Exploring the changing online education company landscape in UK higher education
In the last 12-18 months, I’ve frequently described sluggish performance, acquisitions, the cloud of US regulatory changes and less than healthy financial signals as turbulence in the world of online education companies.
It would be difficult to claim that things have settled down significantly since my last exploration of this topic, but it does feel like an opportune time for some reflection.
What’s notable in the UK context is that the turbulence has coincided with a period of increasing interest in venturing into online education amongst UK universities.
A steady stream of universities continue to either want to venture into online education seriously for the first time, switch their company partners or further develop their existing online education portfolio.
One of the primary drivers for them is the need to diversify their income. For many universities online education is another way to cross-subsidise, much like what we’ve seen with the growth of international postgraduate students.
Inevitably, if generating a new income stream through online education is the goal, reaching a significant scale is essential. However, many face challenges in internal capacity, capability and experience to achieve this.
There’s also the issue of speed in which goals need to be met. An internal route can sometimes involve greater bureaucracy and significant hurdles, such as addressing inadequate technical infrastructure. In contrast, a partnership route often offers a quicker path to market and can bypass some big hurdles.
Because of these factors, and others, universities moving into online education or further developing their offerings are more often than not doing so in partnership with private companies.
However, the turbulence and evolution in the online education sector means that universities now face a changed and more uncertain landscape when it comes to forming partnerships.
There is also more choice available, whether through the unbundling of services from companies that also offer a full-service option or through companies that specialise in specific types of services.
This turbulence and evolution have made it increasingly difficult to categorise companies. While “Online Programme Management (OPM)” company is the most common and best catchall term, it feels increasingly inadequate.
I tend to classify OPM companies as those offering a full or broad array of services, partnering with universities for 5-10 years, focussed on online degrees, and operating largely on a revenue share basis (typically on a 50/50 split).
The challenge now lies in categorising companies that operate on a fee-for-service model, or those offering the model I previously described as well as a fee-for-service or an unbundled model. And then there are companies like FutureLearn, Coursera and edX, for whom existing terms like “MOOC platform” seem reductive.
For the time being, I’m sticking to the catchall term “online education company,” but as the sector continues to evolve, categorisation may become more straightforward.
More importantly, amidst this collection of companies working with UK universities, it’s a good time to examine what has actually been happening and identify the major themes, trends and developments of this year.
A number of partnerships being brought to an end
A significant number of partnerships between UK universities and OPMs have concluded this year, totalling 10 to date.
The key question here is: Why have there been this many? Is it merely coincidental, each driven by unique factors, or is there a bigger interrelationship among them?
Although the online education sector is currently experiencing well-documented turmoil, I wouldn’t be too quick to attribute the end of all of these partnerships solely to this. While I can point to the end of one partnership due to financial challenges faced by a company, there’s more nuance to the overall picture.
Company changes at Keypath seem to have been a contributing factor to their small number of partnerships with UK universities concluding this year. This appears to be driven by Keypath’s need to refocus their approach to achieve a route to profitability more effectively.
Keypath has explicitly stated that its priorities are healthcare programmes and the Asia Pacific region (APAC), and a move away from longer-standing programmes, primarily in business, that have seen declining enrolments.
Whether this marks the end of Keypath’s active involvement in the UK market remains to be seen. However, if so, it would culminate a period of partnerships with UK universities that have, let’s say, produced mixed results.
In respect to the conclusion of other partnerships, some have certainly been driven by performance issues. I can think of more than one instance where a company was deemed to have underperformed, or there was growing friction in the partnership. In other cases, partnerships may have simply run their course, with changes in company ownership sometimes accelerating a decision that had already been made.
Further sales and acquisitions
On the subject of acquisitions, 2023 has witnessed some notable shifts in the ownership of online education companies.
Although, technically at the very end of 2022, the acquisition of an ailing and meandering FutureLearn by Global University Systems grabbed the most attention in the UK.
