More universities are using OPMs—and the OPM business model is evolving. We take a closer look at this changing landscape.
Working as independent fiefdoms, individual colleges and universities have generally viewed academic programs as proprietary, and their development has been closely held and private. It’s nothing short of a sea change, therefore, to note the explosive growth in the number of institutions that have begun farming out management of their online programs to third-party vendors.
Another sea change is evident in the contracts universities are signing for online program management with OPMs, the companies that provide those services. Alongside the soup-to-nuts business model, in which OPMs handle most aspects of program development and delivery, an a la carte alternative has emerged that lets institutions choose components of program management to outsource. Another change is that more OPMs are competing for university business.
Given this fast-evolving landscape, it might be helpful to unpack some of the facts about OPMs—and identify some guideposts for navigating this terrain.
How OPMs work
Universities contract with OPMs for help in launching or supporting online programs. For some clients, OPMs supply a package of products, technology, and skillsets that may be outside the core mission, experience, and expertise of a given college or university. For other schools, OPMs provide another set of hands to extend a university’s reach—in marketing, say, or enrollment management. In many cases, OPMs can help schools develop new programs—and revenue streams—that they may not have been able to develop on their own. In many contracting arrangements, OPMs assume the risk associated with starting a new program in exchange for an often hefty share of the profit. OPMs can bring a program to market and maturity faster than most universities can act, can help institutions find and tap new student markets, and can scale programs more effectively than many institutions might do on their own.
Southern Methodist University, for example, contracted with a leading OPM, 2U, to develop SMU’s only fully online degree program, an MS degree in data science. The University of Nevada, Reno partnered with another leading OPM, Pearson, to create an online master of social work degree program. In a partnership with a third OPM, Wiley Education Services, Winthrop University is launching online master’s programs in business, special education, social work, and arts administration.
Research by Eduventures found that the number of institutions that have contracted with OPMs grew more than 130% between 2011 and 2015, while more than 300 schools are now using OPMs. Other estimates suggest that figure might be much higher. (In 2016, The Atlantic magazine cited a report that found that up to 80 percent of the more than 2,600 colleges that deliver online education outsource the management of those programs.) While OPMs service degree programs that range from the associate degree level to doctorates as well as certificate programs, their sweet spot is in the realm of master’s degrees—particularly in programs than readily scale online, such as nursing, education, business administration and, more recently, data science and analytics. One driver for this trend is of course the burgeoning interest across higher education in online programs, which itself is driven by the need of most universities to find new revenue streams in the wake of fiscal belt-tightening. A related driver is the need of many universities to recruit new student populations, including adults, in light of contracting pools of high school graduates. It’s not hyperbole to suggest that most colleges and universities have at least considered expanding their online programs—if, indeed, they have not done so already. Eduventures has found that headcount in online courses increased by some 30% between 2011 and 2015, while the number of online programs increased by 110%. Of the approximately 24 million students enrolled in higher education, 2.85 million study online exclusively.
By one analysis, online program management is a $1.1 billion industry in the US. More than 30 vendors currently compete in this space, providing a wide mix of services that might include program and curriculum development; market research, lead generation, and program marketing; enrollment management; student success and retention services; technology hosting; and faculty and staff support. A cadre of five vendors—Pearson, 2U, Wiley, Academic Partnership, and Bisk/University Alliance—currently command the lion’s share of the OPM market.
“The OPM market exists because it’s very difficult for a traditional institution to do the things that need to be done to create an online program at any kind of scale,” says industry analyst Phil Hill, who consults for the firm MindWires and is co-author of the blog e-Literate. Working with an OPM, Hill says, is an opportunity for a university to say, “We can’t afford to wait five to ten years before we even get off the ground. You guys do the things we’re not good at and we’ll do the things we’re good at.”
