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Boom in Online Programs Will Drive Growth of For-Profit Education, Analysts Predict
Online music gets a lot of attention these days, but -- for now, at least -- online education is a far bigger business, and it will be a key factor driving the growth of for-profit higher education in the years to come, according to analysts who spoke here Monday at a conference on the business of postsecondary education.
By some estimates, the online-education market is seven times bigger than the online-music market, said Jerry R. Herman, an analyst with Stifel, Nicolaus & Company, an investment bank that co-sponsored the conference.
Spending for online education at all universities is expected to top $6.8-billion in 2005 and go as high as $10.4-billion by 2007, according to reports by Eduventures Inc., a Boston consulting company.
And a disproportionate share of those revenues is going to for-profit colleges. While the enrollment at for-profit colleges accounts for less than 5 percent of all students, some 35 percent of all online students now attend for-profit colleges.
The online-education market "doesn't get the hype that some of the other online markets get," said Mr. Herman, alluding to businesses like music downloading and online auctions. But he said projections like the ones from Eduventures, which suggest that online-education revenues will increase by 33 percent a year for the next several years, make sense. "If you think about what products are most conducive to Internet delivery, it's content," he said. Those attending the conference included operators of for-profit colleges, investors in the industry, and a large contingent of people who run private-equity firms and are looking to become investors. Attendees also heard a pitch for the financial opportunities in international markets for higher education. Demand for higher education in Latin American, Asia, and even Western Europe is greater than the supply, said Douglas L. Becker, chief executive officer of Laureate Education Inc. "There just aren't enough university seats to meet the demand," he said.
Laureate is a Baltimore-based company that operates a network of international universities. With its recently-announced purchases of institutions in Brazil and Cyprus, it operates 20 institutions in 15 countries and has an enrollment of about 215,000 students (The Chronicle, December 2). Mr. Becker said opportunities abound overseas, particularly among 18-to-24-year-olds. The United States, he said, has 32 million people in that age range, but some 47 percent of them attend a postsecondary institution. In other parts of the world, the number of prospective students is higher and the proportion getting a college education is far lower: In Western Europe, just 23 percent of the 49 million 18-to-24-year-olds attend college; in Latin America, the figure is 15 percent of 78 million; and in China, only about 8 percent of 400 million. But Mr. Becker also noted that finding opportunities overseas has its challenges. In Western Europe, for example, the idea of paying for education is still a tough sell because of the tradition of publicly financed education.
Also, he said, it's hard to find colleges for investors to acquire. Most of Europe's universities, said Mr. Becker, are either state-run or church-affiliated, "and God isn't selling."