The Parthenon Group September 212 Are the Sleeping Giants Awake? Universities Enter Online Education at Scale by Chris Ross, Partner
New Market Entrants For-profit institutions were the first to recognize the adult learner market opportunity, developing and marketing online programs designed specifically for working adults who had previously ruled out the possibility of a post-secondary degree. Apollo s of Phoenix and several other for-profit institutions blazed a trail in online, post-secondary education. Today, Apollo (APOL) singlehandedly enrolls more students in the U.S. than the ten largest non-profits institutions combined (Figure 1). Recently, however, a small but expanding group of non-profit universities has also achieved competitive scale. Figure 1 outlines the major players, currently comprised of 11 non-profits that each enroll over 1, students annually. To date, these non-profit players have been primarily inclusive universities that accept most students who apply. As the right-hand side of Figure 1 indicates, most selective non-profit universities have thus far chosen to not enter the online learning space. While these institutions make up almost half of the approximately 18M annual post-secondary enrollments, they currently represent less than 2% of all online enrollments. Despite the recent growth in online enrollment, significant growth opportunities still exist for online learning at non-profit institutions, particularly selective and highly selective universities. What has sparked this increase in online enrollment at non-profit institutions? Choosing not to reinvent the wheel, many non-profit institutions have partnered with online enablers like Embanet, Bisk, Deltak, and Pearson that provide institutions the blueprint and support to transition into online learning. More importantly, these companies offer schools a full value chain of services (e.g., course development, IT support, recruiting/marketing, processes, and cycle times) that are quite different from traditional non-profit strategies. At least ten different online enablers offer services to approximately 1 non-profit universities, helping them target online students by leveraging the same lead generating techniques as the successful for-profit schools. Although these businesses have expanded very rapidly over the last decade (Figure 2), with over 2, higher education institutions in the United States, there is plenty of white space left for these online enablers. Figure 3 highlights these relevant companies and select partnerships for each provider. Figure 1: Which Are the Largest Online Schools; How Selective Are They? 1,K 8 6 4 2 $4M 3 2 1 Online Only Enrollments (211) Enrollment by Institution Type (211) CPLA DV COCO STRA 818K EDMC CECO LOPE Walden WPO BPI APEI APOL Deltak Compass $15M Embanet Bisk 23 1% SNHU Penn State WC UMass Online UMUC 8 Park U. Thomas Edison State U. Central Texas College 6 WGU Excelsior College Rio Salado Community College 4 28K Liberty U. $183M Compass Embanet Bisk 27 2 n=~1, More Selective Selective Inclusive Survey Respondents $36M 2Tor, Inc. Learning House Altius Academic Partnerships Deltak Embanet Bisk 211 ~18M More Selective Selective Inclusive Community College Nationwide Post- Secondary Enrollees Figure 2: Who is Helping Traditional Universities Move Online? Source: Expert interviews; Parthenon analysis Online Enabler Market, 23 211 Deltak Colloquy Figure 3: Which Universities Use Enablers? # of Partners 35 26 14 12 1 7 5 4 4 CAGR '3-'11 17% 31% 12% 1% 1 3
Figure 4: Who Is the Online Student? Competing for the Same Student 1% 8 6 4 2 The majority of online enrollees are 25-49 year olds n=8 5 or Older 4 49 35 39 3 34 25 29 2 24 18 19 Private Sector n=373 5 or Older 4 49 35 39 3 34 25 29 2 24 18 19 Source: Parthenon Higher Education Survey (n=1,57) 1% 8 6 4 2 they earn under $6K n=734 $4K - $6K $25K - $4K $15K - $25K $15K - $25K Less than $15K Less than $15K I am a dependent n=35 More than $1K $8K - $1K $6K - $8K $4K - $6K $25K - $4K I am a dependent and are likely to have children n=5 1% 8 No Children 6 4 Children 2 n=3 No Children Children With some scale universities already established and more coming online every month the question is not whether the non-profits will ever make the jump to online, but rather whether they are targeting the same student demographic. Are non-profit institutions simply cannibalizing existing 18-24 year old students? Or are they targeting a new student segment that was previously served by for-profits? To answer these questions, Parthenon conducted a July 212 survey of 8 for-profit and 4 non-profit college students, all of whom attended programs fully online. Most students surveyed were enrolled in bachelor s programs that mirror the larger postsecondary enrollment picture. Figure 5: How Academically Qualified Are Online Students? 1% 8 6 4 2 The majority of online enrollees had a HS GPA above 3. n=5 3.5 and above 3. - 3.49 Below 3. n=3 3.5 and above 3. - 3.49 Below 3. Source: Parthenon Higher Education Survey (n=1,57) an SAT under 1,3 (out of 1,6) 1% Figure 6: Why Do Online Students Enroll? 8 6 4 2 n=15 1,3 and up 1,1-1,3 Less than 1, Less than 1, n=6 1,3 and up 1,1-1,3 1% 8 6 4 2 n=5 Both attended One parent attended Parents did not attend college Q. What are your reasons for wanting to attend college? 