Two OPM models
Two basic OPM business models have emerged. In one, the vendor provides virtually all the services necessary to create an online program for a client school. The vendor shoulders most if not all of the upfront costs of program development (and much of the risk) in exchange for a significant share of program revenues over a significant period of time. Inducements for colleges and universities include the benefit of not having to invest capital upfront to develop new programs, and the expectation that even after the vendor takes a significant share of the profits, the institution can realize a still significant steam of “new” revenue. As framed in an example in a recent paper by John Katzman and Greg O’Brien of Noodle Partners, an OPM might put up $2 million of its own money to create a program for a university, in exchange for 60% of the revenue over 8 years. If the program were only moderately successful, the paper suggested, the OPM might realize $24 million in revenue over the length of its contract with the university. The rest of the profit would go to the university.
An alternative a la carte model, based on fees for services, has recently been gaining traction. In that model, universities contract with OPMs for bundles of services that they select, cafeteria-style, rather than for soup-to-nuts program design and delivery. In these arrangements, for example, the OPM might handle program marketing and student recruitment.
The fact that the OPM market has grown to exceed $1 billion suggests that OPMs work for many institutions. As one example, Inside Higher Education reported last year on Schreiner University’s successful partnership with the OPM iDesign to develop a new nursing program.
Schreiner faculty designed the curriculum and teach its courses, while the vendor supports the program with its marketing and technology expertise. At the time of the article, the program had produced satisfying results by enrolling more than 180 students and reaping some $1.7 million in revenue.
Another example comes from an internal analysis of the University of California Berkeley’s work with 2U to create a master’s program in information and data science. Noting that the school had recouped its start-up costs and scaled the program to a point where it was returning “a steady stream of revenue,” the report went on to note that Cal “could not sustain a program of this scale without [2U’s] expertise in marketing, content production, students support, tech support, and operations.”
A few considerations about OPMs
OPMs are not without their critics. Common criticisms focus on the share of revenue that OPMs can command—as high as 70%—and on contracts that lock institutions into long-term agreements. Other concerns are that universities cede too much control to OPMs—of academic content in some cases, or in factors like how programs are promoted.
There have also been reports of OPM relationships that did not entirely produce the desired results. Phil Hill has noted in e-Literate how the University of Florida scuttled its relationship with Pearson after work to create UF Online did not meet what may have been overly ambitious initial goals. (Realigned under new management, the program has since been more successful.) The California State University system failed in its attempt to create a system-wide online portal with assistance in part from an OPM.
Hill believes that some relationships with OPMs have failed because the university partner didn’t fully understand or was naïve about the value that an OPM can deliver. It’s wrong, he suggests, to think an OPM offers a silver bullet that can magically solve multiple enrollment challenges that likely have multiple causes. “There’s a lot of opportunity here,” he says, “but you better have a solid business and academic plan, and that needs to be centered on your target student population. You need to have done your homework for this to work. You really need to understand what you’re doing.”
The Century Foundation has been vocal in its criticism of OPMs, particularly around public colleges and universities. In a recent article, for example, one of the foundation’s policy staff suggested that use of OPM injects the presence of “a profit-seeking entity” in teaching and learning in ways that crosses a line beyond outsourcing of other services, such as dining facilities or parking. Moreover, the analyst argued, OPM-created programs have so far been able to evade regulatory standards for public or for-profit institutions. “More so than other contracting arrangements,” the analyst wrote, “OPMs represent the outsourcing of the core educational mission of public institutions of higher education, threatening the consumer-minded focus that results from the public control of schools.”
Century Foundation senior fellow Robert Shireman, who helped police for-profit education while serving as deputy undersecretary in the Education Department under President Obama, told The Atlantic that there “will likely be some scandals” in OPM partnerships. One potential hazard? Shireman warns about “the role of a private contractor in recruiting or in setting admissions standards, and the extent to which that invites predatory behavior.”
