Moody's: Competition, consolidation shape online education market
- Competition is heating up for colleges online, and new market entrants are gaining share, according to a new analyst report from Moody's Investors Service, which calls the expansion "a credit positive" for higher education.
- Online-only enrollment grew 38% from 2012 to 2017, and it will continue to increase as "a key enrollment strategy" for institutions, the authors write. However, not all colleges will take this route, and it is "unlikely to replace" on-campus education. Still, the growth online comes as overall higher ed enrollment has leveled off.
- Critical to colleges' success online is differentiation, which can include price, delivery model, perceived value and faculty service levels. Public universities' large online enrollment, low tuition and access-oriented mission will help them maintain market share.
The Moody's analysts, led by assistant vice president Pranav Sharma, are cautious about colleges seeing online programs as a panacea for their financial woes. "The capital investment, expertise and institutional commitment required to develop online education at scale are often too great to make this a worthwhile strategy for many institutions," they write, noting that barriers to entry online are low, but the bar for success is high.
One of online educations' advantages for institutions is that it lowers geographic barriers to access, but that also opens up competition to a bigger, more varied group of providers.
Among them, the analysts note, are private online universities such as Grand Canyon and Western Governors, which have expanded their offerings and gained market share online. Meanwhile, early leaders like the for-profits University of Phoenix and Ashford University have seen their enrollment shrink following the collapse of that sector under regulatory and consumer pressure, as well as the arrival of nonprofit competitors "with more recognizable brand names," according to the note.
Although public institutions have the most online-only market share (54% in 2017), private nonprofit colleges, which account for about one-fourth (23%) of the market, are growing faster in that space. Additionally, although online-only graduate programs continue to be the primary focus for institutions online, undergraduate programs are gaining traction. Enrollment is also growing in partially online graduate and undergraduate classes — important considering two-thirds of higher ed enrollment is solely campus-based.
At all levels, colleges' success with online learning depends on quality, management of their brand, and how successfully they can navigate a changing and competitive market, the analysts note. There are also risks to going online, including potential "brand dilution and increased volatility in enrollment and tuition revenue."
How colleges develop their programs has also an intense area of focus.
"Universities can achieve greater profitability by independently executing their online strategies," the analysts explain, though doing so can be difficult. That has turned many to online program managers (OPMs), which can offer expertise in market segments and service areas and help offset the upfront investment.
But there are risks inherent in OPM partnerships, the analysts note, including a lack of data on OPM success rates and their program outcomes. OPMs' revenue-oriented mission and client portfolio could be at odds with institutions' singular focus on their students’ success, the analysts write. Additional risk factors stem from relying on a third party for financial and technological support given the vagaries in the online learning market and the difficulty of breaking a contract for the types of services OPMs provide.
Those risks have spurred some colleges to seek more flexibility in their OPM relationships, contracting services such as recruitment, enrollment management and instructional design to third parties on a fee-for-service basis while handling others themselves. The Moody's analysts expect this trend to continue.
Industry observers who spoke with Education Dive earlier this year acknowledged the trend but expect colleges will continue to consider the full range of partnerships, including the revenue-share agreements of which the Moody's analysts are cautious.
Meanwhile, consolidation is expected across online learning, the analysts write. Recent evidence of that includes the acquisition of the for-profit Northcentral University by the nonprofit National University System.
The service-provider side has also seen its share of consolidation, including OPM 2U's purchase of boot camp provider Trilogy Education, nearly doubling its count of university partners and adding technical skills training competency to is portfolio. And Bridgepoint, now called Zovio, picked up a tutoring platform this week and a coding boot camp last month — and is considering acquiring an OPM — as it shifts from college operator to educational services provider.
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