1) To fulfill a personal goal 1) To fulfill a personal goal 2) To make more money 2) To make more money and likely had parents who did not attend college 3) To gain skills for the job market 3) To gain skills for the job market 4) Opportunity to change careers 4) For the sake of learning 5) Employers require a degree 5) Employers require a degree Source: Parthenon Higher Education Survey (n=1,57) n=3 Both attended One parent attended Parents did not attend college Parthenon s survey collected data about demographics, academic performance, shopping behavior, and customer satisfaction. Again and again, data showed that the student profiles are nearly identical across for- and non-profit institutions (Figure 4). Across both types of institutions, students have similar ages, incomes, and attendance patterns. These students do not fit the profile of typical college enrollees (18-24 years old and living as a dependent). Instead, these students tend to be older and more likely to have children themselves, with the average nonprofit enrollee skewing both slightly wealthier and more likely to have children. Data also showed substantial similarities when comparing academic performance by institution type (Figure 5). Similar patterns were also found when examining high school GPA, SAT scores, and college attendance of enrollee parents by institution types. Non-profit enrollees are slightly more likely to have at least one parent who attended college, and students showed slightly higher GPA and SAT scores. Additionally, student motivations for attending school were extremely similar (Figure 6). Finally, four of the top five responses cited by both students groups related to employment concerns. Regardless of sector, students go back to school as working adults for a very clear reason: to improve employment prospects. Surprisingly, despite attracting similar students, non-profit and for-profit institutions utilize different marketing strategies. The forprofit sector tends to be more aggressive in using push advertising to generate student enrollments (Figure 7) the majority of students at for-profit sectors schools heard about their school through advertising of some form (e.g., TV, radio, or magazine ads; Google Ad Words; paid search; third-party lead generators; etc.). Conversely, non-profit institutions still rely on an equal mix of push and pull advertising, including referrals and word of mouth. 4
Means More Competition Figure 7: How Are Online Students Finding Their School? In many ways, today s prospective online students are not particularly discerning consumers, likely because they tend to be working adults focused on obtaining a degree to improve their job prospects. As Figure 7 indicates, almost 5% of online students are not comparison shoppers, opting to apply only to a single school. Less than one in five students applies to a minimum of three schools. Furthermore, the average online student selects a school based primarily on programmatic offerings, not surprising given their focus on improving employment options. Students select programs first and only later, if at all, do they make a decision based on institutional brand. (Most universities, however, still focus on the university brand above specific programs of study, leaving the door open for schools that choose to focus on scaling their program and program-specific branding.) 1% 8 6 4 2 Q. How did you first learn about your school? n=6 A friend or colleague recommended it I was called by a recruiter An online banner ad Google paid ad A Google search TV, Radio, Magazine ad Figure 8: How Do Online Students Shop? n=3 A friend or colleague recommended it I was called by a recruiter An online banner ad Google paid ad A Google search TV, Radio, Magazine ad Pull Marketing Push Marketing Despite the realities of the current online student, heightened competition virtually assures the emergence of a more sophisticated student consumer. Online education has historically experienced minimal cost competition, but the emergence of nonprofit institutions in the online space will almost certainly change that. Virtually all for-profit institutions examined (17 of 19) price individual credits within the same $4-$6 per-credit band (Figure 9). By comparison, new entrant non-profit institutions have begun to introduce variation into the marketplace, with several offerings below $4 or above $6 per credit hour. Furthermore, students appear willing to pay a price premium for stronger brands. Student responses regarding acceptable annual cost of tuition were sorted by institution type (Figure 9), and highlight an interesting contrast. Students attending selective universities, on average, identified an annual price point almost $5, dollars higher than students attending inclusive universities. Dawn Hudson, Vice Chairman of Parthenon and former CEO of Pepsi s North American beverage business, says, We see this dynamic again and again in consumer markets. Strong brands attract applicants, keep students at your school, and attract the kind of students that reinforce your brand after they graduate. The role of brand and marketing in general is under-leveraged broadly in education today. Ultimately, institutional reputation will continue to be an important factor in student price sensitivity. Based on these findings, it is a strong likelihood that increased price competition is on the horizon, as more selective institutions offer competing programs. Q. When you applied to college, how many other schools did you apply to? n=55 n=3 1% 3 More than 5 2 3 8 2 1 6 1 4 2 1% Figure 9: How Are the Programs Priced; What Might the Future Hold? 1% 8 6 4 2 I didn t apply to any other schools I didn t apply to any other schools Fully Loaded Cost Per Credit (Excludes books & materials) n=19 Above $6 Between $4 - $6 Below $4 n=14 Above $6 Between $4 - $6 Below $4 Q. Which of the following describes how you made the decision about what school to attend? 8 6 4 2 $15, 1, 5, n=55 I found the school I liked most first I knew the program I wanted to study first $9, Attending Inclusive n=3 I found the school I liked most first I knew the program I wanted to study first Q. What annual cost of tuition would you consider to be acceptable? $14, Attending Selective 5