The Atlantic piece also reported yet another beef with OPMs: their potential to make higher education less affordable and less accessible. The magazine cited John Katzman, a former 2U executive who now heads another OPM, as suggesting that the soup-to-nuts model in which schools share revenue with OPMs “puts pressure on schools to actually raise online tuition, not lower it.” The Atlantic also suggested that OPMs that work with several schools may have innate conflicts of interests in recruiting students, in the sense that “there’s no point in getting 30% of a $20,000 program that might reject a student when they can get the same student into a program that nets 70% of $50,000 and will take just about anyone.” Such criticism points to another overarching concern, that work with OPMs emphasizes financial considerations over student learning.
Effective practices and due diligence
As universities develop more experience in working with OPMs, they are also developing effective practices for managing those partnerships. Eric LaMott, the provost and chief operating officer at Concordia University in St. Paul, Minnesota, says that a good place to start is by thoroughly understanding the institution’s core business—what it does well and what might be better outsourced. “We look for partners where we have skill gaps, and particularly, the capacity to execute in effective and timely ways,” LaMott says. Concordia contracts with the OPM The Learning House, Inc. to help it recruit and retain students. The OPM has also helped the university develop an undergraduate program in computer science.
Partnering is wired into the DNA at Concordia, where the value of working with outside partners is written into the strategic plan. And while the use of OPM has raised profound concerns among the professoriate at many universities, LaMott says faculty at Concordia “are very attuned to the realities of how tight and dense the marketplace is and recognize how it’s important to continue to bring new curriculum to the marketplace.”
LaMott says several interrelated factors help drive a successful relationship with an OPM. One is crafting a true partnership. “A lot of people think about vendor management. To me, this is really partner management. Partners are in this for the long haul, partnering together for a solution,” he says. “The schools that come at it as a vendor relationship, I would bet dollars to donuts that it’s going to fail over time, because they don’t look at this as a symbiotic partnership.”
The nuts and bolts also matter, LaMott says. “We try to be creative in finding partnerships that are meaningful, but also have a financial ROI,” he says. Just as important is “having a very strong statement of work, and then making sure the right protocols are in place as well as assurances that ownership and decision‑making is still held at the core by the institution,” he says. LaMott says managing OPMs is akin to managing staff or other partnerships. One key, he says, is having clear expectations about what the partnership is designed to achieve and “ensuring that everybody knows what their roles and responsibilities are inside that structure.” In addition, LaMott says it’s imperative to keep transparent lines of communication open with OPMs at all times. Metrics to measure progress are also essential. Universities and their OPM partners “need to hold ourselves accountable to each other,” he says. “When things aren’t right, we need to sit down and come to some resolution. In our case, we’ve been able to find resolutions that have been very meaningful, and we’ve actually had unexpected growth that’s come out of that as well.”
Kimberly Rutigliano, the director of continuing and professional education at SMU, offers similar advice for universities that are thinking about engaging with OPMs. “I think it’s really important for universities to look at themselves honestly and assess what they want to accomplish, on what kind of timeline, and with what sorts of resources,” she says, and consider what value an outside provider might add. “You need to calculate the costs [of OPMs] based on your own wants, needs, capabilities, and experiences,” Rutigliano says.
“I’ve had a very positive experience with our vendor,” Rutigliano reports. “They bring a lot of resources to bear and a lot of technical expertise, and have dedicated staff who are truly focused on this program.” The OPM helps the university provide dedicated marketing recruitment support that the university would otherwise not have for graduate education, she says. “They have a degree of specialization and a degree of dedication, just in terms of time and headcount, that we don’t have. I’ve been really pleased with how they manage the enrollment management services function, the marketing and the recruitment in particular.”
“I think one of the challenges of the OPM model is that there’s a short‑term calculus versus a long‑term-gains calculus,” Rutigliano says. “It doesn’t take a lot of very complicated math or very good sales people to tell you that in the long run, your economies of scale are things you develop yourself. In the short run, an OPM provider can give you training wheels and leverage you up a lot faster.” SMU’s online MS program in data science, started in 2014, has done so well that some faculty jokingly call it a “catastrophic success,” and the university is actually thinking about slowing further growth while it can develop the infrastructure necessary to fully serve the program’s students.
