Outsourced Ed: Colleges Hire Companies to Build Their Online Courses

Rick Friedman for The Chronicle

Michael Tricoli, a manager at a medical-device company who has a young daughter, wanted an M.B.A. He got one online from Northeastern U., which outsourced much of his college experience to a private company.
July 18, 2010

Michael Tricoli was a middle manager looking for a leg up in his career, so he got an online M.B.A. from Northeastern University.

Well, not only from Northeastern. Much of his college experience was outsourced to a private company.

The company, Embanet, put up millions to start the online business program. Its developers helped build the courses. Its staff talked Mr. Tricoli through the application. It even pays—and, in rare cases, refers for possible hiring—the assistants who help teach students.

In exchange, Embanet gets what Northeastern's business dean calls "a sizable piece" of the tuition revenue. He won't say how much. But Embanet's chief executive says its share can swell to a whopping 85 percent.

As more colleges dip their toes into the booming online-education business, they're increasingly taking those steps hand-in-hand with companies like Embanet. For nonprofit universities trying to compete in an online market aggressively targeted by for-profit colleges, the partnerships can rapidly bring in many students and millions of dollars in new revenue. That's becoming irresistible to an increasingly prominent set of clients. George Washington University, Boston University, and the University of Southern California, to pick just three, all work with online-service companies.

But the new breed of online collaboration can tread into delicate academic territory, blurring the lines between college and corporation. Derek C. Bok, a former president of Harvard University and author of a book on the commercialization of academe, questions companies' encroachment into teaching. He worries that bottom-line thinking will drive decisions about how colleges deliver courses. They might choose exam formats that are easier to grade, for example, to keep costs down.

"You're creating a whole set of temptations to make the choices that will increase profits rather than improve education," Mr. Bok says. 

 Embanet says its college partners retain academic control. And despite Mr. Bok's worries, the practice of contracting out parts of online education seems likely to expand.

A Small but Growing Industry

At least three new online outsourcing options have emerged in recent years: 2tor Inc., headed by John S. Katzman, founder of the test-preparation company Princeton Review; Colloquy Inc., a subsidiary of Kaplan Inc.; and Total Online Program Service, from SunGard Higher Education. Other online service firms—Embanet, Bisk Education, Compass Knowledge Group—have been around longer. Altogether, roughly a dozen companies, most of them privately held, compete for clients in this small but growing industry, says Richard Garrett, managing director at Eduventures, a consulting company.

Mr. Garrett frames the rise of these vendors in the context of a larger debate about the disaggregation of higher education. Companies are now playing a role in academics through course-management systems like Blackboard, tutoring services like Smarthinking, and grading assistance like Virtual-TA. Now vendors are taking part in the creation and delivery of courses as well.

This outsourcing of instruction represents a "new and controversial frontier in higher education," a phenomenon that was "virtually unheard of a decade ago," according to a policy paper published this month by the American Association of State Colleges and Universities. The arrangements can trigger faculty blowback, like the strife caused when one company, Higher Ed Holdings, attempted to develop online programs at the University of Toledo. Faculty resistance drove the company to pull out of discussions.

Colleges' budget pressures are driving these deals, but so is something else: investment capital.

Online companies that work with nonprofit colleges are benefiting from a surge in investor interest at a time when the government is scrutinizing the publicly traded for-profit colleges that have gobbled up so much of the online market.

Investors believe that traditional nonprofit colleges will eventually play a much larger role in online education than they have so far, says Trace A. Urdan, an education-industry analyst with Signal Hill Capital Group. At the same time, he says, they're more apprehensive about investing directly in proprietary colleges. The for-profit industry's underbelly has been on display recently, with the U.S. Education Department tightening its regulatory vice and Senate Democrats promising to crack down on "bad actors" to protect federal financial aid from being wasted through fraud and abuse.

Mr. Urdan points to another online partnership, between National Labor College and Princeton Review, as a significant example of how money is moving in "this new regulatory environment."

Investors, he says, are "looking to try to extract value from the growth in online education and working-adult education without having to be directly in the sights of the regulators."

The Marketing Spider Web

A closer look at Mr. Tricoli's experience offers a case study of what happens when selective colleges join with online outsourcing companies.

Mr. Tricoli was a manager at a medical-device company several years ago when he started thinking about getting an M.B.A. The suburban Boston resident was 35 at the time, with a young child and a job, so the flexibility of online classes was attractive. Like so many prospective students, he turned to the obvious first stop: Google.

The search engine steered him straight to the University of Phoenix. But, he says, its reputation left "a bad taste in the mouth." So he kept on Googling and soon struck a more attractive option: Northeastern. Here was a familiar name from Boston, a university endorsed by the leading accreditor in business education, AACSB International: the Association to Advance Collegiate Schools of Business. Mr. Tricoli filled out an online form requesting more information.

He got it, quickly—from Embanet.

One of its representatives called him within 24 hours. It's the kind of snappy response you'd expect from a for-profit college. But while Embanet's pitch was confident, it was nothing like the predatory approach that has gotten some proprietary colleges into trouble.

"He wasn't one of those aggressive salesman that's just like, 'You gotta get in today because somebody else is waiting behind you and we have limited slots,'" Mr. Tricoli says. "That's one of the customer-service things that made me say, 'OK, this is going to be a good experience.'"

