The Online Education Bubble

Article excerpt

Universities are betting big bucks on Internet learning. But there aren't enough customers to go around. What happens to schools caught in the shakeout?

Like many administrators, Edward Blakely doesn't need to be convinced of the Internet's importance to the future of his university. As the new dean of the Graduate School of Management and Public Policy at the New School University in New York, he seems primed to capitalize on it. Blakely's school was among the first to go online. Forbes magazine once ranked its online learning program as one of the 20 best in the country. The New School is situated in a major metropolitan area where its flexible class schedule caters to the busy professionals who make up the bulk of online students. Blakely is encouraging his professors to put every class online. He is beefing up the school's distance learning program and trying hard to attract new students. He is struggling with phrases like "cheaper modalities," and at age 62, he is teaching his first online class. Yet despite all this, the New School's online market share is diminishing.

Blakely is suddenly competing with schools from across the country and around the world, schools that wouldn't have registered on his radar five years ago. He is under increasing pressure to distinguish his program from the growing list of online competitors. "We're surprised at how quickly we've gotten big-name competition," he says. He is spending more on marketing than he'd prefer. But like most university administrators, he is afraid of being left out of a rapidly changing field. "There is going to be a displacement effect in online education," Blakely warns. "Those schools that aren't ready will be left behind." In the hype over online education, this is the side that often gets overlooked.

Online education has many forms and many more providers. Traditional institutions like the New School, which came to prominence as a socially conscious commuter school for part-time adult students, are competing with for-profit universities like the University of Phoenix and virtual-only universities like Jones International University and Capella University. The term itself encompasses everything from master's degree programs to corporate and military training.

Most online students are not typical undergraduates (only 16 percent are 18- to 22-year-olds). They tend to be working professionals as well as dropouts completing a degree, older than traditional college students and less interested in traditional graduate and undergraduate degrees. Often, they are full-time workers looking to improve their skills: to train in the latest software, qualify for professional advancement, or participate in some other form of continuing education that will fit their busy schedule. They are the people who, 10 years ago, would have gone to night school.

Online education's biggest drawing point--it can be done on one's own time and from home--means that students who can't attend a regular class can continue their education. The online model promises schools a potentially limitless market minus the hassles of a physical campus--overcrowded classrooms, campus maintenance costs, even the need for a local faculty. Online education was only a $2.6-billion market last year, about 1 percent of the $259-billion American higher-education market and a fraction of the $700-billion overall market for education and training. About 700,000 students online courses last year; that number is expected to triple by 2002.

ENTER WALL STREET

Proponents hope that much of traditional teaching and training will eventually shift to distance learning by computer. In terms of sheer market size, education ranks second only to health care, accounting for about 10 percent of the gross domestic product. In many ways, it is a more appealing investment. True to its stodgy image, higher education has complacently resisted efforts to improve productivity. …