The New School, in New York City, has been doing due diligence in preparation for likely work with an OPM in the near future. President David E. Van Zandt has found that process to be instructive. “It is a great opportunity to learn,” he says. Van Zandt’s colleague Ilan Jacobsohn, the New School’s senior director for distributed education (and a former content strategist for 2U) says that “searching for different OPMs can give you a lot of perspective on your own institution. It’s a very good reflective exercise.”
One of the lessons that Van Zandt has learned is that regardless of whether an institution thinks it need not pony up money to contract with an OPM, you have to have some skin in the game. “One of the allures of OPM is that universities have to put no money up front,” he says, “But I think if you are going to go into this in serious way, you have to be ready to invest resources in it. At the end of the day you’re going to have to, if you really want a robust program.” Also important, he says, is “to be very conscious about the way that” you engage with OPMs. “I would have to say a danger with OPMs is that they clearly are in business and are trying to build up their volume,” Van Zandt notes. “I always worry about whose programs are they really promoting and how much will they do that. If they follow the traditional compensation model, then they have real incentive to cherry-pick from among all the programs they have” in terms of which they promote the most.
Vendors also have some ideas for how OPMs can best serve higher education. Greg O’Brien, the chief operating officer of the OPM Noodle Partners, says that some schools may not have the internal resources needed to start a new online program fast and may thus need an OPM who can provide a full palette of services while other institutions may need only select services. An advocate himself for the a la carte OPM model, O’Brien urges universities to ask tough questions of potential vendors and make sure that the OPM is transparent in its dealings with the university. “Think about the financial ramifications of the margin structure in working with a partner not just for today but for the long-term,” he says.
Todd Zipper, president and CEO of The Learning House, says that “at the end of the day, much of [an OPM’s] value is in the strategic decision-making recommendations that we’re bringing.” Apart from its expertise in services like marketing programs and enrolling students, Zipper says that OPMs can help a university better understand what it takes to build the programs they want. In a typical relationship with a university client, he says, he might say “Here’s how you build a good program. Here are the right policies. Here’s how I would structure everything from learning outcomes on the educational side to making recommendations around admissions policies that are extremely student friendly.”
“If you’re a university partner, don’t sign up with somebody where you want to just dip your toe in the water,” Zipper suggests. “We completely avoid those deals now, because what they’re doing is they’re kind of expecting some magic fairy dust to be sprinkled like it’s all of a sudden going to work.” Meaningful change takes a deeper level of commitment, he suggests.
Another perspective comes from James Sparkman, a partner at Alpha Education LLC, which helps universities find strategic partnerships in online learning and many other domains. OPMs can add considerable value, Sparkman says. “They have the software, the infrastructure, the systems, and the processes to be highly competitive, particularly in the areas of marketing, enrollment, and instructional design. Additionally, and not insignificantly, they are bringing the capital to launch your online programs.” Sparkman says universities should consider two central questions when considering OPMs: “Can a partner do it better and more efficiently than you can do it yourself? and Do you have the funds to do this yourself?”
Sparkman says that institutions contemplating using an OPM should do a lot of research to find the right partner. “If you’re talking about a seven‑year revenue‑share agreement and putting your brand, your faculty, and your students in a partnership, it’s truly a marriage,” he says. “Given the stakes, you really should not do an OPM vendor search on your own. The most important thing you can ever do in this process is talk to your peers about their experience. Talk with [prospective] vendors as well as with their clients.” Finding a vendor who’s a good fit for your institutions is also important. “The truth is that not every vendor is going to want to work with your institution,” Sparkman says. “If you are a big regional public, or national public university, you are going to be very attractive to lots of potential partners. If you’re a small private, you probably have a smaller set of vendors that will be interested in working with you.”
Once you find the right partner, Sparkman says, it’s just as important to invest time in crafting the right agreement. “There are a lot of nuanced details,” he notes. “There are dozens and dozens of variables that are all important.” Sparkman says the best contracts are explicit about their partners’ respective expectations. He also urges that contracts have clear metrics for assessing performance and options for ending the partnership should insurmountable disagreements arise.
