Carving your slice of the 'virtual' education pie: thinking about going virtual? Better bone up on the for-profits to see what you're up against. (Online Education).

It's common knowledge that there have been flops in the virtual university market--both for-profit ventures and not-for-profits that invested millions only to pull the plug after a year or two. Still, the market for distance education continues to grow rapidly, from enrollment of 1.6 million students in 2001 to 2.2 million in 2002. According to International Data Corp (www.idc.com), no less than 150 institutions were offering online undergraduate degrees by year-end 2001, with 200 offering graduate counterparts; year-end 2002 figures are bound to be higher still. In the past year, a handful of the remaining for-profit companies (Kaplan, Sylvan Learning, etc.) have continued deep-pocketed expansion in an effort to attract adult learners; but an increasing number of traditional universities (UMass, for one) are also finding the dollars to go after this market--and the competition is getting stiffer daily.

According to Rachel Hendrickson, coordinator of the Higher Education division of the NEA, "As traditional campuses come online, they are going to be in greater competition for the adult market, [a market] in which adults are going to be going back to school every seven years or less. We saw the proprietary [companies] jump in fast; our campuses are now ramping up to provide those services as well."

But just how imposing is the challenge coming from the dominant "virtual" universities? When it comes to reaching the estimated 9 million part-time or over-25 postsecondary learners who (according to the National Center for Education Statistics) will be enrolled in the U.S. in 2010, the question is: How tough will it be for online education entrants coming from the traditional university sector to grab a sizable wedge of the pie from the wholly online leaders?

And there's an urgency to this question, as well, because the for-profit virtuals have succeeded in quickly attracting hundreds of thousands of adult learners--and speed (always a problem for traditional IHEs) may be critical to traditional universities, if they are to compete successfully with the virtuals in the coming years. Then there's the issue of the federal Higher Education Act, which is up for reauthorization this year. The virtuals are lobbying hard to have the "50 percent rule"--which often prohibited distance ed students from receiving federal student aid--repealed, or at least softened. And finally, there's the growing threat of losing traditional college and university students to the virtuals: After long focusing their efforts on adult learners and degree completers, online education companies are now setting their sights on the traditionally campus-bound.

What, precisely, do traditional IHEs have to fear from the for-profit virtuals? Here's the current lowdown, minus the 800-pound gorilla, University of Phoenix--technically not a virtual, by virtue of its campus.

When JONES INTERNATIONAL UNIVERSITY (www.jonesinternational.edu)--which calls itself the first purely virtual university in the U.S.--received its accreditation from the Higher Learning Commission (a member of the North Central Association) in 1999, it offered two degree programs. Three years later, it offers 28; and in 2001, reported sales of $76.7 million. The latest addition to its portfolio is a baccalaureate degree in Business Administration, which is Jones' first program aimed at younger students who have yet to enroll in college or have just a few credits.

"We can see that there might be a different type of student emerging," says Pamela Pease, president of JIU. "Five years from now, it may be desirable for somebody who is 18 or 19 to have the flexibility that a wholly virtual education offers." And while Jones is beginning to target a customer much younger than its current students (average age: 38 to 42), it is also focusing globally by offering 16 of its degrees to Spanish-speaking students. The school has students from 70 countries.

"Though three-fourths of our student base is still in the U.S., the growing piece of our student base is global," Pease says, noting that the school is also working with the United Nations Development Program to set up a corporate university for leaders within that organization. Aside from the traditional-age and global markets, Pease is coy about other programs in the pipeline at Jones, awaiting accreditation. But speed to market has not been a shortcoming for the virtual, part of privately held Jones Media Networks, Ltd. and one of the many brainchildren (Jones Cyberschools, Jones Knowledge, and Jones Interactive) of mega-entrepreneur Glenn Jones.

"Every year of the last four," says Pease, "we've launched a series of degrees--sometimes two types of degree programs in a year; 2003 will be no different."

SYLVAN LEARNING SYSTEMS INC., known for its after-school learning centers for K-12 students, surprised the market when it announced in March that it was exiting K-12 to focus solely on its higher education initiatives. The public company, known for its sales growth rate of 35.5 percent (1998 sales of $179 million grew to $604 million in 2002) is now divided into two units. One runs its eight campus-based Sylvan International Universities (www.sylvanu.com), the other its Online Higher Education division, which includes three purely virtual schools: National Technological University (www.ntu.edu); Walden University (www.waldenu.edu); and Canter (www.canter.net), which currently helps more than 12,000 K-12 teachers earn advanced degrees. Sylvan has spent more than $80 million since 1997 to acquire its online components. It expects them to be serving 19,000 students by the end of 2003 and generating more than $100 million in revenue.

The company, like most of its for-profit peers, focuses its efforts in a handful of narrow vertical segments offering certificates, degrees, and advanced degrees within these areas. At Walden, the sweet spots are management, education, psychology, and hearth and human services, with a nursing program to be added later this year. NTU (accredited by the HLC) allows its students to assemble an engineering curriculum from courses offered at schools such as MIT and Vanderbilt, but they receive an NTU degree when they graduate. Canter, which is not accredited, offers advanced teaching degrees via the teachers colleges it partners with. Both Canter and NTU have tuition-sharing agreements with partner schools and, in many cases, are those schools' only distance-teaming ventures.

