SLN SOLsummit 2010 http://slnsolsummit2010.edublogs.org February 26, 2010 Richard Garrett, Program Director and Senior Research Analyst serving Eduventures’ Online Higher Education Learning Collaborative Eduventures: Online Higher Education Market Update 2010- U.S. and New York Data This presentation will discuss Eduventures latest estimates and forecasts for the online higher education market. Emerging market characteristics, including the impact of the economic downturn and prospect for recovery, will be noted, and New York and national data will be compared. The presentation will update and build on a similar session given at the 2009 SUNY Learning Network SOLSummit. The online market opportunities and challenges facing SUNY schools will be considered.

1. Online Higher Education Market
Update
Commentary for SUNY Learning Network Summit
February 2010

2. Overview
• Online Higher Education Market Update
– Estimated and forecast online headcount 1995-2014
– By control- updated estimates and forecasts
• Taking Stock & Looking Ahead
– The rise of for-profit and 100%/majority online schools
– Public funding challenges FY2009 and 2010
– Consumer Data: why is the needle not moving?
• Projecting Online Opportunity
– Standing back: four main growth opportunities for online higher education
– What might change current market dynamics?
© 2010 Eduventures, Inc. 2

3. Online Higher Education Market Update
Estimated and forecast online headcount 1995-2014
By control- updated estimates and forecasts
© 2010 Eduventures, Inc. 3

4. Significance of Online at Institutional Level in U.S. Higher Education, 2009
(using 100 schools to represent the total c.4,600 degree-granting school nationwide)
Key Questions
100%
- In 2009, the online higher education
Online headcount as % of total students
90%
market remains characterized by a small
number of larger players, and a growing
80% - Type 1: c.55% of U.S. degree-granting schools number of mid-size and small players
are at zero (down from c.69% Fall 2005) - As Eduventures has been asking for
70%
- Type 2: c.35% enroll <1,000 online students (up some years, how might these
from c.26% Fall 2005) characteristics be retained, and what
60%
- Type 3: c.8% enroll 1,000-3,000 online students might drive this market towards a more
(up from c.4% Fall 2005)
50% normal enrollment distribution?
- Type 4: c.2% enroll >3,000 online students (up
from c.1% Fall 2005) - As bulk of schools continue to move
40%
away from bottom left corner, on what
30% scenarios will supply outpace demand,
and establish market maturity? What will
20% that mean for different online active
school’s growth, business model and
10%
value proposition?
0% - Where might longer-term growth come
0 10,000 20,000 30,000 40,000 from?
50,000 60,000
Online headcount- students 80%+ online
Source: HLC, Sloan-C, school data, IPEDS, Eduventures analysis
© 2010 Eduventures, Inc. 4

5. To date, online is both acyclical and counter-cyclical; low penetration/
improving brand combination should perpetuate pattern five years out
By 2014, online
160% headcount is forecast to 4,500,000
Online Headcount hit c.20% of total 3,970,720
140% 142% Growth headcount, up from c. 4,000,000
11% Fall 2009
129%
3,500,000
120%
2,903,592
105% Counter-cyclical 3,000,000
100% tailwind- current and
previous recession 2,500,000
80% 2,139,714
1,783,095 2,000,000
66%
60%
53% 1,260,605 1,500,000
47%
40% 38% 39% 35% 1,000,000
31%
27%
20% 22% 20% 18%
16% 15% 12% 500,000
229,363
78,332 11% 10%
6,916
0% 0
Online significance in the adult market- Eduventures estimates that in Fall
2009, online headcount represents c.24% of total adult (aged 25+) headcount at
degree-granting schools; and is forecast to hit 35-40% by 2014
© 2010 Eduventures, Inc. 5

6. For-profit online share up: spurred by greater demand, constrained
nonprofit supply and for-profit marketing/value proposition
Est. Online Headcount by Control, Fall 2009
50% 48% 49%
Control Public For-Profit Private
46%
45% Fall 2008 865,000 700,000 225,000
42%
40%
39% 38%
Fall 2009 989,000 895,000 255,000
% change 14% 28% 16%
35%
Higher Ed, 73% 9% 18%
Fall 2009
30%
Meeting unmet need or competition? Fall 2014F 1,950,000 1,500,000 520,000
25% Compared to a decade earlier, in 2007
for-profit schools accounted for 77% of
20% net growth in aged 25+ undergraduate Fall 2008
enrollment, and 47% net growth at aged
15%
30+ graduate level 12% 12% 13%
Fall 2009
10%
Fall 2014F
5% Questions: In 2009, how rational is this market? To what extent do the full range of market characteristics
Key
shape consumer choice? How well-aligned are value and execution? Normalization forecast to occur but
0%
gradually- game-changing information (e.g. suggesting a mismatch between value and execution), unlikely to
reach the consumer any time soon. What is the opportunity for Ferris State and itsPrivate
Public For-Profit peers?
Source: IPEDS, school data, Eduventures analysis
© 2010 Eduventures, Inc. 6

