Revenue From Online Ed Is On the Rise. So Is the Competition, Moody’s Says.

As universities continue to cope with the long-term financial fallout of the Great Recession, many of them are increasingly turning to online programs to survive. That’s one implication of a recent report by Moody’s Investors Service.

Online-focused private institutions like Western Governors University and Southern New Hampshire University have expanded their online offerings, enrolling thousands of students looking for a convenient and inexpensive college degree. The University of Massachusetts system is among the most recent public institutions to stake out a similar strategy.

This trend of growth and investment in online education will lead to intensified competition and changing key players, the report says. For an industry previously dominated by for-profit institutions and a handful of private nonprofits, the landscape is shifting quickly.

The report predicts that colleges will try to differentiate their online degrees in areas like branding, tuition costs, and quality of education. Competition among companies providing these services — online program managers, or OPMs — will also increase as the industry becomes more saturated.

Here are two other key takeaways:

Low barriers to entry, high barriers to success

While distance-learning programs are not likely to replace the traditional college experience for everyone, the rate of growth in online enrollment is outpacing that for campus enrollment. The market for online programs is crowded and relatively easy to enter, but traditional name-brand universities now claim a larger share of it than in the past. This means smaller institutions with less-established programs will struggle unless they can set themselves apart, according to the report.

Public universities are expected to maintain their shares of online enrollment. The report shows that publics enroll more than half of all exclusively online students and benefit from the lower price tags of their programs, compared with private colleges. Private for-profits are expected to face challenges: Changing regulatory attitudes and the rise of mega-universities will threaten their growth, the report says. For example, Ashford University and the University of Phoenix, formerly market leaders, are seeing significant declines in enrollment.

The risks and benefits of different operating models

When a university looks to enter the online market, it can either build its own program or partner with a third-party OPM. Building a successful in-house online operation is complicated, although it can bring in greater profits. The report found that while more universities are working with OPMs, which have fewer upfront costs, doing so brings some risks.

First, there is a lack of published research on the success rates of these programs, and it can be difficult for a university to break a contract with an OPM. An institution also runs the risk of losing access to web pages and some student information, which belongs to the provider under most contracts, according to the report. These companies are typically for-profit enterprises, the report says, which could put student success on the back burner. It can also be risky to rely on a third party’s technology to deliver courses to students.

Editor’s note (4/9/2019, 7:05 p.m.): The headline and first paragraph of this article have been altered to clarify that the Moody’s report, on its own, did not overtly draw the conclusions described.

Follow Terry Nguyen on Twitter at @terrygtnguyen, or email her at terry.nguyen@chronicle.com.