Ivory Tower in the Cloud

Forbes - - Strategies - BY AN­TOINE GARA

Long the do­main of seedy de­gree mills ped­dling debt-laden vo­ca­tional train­ing, on­line ed­u­ca­tion is now a pri­or­ity, and a profit cen­ter, at top-tier uni­ver­si­ties thanks to in­no­va­tors like 2U Inc.

In 2014, when Dou­glas Shack­elford was named dean of UNC’S Ke­nan-fla­gler Busi­ness School, his most important strate­gic ini­tia­tive was clear. UNC was a top-tier pub­lic univer­sity, but its Bschool, barely in the top 20, was on a mis­sion to greatly ex­pand its en­roll­ment on the cheap.

“Our tra­di­tional rev­enue sources were chang­ing, and not in a good di­rec­tion,” says Shack­elford, 60.

So UNC forged ahead with a lit­tle-known com­pany called 2U, based in Lan­ham, Maryland. In exchange for 60% of fu­ture tu­ition rev­enues, 2U would in­vest $5 mil­lion to $10 mil­lion build­ing out UNC’S so ware and mar­ket­ing ca­pa­bil­i­ties, scour the globe for on­line ap­pli­cants and, im­por­tantly, leave the ad­mis­sions de­ci­sions and teach­ing to Chapel Hill.

e re­sults have been im­pres­sive: Seven years a er it launched its pro­gram with 2U, UNC is the largest on­line M.B.A. provider, with 938 stu­dents, most of whom pay full tu­ition. Only half as many are en­rolled in the full-time res­i­den­tial pro­gram. “We’ve dou­bled our stu­dent body with­out adding any build­ings in Chapel Hill,” says Shack­elford, not­ing that tu­ition for MBA@UNC costs $124,000. In fact, on­line rev­enue has nearly tripled to $14 mil­lion, while fac­ulty head count has held steady, and op­er­at­ing in­come has gone from a $1.4 mil­lion loss to a $5 mil­lion pro t.

Known as an on­line-pro­gram man­ager, or OPM, 2U is the na­tion’s lead­ing provider of so ware for uni­ver­si­ties seek­ing to quickly ex­pand en­roll­ment dig­i­tally. Its cloud-based con­tent-man­age­ment plat­form al­lows stu­dents and sta ers to seam­lessly con­nect to uni­ver­si­ties’ ex­ist­ing systems, han­dling ev­ery­thing from load­ing lec­tures and host­ing in­ti­mate dis­cus­sion groups to trou­bleshoot­ing tech­ni­cal glitches.

In its rst decade, 38,000-plus stu­dents have en- rolled in 2U-ad­min­is­tered de­gree pro­grams, and 2U is on track to gen­er­ate as much as $412 mil­lion in rev­enue this year, a 44% in­crease. e com­pany isn’t yet pro ta­ble since it’s launch­ing pro­grams at a quick­en­ing pace and only re­coups its he y ini­tial in­vest­ments by the fourth year of its typ­i­cal tenyear con­tract. Still, 2U’s Nas­daq-listed shares have risen from their 2014 IPO price of $13 to $80, mak­ing the com­pany worth $4.7 bil­lion. “We have a mas­sive amount of mar­ket run­way,” says 2U chief ex­ec­u­tive and co­founder Chip Paucek, who’s aim­ing for 5% of the $80 bil­lion global mar­ket for grad­u­ate de­grees.

Master’s pro­grams are 2U’s sweet spot, and its of­fer­ings to univer­sity ad­min­is­tra­tors are soup to nuts. Be­sides so ware, the com­pany has a small army of so­cial-me­dia-savvy mar­keters to as­sist in re­cruit­ing. It also nds place­ments for stu­dents in ar­eas like ed­u­ca­tion, nurs­ing and so­cial work. For Ge­orge­town’s mid­wifery pro­gram, for in­stance, 2U part­nered with hospi­tals so that each on­line stu­dent de­liv­ers 20 to 40 ba­bies by grad­u­a­tion. When USC’S Rossier School of Ed­u­ca­tion de­manded that can­di­dates have at least three se­mes­ter-long teach­ing place­ments, 2U built re­la­tion­ships with el­e­men­tary and high schools in 50 states. So far it has placed over 43,000 stu­dents.

For Cory Brous­sard, 37, who got his M.B.A. from UNC in 2014, it meant not hav­ing to quit his day job as an en­gi­neer on an o shore plat­form for Shell in the

Gulf of Mex­ico. “ e pro­fes­sors were just bril­liant,” says Brous­sard, who, like all 2U stu­dents, at­tended pe­ri­odic im­mer­sion ses­sions on cam­pus.