Throughout 2023, FutureLearn has been undergoing an evolution. The acquisition by GUS brings a wealth of online education expertise and experience, both through its group of universities and its OPM company InteractivePro. This expertise is something that previous iterations of FutureLearn were accused of lacking.
While FutureLearn is still evolving, it is now a company to watch, offering a combination of online education platform and OPM services, and challenging the standard company categorisations.
However, the two major acquisitions this year involved the OPM arms of the publishers Pearson and Wiley. Both companies opted to exit the OPM business, signalling the end of two of the biggest OPMs as we knew them.
Pearson Online Learning Services (POLS) was sold to the private equity firm Regent in March. The deal, involving Regent paying a deferred sum over 6 years, points to Pearson’s eagerness to divest from a business that reported a loss of 26 million in 2022.
The company has since been rebranded as Boundless Learning, and retains some partnerships with UK universities. Clearly, in the short to medium term, this new entity needs a period of stability and must deliver value to its existing partners. It remains to be seen whether they can maintain their existing UK university partnerships following this change and how competitive and significant a player they will be moving forward.
The recent sale of Wiley University Services to Academic Partnerships, another OPM company, presents a different scenario. Wiley University Services was not struggling as much as POLS but was experiencing modest revenue declines.
A likely influence on Wiley’s decision to divest is the regulatory uncertainty in the US. Without delving into details, this is a looming possibility that the US government might restrict tuition revenue share agreements, which are fundamental to many OPM and university partnerships.
A notable difference with this deal is it involves a merger of two significant OPMs. Academic Partnerships, though not widely known in the UK, are a major and long-standing player in this space. This merger now creates a large OPM entity with numerous university partners.
In the UK, Wiley University Services does not have as extensive a presence as in the US. However, this acquisition could strengthen their UK operation, which has seen a partnership drop off in the last 12-18 months and has some with uncertain futures. It is still very early days, with the deal not yet finalised, but this evolution will be another to watch closely in 2024.
Worrying financial signals
The negative financial performance and standing of the aforementioned companies has been addressed for now through their acquisitions. However, these are not the only companies that have been sending out concerning financial signals.
There remains a number of companies in unhealthy financial positions. A clear example is the US company 2U, who also owns the online education platform edX.
2U has made bold moves in recent years. It acquired edX towards the end of 2021 and shifted its strategy to become a platform business centred around edX. It also altered its model from a fixed share of revenue of approx. 50% to what they term their flex degree model, starting at 35% but increasing to 60% with additional services.
During this period, there have been several worrying financial indicators. Firstly, the company’s valuation has plummeted and it currently stands at around 100 million, a steep decline from 1 billion in February 2023. This figure is also a fraction of the 800 million the company paid for edX. Also, following 2U’s Q3 results in 2023, its stock price also nosedived by over 50%, and its shares have generally been pretty volatile.
2U is undergoing a transformation, and one might say that they’re riding a risky wave of things having to get worse before they get better. The critical question is whether the business will grow towards profitability and a stronger financial standing.
Part of this transformation involves changing their degree portfolio and exiting from unprofitable or potentially unprofitable degrees. They also need to reshape their portfolio and plan to launch 80 new degrees in 2024. However, they’ve acknowledged that the majority of these are not new but programmes taken over from another provider. While not confirmed by 2U, these appear to be university programmes that were formerly managed in partnership with Pearson Online Learning Services (POLS).
For me, this somewhat tarnishes the announcement of 80 new degrees. Taking over degrees from a struggling OPM presents a different narrative compared to launching a newly minted range that aligns with a new approach that’s more driven by profitability and affordability. However, the urgency to add new degrees to their portfolio that can hit the ground running, perhaps underscores the difficult position 2U finds itself in.
Their story and others add to the heightened sense of risk universities now have when considering potential partners. Based on recent developments, some of those considering partners may now be unwilling to place a bet on 2U’s pivot paying off, despite the company's confidence in its efficacy.