7. Taking Stock & Looking Ahead
The rise of for-profit and 100%/majority online schools
Public funding challenges; FY 2009 and 2010
Consumer Data: why is the needle not moving?
© 2010 Eduventures, Inc. 7

8. Putting for-profit/100%/majority online growth in context: looking
back and looking ahead to 2009/10 and 2010/11
• The previous slides highlight strong evidence that, over 2008/09, for-profit
institutions have gained online market share:
– The economic downturn has afforded an enhanced operating environment for
for-profits and other 100%/majority online schools- demand is up, for-profit
schools are ready to respond to demand, and many nonprofit schools face
significant budget freezes or reductions
– While online activity at nonprofits may be less vulnerable than average to budget
restrictions, online efforts may nonetheless be under additional pressure to be
self-supporting and bring in revenue to the parent institution; and compared to
major for-profits, must confront a widened funding and operational flexibility gap
– Any argument nonprofits might make for increased market rationality- in terms of
a clearer role for price point, student experience and outcomes in prospective
student decision-making- has yet to materialize; and in fact may be increasingly
working against nonprofits (e.g. waning of skepticism towards for-profits)
• How else might we quantify the impact of 100%/majority online schools on
higher education generally? What does the past decade reveal? What are
the prospects for 2010/11?
© 2010 Eduventures, Inc. 8

9. For-Profit Higher Education: Central to Expanding Participation
Undergraduate Students Aged 25+
For-Profits= 77% of net gain
In 2007, without for-profits, 4-year
schools enrolled 50,000 fewer
undergraduates aged 25+
compared to 1997
Sources: IPEDS
data and
Eduventures
analysis
© 2010 Eduventures, Inc. 9

10. Large numbers of state residents are enrolled online at 100%/majority
online schools- implications for other schools, policy?
Which states are the best markets? In relative terms, rural states with below average educational
80,000 0.025
attainment and public higher education capacity are most vulnerable to 100%/majority online
recruitment. Nonetheless, all states are “losing” significant numbers of students to online competitors
70,000
The further to the left , the more significant 0.02
60,000 100%/majority online recruitment relative to
Est. State Residents Enrolled in "National"
Online Schools Fall 2009
the 25-44 population in that state % age 25-44 (state resident population)
50,000
0.015
Low penetration
40,000 34,447 national
by
standards, but 28,981 0.01
30,000
19,618 still 67% of
16,492 SUNY 4Y adult
20,000 15,734
students in 2007
4,974 0.005
10,000
1,197
0 0
West Virginia
Texas
New York
Georgia
Wyoming
Tennessee
North Carolina
South Carolina
Ohio
Idaho
Delaware
Missouri
Virginia
Indiana
Alabama
Oklahoma
Louisiana
Hawaii
Maryland
Kentucky
Florida
Arkansas
Alaska
Pennsylvania
Arizona
Montana
Michigan
Wisconsin
Kansas
Illinois
South Dakota
Colorado
Maine
Nevada
Iowa
Oregon
New Mexico
New Hampshire
Connecticut
Utah
Washington
Minnesota
Nebraska
North Dakota
California
Rhode Island
Massachusetts
Mississippi
New Jersey
Vermont
Putting these figures in context- In 70% of states, this 100%/majority online headcount represents 15-30+% of total age
25+ enrollment at in-state public schools. These ratios emphasize that such institutions are becoming significant in terms of
market share as well as absolute numbers of students; growing overall participation and reaching under-represented
groups. Is this a laudable response to state/federal policy goals, a very serious challenge to nonprofits, or a bubble?
© 2010 Eduventures, Inc. 10
Source: IPEDS, Census, school data, Eduventures analysis