OPMS have a dis­mal rep­u­ta­tion in ed­u­ca­tion cir­cles be­cause they have long been as­so­ci­ated with for-pro t boiler-room-type op­er­a­tions. ey came un­der the scru­tiny of the Depart­ment of Ed­u­ca­tion, in part be­cause they en­cour­aged stu­dents to pile on gov­ern­ment-backed loans to nance du­bi­ous de­grees. By avoid­ing any no­tion of be­ing an aca­demic in­sti­tu­tion, 2U has po­si­tioned it­self as a white-la­bel so ware-and-services rm with a blue-chip client base. Its grad­u­ate o er­ings are in elds with strong job prospects. Be­sides UNC, 2U has o er­ings with schools in­clud­ing Yale, NYU, UC Berke­ley, Tu s, North­west­ern and Van­der­bilt.

Tim­ing is ev­ery­thing in busi­ness, and 2U’s cri­sis-era launch was for­tu­nate. With nances strained and dig­i­tal tech­nolo­gies dis­rupt­ing nearly ev­ery in­dus­try, top uni­ver­si­ties nally ac­cepted on­line de­gree pro­grams as equal to on-cam­pus al­ter­na­tives. 2U has 64 de­gree pro­grams with 26 uni­ver­si­ties and is adding more than 14 new pro­grams each year.

Paucek, 47, 2U’s mas­ter­mind, has been in­volved in ed­u­ca­tional ven­tures since the early 1990s. In the 2000s, Paucek ran Hooked on Phon­ics for Syl­van Learn­ing. A er its par­ent com­pany was sold, Paucek part­nered with John Katz­man, the founder of Prince­ton Re­view, to start 2U in 2008.

2U’s suc­cess has sparked a del­uge of com­peti­tors, in­clud­ing a new out t from Katz­man, who le in 2012. ere are oth­ers: Cours­era, which op­er­ates mas­sive open on­line cour­ses (MOOC), man­ages a $22,000 a year M.B.A. at the Univer­sity of Illi­nois and will soon start pro­grams at Michi­gan and Penn. Edx, a MOOC founded by Har­vard and MIT, o ers a master of science in an­a­lyt­ics from Ge­or­gia Tech for less than $10,000 and will launch 13 other pro­grams. Over­all, the num­ber of OPMS is 30 and ris­ing, ac­cord­ing to Edu­ven­tures Re­search.

If that weren’t enough, schools like Har­vard and Cor­nell are build­ing their own systems. Short-sell­ers are thus eye­ing 2U, as mar­gin pres­sure is in­evitable.

Paucek is un­de­terred. Last May he ac­quired short-course provider Gets­marter, which o ers certi cate pro­grams in data science, arti cial in­tel­li­gence and blockchain. Re­cently, 2U be­came the rst OPM to o er a ju­ris doc­tor. Paucek also plans to o er med­i­cal, den­tal and ve­teri­nar­ian de­grees.

Don’t un­der­es­ti­mate 2U’s rst-mover ad­van­tage. In academia, where risk-tak­ing is anath­ema, rep­u­ta­tion and word of mouth o en trump hard eco­nomic anal­y­sis. “It’s a pretty sim­ple busi­ness,” Paucek says, whose 2U stake is worth $100 mil­lion. “If the stu­dent wins, the univer­sity wins. If the univer­sity wins, we win. We be­lieve that. It’s not some PR talk.”

2U chief Chip Paucek at the com­pany’s head­quar­ters in Lan­ham, Maryland.The books may be props, but 2U’s $4.7 bil­lion val­u­a­tion speaks vol­umes about its ac­cep­tance at schol­arly in­sti­tu­tions.

HOW TO PLAY ITBY JON D. MARK­MANRo­bust data net­works un­der­pin in­no­va­tive busi­ness mod­els like 2U. One way to play this trend is T-mo­bile, the wire­less com­mu­ni­ca­tions com­pany serv­ing 72.6 mil­lion cus­tomers. Through sec­ond-quar­ter 2018, it logged 21 straight quar­ters with more than 1 mil­lion net new ac­counts. Churn, the per­cent­age of cus­tomers who have stopped sub­scrib­ing, is 0.95%, a record low. T-mo­bile an­nounced plans to de­liver 5G to 30 cities in 2018. These blis­ter­ingly fast, stable net­works will al­low T-mo­bile to com­pete with ca­ble com­pa­nies and al­low cus­tomers like 2U to dream up new hori­zons for on­line ed­u­ca­tion. Shares trade at 12x trail­ing earn­ings.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.