It will be fascinating to observe over the next couple of years whether 2U’s pruned and expanded degree portfolio, combined with their flex model and increased reliance on the edX platform will lead to better performance and profitability.
Whilst 2U often get the most attention, other online education companies and OPMs operating in the UK face similar financial challenges. Many have reported increased losses and liabilities, but continue to be supported by their parent companies.
For some of those companies we lack the regular transparent financial reporting mechanisms of other companies. However, this year has certainly seen instances where OPMs were unable to maintain or even initiate partnerships after being selected by a university, due to their financial difficulties.
There are also very few examples of companies that primarily operate in the UK, that have recorded a profit in their last accounting period without also having negative equity on their balance sheet.
In the not-so-distant past, income growth with the promise of future profitability was more readily accepted. However, factors like rising interest rates and shifting perceptions have altered this acceptance, not just in this industry but in many others.
Demand remains steady and new partnerships continue
Despite the challenges outlined earlier, the demand for online education company partners to support university ambitions remains strong.
Tenders continue to be issued, and several new partnerships have been established this year. Companies like Higher Ed Partners, CEG Digital, Skilled Education and 2U have all announced new partnerships with UK universities.
Many other partnerships are being pursued discreetly, and are likely to lead to more new partnerships in the next 12 months.
Whilst the environment for online education companies has evolved, the need for certain capabilities and infrastructure to help universities successfully establish and deliver an online education portfolio remains constant.
However, commentary on these things from some quarters might be described as not wanting to let the facts get in the way of a good line of argument. For some, particularly those opposed to public-private partnerships, the financial struggles of these companies provide an opportunity to emphasise their criticisms. Others argue that the pivot during COVID-19 has demonstrated universities' ability to operate independently, contributing to the difficulties faced by these companies. Then there are those who believe the problems stem from an outdated revenue-sharing model, advocating for more flexible approaches..
The reality, however, is more nuanced than these common narratives suggest. This isn't to say that the landscape is without flaws or that every university should seek a partnership. But, just as one would interpret the editorial of certain tabloids through the lens of their known biases, a similar discernment is needed here. The simple fact is however, that there is still a need for outside help and expertise to not just venture into online education but to be successful in an increasingly competitive arena.
Who are the prominent company players in the market?
In the UK, Higher Ed Partners is the clear leader in terms of the number of UK university partnerships, a number that has grown this year. Meanwhile its closest UK competitor, CEG Digital, has seen several partnerships end, widening the gap between the two in terms of partnership numbers.
As well as these two, there are companies like Wiley, Boundless Learning (formerly POLS), 2U and Kaplan Open Learning, each with a smaller number of partnerships. Other companies in the mix include US-based Noodle and the Australian company OES. The latter has struggled to replicate its Australian success in the UK since its 2018 entry, lacking the number and types of partnerships to be considered a major player. Whether that changes in the future remains to be seen and is something to keep an eye on.
One emerging player is the UK's Skilled Education, which has already announced a partnership with the University of Hertfordshire and is expected to reveal more in the near future.
Beyond these, FutureLearn, which I covered earlier, and Coursera offer increasingly interesting options for universities. Coursera has been the most stable of the companies with roots in MOOCs and offers degrees in partnership with Imperial College, University of Leeds and University of London. While not yet profitable, Coursera is showing more positive growth and liquidity signals than some of its counterparts..
Coursera also boasts a substantial user base, surpassing its competitors. This positions the company as a distinctive choice for UK universities, and one would expect their number of UK university partners to increase from the 9 they currently have along with some potentially deepening their relationship.
In summary…
The landscape of online education companies and OPMs continues to be turbulent and a topic of much discussion. There is, however, more to this sector than the financial headlines that often dominate. And it should be noted that this industry is not the only one facing challenges due to broader economic issues and changes.
However, these factors do present UK universities with a more significant challenge in selecting the right partner to work with. To make a wise choice, universities will need to look beyond superficial headlines, do their due diligence and ensure that they truly understand themselves well enough to find the right match.
