For-Profit Colleges’ Future Direction: Selling Educational Services

Facing new regulations and slowing enrollment for their degree programs, companies like the Apollo Group, parent of the University of Phoenix, are quietly developing or expanding other educational services that they could sell to nonprofit colleges and corporations, moves that could signal the future direction of the for-profit college industry.

Among other things, that means it might not be long before the Apollo Group seeks out other colleges as customers for the electronic learning platform it has spent years and millions of dollars developing. A company spokesman said licensing that platform to other colleges is one of the many options its new Apollo Educational Services division is exploring. Although the entire Phoenix student body won’t be fully on the new platform until spring, Apollo has been inviting higher-education leaders to its San Francisco development center to show off the new system for the past several months.

"We’d love to partner with existing educational institutions. We’d love to partner with global companies," says Mark Brenner, Apollo’s senior vice president for external affairs.

Apollo’s recent purchase of Carnegie Learning, a company that provides electronic adaptive-learning tools for helping students with mathematics, is another leg of its emerging services business. Apollo has not publicly described the new business, but in meetings with investors its executives have been dropping hints about the division’s potential, as well as not-so-subtle reminders about the $1.4-billion in cash Apollo has to finance it and other new ventures.

Kaplan Higher Education’s creation of a new service, Knext, to evaluate students’ prior learning and award college credit, is another high-profile sign of the companies’ push for new kinds of markets and new sources of education revenue.

While this direction is not all that new for Kaplan­—it has been selling its marketing and student-recruiting services to overseas colleges, and to a lesser degree American ones, for years—executives there say the Knext venture and others in the works are part of an emerging interest in developing and selling services in the areas where higher education is headed. Kaplan wants to move beyond "saying, ‘Come to our colleges and take our courses,’" says Peter Smith, senior vice president for academic strategies and development.

Even smaller players are testing the waters. At the all-online Capella University, technologists have helped create two online courses for the business school at the University of Minnesota and some online-training materials for Medtronic, a big medical-device company that, like Capella Education, has headquarters in Minneapolis. Those kinds of business partnerships haven’t been a big priority for Capella, but a spokesman said the company is looking for more such opportunities.

This shifting focus, similar to the transition IBM underwent as it moved from selling computer hardware to information-technology services, is both logical and necessary, says Jeffrey Silber, an analyst with BMO Capital Markets, an investment bank.

The companies "do need another growth engine, and this could be one," said Mr. Silber. "If I’ve got 30 years of expertise in the area, why not sell it?"

It won’t necessarily be a cakewalk. For one, there are plenty of other companies already offering some of the services. And the college companies may have some credibility issues to overcome.

Apollo’s Mr. Brenner says those reputational obstacles are real but not insurmountable. "The University of Phoenix name has definitely suffered from challenges in the past year, some of them real, some of them ginned up," he says. But he says the changes in student recruiting the company made ahead of the new government regulations sent a positive signal, and the services will speak for themselves. "We try to change people’s minds one at a time."


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