With $14M Fundraise, Noodle Wants Colleges to ‘Pick and Choose’ How They...

Digital Learning

With $14M Fundraise, Noodle Wants Colleges to ‘Pick and Choose’ How They Build Online Programs

By Sydney Johnson     Dec 1, 2017

With $14M Fundraise, Noodle Wants Colleges to ‘Pick and Choose’ How They Build Online Programs

As more nonprofit colleges and universities bet their futures on online offerings, many are turning to for-profit companies to help create and advertise their new digital degree programs.

One of the newer players to step into that online program manager (OPM) space, Noodle Partners, got a boost this week: $14 million in Series A funding led by edtech venture capital firm Owl Ventures. The announcement comes about a year after the startup raised $4 million in a seed round from Osage Venture Partners and New Markets Venture Partners, bringing Noodle Partners’ total raised to about $18 million.

Backdrop to the raise is a growing market and demand for online courses. Nearly 12 percent of all undergraduate students, and about a quarter of graduate students, are enrolled in full time online degree programs, according to the 2017 The Changing Landscape of Online Education (CHLOE) report.

Meanwhile, research by Eduventures shows the number of online programs offered at 2- and 4-year higher-ed institutions more than doubled between 2011-2015. And the number of schools working with OPMs to help create and deliver those programs increased at an even higher rate, growing 133 percent over the same period.

It’s a market that John Katzman, CEO of Noodle Partners, knows well. Prior to founding Noodle Companies in 2010, the holding company for Noodle Partners and three other organizations, he started 2U, a provider of OPM services for colleges. There, he helped 2U raise nearly $100 million, and left shortly before the company went public.

Now, Katzman is raising funds again, this time as a direct competitor to his previous endeavor. But he says his plans for fundraising and revenue are different this time around. For one, “I don’t need to raise the way we did at 2U,” Katzman tells EdSurge.

That’s because the online program market he sees today is strikingly different from the one that 2U found its roots in. “A decade ago, the cost to build a program was very high, and there was substantial risk,” says Katzman.

In those days, he says schools often lacked the in-house expertise to create and sell an online program from scratch, and looked to OPMS to provide, among various services, technology support, recruiting and marketing, and instructional design. Other OPM providers, including 2U, still use that all-in-one model.

Noodle is far from being the only company helping colleges create online degree programs. According to The Atlantic, just five companies—2U, Academic Partnerships, Bisk, Pearson Embanet, and Wiley Education Services—control nearly half of the OPM market, which is estimated at around $1.1 billion.

To vie for colleges and clients, Katzman offers a different, “pick and choose” approach with Noodle Partners. Unlike some OPM providers that sell an entire package of services, he believes in letting schools decide which features to outsource or build in-house. (Another OPM, Wiley Education Services, offers a similar model.)

The flexible option to purchase instructional design, marketing and student support services was one of the reasons why Tulane University chose Noodle Partners, even after having built some online programs in-house.

“We can elect to use those services or not, and that was attractive to be able to decide internally as we scale,” says Jamie Northrup, senior associate vice president of strategy at Tulane.

Still, Katzman doesn’t think colleges can take any shortcuts to creating their online programs. It’s “not a la carte,” he says. “All of the things I did at 2U have to be done. You need to fund the program and market it and recruit students, and you need instructional design and everything else. Our feeling is some universities have substantial capacity [to do some components in-house] rather than allowing an outside firm to do it.”

In addition to Tulane, Noodle Partners has signed on nearly a dozen universities like American and New York University.

As colleges bring more services in house, Katzman is betting that they will not want to pay for expensive all-in-one services. On average, OPM providers get a 60 percent revenue share for around a decade, according to the Eduventures report.

Noodle offers a flat fee-for-service option, without long-term revenue-sharing contracts, and claims those fees can be as little as 3 to 5 percent of student tuition dollars. Combined with the services offered by its partner vendors, however, Noodle’s fees more typically costs 30-35 percent of student tuition, Katzman says.

Still, experts are skeptical that fee-based services will replace the revenue-sharing model that currently dominates the OPM deals in place today, Inside Higher Ed reports.

Noodle is similar to its competitors in some ways, too, and has its own revenue-sharing option. In those arrangements, the company uses it own funds to build and market the program in exchange for 60 percent revenue for about three years, before switching to the fee-based payment plan.

In the push to dominate the OPM race, Noodle Partners will face another challenge: client saturation. According to the CHLOE study, boosting student enrollment tops the list of reasons for colleges investing in online learning, “with other objectives, such as student completion gains and cost reduction, trailing far behind.” And as more OPMs offer colleges the ability to extend their footprint on a national and global scale, those reaches may overlap.

Of course, many online programs still attract local students. (Some have been criticized by faculty for cannibalizing in-person courses.) But to compete effectively, Katzman thinks online programs will have to integrate with specialized in-person offerings to win over prospective students.

“Differentiation will be the key online. It’s what kind of students do we serve and what are we teaching them, and where are we placing them?” he says. “As geography matters less, how you position your school will matter a lot.”

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