The online program management (OPM) industry—which helps traditional universities create and compete with online learning offerings—is growing rapidly. Last fall, the industry brought in revenues of more than $1.1 billion, according to Eduventures.
Partnering with private providers is not new to higher education. Since the 1970s colleges and universities have partnered with outside firms to support their IT, finance and accounting, human resources, dormitories, food service, and financial aid and student loans operations.
But OPM providers are different in two critical respects. First, they directly support the delivery of an institution’s academics. And second, they take in a direct percentage—around 50 percent on average—of a program’s tuition revenue.
Both of these practices have raised the hackles of some onlookers.
Some have questioned if colleges and universities are still maintaining proper control over their courses, or ceding that responsibility over to the OPMs. And some have decried the large share of revenues that OPMs take, and the incentives that may create for colleges and universities to do anything to enroll large numbers of students and push tuition bills ever higher.
While onlookers debate a proper response—whether the government should intervene, for example—disruptive innovation theory suggests that a new breed of companies are emerging that will address these concerns.
In every industry, the early successful products and services often have an interdependent architecture—meaning that they tend to be proprietary and bundled. The reason is simple: when a technology is immature, to make the products good enough so that they will gain traction, an organization has to wrap its hands around the system architecture so that it can wring out every ounce of performance.
As a technology matures, however, it eventually offers more in performance and features than many customers can utilize. As a result, the original innovators themselves become vulnerable to new innovations that are more modular, and customers become less willing to pay for things such as raw functionality and increased reliability. Instead, customers begin prioritizing the ability to customize a product to their individual needs at an affordable price. Customizing a bundled service is expensive because it forces a full redesign of the underlying system architecture, but customizing a modular offering is affordable because it is merely a matter of mixing and matching discrete parts together in well-understood ways.
The computing industry provides one illustrative example. Apple and IBM’s personal computers were significant, early disruptors. Then more modular devices such as the Dell desktop computers disrupted Apple and IBM because Dell made none of the parts internally but instead purchased them from manufacturers such as Seagate, Intel and Microsoft. This modularity enabled Dell’s customers to specify the features and functions they wanted, and then Dell could assemble and deliver them an affordable computer within 48 hours.
The world of online learning has been no different. The early OPMs—like 2U, Academic Partnerships, and Pearson Embanet—have offered a full suite of solutions ranging from marketing and enrollment services to program design, faculty support, and, in certain cases, the technology to optimize performance and deliver a good enough solution for universities. In a world where online learning was primitive and it was hard to create a great online experience, having a partner that could wrap its arms around the whole solution was critical. But the tradeoff has been a high price point and little ability for universities to customize and control the offerings.
As the underlying technologies have improved over the last decade with a plurality of independent solutions emerging for marketing and enrollment, academics, retention, career connections, data analytics and more (these include everything from Helix Education, Canvas and Schoology to Greenwood Hall, Inside Track and Smart Sparrow), universities increasingly do not need to partner with a full-solution provider to move online—and they certainly do not need to reinvent the wheel from scratch.
In the years ahead we can therefore expect to see an unbundling of the OPM market as traditional OPMs increasingly overshoot in terms of prices and features that a university needs. New entrants will emerge that help universities sort through the overwhelming number of technology and company options that exist to launch and operate an online program to find the right fits for the university, integrate those entities into a seamless offering—similar to what Dell did—and then help universities control and customize the suite of offerings for their price and functionality needs. Already Noodle Partners, where, full disclosure, I am a board member, has stepped in to do just this. The disruptive impact on the OPM market will be significant.
Most importantly, the benefits for universities and students will be significant as well. School will assume greater control over programs for which they are selecting vendors and actively customizing. They will develop know-how in building and managing online programs—a key competency for their future success as online learning continues to grow and evolve.
And, after accounting for an initial up-front investment that the university would have to make to launch an online program without a full-service OPM, college expenditures would fall. The annual savings from shifting away from a model that takes a percentage of tuition to an unbundled, more traditional fee-for-service model could be as high as 40 percent.
Although this may not immediately result in lower sticker prices for students, it would give universities more revenue such that they could afford to do two things. First, universities could reduce future tuition increases. And second, colleges would gain the flexibility to compete on net price at minimum and, in an increasingly saturated online market, potentially sticker price as well, which would have enormous benefits for students.
Change won’t happen overnight—the OPM sector has itself taken two decades to develop—but it is coming. University leaders launching online programs will increasingly have to ask themselves if they want to share a sizable portion of their tuition revenue with an outside, full-service entity or opt for a more affordable and customized path.