From the issue dated December 14, 2001
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Debating the Demise of NYUonlineDid the venture go under because of the changing economy or bad decisions?By SCOTT CARLSON and DAN CARNEVALE New York University may have been the perfect place to start a for-profit distance-learning venture. The university is known for the quality of its professional and continuing-education programs. It has close ties to Wall Street and has attracted an entrepreneurial administration. But in the end, the business flopped. The university blames last month's closure of the distance-learning company, called NYUonline, on the economy. But several sources inside the institution and
During three years of operation, NYUonline spent about $25-million of New York University's money, administrative sources say. That investment produced seven courses on the company's Web site and attracted a handful of businesses as clients, although the company wouldn't reveal how many or release enrollment data. Nationally, enrollment in distance learning is growing in successful programs -- the University of Phoenix's online enrollment, for example, almost doubled since last year, from 16,000 to 29,000. Enrollments at nonprofit programs -- in Pennsylvania State University's World Campus or the University of Maryland University College -- are growing steadily, too. But, like a wolf stalking a herd of caribou, the market is beginning to pick off the sick and feeble. NYUonline isn't the only one to fall: The University of Maryland University College closed its for-profit arm, UMUConline, in late October, and Virtual Temple, Temple University's company, closed its doors in July. Whether it's from the failing economy or bad business decisions, the closing of NYUonline is forcing the weaker distance-education programs to take another look at their own endeavors. Business Issues NYUonline is a for-profit business wholly owned by New York University. The company's purpose was to develop distance courses for its clients, mainly other businesses. It started in October 1998 during an explosion of dot-com start-ups and distance-education programs. NYUonline was created by Gerald A. Heeger, who was then dean of the university's School of Continuing and Professional Studies. Mr. Heeger became president of University of Maryland University College in 1999 and started UMUConline. New York University will continue to provide distance courses, partly through its School of Continuing and Professional Studies, the university said. Discussions are under way as to how much of NYUonline's programs and functions the continuing-education school will acquire. "Economic conditions have shifted, and the benefits of having a separate for-profit enterprise have diminished," said Harvey J. Stedman, the university's provost, in a news release issued by the university last month. "Now the university is reassessing NYUonline's technology and operations and is determining which activities will be managed by NYU's School of Continuing and Professional Studies." Mr. Stedman did not respond to requests for an interview. However, an NYUonline administrator, who asked not to be identified, said the economy is only part of the story. The company had trouble running like a business while being run by a university. One symptom of that problem was NYUonline's not having the latitude to work directly with faculty members, as, for example, publishing companies do, the administrator said. As a result, the company had to trudge through a lot of needless bureaucracy, he said. Even at the point when the university decided to close NYUonline, the administrator said, the company still eventually could have broken even on operating costs and perhaps eventually made some money -- if an investor had been willing to plow more money into the company. "We were close to breaking even, but it would have taken more investment," he said. Another source, who was a recent administrator at NYUonline, said the company did not adequately survey the market before trying to produce courses. Instead, NYUonline created online courses without determining whether they were what companies wanted for their employees. As a result, NYUonline had trouble finding customers. This problem partially came from a failure to communicate within the company, he said, especially between the sales force and the production team. But Robert Berne, vice president of academic and health affairs for New York University, said NYUonline was successful in creating online courses for businesses -- such as a "Train the Trainer" workshop, in which corporate trainers learn how to teach effectively with technology. The recession prevented the company from getting enough venture capital to continue, he said. "Those capital markets didn't materialize, particularly in the last six months," Mr. Berne said. Otherwise, NYUonline was on the right track, he said. The company had access to all professors who wanted to be involved, Mr. Berne said, and he called the amount of faculty participation in the company "appropriate." The Faculty Role However, A. Frank Mayadas, director of the Alfred P. Sloan Foundation's grant program for online education, said NYUonline should have sought more involvement from New York University professors in teaching and production. Instead, many of the courses were taught by adjuncts with less expertise and teaching experience. "It wasn't able to tap the real value of NYU, which is the faculty," he said. "When I did not see evidence that they had solid faculty involvement, I didn't think they had anything to sell." Carl Lebowitz, chairman of Faculty Senators Council at NYU, said that although faculty members weren't overwhelmingly involved in the company, a few professors acted as consultants. "When you look at it realistically, the majority of the faculty aren't involved because they don't think about online education," he said. "This was a separate operation that was done out of central administration, mostly to address the corporate market." The demise of NYUonline happened when the number of players in the online-learning business has been steadily shrinking. Even some of the survivors are redefining their business models and marketing strategies. The University of Maryland University College's online programs have been successful, with more than 63,000 enrolled in its online courses. But in October, the college dissolved its for-profit arm, UMUConline, which was designed to market the courses and help raise venture capital. Nicholas H. Allen, the college's provost and chief academic officer, said the office had lined up $20-million under the venture. But university officials weren't sure whether the for-profit entity could recruit students for a nonprofit college under Department of Education regulations. So officials scrapped the investment strategy and folded UMUConline into the nonprofit college. There have been bumps in the road for other ventures, too. Princeton University recently dropped out of a nonprofit enterprise, the Alliance for Lifelong Learning, leaving Stanford University, the University of Oxford, and Yale University to contribute to the program. Herbert M. Allison, the chief executive officer of the alliance, said that Princeton's departure won't affect the health