Observations on Online Program Management

The online program management space is growing at an estimated 35% annual rate and is expected to be a $1.5+ billion domestic market in 2015.

The OPM space consists primarily of outsourced higher education service providers that enable online education. However, these providers have essentially become comprehensive contract manufacturers for higher education institutions, delivering services that range from point solutions (e.g., student retention and video lecture tools) to comprehensive service provision across the student life cycle (e.g., enrollment management, online learning delivery and models, and student support services).

Institutions began embracing this form of business process outsourcing 10 years ago, when stimulating new revenues and approaches to growth through online education became commercially viable. By providing the capital to start up and collaboratively build online program platforms with the institution’s academic leadership team, vendors were rewarded with multi-year, high-revenue-share models for architecting and managing these new service paradigms. The evolution of this space, and the institutional benefits of reduced up-front costs and potentially stronger programmatic revenues, are ultimately what makes this attractive to higher education institutions.

Looking into 2015 and beyond, several questions emerge:

• Once digital courseware is accepted and leveraged by faculty across the board, and online programs are commonplace at institutions from community colleges to top-quartile schools, will these existing revenue-share contracts persist?
• Are there certain parts of the OPM value chain that have greater durability than others? Will student retention capabilities be the new value driver for OPM providers and the revenue-share business model?
• Who is the next Embanet, Deltak, or 2U? Is there another business willing – and able – to follow 2U into the public markets? And to what extent will the high-flying multiples these firms have demonstrated persist?

We have already begun to see the institutional side seeking new models that allow colleges and universities to operate programs with a greater degree of control. Furthermore, with a growing and converging market landscape that consists of everything from enrollment management and marketing contenders to digital courseware providers and pure-play OPM providers, what does the new paradigm look like, and how do these vendors work together, partner, joint-venture, price their services, and compete with one another?

The OPM market remains in flux, and 2015 should prove captivating. Please see other significant and recent transactions in the space, including the Advisory Board’s purchase of Royall & Company and the merger of RuffaloCODY and Noel-Levitz, as further examples of the vibrant capital market activity in the OPM segment.