Figure 1: How Satisfied Are Online Students? Q. How likely would you be to recommend your school to a friend or colleague? (Net Promoter Score) Responses Responses 1% 1% 8 6 4 2 8% 76% Western Liberty Governors 74% Southern New Hampshire 61% 42% Net Promoter Score Tiffin of Maryland College Many non-profit institutions are poised to take advantage of more sophisticated and discerning student consumers. When asked how likely they would be to recommend their current school to a friend, students rated select non-profits at the head of the class (Figure 1), although some also scored near the bottom in customer satisfaction. Despite being late entrants, non-profit institutions (including less well-known brands such as Western Governors, Liberty, and Southern New Hampshire ) are quickly earning a reputation for providing a quality product to students. So Who Will Win? 8 6 4 2 64% 63% 57% 56% 54% Net Promoter Score Kaplan Ashford Everest Grand of Phoenix Canyon As online programs continue to scale, students will naturally gravitate towards the largest and best-known programs in given fields. Breadth and programmatic variety are quickly becoming less meaningful, as program-specific enrollments are the new metric of success. Program-specific branding that highlights employment opportunities. Today s online applicants have one priority: to increase employment opportunities. Successful online programs must make a compelling ROI argument to new applicants both implicitly and explicitly while demonstrating the connection between enrollment and increased employment opportunities. Outcomes, outcomes, outcomes. As students become more sophisticated consumers and costs begin to fluctuate, student success (retention, graduation, job placement, etc.) become the keys to driving referrals and attaining the virtuous circle. Successful institutions will recognize that the path to scale begins with quality at all costs. A decade ago, online programs stood out because they increased student access. Today, the 2th entrant into the online MBA market must differentiate itself or perish. The largest programs will find cheaper means to attract students and can pass along those savings by offering lower tuition. Whether for-profit or nonprofit, the winners over the next decade will inevitably be those who can expand enrollment quickly while maintaining quality. The sleeping giants are indeed awake, and the race to scale is on. With the sleeping giants fully awake and the for-profit stranglehold decreasing daily, the question remains: who will win? Likely, a small number of rapidly expanding institutions will ultimately emerge from the pack and be able to leverage increased revenue and brand awareness to attract faculty, improve the student experience, and build new relationships with employers. The race is on to scale as quickly as possible, and the winners will almost certainly be those institutions that can differentiate themselves in the eyes of students, faculty, and accreditors. Post-secondary institutions non- and for-profit alike will soon compete across Brand, Price, and Outcomes in new and different ways. But what does this mean for the sector? How can schools adapt to a constantly changing landscape? Ultimately, for institutions in both sectors, top-line growth will be fueled by the following new drivers: Scale at the degree/program level. Today s online applicants consider program first, followed by a specific institution s brand. 6
For further information, please contact: About The Parthenon Group Chris Ross Partner chrisr@parthenon.com +1 617 478 4679 Follow us for regular updates: Twitter @Parthenon_Group Facebook www.facebook.com/parthenongroup LinkedIn www.linkedin.com/company/the-parthenon-group The Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, London, Mumbai, San Francisco, and Shanghai. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory services built on long-term client relationships, a willingness to share risk, an entrepreneurial spirit, and customized insights. This unique approach has established the firm as the strategic advisor of choice for CEOs and business leaders of Global 1 corporations, high-potential growth companies, private equity firms, educational institutions, and healthcare organizations. Parthenon s Education Practice Parthenon has served as an advisor to the education sector since our inception in 1991. Our Education Practice the first of its kind across management consulting firms has an explicit mission and vision to be the leading strategy advisor to the global education industry. To achieve this, we invest significantly in dedicated management and team resources to ensure that our global expertise extends across public sector and non-profit education providers, foundations, for-profit companies and service providers, and investors. Parthenon has deep experience and a track record of consistent success in working closely with universities, colleges, states, districts, and leading educational reform and service organizations across the globe. 7
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