Are there concerns about the longevity of Online Program Management companies?

I enjoyed reading Crain’s overview on Chicago’s Online Program Management companies (OPMs). Thanks to the many innovative and passionate people like Chris Nyren, founder of Educelerate, this is an exciting time to be in Ed Tech in Chicago. We are fortunate to have five of the strong OPMs who each have large opportunities for growth. However, in addition to the long payback period, there are a couple areas of concern for OPMs.

The first concern is that larger universities, or at least those with available capital, may consider a build their own or unbundling strategy. The revenue share aspect of the OPM service agreements will be the driving reason. Revenue sharing is the way OPMs make up for their initial investment which, in turn, helps schools mitigate risk. When schools scale to multiple online programs, 50% to as much as 80% revenue share will be a hard pill to swallow. With enough online programs, the economics of operating their own programs will start to look different.

Larger universities may find the motivation and scale to run their own or subcontract components of their online operations.  According to an Inside Higher Ed article earlier this year, John Katzman raised this issue. John is a long standing ed tech entrepreneur with his hands in starting many companies including 2U. In the article, he claimed the direct cost of these programs is 20% of revenue so there may be money left on the table. The idea expressed is that a general contractor like Katzman’s Noodle Partners can facilitate the unbundling of the full-service OPM.  

Another OPM challenge is the ability to deliver a consistent quality of service.   In the name of student service, satisfaction and outcomes and without a strong service level agreement, some schools are now spending beyond their budgets to clean up after broken OPM promises. Though it is often a vendor management responsibility, poor service may push schools to seek better providers or develop their own capability. One key to a successful full-service model is a robust service level agreement in which OPMs have an incentive to deliver on their promise.

The last concern that an OPM may be concerned about is an Orbitz-styled solution… Some consortia of universities are not succeeding because of infighting, but others appear more aligned. It would not be a far stretch for a consortium of universities to build or acquire their own platform to optimize expenses and revenue.

Granted a small percent of the $80 Billion in graduate education market is online. OPMs still have a lot of upside. However, the sector is relatively young and some customers may start to see value in taking more control of their revenue from online programs.