Online education was once considered a distant second to in-person classes. Now universities across the country, from Yale to the University of California, Berkeley, offer virtual degree programs, with price tags close to tuition for on-campus experience. Helping universities scale their face-to-face courses to digital environments has become a $1.5 billion industry, according to investment banking and strategy consulting firm Tyton Partners.
Noodle Partners, an online program management (OPM) provider founded in 2015, is the latest business to put skin in the game. The New York-based company today announced it’s raised a $4 million seed round led by Osage Venture Partners, with participation from New Markets Venture Partners, 500 Startups and others.
Noodle Partners landed its first customer, Pepperdine University, in March 2016, and the company will launch 10 more online degree programs this spring. Serial entrepreneur John Katzman, who is Noodle Partners’ founder and CEO, compares his latest venture to the “Android version” of OPMs. Rather than creating online degree programs from scratch, Noodle is outsourcing various aspects—recruitment, curriculum design—to other companies and bundling together the services for universities.
“Our vision of Noodle is toward agile universities,” he says, meaning he sees the company filling in holes between online and in-person learning. “We don’t have an online MBA with its own marketing team and own instructional design effort and own technology and campus-based program with its own everything. We simply have an MBA program.”
Mapping the OPM market
Online program management providers, also known as online enablers and online service providers, help colleges and universities bring their courses and degree programs online. OPMs typically handle marketing to and recruiting students, enrollment management, curriculum development, course design, student retention support and technology hosting.
Rather than being a “nice-to-have” source of extra income, online degree programs are becoming a bigger part of institutions’ core offerings. The number of undergraduate and graduate students taking one or more online courses grew by 4 percent last year, according to a Babson survey. As a result, about one in four undergrads now take at least one class online. And it’s not just students at for-profit institutions who enroll: 73 percent of online students are enrolled at public universities.
The OPM industry is growing at a healthy clip of 35 percent annually, according to Tyton Partners. Research and advisory firm Eduventures estimates that 350 institutions have partnerships with OPMs and that the number is growing.
Most OPMs are for-profit companies, though at least one nonprofit provider—Educators Serving Educators—exists. The majority operate on a revenue-sharing model, taking a cut of tuition. OPMs used to take as much as 80 percent, though now providers receive 60 percent of students’ tuition on average, according to Max Woolf, vice president in the investment banking practice at Tyton Partners. He says the reason the revenue-sharing model has worked is two-fold: First, it’s “found income” for the institution, which wouldn’t get any money without offering the program in the first place. Second, recruiting online students is an expensive process that schools are happy to offload onto OPMs.
In the revenue-sharing model, OPMs sign long contracts—typically seven to nine years—with university partners. That’s because the companies spend millions to create a program and it takes two or three years to recoup the cost.
There are currently about 30 players in the OPM game today. Five of those companies—2U, Bisk Education, Wiley Education Services, Pearson Embanet and Academic Partnerships comprise roughly half of the the market, and all of them operate under a revenue-sharing model.
Here’s the twist: Katzman also cofounded 2U, which has built more than 25 programs for university partners.
The Noodle Partners model
Katzman contends that universities will stop paying OPMs such a large portion of the income they make from online programs. “There’s not a chance that 10 years from now universities as a group will spend two-thirds of their revenue for some marketing services and some tech and support.”
Rather than charging university customers a portion of tuition, Noodle Partners is offering a fee-for-service model. It acts like a general contractor, charging a flat rate for its services and contracting other organizations to handle various aspects of the online program, such as marketing and curriculum design. Noodle Partners says its customers will end up paying roughly 30 percent of their tuition revenue to the company and its service providers (Noodle will take 2 to 3 percent of that).
Pepperdine University is working with Noodle Partners to offer a bachelor of science degree in management. The OPM has brought on several service providers to run the program: Sparkroom handles marketing; IData manages student data, Examity covers online proctoring and eSync helps transfer data in real time. Tuition runs at $75,000 for the two-year program.
Noodle Partners currently has a team of 15 employees, and will add a few more with the recent round of funding, Katzman says, adding that the company will likely try to raise another round of investment in a year.
Noodle Partners is one of three business that falls under the umbrella of the Noodle Companies, which Katzman founded in 2010. The other two are Noodle.com, which he calls “The TripAdvisor for education,” and Noodle Markets, a K-12 procurement business.
The future of online bundles
A fee-for-service model “has been around since the Viking ages,” says Howard Lurie, principal analyst for online and continuing education at Eduventures. But his firm, which will release research on the OPM landscape next month, is seeing growing interest from universities in these flexible options.
“From the CIO’s office and the perspective of decision-makers within institution, there are greater capabilities that are being created in-house and a greater range of services that they can select from,” Lurie says. Perhaps the university wants to outsource recruitment and analytics for its online program but handle the curriculum design internally. Katzman and Noodle Partners are betting on this scenario.
The fee-for-service model has different risks than those of traditional OPMs, Woolf says. “Rather than delivering services all under one roof, [Noodle Partners is] going out and contracting those services on behalf of the school.” But while this may result in a lower cost for the school, Woolf says “there are multiple points of potential failure” if one of the providers fails to deliver.
His advice to universities looking for an OPM? Take control of the partnership. “Institutions need to manage this relationship more effectively than just signing up with an OPM,” Woolf says. “They need strong leaders at top and operational folks who can look across processes and think about how to be more flexible and adaptable.”
The success of any online program increasingly depends on the value students get out of it—not just the number of students enrolled, he adds. “Outcomes will be the bellwether for everyone in terms of who’s going to win and lose,” Woolf says. “It’s going to have to come down to bringing in right number of students and then ultimately having those students matriculate, graduate and be successful at the institution.”