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[twofish]

I also doubt that tuition is the largest portion of Harvard's wealth. Tuition and fees may significantly help in their operating annual budget but in terms of wealth, endowments and gift giving make the difference in Ivys.

Harvard's revenue last year was $3 billion of which $1 billion came from its endowment and $600M came from tuition. 

University of Phoenix made $2.251 billion last year, and it isn't a particularly large company.  Apple last year made $20 billion.

The danger that Harvard has is that if you have a major company or several major companies like UoP at the $20 billion level, those company could invest enough to come up with a educational program that is as attractive as Harvard and render it irrelevant. 

[twofish]

Harvard's endowment is the largest in the US and worth billions.

$30 billion.

Some people claim that Harvard could stop charging tuition and still be able to function just fine. That's probably an exaggeration, but they don't need to consider expanding programs as (just) a money making thing.

Student income is $600M on a $3 billion dollar budget.  Theoretically you could get that income from the endowment, but that would be eating seed corn.  The endowment gives Harvard a cushion against change, but it doesn't make it immune from it.  AT&T had a similar revenue and cash position in 1990, and it fell apart over ten years.

Harvard about the size of Ebay, and it is much smaller than Apple, Google, Amazon, Microsoft, or Time-Warner.  What would be really interesting is if a major technology company like Apple decides to go into online education the same way that it has decided to go into digital music. 

Just imagine Google, Microsoft, Amazon, or Time-Warner buying the Apollo Group and getting into online education.  At that point you'd have this enterprise that is big enough to give Harvard a run for its money.

Something like that is almost certain to happen over the next ten to twenty years.

[twofish]

It's about enlarging the pool of potential students without the need for more physical space.  I don't know if the online programs are more profitable, but they draw students who wouldn't or couldn't be F2F students.

It parallels the development of Japanese cars or microcomputers.  When you have a new entrant to a market, they are going to start serving untapped markets, and the old market leaders don't take the new entrant seriously.  The trouble is that this gives the entrant a "base area" which it can use to attack the old market leaders.  It's likely that in the next decade, the University of Phoenix will make more money than Harvard.

I suspect that more of the money goes directly into education rather than support services, but I don't know of any studies to support that.

Actually in the case of UoP it goes to the investors.  In 2005, UoP made a profit of $444M off of revenue of $2.2B.

Because Phoenix and Streyer, etc. save on the physical plant and offer only profitable programs, they invest a lot in nice furniture and computers, and students feel that they are getting "the best."

I don't think that it's the physical plant that Phoenix saves on since physical plant costs are surprisingly inexpensive.  The two areas that are critical to UoP are

1) it skimps on teacher salaries.
2) because it has national reach, it has huge economics of scale.  Fixed costs are distributed among 300,000 students rather than 30,000

As long as there is one potential student in the outer reaches of the world who has the money and the time, but not the physical access to a campus, there will be pressure to build online programs.

What I think may happen is what happened with Toyota and Nissan.  In 1975, people would totally laugh at you if you mentioned that Toyota and Nissan would someday dominate the luxury care market.  After all, Toyota and Nissan just maked cheap inexpensive cars (because none of the American auto makers would).  Eventually, Lexus and Infiniti came around.  I'm pretty sure at some point the UoP will at least think about offering a line of "luxury education products."

[minor_t]

Good post, twofish.  Thanks.  You make some excellent points.

I know of an online program at a state U that competes directly with UoP for students.  UoP pays the faculty less, charges the students more, and yet UoP is more successful at attracting and retaining both students and faculty.

mt

[twofish]

I know of an online program at a state U that competes directly with UoP for students.  UoP pays the faculty less, charges the students more, and yet UoP is more successful at attracting and retaining both students and faculty.

It's successful at attracting students and faculty.  I have no idea about retention.  Part of the reason why is that UoP spent $484 million on marketing.

The closest analogy I can see to UoP is McDonalds, and the good news is that it is possible to compete with McDonalds in the restaurant business, and it is possible for a mom and pop shop to even compete with McDonalds at selling hamburgers (because restaurants don't sell food, they sell an atmosphere).

The big danger for Harvard and MIT is not that they will go bankrupt, but that they will lose their status as "educational leaders" and be thought of as a nice liberal arts or technical institutes in Cambridge of no real educational significance.  Say what you will about the Ivy League, they aren't leading distance education, and this is because there is a fundamental conflict between "educating more people is good" and "we get our status by choosing who not to educate"

If you look at who really is leading online and distance education, it's really places like University of Phoenix, state universities, Wikimedia, and community colleges.  Harvard and MIT really need to make alliances with those institutions, which means getting around the idea that somehow dealing with community colleges is beneath them.