Another important tip is that institutions not rush into a partnership with an OPM. Noting that just getting buy-in from all the necessary campus constituencies can take time, Sparkman says “be realistic about timing. These things take a while.”
Into the future
Where is all this going? Institutional interest in and student demand for online programs is robust. Given that online learning serves the needs of both institutions and students, online programs will continue to expand. In the short term, at least, it seems likely that more colleges and universities will contract with a pool of OPMs that may be expanding, at least for now. Eduventures has projected that the OPM market could grow to $2.5 billion by 2020. That may be a good thing for institutions. “It is becoming a very competitive market for OPMs, and I think there is going to be lot more flexibility of pricing and [negotiating terms of contracts] going forward,” Van Zandt says. “There’s an excess of OPM providers on the market and you know they’re looking for business.”
Competition among OPMs creates pressure on vendors, Hill says. “If you’re an OPM and you don’t provide an immediate, very tangible value for your customer,” he says, “then you’re going to have pressure to not lock in 10‑year contracts or take 50% or more of the revenue. Because there are choices, you had really better justify why a university should sign a long contract that gives you a big revenue share.”
Hill also notes that the crowded vendor marketplace means that universities have to be even more conscientious in their due diligence prior to hiring an OPM. “The market’s crowded, and there are differences in quality between the vendors,” he says, “so you really need to vet your vendor and, in particular, their plans to provide quality support on the academic side. If a vendor has a canned model that pushes you into a quick and dirty course, and there’s no real guidance for faculty to do an effective online course, that could lead to a pretty poor-quality course, even if the faculty member from the school is really in charge.”
Another caution for institutions that want to add or scale online programs, Hill says, is that the online market in academic programs is starting to get saturated. Coming even from a school with prominent brand recognition, for example, an online MBA may not be as unique as it once might have been and may not have the cachet that it might have had five or ten years ago.
“I think there’s going to be more growth [in use of OPMs] outside of the degree professional level—in terms of certificates and ways to bring down the cost of a degree and give students value even before they get a master’s degree,” Hill says. “You’re going to see more activity that says ‘Let’s give quicker value to students who are trying to get into the workplace and might not even need a degree.’” This past summer, as an example, Harvard University announced that its schools of business and engineering and its department of statistics were collaborating with 2U to develop a new certificate program in business analytics.
As more institutions try the OPM model—and as institutions already in this space expand their presence—challenges remain. Concerns persist that universities should not outsource core academic activities. Some faculty (and some administrators) remain resistant to OPM. Questions have arisen about how to best compensate faculty who are engaged in the OPM model and recognize their intellectual property. A different set of concerns surrounds measuring the impact of OPMs: While it is relatively straightforward to measure the number of students who enroll and the tuition revenue they produce, more work is needed to assess student learning outcomes from courses offered through OPMs.
Still, many colleges and universities have found success with the OPM model. OPMs have helped many institutions create and scale successful online programs. Full-service OPMs and those that offer services a la carte serve different institutional needs effectively. Apart from tapping new student populations and providing new revenue streams, it can be argued that OPMs help institutions focus on what they do best, leaving functions that are outside of higher education’s core mission to vendors that have expertise to fill those gaps. In that regard, LaMott suggests that, as an industry, higher education needs to be more open to availing itself of such outside expertise. “Believing that we have to own it all ourselves and manage it all ourselves is not necessarily the most effective mechanism for reaching our objectives,” he says. “There are professionals in the marketplace that know their business, know it well, and can bring that value to us.”
Stephen G. Pelletier ([email protected]) is an independent writer and editor who writes frequently about higher education. Prior to starting his full-time freelance practice in 2006, he served for many years as vice president for communications at the Council of Independent Colleges, directed the publications program at NASFA: Association of International Educators, and edited the magazine at the Howard Hughes Medical Institute.