11. ARRA delayed full impact of recession, but FY2010 looks much worse
for public higher education
• In FY2009, ARRA held the line- according to the October 19th report
“Educational Impact” form the Office of the President/DoE, stimulus funding
meant flat or increased higher education budgets in all but three states (AL,
CA, TN), compared with FY2008
• Even with remaining ARRA spend, FY2010 is forecast to be much
worse- 19 states (38%) forecast a reduced FY2010 budget compared with
FY2009, and another 23 (46%) forecast a flat budget
• By contrast, among leading for-profits, revenue is up 20-30%
• Assuming no further stimulus money is forthcoming, these figures suggest
that academic years 2009/10 and 2010/11 will find public higher education
yet more vulnerable to 100%/majority online competition; and states/schools
will increasingly look to online capacity within public higher ed to be self-
supporting, seek new markets, grow revenue etc. This may be an
opportunity for online interests in public schools, but not a straightforward
proposition
© 2010 Eduventures, Inc. 11

12. Consumer Trends: considerable interest, but could sector do more
to move these numbers?
• Eduventures 2006, 2007 and 2009 consumer data shows little evidence of
increased preference for 100% online delivery, (c.20% of prospective adults) and
modest increase in “likelihood” to study online (up to high 40s%).
– Since thresholds were already high in 2006; is online market growth more a matter
of steady conversion of “interest” to enrollment?
• Consistently, very few (<15%) of prospective adult learners refuse to consider
wholly online study. Levels of interest far above actual enrollment suggests that the
basic value proposition for online is not the issue, but rather convincing prospects to
act on their interest in further study and non-traditional delivery
• Similarly, little or no movement on perceptions of quality- overall positive reception,
but could sector do more to move the dial? Perceived quality of online delivery
among prospective students:
– Equal to face-to-face/it depends= 58% (2006), 58% (2007), 57% (2009)
– Online as inferior= 27% (2006), 27% (2007), 26% (2009)
• Some movement on geography:
– Prefer to study wholly online at a school with some kind of physical center/campus
within 10 miles= 41% (2006), 39% (2007), 34% (2009)
– But “select best school/program regardless of location” is stuck: 32% (2006), 29%
(2007), 31% (2009), and interest in center/campus >10 miles remains strong
© 2010 Eduventures, Inc. 12

13. Projecting Online Opportunity
Four main growth opportunities for online higher education
What might change current market dynamics: same old story?
© 2010 Eduventures, Inc. 13

14. Participation, Population Signal Online Opportunity: where to focus?
25% Higher Ed Students by Age- Fall 2008 U.S. Population by Age- July 2008
Est. Online Headcount %
22%
21%
20%
19%
16%
15%
10%
9% 9%
5%
3% 0.2%
1%
0%
Age 18-19 20-21 22-24 25-29 30-34 35-39 40-49 50-64 65+
Key takeaway. U.S. higher education remains a fundamentally front-loaded system, with the 18-25 age
band vastly over-represented. The online higher education market is concentrated in age bands where
participation and population are most closely aligned. In absolute numbers, the 18-24 band (participation)
and 50+ band (population) look attractive, but historically have either been unreceptive to online programs or
unreceptive to higher education. To sustain growth, online must develop current markets and seek new ones
Online Opportunities? 1) Build on online interest in 25-49 band to grow participation (develop fields,
credentials, differentiate to build market share); 2) Attract key segments of 18-24 band, including “traditional”
graduate students, to online; 3) Grow 50+ demand; 4) Diagnose unmet subgroup demand (gender, ethnicity)
© 2010 Eduventures, Inc. 14

15. What might change market dynamics?
• 100%/majority online school opportunities/challenges
– Continue to capitalize on capacity constraints at other schools
– Consider and articulate student benefits of scale and reach
– Build brand beyond convenience, career focus etc- position as threshold for
something more; consider unreached market opportunities
– Consider and articulate contribution to state/federal policy objectives; including
“green”
– First mover/follower on pedagogic/student experience/back office innovation
– Consider at what point to test outcomes data in the market- as some schools are
• Nonprofit online opportunities/challenges
– Make more tangible any assertion of value advantage over 100%/majority online
schools
– Consider program/curriculum/pedagogy/student experience/faculty benefits of a
more comprehensive university setting- make it matter to the prospective student
– Better articulate price advantages, if appropriate
– Better understand why local students are enrolling at 100%/majority online schools;
consider 2+2 etc models to combine online and campus
– Consider at what point to test outcomes data on the market
– Find key elements of the value proposition that cannot be easily emulated or
commoditized; and consider unreached market opportunities
© 2010 Eduventures, Inc. 15

16. Thank you
Richard Garrett
Eduventures, Inc.
Boston, MA
617-532-6081
rgarrett@eduventures.com
© 2010 Eduventures, Inc. 16