By Derek Newton
Reposted from Forbes, with permission
Online Program Management companies (OPM) used to help colleges and universities start, and later manage, their online courses and degree programs, handling nearly everything except admissions and picking the instructors.
Used and to are the most important words in that sentence.
It’s a bit of an exaggeration. But only a bit. As a new data report from higher education marketing and conversion company Validated Insights shows, OPM companies, and their previously dominant business model, are undergoing an extreme extinction event.
The realities of the OPM extinction include some evolution as some providers are undergoing radical changes to the services they provide as well as how – and how much – they get paid. As forced evolution does, the OPM providers that survive will be more rugged and more adaptable, but probably also smaller in size and fewer in number.
The starkness of the OPM cataclysm being tracked by Validated Insights can only be appreciated by having seen the size and dominance of these companies at their zenith. Less than a decade ago, as recently as 2016, four OPM companies were swallowing more than $1 billion in annual revenue, each. Then, the most common OPM arrangement was revenue sharing, with some contracts specifying that most of the student revenue coming in from OPM-managed courses – as much as 75 or 80% in some cases – would go to the private OPM company, with the school getting the rest.
If they were large beasts in 2018, by the time the Covid pandemic hit and everything in education went online all at once, they became genuinely enormous. By late 2020, some OPM executives were bragging in private about the business they were turning away, thinking they were leaving some schools to turn to dust without their expensive help. OPM providers got so big that, by 2021, one of them paid $800 million to acquire EdX, a ten year-old non-profit company.
But the literal fortunes of OPM companies turned so dire so quickly that, not three years later, 2U, the company that plunked down $800 million for a whimsy acquisition, filed for bankruptcy. That came after Pearson, another of those big four OPM providers, got out of the game, selling off their OPM business to private equity.
Judging by the new Validated Insights report, in the year and change since two of the big four OPMs quit or ran aground, things may have actually gotten worse.
In the first quarter of this year, the new data shows, higher education institutions signed just eight new contracts with OPM companies, while in 2023, a staggering 147 agreements were either cancelled or expired without specified renewals.
Further, if you’re a person who follows the money to infer market health, Validated Insights says that venture capital investment deals in OPM companies, which not long ago were as common as golf bags at a bitcoin convention, have disappeared. Compared to 2021, probably the golden hour for OPM services, outside investment in the space has declined 97%, the report says.
Then, there are promised, though as yet mostly unmaterialized, regulatory reforms at the federal and state level that may further pressure and squeeze the sector – or what is left of it.
Brady Colby, the head of market research at Validated Insights, described the data as a death spiral and said the market is, “just falling off a cliff.”
Unprecedented, it may be. But the OPM death drop was by no means unpredictable. In 2019, I wrote, “the era of private companies cannibalizing forty, fifty, sixty percent of student tuition was over. It probably never should have been. Whatever it was that corporate leaders said to colleges more than a decade ago to convince them of such a bizarre arrangement, to sell them the idea that colleges were not capable of marketing and managing their own programs, is not the case anymore. Colleges have wised up.”
Then the pandemic hit and Covid did not send OPM companies a life raft, it sent them a yacht in the form of universal urgent need and unlimited funds. But that bubble has clearly burst, and colleges are finally wising up, realizing that they’d be better off keeping all the money that’s being collected from selling their carefully built brands and educational services.
OPMs sold higher education institutions sails by which they could effortlessly ride the winds of the online college trend to Valhalla – all money, no effort. All colleges had to do was sign. And for this, for literally buying the idea that they could get free money from investor-backed corporations, colleges deserve plenty of scrutiny and criticism for what will be memorialized as the OPM misadventure – moving billions and billions of dollars from student bank accounts and heavy loans into investor coffers for things they could have, and should have, done themselves.
While the party may be over for traditional OPMs, they will not disappear entirely. Colleges still want and need help. But they will increasingly need it here and there, not everywhere. And they will continue to be skeptical of the tight, long-term, revenue sharing arrangements that were once the norm. And though it means that the private part of the pie will shrink, colleges will be better off.