It's an illustration of how these companies can quickly convert a curious Net crawler into a tuition-paying student. Some companies veil their recruiting agendas in the guise of informational Web sites. Take, for example. The site, created by 2tor, explains the steps needed to become a teacher in each state. It's one of the first things you find by Googling "teacher certification." But the box seeking contact information reveals the site's other aim: to generate leads for the online graduate-education program that University of Southern California created with help—and $15-million—from 2tor.

Once inquiries come, companies have call centers to pounce on them. Shift workers like police officers and nurses can call at 2 a.m. and get a human being on the line, says Kathleen M. Burke, dean of George Washington University's College of Professional Studies, which has hired both Embanet and Colloquy. Private colleges have been slow to move into distance education, she says. For colleges that built their reputations serving undergraduates, she says, vendors offer the infrastructure to support the nontraditional students attracted to online courses.

"There's not the investment nor yet the will at many private institutions to plunk down millions of dollars to build a call center to support a group of students that many at the university still don't think of as the core group," she says.

For Mr. Tricoli, the personal service continued once he was admitted to Northeastern. An Embanet student-service adviser became his primary contact for questions. Books. Technology issues. Scheduling needs. Whenever Mr. Tricoli had an issue, he contacted the Embanet adviser—and always got a reply within 24 hours.

Crossing a Line?

What he didn't know was that Embanet touched his instructors, too.

Northeastern's business program uses a "master teacher" model. Professors prepare all the content, like lectures, syllabi, and exams. They meet with Embanet's developers, who make recommendations about designing the online courses and take care of most of the technical work needed to build them. Then the professors teach with help from "instructors" or "facilitators," sort of an online version of graduate-student assistants. Each facilitator works intensely with 15 students, checking homework, managing discussions, reviewing case studies. Mr. Tricoli says he had the most contact with these facilitators and with other students.

The facilitators, however, are on Embanet's payroll, not Northeastern's, says Thomas E. Moore, dean of the College of Business Administration.

This was news to Mr. Tricoli: "To me they were just another adjunct professor at Northeastern."

In fact, instructors mostly do come from "the Northeastern family," Mr. Moore says, meaning people familiar to the university because they are alumni or have taught the course before as lecturers. But on "one or two occasions," he says, the university has needed someone, "and Embanet has provided an instructor for us." In such a case, if Embanet recommends someone, Northeastern interviews that person and decides whether to make the hire, the dean says.

Embanet's financial reach extends beyond teaching assistants. The company even pays Northeastern for the salaries of tenured professors who teach online courses. "Embanet reimburses us for both the cost of course design and faculty teaching," Mr. Moore says.

Harlan D. Platt, a finance professor who has been at Northeastern for 30 years, compares Embanet's role to the DVD service Netflix. "Embanet has nothing to do with the education I deliver—nothing to do with the education my facilitators deliver," he says. "It's me. I'm the studio. I'm the actor. I'm the director."

In a short period, Embanet is helping to transform Northeastern's business college. The online programs have grown to 1,000 students and could reach 1,700 next year, meaning more graduate enrollment online than all the college's traditional graduate courses combined. Despite Embanet's cut of the tuition, the programs returned more than $2-million to the university in the past year, Mr. Moore says. In other words, that's how much Northeastern took in after expenses were covered, cash the college is using to reinvest in faculty.

But where some colleges see opportunity, Mr. Bok sees a "dangerous trend." Even though campus officials insist that they control hiring decisions, he doubts that a college would veto a company's recommendation in a situation in which students were waiting for a class, and time to find a teaching assistant was limited. Mr. Bok emphasizes that he is speaking generally, not about any particular institution. But as a matter of principle, he says, "you have crossed the line" by using a private company to recommend teaching assistants.

"You have now delegated an essential academic function, which is choosing who will assist in the teaching function, to a company," he says. "You could say it's not very important. But of course, the way principles break down is because the first thing is not very important."

Pulling Back

Some colleges that have used online-education companies have pulled back from outsourcing, at least to a degree, out of concerns over both academic principles and high prices. Although Embanet's chief executive says deals that cost colleges 85 percent are increasingly not the norm—at one conference, he characterized the company's cut as anywhere from 50 to 85 percent—Boston University came to see the price of outsourcing as too steep in the long run.

When Boston started a master's-degree program in criminal justice in 2003, it hired Embanet as a one-stop-shop for course hosting and design, marketing, and student services. Outsourcing was seen as a way to jump-start distance education at a university seeking to expand nationally beyond the academically congested local market. But faculty members grew frustrated working with external instruction designers. And the cost of outsourcing instructional design was greater than that of handling it internally, says Jay A. Halfond, dean of Metropolitan College and extended education at the university.

Over time, Boston decided to set up its own course-design shop, enabling the technicians to familiarize themselves with faculty and programs. It also took control over hiring and paying facilitators. The university still uses both Embanet and Compass for recruiting.

"We couldn't let an outside party be responsible for the quality of our instruction—that was just too problematic on a long-term basis," Mr. Halfond says. He added, "We didn't want to be dependent on a for-profit company in terms of our academic reputation."