The bread and butter of for-profit online universities such as American Public, Bridgepoint, Capella, and the two giants - Phoenix and DeVry - is the working adult population. Not surprisingly, the top priority of this demographic is to improve career prospects, and The Parthenon Group found that for the first time students are willing to pay a premium of as much as $5,000 to get a degree from a high-profile, nonprofit institution that might abet this goal.


"Competition for students is escalating rapidly between the for-profit and nonprofit sectors", says Chris Ross, a partner in the firm's Education Practice and author of the paper. "You can say the nonprofits, including well-known public universities, have been the sleeping giants. As they scale up in online education, they are moving aggressively into what's been the sole domain of for-profit educators."


Currently, there are eleven nonprofit universities with online enrollments of over 10,000 students, and several have surpassed 20,000. Additionally, brand-name schools such as Arizona State University, Boston University, Purdue, and the University of Notre Dame are jumping into the market.


The financial stakes are high for the nonprofits and so are the market opportunities. Apollo, the largest for-profit educational corporation, enrolls more students than the ten largest nonprofit institutions combined. The overall for-profit educational enrollment is approximately 2.5 million, which is double the share from back in 2001.


Moreover, nonprofits for the most part are broadening, as opposed to cannibalizing, their own enrollment market by pushing into online education. "Not only are most online students working, they are older than the typical college enrollee who is aged 18-to-24 and living as a dependent," says Ross.


To date, nearly all nonprofit players in the online market have been inclusive schools that accept most applicants. Selective universities, which make up the preponderance of the eighteen million annual post-secondary college enrollment, represent less than twenty percent of online enrollments - though the number is growing rapidly.


"They are able to scale up quickly by partnering with online education-services companies like Embanet, Bisk, Deltak, and Pearson that offer a full value chain of services that goes well beyond course development," explains Ross. "These services can include innovative recruiting/marketing techniques, processes, and student-response times that are quite different from traditional nonprofit strategies and are definite competitive strengths."


Competing for Students across Brand, Price and Outcome


In the paper, Are the Sleeping Giants Awake? Nonprofit Universities Enter Online Education at Scale, Ross says all post-secondary institutions will soon compete across brand, price, and outcome in new and different ways. For both the for-profit and nonprofit sectors, Ross sees top-line growth being fueled by three new market "drivers:"


Scale at the degree/program level Today's applicants consider program first, but as online programs continue to scale, these students will gravitate toward the largest and best-known programs. Program-specific enrollments are the new metric of success.


Program-specific branding that highlights increased employment opportunities Successful online programs must make a compelling ROI argument that clearly shows the connection between enrollment and career advancement.


Outcomes, outcomes, outcomes Quality matters; as students become more sophisticated consumers and costs begin to fluctuate, student success (e.g., retention, graduation, job placement) will be key to driving referrals and attaining the virtuous circle.


"A decade ago, for-profit online programs started building successful enterprises by increasing access. But today, faced with an increasingly well-informed applicant pool looking for the best value in a tough job market, success will depend more on brand differentiation, followed closely by price and quality," says Ross. "The largest programs - whether for-profit or nonprofit, with their capacity to scale up quickly, will have the competitive advantage in providing both."


The brand dynamic seen time and again in consumer markets is now showing itself in the online education market, according to Dawn Hudson, former CEO of Pepsi's North American beverage business and now Vice Chairman of The Parthenon Group. "Strong brands attract applicants, keep students at a school, and attract the kind of students who reinforce brand attributes after graduation. Brand and marketing in general is under-leveraged broadly in education today - but that's changing."


Ross adds that the brand quotient also gets back to quality, a factor intrinsically linked to brand reputation. "Nonprofits are already reporting better student satisfaction with their online programs than the for-profits that have been doing this for years. The shift has occurred rapidly and emphasizes just how strong an influence brand exerts on student perception."


About the Survey


In July 2012, The Parthenon Group's Education Practice surveyed 800 for-profit and 400 nonprofit college students, all of whom attended programs fully online. Most students were enrolled in bachelor's programs that mirror the larger post-secondary enrollment demographic. Across both types of institutions, students tended to be older (25-49), had similar incomes (under $60,000, with nonprofits skewing slightly wealthier), and had children.