“The Future of Education is Online” touted almost every headline in the educational marketplace. A group of mega-universities have begun to dominate the headlines, if not the markets, for distance education. Southern New Hampshire University, Western Governors University, and Arizona State University are among the leaders.
Both the nonprofit and for-profit online educators were therefore rather rudely awakened when 2U Inc.’s stock plunged last week. The 2U stock tumbled from a 52-week high of over $90 per share to a low of $11.37 before climbing back to slightly more than $14. Investors and academic partners want to know what happened.
2U operates as an educational technology company that partners with nonprofit organizations to bring their degrees to market. In recent months, 2U has shifted its portfolio of companies and components from the master’s degree market into the professional training and certificate market. Although the shift has been occurring for months, the combination of reduced earnings forecasts and a shift toward boot-camp programs triggered the sell-off.
Ironically, the 2U strategy is precisely what EAB suggests is the sweet-spot for teaching Millennials (born 1981-96), which will soon be the largest segment of the workforce and fastest growing population in education and industry.
2U’s problem may be its underlying business model, in which it invests heavily to build an online degree program and splits the revenue with the nonprofit university. This model exploits the fear and uncertainty of the university as well as the lack of financial fluidity. But many universities feel exploited by the for-profit partner and look to bring the corporate services in house rather than extending these agreements. The universities learn how to wean themselves of the corporate interloper, so the long tail of revenue is truncated.
EAB explains the problems with the short-course model. “Although conferrals of non-degree credentials—certificates, non-credit courses, and other short-format programs—are growing five times as fast as master’s degree conferrals,” but as the report explains, the revenue does not follow the growth. EAB identifies two primary reasons:
- Poor Positioning: Institutions apply the “certificate” label to programs of every length and intensity, confusing employers and sending students to private competitors with a clearer value proposition.
- Broken—or Nonexistent—Re-enrollment Pathways: Short credentials are too often designed and launched in isolation, resulting in limited if any repeat enrollments. Most institutions miss the opportunity to design a series of short-format credentials that support a student across a career.
There are simpler explanations as well. The longer the program, the more the acquired student pays in tuition. Multi-year degrees provide sustainable revenue, requiring far fewer students.
A true hybrid university can solve these problems. By creating a series of stackable and interchangeable certificate programs, a student can collect the certificates to earn a master’s degree, and then add research and dissertation work to translate the package into doctoral-level expertise. State universities with large-scale online offerings have the range of content and stability to create the academic infrastructure. Technologists will want to throw blockchain at the certificates as well so that they are self-authenticating, but the university’s credentialing is far more valuable. The employers want to have a paper transcript somewhere in their files, and that desire has not yet gone away. Of course, digital badges on LinkedIn would also be nice.
For investors, 2U has done the worst thing possible. It has demonstrated the actual value of a growing demand and shrinking revenue of the new market.