of the venture, and that he is enjoying strong support from the remaining members. The alliance just began offering about 10 courses. "We're willing to take our time," he says. "We've only been doing this for six weeks, and we've already learned a lot." Betty B. Leydon, Princeton's vice president for information technology, says the university is more interested in using its resources to explore technology tools that can be used in the classroom. "When [the alliance] was started, the goal was to enhance the educational experience for students and alumni, and the specifics of how that was going to happen hadn't been thought out," Ms. Leydon says. "It was happening at a time when there was a belief that online education was going to be a very important vehicle for distributing learning. Because of the economic situation today, that hasn't turned out to be the case -- at least, not yet." A Tough Sell Last year, Brown University and Williams College considered investing in Global Education Network, or GEN, an online-learning vehicle started in part by Mark Taylor, a humanities professor at Williams. Neither of the institutions bought in. A committee at Williams studied the company and concluded that each course would need 2,000 to 3,000 students to support it. "The kinds of enormous profits GEN anticipates and promises are not going to materialize from marketing liberal-arts courses on the Web," the committee wrote in a report. However, GEN soldiers on. Alexander F. Parker, GEN's chief operating officer, says the company is working out partnerships with two institutions, but he won't name them. Professors from both Brown and Williams, along with other institutions, are developing courses for the company, which are being pilot tested at community colleges and small liberal-arts colleges. Mr. Parker says GEN will start selling the courses to the public sometime next year. As for whether those courses will make the company profitable, he says: "That's a hard thing to say right now." The for-profit venture eCornell just began offering some of its first courses -- all noncredit and professionally focused -- and there is a cautious optimism among its supporters. "I think this is like the early days of the railroad or television," says David B. Lipsky, eCornell's director of educational planning and review, and a professor of industrial and labor relations at Cornell University. The university's Board of Trustees will have to periodically approve more money to support the venture. Mr. Lipsky says he is confident that eCornell will get it, even though money is tight at the university and a hiring freeze was just announced. And Michael M. Crow, who oversees Fathom, the for-profit venture at Columbia University, said that Fathom's financial support is solid and that he's not worried about whether it will make a profit in the near future. In fact, he boasted about Fathom's accomplishments: Fathom's Web site was recently redesigned, and as of last week, more than 10,000 people had signed up for online courses or seminars. The site gets 3,000 new visitors every day. By July, Mr. Crow hopes to see 200,000 people using the site regularly and 20,000 signing up for courses. That would not make Fathom profitable, he says, but it would be a significant step toward that goal. Credentials Over Content Where any or all of these sorts of ventures end up is yet to be seen in this competitive marketplace. But some of those who got into online learning through more traditional methods -- by sticking close to an institution's identity and by building slowly -- say that they expected the current shakeout all along. Graham B. Spanier, the president of Pennsylvania State University, doesn't believe that the death of NYUonline or Virtual Temple or any of the others is happening because of a bad economy. He saw it coming. "Five years ago, I was saying that we could expect most of these ventures to fail, that universities should be very careful getting into online education in a big way, that it was not going to be a get-rich-quick scheme," he said. "Schools should think it through, make sure they are committed for the long term, have realistic expectations, and not expect them to be massive profit centers for other parts of the university." Making an online-learning program a for-profit entity in order to attract investors is a flawed strategy, said Jack M. Wilson, the chief executive officer of UMassOnline, a nonprofit division of the university, and a professor of management at the University of Massachusetts at Amherst. "What really failed at NYUonline was the notion of doing this as a spinoff for-profit, separate from the university," he says. "I've been in the venture-capital business, and most investors don't want to be a partner with a big educational institution. It's just not the kind of investments they make." Mr. Spanier and Mr. Wilson said that online-learning programs stray from the traditional values and identity of their founding universities at their own peril. Penn State's online-learning department, World Campus, is closely tied with the university's academic programs and, like the rest of the university, is nonprofit. "The biggest unrecognized trend in academia today is the convergence of resident instruction and online learning," Mr. Spanier said, referring to the way traditional classes are incorporating online materials and methods, and online learners are demanding more face-to-face contact. "We have residential students who are waking up and taking online courses." The university can satisfy those students more easily when the online program and the traditional departments are working closely. Furthermore, an online program is easier to sell when it's closely tied with a particular university, Mr. Wilson said. Online-learning companies are misguided if they think that high-quality content alone will attract customers. Students want a degree program, a community of peers and alumni, and a reputable institution's name on their diplomas and résumés, he said. To prove the point, he said, look at a traditional class on e-business that he teaches at the University of Massachusetts. "Some students pay $3,000 to take that course. They can get the same information in a book for $49.95, or they can go to my Web site and get all of that information for free." The content is not as important to the students as the credentials or the university that is bestowing them. "If you're trying to get a degree, you want to make sure that the institution is there 20 years later in your career. And the best guide to that is, was it there 150 years ago?" A distance-education program within a traditional university is probably the best way to go, said Robert Ubell, dean for online learning and corporate development at Stevens Institute of Technology. Online learning within higher-education institutions is still growing strong, with thousands of students online, he said. The failure of NYUonline does not represent the entire online-education industry. "It's one small unproductive piece of the e-learning landscape," Mr. Ubell said. "It's not a sign that e-learning is failing." http://chronicle.com Section: Information Technology Page: A31
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Copyright © 2001 by The Chronicle of Higher Education