When the educational services company Zovio sold its online program management business to the University of Arizona Global Campus in August, it wasn’t a shock.
Zovio’s business model is seen by many industry-watchers as a hold-over from the University of Phoenix era, before companies like 2U pioneered the idea of helping colleges both run online programs and finance their creation in exchange for a cut of tuition. Some predict that selling off its assets means it may not have long to survive as a company—with one observer commenting that “the blood is in the water there.”
The announcement that Zovio would sell its OPM was made during an earnings call in which Zovio’s leadership reported second-quarter losses of $4.7 million, and the company has shed other assets—including its popular tutoring business, TutorMe, which it sold to GoGuardian for $55 million in May.
Two years ago, Zovio sold the University of Arizona the for-profit Ashford University, which was facing a suit by the California State Attorney General for misleading students. That year, Arizona converted Ashford to the University of Arizona Global Campus.
When the latest deal was announced, University of Arizona Global Campus president Paul Pastorek wrote in an open letter that the sale would ensure that the people running its online program were “aligned towards a single purpose.” Pastorek considers marketing, recruiting and financial aid to belong in the category of critical functions that universities need to keep in-house, the statement made clear.
That fits a pattern of universities reasserting control over functions previously outsourced to OPMs, says edtech analyst Matt Tower, a principal at Workshop Venture Partners.
Other public universities have brought their online program businesses in-house as well. For example, the University of Massachusetts system took control of Brandman University from Chapman last year. And the University of Arkansas system announced it was absorbing the for-profit Grantham University this summer.
Red Herring Or Canary?
Zovio’s situation is in part unique.
Its deal with Arizona’s Global Campus was a little different than the typical OPM agreement, though it did happen under the same policy used to cover traditional OPMs, says Stephanie Hall, a senior fellow at the Century Foundation.
Still, the sale may hold lessons for the market.
As universities have been able to run more services themselves, they’ve become more inclined to revisit their revenue-share contracts—the kind that gave OPM companies 60 percent revenue-sharing—says Benjamin Kennedy, founder and managing partner of the education consultancy Kennedy and Company.
In general, Kennedy adds, there’s more awareness of what’s feasible in the market, an increased ability to negotiate with the OPMs and a better understanding of the costs of expensive long-term contracts of the kind that 2U pioneered.
Almost every university now understands that it’s hard to compete nationally without a huge brand and a big marketing budget, but that there’s nearly always space to compete regionally, Kennedy says.
For companies like Zovio, this means changing course.
The smarter OPMs are now doing things like reducing their revenue shares—sometimes significantly—to keep universities interested. They’re also becoming more flexible in their offerings, leaving space for universities to do more in-house.
For example, 2U, one of the big names in the OPM space, has recently made major strategic shifts, allowing universities more choice in what services they want to buy, and also advocating for universities to lower tuition—a common criticism of the space.
But for companies whose portfolios are filled with institutions that had signed long-term, high revenue-share contracts, this may be an existential problem, Kennedy suggests.
Some for-profit colleges from an earlier era are doing well, like Chamberlain University and Grand Canyon, says edtech consultant Phil Hill. But ITT Technical Institute, Inc., and Corinthian Colleges, Inc., shuttered.
The Future of OPMs
OPMs once gave university leadership a way to pursue scale without having to force cultural change on a campus, says Clay Shirky, vice provost of educational technologies for New York University.
They were treating online education “like a side hustle,” Shirky says, allowing them to chase after the profits of the online markets without having to convince on-campus faculty who would likely object to the online expansion.
It’s significant that the latest sale occurred after the COVID pandemic mainstreamed online education in higher ed, he says.
Some who have long opposed the OPM model hope that Pastorek’s recent comments signal that university leaders are catching up to criticisms of OPMs. They view the move to limit the profit motive in UAGC’s online program as possible a sign that it’ll be more focused on the health of the educational institution.
And that’s something they want to see more of.
“I think every public college in the country [that’s] outsourced to other OPM companies could probably take a look at the level of control they have over things like marketing and enrollment, in particular,” says Hall of the Century Foundation.
But not everyone is convinced that giving public colleges back more control of their online programs will be better.
Companies like 2U have spent billions of dollars on these online degree programs, and it’s still a tough business, Tower says. It’s unclear why university leaders think they’ll enjoy more success, he adds.
Public universities have also displayed a sustained interest in public-private partnership agreements recently, including in expanding online programs, though these new arrangements will likely look different than the old OPM models.
Shirky, of NYU, says that public universities have cultures in place that prevent them from focusing on profits.
He’s skeptical that taking control of OPM services will solve the problems facing colleges. But he notes that the desire to stay in business is much more motivating than a desire to make lots of money. In other words, even if a public university’s online global campus isn’t profitable, the leadership may think it will help them avoid bankruptcy or a merger.
Go to Publisher: EdSurge Articles
Author: Daniel Mollenkamp