As Sylvan works to reorganize itself around the dear to shed its K-12 operations--which will also force it to change its corporate name within the next year--it, like Jones, is turning its attention toward younger students. Earlier this year, Walden announced a bachelor degree completion program in business management and information systems. The school is also working to form partnerships with community colleges nationwide, hoping to become the next education destination for those schools' graduates with associates degrees, says Steve Drake, Sylvan's VP of Communications.

KAPLAN INC. (www.Kaplan.com) has grown from a $75 million test-prep company in 1994 to a $621 million educational behemoth, with more than 40 percent of its revenue coming from its higher education division. Kaplan's virtual university component falls under its Kaplan College division, which has a token 500 students on its campus in Davenport, Iowa, but has more than 9,000 students enrolled in online degree and certificate programs. (Unlike Phoenix, which was launched as a campus school and migrated online--it now has 85,000 on-campus students--the Kaplan College ownership of a tiny campus is Kaplan's means of "authority" to grant postsecondary degrees.) Under this umbrella, in 1998 Kaplan launched the country's first online law school, Concord Law School (www.concordlawschool.com), which exists outside the American Bar Association jurisdiction because the ABA has elected not to accredit online law programs. The lack of accreditation means that after their first year of school, students must pass what's known as the "baby bar." When they graduate from law school, they are eligible to take the California bar exam. They can then be licensed in other states based on reciprocity agreements.

"We're taking the long-term view--not of if [the ABA will accredit online programs], but when," says Robert Greenberg, general manager of Kaplan Higher Education Online (www.kaplanhighereducation.com), noting the enormous number of advanced business and medical degrees that are now available via distance education. Concord's first class graduated in December 2002 and received the results of the California bar exam over Memorial Day weekend.

Kaplan also made headlines in April 2003, when it announced that former New York City Schools Chancellor Harold Levy would join the company to launch a graduate school of education, aimed at helping career-changing professionals earn teaching degrees. The new program won't be a path toward early certification, but Kaplan is seeking accreditation for the program from the HLC. The company hopes to open those virtual doors in 2004-2005.

Kaplan also has its eye on the MBA market. Late in 2002, it announced but then aborted completion of an acquisition of the 100-student Arthur D. Little School of Management in Massachusetts (www.adlsom.edu). Rumor has it there was a problem with the ongoing accreditation of the school, but Kaplan declined to elaborate. However, Kaplan Inc. President Andy Rosen says, "You can expect we'll be in the MBA market over the same time period [as the school of education]," indicating that they may be open for business in the fall of 2004.

Minnesota-based CAPELLA UNIVERSITY (www.capella.edu) offered more than 500 online courses--as well, as undergraduate and graduate degree programs in 40 areas of specialization--to about 6,000 students last year. Founded in 1993, Capella has reported estimated 2002 sales of $35 million, and a one-year sales-growth figure of 16.7 percent (also estimated). The virtual offers accredited Ph.D., graduate, baccalaureate, and certificate programs through its five schools: Business, Education, Human Services, Psychology, and Technology. The school boasts an average class size of 12 students, and a "surprisingly intimate, community-based learning experience" that is supported by limiting classes to 20 students. "We tried 25 to one; that didn't work," says company founder and CEO Stephen Shank.

The privately held company (owned primarily by NCS Pearson, Shank, and investment and venture capital, partners) is poised for growth: Starbucks founder Howard Schultz recently invested $7.5 million through his venture capital, fund, Maveron. Shank said the primary goat of the investment was to acquire some of the marketing expertise Schultz used in making Starbucks a household name.

"This was an opportunity for us to engage Howard's marketing expertise and entrepreneurial genius in building Capella," says Shank. "He is personally helping us figure out our future strategies." Among those strategies is increasing the size of Capella's recently added bachelor's completion programs. Like some of its peers, Capella has partnered with a network of community colleges, hoping to entice associate degree graduates to pursue bachelor degrees online.

This pronouncement comes just as the company says it's turning the corner to profitability after taking in $50 million in revenue last year. But profitability is still elusive for many virtuals; even hulking sales figures and double-digit sales growth numbers are not always enough to offset substantial, operational, payroll, and marketing costs.

CARDEAN UNIVERSITY (www.cardean.edu)--which offers an online MBA program in partnership with coursework and professors from Stanford, Columbia, the University of Chicago, Carnegie Mellon, and the London School of Economics and Political Science--is one of the few for-profit virtual university companies that does not have an extensive history in the education business. No problem, however: Cardean founder UNext, Inc. (privately held) intends to make its own history in the online learning game, and a year-old partnership with Thomson Enterprise Learning brings plenty of education experience to the table. The company has succeeded thus far by offering its "real, world" classes and training to large, global corporations; it is the preferred online MBA for General Motors, for example. In recent months, however, ready to ramp up its enrollment, Cardean has begun to reach out to individuals. The university currently has 500 MBA students and about 2,500 students in non-degree or corporate training courses.

