Temple U. Shuts Down For-Profit Distance-Education Company

Some universities with similar ventures say they can still make money

By GOLDIE BLUMENSTYK

The bloom is not yet off the rose for the distance-education business, but Temple University is one of the first to start plucking the petals. The university has closed down Virtual Temple, the fledgling spinoff company that it created nearly two years ago with the idea of making money by selling online courses.

Temple's president, David Adamany, called the decision a simple one. "I didn't see any profit potential here," he said in an interview last week.

The university still will create new distance-education courses, he said, but only when departments show that creating the courses makes sense academically. As with some other programs that universities offer for educational reasons, "we wouldn't expect that they will ever make a profit or even pay for themselves," he said.

Mr. Adamany also reiterated his doubts about other universities' ventures into distance education for a profit. "Good luck to them," he said. "When they make money, tell them to call me."

At Temple, many faculty members sounded pleased with the news. Many had questioned the idea of Virtual Temple from the start, maintaining that the university's profit ambitions for the company were ill-conceived and unrealistic.

However, leaders of other university-backed spinoff companies took issue with Mr. Adamany's broader skepticism.

In the past two years, Columbia, Cornell, and New York Universities and the University of Maryland University College have all created for-profit companies to sell distance-education courses.

Since their founding, most of them also have found the need to revamp their business models, as they came to understand some of the harsher realities of the distance-education marketplace. Nonetheless, executives at the spinoffs maintain that their companies have sound financial plans and the potential to make money.

"I'm not sure that what's going on at Temple is a lesson for anything," said Gerald A. Heeger, president of Maryland's University College.

Another leader, Francis P. Pandolfi, the president and C.E.O. of eCornell, said it's too early to make judgments about his company. It was only last month that eCornell put up its first few offerings -- continuing-education courses in medicine and certificate-level courses from the School of Industrial and Labor Relations.

In 6 to 12 months, he said, "we'll know if there is a business here or not."

At Temple, Mr. Adamany said he began to seriously question the soundness of the business last fall, shortly after he came to the institution. Virtual Temple had been authorized by the trustees in October 1999 under Mr. Adamany's predecessor, Peter Liacouras. In recent months Temple had talked to some candidates interested in running the venture, Mr. Adamany said, but the president had begun to doubt its feasibility.

One concern was the cost for developing courses. Temple offers 50 to 75 online courses a semester; it has created 121 altogether. But most of the courses were created at the initiative of individual faculty members in various departments, and the university would have had to invest a great deal of money to create enough additional courses to allow students to fulfill their full degree requirements online.

He also questioned whether Temple could attract outside financing. Unlike some other institutions in this arena, Temple is not wealthy. It couldn't afford, as others have, to invest millions of dollars from its endowment in a potentially risky venture.

By January, Mr. Adamany said, he had decided to halt the venture. He never formally announced it, but did tell faculty members of his decision if they happened to ask. Temple's decision was first reported in The Philadelphia Inquirer this month.

Shutting down the venture when he did created few repercussions because the university had kept Virtual Temple as an inactive corporation, and had put very little money into it.

"We didn't do what a lot of institutions did -- spend a lot of money on this and then discover it wouldn't work," Mr. Adamany said.

John P. DeAngelo, associate dean of information technology in the school of business, said the decision seemed right.

"I don't think anyone is crying about the demise of Virtual Temple," he said. Two or three years ago, lots of colleges rushed into distance education fearing that "someone would eat their lunch" if they didn't, he said. Now, many have come to recognize that good online courses are expensive to develop and run.

Initially, Temple professors were concerned about how the new venture would affect their ownership rights to courses, though that issue never came to a head.

Andrew J. Buck, a professor of economics, said faculty members had also worried that the institution's leaders didn't recognize the financial commitment necessary to make the venture succeed. "They didn't have a clue when they started" of what it would take, he said.

Mr. Adamany alluded to the financial issues in a discussion of distance education that is part of a broader "self-study" report that he prepared about Temple and released last month. In the document, Mr. Adamany said Temple would not press ahead with Virtual Temple, but that he hoped the university would continue to pursue distance education using interactive video and the Internet, particularly in subjects and programs where Temple has particular academic strength. The interactive video courses, he explained later, would be an especially useful way to deliver education to and from Temple's branch campus in Harrisburg.

He also noted in the document that many institutions had taken steps to try to profit by offering distance-education courses, but that "no one has yet found a way for online learning to be economically viable."

