a handful of the remaining for-profit companies (Kaplan, Sylvan Learning, etc.) have continued deep-pocketed expansion in an effort to attract adult learners; but an increasing number of traditional universities (UMass, for one) are also finding the dollars to go after this market--and the competition is getting stiffer daily.

According to Rachel Hendrickson, coordinator of the Higher Education division of the NEA, "As traditional campuses come online, they are going to be in greater competition for the adult market, [a market] in which adults are going to be going back to school every seven years or less. We saw the proprietary [companies] jump in fast; our campuses are now ramping up to provide those services as well."

But just how imposing is the challenge coming from the dominant "virtual" universities? When it comes to reaching the estimated 9 million part-time or over-25 postsecondary learners who (according to the National Center for Education Statistics) will be enrolled in the U.S. in 2010, the question is: How tough will it be for online education entrants coming from the traditional university sector to grab a sizable wedge of the pie from the wholly online leaders?

And there's an urgency to this question, as well, because the for-profit virtuals have succeeded in quickly attracting hundreds of thousands of adult learners--and speed (always a problem for traditional IHEs) may be critical to traditional universities, if they are to compete successfully with the virtuals in the coming years. Then there's the issue of the federal Higher Education Act, which is up for reauthorization this year. The virtuals are lobbying hard to have the "50 percent rule"--which often prohibited distance ed students from receiving federal student aid--repealed, or at least softened. And finally, there's the growing threat of losing traditional college and university students to the virtuals: After long focusing their efforts on adult learners and degree completers, online education companies are now setting their sights on the traditionally campus-bound.

What, precisely, do traditional IHEs have to fear from the for-profit virtuals? Here's the current lowdown, minus the 800-pound gorilla, University of Phoenix--technically not a virtual, by virtue of its campus.

When JONES INTERNATIONAL UNIVERSITY (www.jonesinternational.edu)--which calls itself the first purely virtual university in the U.S.--received its accreditation from the Higher Learning Commission (a member of the North Central Association) in 1999, it offered two degree programs. Three years later, it offers 28; and in 2001, reported sales of $76.7 million. The latest addition to its portfolio is a baccalaureate degree in Business Administration, which is Jones' first program aimed at younger students who have yet to enroll in college or have just a few credits.

"We can see that there might be a different type of student emerging," says Pamela Pease, president of JIU. "Five years from now, it may be desirable for somebody who is 18 or 19 to have the flexibility that a wholly virtual education offers." And while Jones is beginning to target a customer much younger than its current students (average age: 38 to 42), it is also focusing globally by offering 16 of its degrees to Spanish-speaking students. The school has students from 70 countries.

"Though three-fourths of our student base is still in the U.S., the growing piece of our student base is global," Pease says, noting that the school is also working with the United Nations Development Program to set up a corporate university for leaders within that organization. Aside from the traditional-age and global markets, Pease is coy about other programs in the pipeline at Jones, awaiting accreditation. But speed to market has not been a shortcoming for the virtual, part of privately held Jones Media Networks, Ltd. and one of the many brainchildren (Jones Cyberschools, Jones Knowledge, and Jones Interactive) of mega-entrepreneur Glenn Jones.

"Every year of the last four," says Pease, "we've launched a series of degrees--sometimes two types of degree programs in a year; 2003 will be no different."

SYLVAN LEARNING SYSTEMS INC., known for its after-school learning centers for K-12 students, surprised the market when it announced in March that it was exiting K-12 to focus solely on its higher education initiatives. The public company, known for its sales growth rate of 35.5 percent (1998 sales of $179 million grew to $604 million in 2002) is now divided into two units. One runs its eight campus-based Sylvan International Universities (www.sylvanu.com), the other its Online Higher Education division, which includes three purely virtual schools: National Technological University (www.ntu.edu); Walden University (www.waldenu.edu); and Canter (www.canter.net), which currently helps more than 12,000 K-12 teachers earn advanced degrees. Sylvan has spent more than $80 million since 1997 to acquire its online components. It expects them to be serving 19,000 students by the end of 2003 and generating more than $100 million in revenue.