The one big thing to come out of MIT is open-courseware, but I'm really, really concerned that the momentum behind that has dissipated, and President Hockfield hasn't made distance education a major priority in her vision of MIT (energy and life/physical science integration are the big things).  This isn't necessarily a bad thing since you have have some priorities, and things haven't developed to the point where there is a crisis, but I don't see how there *won't* be a major crisis in the future.

[helpful]

An equivalent Canadian school - UBC - already offers a degree done entirely online. Its done in collaboration with two other universities in Hong Kong and Mexico.

Of course, it is in educational technology.

[zharkov]

What I think may happen is what happened with Toyota and Nissan.  In 1975, people would totally laugh at you if you mentioned that Toyota and Nissan would someday dominate the luxury care market.  After all, Toyota and Nissan just maked cheap inexpensive cars (because none of the American auto makers would).  Eventually, Lexus and Infiniti came around.  I'm pretty sure at some point the UoP will at least think about offering a line of "luxury education products."

I like the analogy, and wonder if and when UoP or another for-profit online school will try to move upmarket.  UoP et al still see themselves as competing with continuing ed programs, that is, with educational programs for working adults.

It is certainly possible some people are investigating moving upmarket at UoP, but I expect their voices are not being heard.  But the same was probably true for the person at Toyota who suggested coming out with Lexus.

[j_source]

I was also under the impression that on-line programs from "traditional" brick-and-mortar institutions are not profitable endeavors, unlike traditional non-brick-and-mortar institutions (i.e. Univ of Phoenix).  Isn't it true that traditional institutions jumped on the bandwagon ear,ly on and slowly abandon distance learning as not profitable?

I may have the wrong perception...

Mr. Breeze

Depends on the institution but our online and distance education is very, very profitable and duplicates the curriculum on the bricks and mortar campus.  It's not going anywhere.

[sanjoaquin]

These posts have been very helpful, and I do want to say that I am a big fan of these fora and all those of you with more experience than I have.

San Joaquin

[twofish]

I like the analogy, and wonder if and when UoP or another for-profit online school will try to move upmarket.  UoP et al still see themselves as competing with continuing ed programs, that is, with educational programs for working adults.

UoP is trying to expand by competing with community colleges and continued ed, and my (probably incorrect opinion) is that they will find out that this will be a mistake.  The thing that UoP has going for it is massive economies of scale by having one national market, but when you compete against state university continuing ed and community colleges, you are competing against hundreds of local markets, and my prediction (which the UoP administration obviously disagrees with) is that they are going to get burned doing this.

The basic problem with UoP trying to move upmarket is the internal culture.  You can teach Algebra I with an army of "adjunct burger flippers", but you can't teach string theory like that.  UoP clearly has the financial resources to start a medical school, or a law school, or a engineering school.   (Olin College was started with a $500 million endowment and has an operating budget of $30 million).  The question is culture, but if UoP doesn't do it, someone else will.

It is certainly possible some people are investigating moving upmarket at UoP, but I expect their voices are not being heard.  But the same was probably true for the person at Toyota who suggested coming out with Lexus.

I stopped teaching after my third or fourth course at UoP.  By that time, I had turned myself from being a bad online teacher to a minimally competent one.  The trouble was that I wanted to do more there, but didn't know how, and UoP was and is tremendously isolating for faculty.  I'm sure that among the thousands of faculty at UoP, there were probably a dozen or so people that wanted to do the same things that I wanted to do, and if we got together we could pressure the administration to do some different things.  However, I'm not sure that the University of Phoenix administration would appreciate that.  So I just gave up there. 

From an internal marketing point of view, it would relatively easy for UoP to move upmarket.  You have an MBA, now here are some seminars and courses that will teach you to move up the corporate ladder to CEO. 
The trouble is the basic culture, and the desire for the administration to keep control.  Those barriers aren't quite as high at MIT. 

I have institutional affliations with UoP, MIT, and the University of Texas at Austin.  Of the three, MIT is the one that is the most likely to care about anything that I say or do.  It has a tradition of openness and an fundamental dislike for social authority which I think will be useful. 

[twofish]

Just to blur the line between traditional education and online education, what I think Harvard could or should do is to do in 2010 what it basically did in 1910 with its "Five-foot shelf" of classics.

http://www.harvardmagazine.com/on-line/110176.html