Eminent institutions such as Columbia "that have plunged into online course development and delivery are now curtailing their efforts because costs so far exceed revenues," he said.

Columbia has certainly switched gears more than once with its ambitious distance-education venture, Fathom. The most recent shift came in January, when the online portal scaled back its aggressive marketing plans. Fathom offers courses, readings, online lectures, and other educational material from Columbia and its 12 partners in the venture. Another 20 universities also offer material through the site. Virtually all of the financing, about $20-million so far, has come from Columbia, said Ann G. Kirschner, Fathom's president.

Fathom is evolving, said Ms. Kirschner, but it's not retrenching. By fall, she said, people will see "a very different kind of Fathom."

She said Fathom had realized in January that it would need to offer users more short, free courses to introduce them to the idea of online education, before attempting to try to sell them on longer, more-expensive courses. Some of those free seminars should be available within days. The distance-education market has three categories, she said. Fathom has decided to focus on students seeking courses in professional development and on students interested in lifelong learning, and to de-emphasize marketing to students seeking to complete their degrees. Providing noncredit courses "is the most important new direction," she said.

Based on this new approach, she said, the company expects to be able to begin covering its regular annual operating costs for technology, personnel, and marketing in two years.

Professional development is also the focus for eCornell and NYUonline.

Mr. Pandolfi, of eCornell, said the direction was not chosen lightly. The company spent hundreds of thousands of dollars studying the market before heading in that direction.

By February, eCornell hopes to be offering courses from the university's hotel school, in addition to expanded offerings from the medical school and the School of Industrial and Labor Relations. "We're very optimistic about our situation," he said.

The approach is also the one least likely to upset faculty members, many of whom had raised alarms about the university compromising the prestige of its Ivy League degree when eCornell was first announced in March 2000.

The company, which employs about 35 people, is a wholly owned subsidiary of the university. Cornell trustees authorized investing up to $36-million in the company over three years. So far, Mr. Pandolfi said, the company has drawn on about $5-million.

Unlike Fathom, which is counting on developing a customer base by building on its partners' relationships with alumni or members, Mr. Pandolfi said eCornell considers its market to be "everybody."

Gordon T. Macomber, the president and C.E.O. of NYUonline, said his company learned the hard way what works and what doesn't. Created in October 1998, it was the first for-profit spinoff in distance-education from a university. Executives have not strayed from the initial strategy of catering to a corporate market, but they have learned that those customers want their courses in different formats than do traditional students.

"They don't like things called semesters," he said. So NYUonline now offers "programs" typically made up 8 to 12 hour-long segments of self-paced study, plus additional offerings in which students can interact online with faculty members.

The company sells its courses to corporations. It has 45 corporate clients now and expects to have 75 by year's end. In addition, the company contracts with corporations to develop online courses for in-house training and has licensed some of its curriculum to companies that want to deliver it themselves.

When N.Y.U. formed the company, university leaders said they might seek outside investors and eventually take the company public on Wall Street. The university never got the outside investment, and put up $21.5-million of its own money instead. Mr. Macomber said the idea of going public -- or selling out to another private buyer -- is still part of the long-term plan.

The company expects to be able to cover 40 percent of its operating costs by the end of this calendar year and 100 percent of the costs by the end of 2002.

The University of Maryland University College has taken a different approach with its for-profit spinoff -- an approach that is yet to be tested. University College is already well-established as a distance-education provider, with enough courses to offer 29 full degrees online. So the company's plan is to avoid all the expenses involved in creating courses. Instead, it hopes to make money by providing and selling the marketing, distribution, and technical-support services that Maryland, and perhaps other universities, would need.

Temple, Mr. Heeger said, recognized that the costs of creating courses would be a major obstacle. "If anything, I take that as a reinforcement of what we're doing," Mr. Heeger said.

But there is a big catch in Maryland's plan. Under federal law, colleges could lose their eligibility for federal financial aid if they are found to have paid commissions to people or companies that recruit students.

The Department of Education has yet to clarify whether this would apply to companies like Maryland's -- or Fathom and other portals, for that matter -- if they help deliver students to academic programs at individual colleges.

As for Temple, Mr. Adamany has said that the university may eventually re-enter the business arena in distance education. But as he outlined in the self-study, that would be a longer-term option. And it would probably be one that Temple wouldn't pursue on its own, but rather in partnership with university consortia, corporate enterprises, or others who could attract financing and help give the venture some economies of scale.

For now, though, he said he's happy to let others take the risks: "I want to be behind them, not in front of them."

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