Cardean exec Edwin Eisendrath says the school's strength lies in the years it has spent studying the ideal pedagogy and design of online learning. "We've studied how people learn, so we don't waste their time," he says. And with what they believe to be a great learning model. (one where students progress through courses by solving actual. business problems), it's likely that Cardean won't be content with just its MBA program.

"We're actively thinking about other markets and other programs," Eisendrath admits.

7 Tips for 'Virtual' Success

For-profit education execs insist both traditional institutions and online educators have well-defined markets to serve. But to successfully compete in the world of online education, they say, brick-and-mortars should heed the following:

1 Teach your faculty how to teach online--and this doesn't mean a mere day or two of training with your online course management software. A considerable body of knowledge about teaching online courses is available through the NEA (www.nea.org) and other professional organizations. (See box, "Teaching Profs to Teach Online.") Online ed, experts caution, is just not as simple as posting a syllabus, reading material, and discussion group.

2 Recognize that students are customers, and adult customers are considerably more demanding than 18- to 24-year-old customers. They expect (and deserve) good customer service and a satisfying learning experience. This means identifying every possible interaction the student will have with the school during a course--every e-mail, phone call, or billing interaction--and working to make sure each experience is as positive as possible.

"When somebody spends $1,000 to take a course, there may be 100 different points along the way wherein a customer interacts with someone working for the college," says Greenberg of Kaplan. "Ensuring that those encounters are smooth and satisfying is something for-profit institutions spend a lot of time and energy thinking about, to foster continuous improvement." Kaplan holds orientation seminars for its faculty members, has executives monitor online classes, and administers student satisfaction surveys. The professors who get high marks are asked to come back; those who don't are not. "It's a meritocracy," says Greenberg.

3 Understand the priorities of adult learners. Flexibility is the hallmark of distance ed; the ability to log in any time of day and study from home, an airport, or work has opened higher education to a population previously shut out of the opportunity. Remember this, when designing all aspects of a virtual program, from technical help to advising hours and career planning.

4 Focus on the support of quality interaction between faculty and students. An early misperception about distance learning was that class size could be limitless. As it turned out, in online ed, interaction between professors and students is critical, and precludes that possibility. The most successful programs limit crass size to 20 or 25 and are designed to enable productive interaction between the professor and students, and among students. "We make sure we build a community of learners within a class," says Jacqueline Moloney, dean of Continuing, Corporate and Distance Education at UMass-Lowell, where 7,300 students are enrolled in more than 200 online courses. "To me, that is even more important online," she says.

5 Understand the job market and stay on top of changes, which are coming fast. Adult learners are seeking to upgrade their skills in a current field or transfer to new ones. Many for-profit educators take advantage of this demand, ramping up offerings in job areas where higher demand is predicted. A few years ago, distance IT programs were the hot tickets; now nursing, business, and criminal justice programs are sought after.

6 Question the rules like an entrepreneur. Not-for-profits that aren't tied to all of the traditions of higher education have been able to break some of the rules about course length, structure, and content and come up with offerings that students find more compelling. One example: All courses do not necessarily have to be completed over a 14-week time period, says Moloney at UMass. Some for-profits have shortened the time it takes to complete a unit to even five or six weeks. "Adult learners seldom want to go through a paper-mill approach," she says. "Rethink your approach if you want to attract online students."

7 If you can't do it well, don't do it until you can. "It's inexpensive to launch an online program if you put no thought into it," says Pease at JIU. "But to do online learning effectively means you have to dedicate resources like marketing and recruiting. And you need to be truly focused on the quality of the course," she insists, which means content, instructor and technology. It's vital to understand the true cost of providing quality distance education, say the pundits. What's more, a market ripe for tapping can't be tapped if you have limited resources with which to sell your product.--RS

Teaching Profs to Teach Online

Capella University puts its new faculty members through three months of training in online teaching and pedagogy, then partners each with an experienced teacher, to take on that first class. Most of Capella's best practices have been developed in-house, but a variety of organizations offer helpful information--from books and online seminars, to certificate programs and even on-site training for large groups. Check out these sources:

U.S. Distance Learning Association (USDLA.org) sports a page (www.usdla.org/html/resources/ dllp.htm) that lists 22 schools offering classes in distance education.

The Sloan Consortium, formerly the Asynchronous Learning Networks (www.aln.org), holds its own conferences and provides links to many other resources.

eLearnSpace.org is a free resource site maintained by a Canadian professor who's addicted to e-learning.

www.Onlinelearning.net is part of Sylvan, and offers courses in distance learning through the University of San Diego and UCLA Extension.

www.lern.org offers a five-day course in online teaching methods, taught by William A. Draves, author of Teaching Online (LERN Books, 2002).

Rebecca Sausner is a freelance writer based in Brooklyn, NY.