University of Internet: Study goes virtual

Higher education not in person, but online, is a booming market. Traditional universities are in on the act, and so is an industry known as online programme management (OPM).

The idea of ‘distance learning’ probably started with the invention of books. From then, tutor and tutee needn’t be in the same place or active at the same times. Correspondence courses sprang up nearly 300 years ago, and ‘open’ universities have been around for a half-century – but these have always been on the educational fringe. Today, online studying and online degrees are going mainstream. From nothing 25 years ago, enrolments have climbed to 6 million in the USA and perhaps just as many elsewhere. That’s 7 per cent of students worldwide – and growing at speed.

YouTube U
Online learning is pretty much what it sounds like. Instead of listening to a professor in a lecture hall, students watch a video of the same over the Internet. Instead of dropping by a tutor’s office during visiting hours, questions and correspondence are done electronically. Homework, tests, seminars and the rest are done electronically, virtually. Although methods are evolving, virtual universities still teach similarly to ‘brick-and-mortar’ ones – minus the physical presence. Classmates never meet each other or their instructors in person.  (So much for the impromptu football game or the post-exam party.)    

Cost, cost and cost
These are the three main reasons for the rise of online study. Particularly in the Anglo-Saxon world as well as in China, Japan and South Korea, higher ed is expensive and getting more so. As a proportion of median income, the cost of a public, four-year American university is 3.5 times greater than it was 40 years ago. And there are other reasons for the move to online learning. Its flexibility in time and location is especially attractive to part-timers.

Traditionals log on
Online higher ed started in the early 1990s in ‘alt universities’ such as the UK’s Open University, the for-profit University of Phoenix or the American Public University that serves the US military. They do offer degrees, but they focus more on a smorgasbord of job-related ‘adult education’ courses that can be taken as one-offs or in small series. Around the millennium came the online entries of traditional institutions such as Penn State, the University of Maryland and the University of Massachusetts. They started mostly with masters’ degrees in vocational-related subjects, but now have spread to a wide range of courses at undergraduate and graduate levels. For instance, U Mass Online offers a Bachelor of Arts in History pretty much identical to the offline version. Its USD 52,000 price tag is more than negligible, but cheap compared to the non-online tab of USD 120,000-185,000. Recently some of the most venerable schools have logged on: in 2016 the University of Cambridge began offering online courses, and in 2017 Harvard University joined the fray.

School’s out?
Some say this could be the beginning of the end for traditional universities. A 2009 Washington Post article argued that online offerings will ‘disintermediate’ higher education, just as the Internet did to newspapers. On the other hand, maybe virtuality is just what they need. Automating parts of the study experience – think lectures and tests, not beer-drinking and bull sessions – could bring down costs for on-site students while gaining additional revenues from off-sites. As ZDNet Education’s Contributing Editor Christopher Dawson writes: “Online education (and the Internet itself) will not kill universities, but will, in fact, save them.”

Doing by learning: Ed Tech’s OPMs
The engine room driving online-university growth is not just the institutions themselves, but a new industry called online programme management. Its companies, called OPMs, do everything except course-design and teaching, i.e. development, marketing, recruiting, enrolment, delivery of courses and accounting/finance. And frequently, says research firm Eduventures, they split revenues 50/50 with their teaching partners. Leaders in the field include 2U, Academic Partnerships, Bisk, Coursera, Pearson Embanet and Wiley Education Solutions. Growth is steep, says a recent report by Bank Julius Baer: in this decade, their turnover will climb from USD 360 million to 2.5 billion – an annualised increase of 24%. Virtual classrooms might never completely replace those on-campus, but they’re already significant and further expansion is clearly coming.

Our Next Generation research analysts and portfolio managers are also monitoring the global education industry for exciting investment opportunities, and have written about the potential of EdTech and the online programme management segment for investors To order the full Next Generation Study entitled ‘Global Education: You think education is expensive? Try ignorance’, please contact your relationship manager or send your request via our contact form. Please note that restrictions may apply, depending on your domicile and the legal entity of the Julius Baer subsidiary servicing you.

All companies named in this report are listed for illustrative purposes only, and should not be mistaken for an investment recommendation.

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