Beyond OPMs - Lessons from the 2U bankruptcy

Would we be better served with online program management cooperatives?

2024:2

Given the success of the major for-profit online universities such as the University of Phoenix, Southern New Hampshire University, Grand Canyon University, Kaplan, etc., the attractiveness of expanded enrollment and revenue from online drew many institutions into the game. Many quickly found that offering online courses is not just purchasing a learning management system and letting faculty populate courses. Being successful at online education requires a range of support and operational elements that many higher education institutions lacked. 

Enter the OPM

Thus, a new type of service provider--online program managers or OPMs--was created to fill the gap. 2U was one of the early for-profit OPM companies. According to Unbound, five vendors—Pearson, 2U, Wiley, Academic Partnership, and Bisk/University Alliance—have commanded the lion’s share of the OPM market at its peak.

In late July 2024, 2U entered into Chapter 11 bankruptcy—a reorganization—in the United States. 2U grew to be one of the largest online program manager (OPM)  companies, reporting 2023 revenues of $255 million with EBITDA of $90.2 million representing a margin of 35%.  At the time of the bankruptcy, however, 2U was reported to own clients over $20 million.

But, 2U is not alone in its struggles. The entire OPM model is now one of questionable viability. As reported by Inside Higher Ed, by 2023 the sector was ripe for a shakeout amid issues of mismatches of value propositions with institutional needs and regulatory challenges.

So what went wrong?

Prior to the pandemic, many higher education institutions sensed that a path to survival and growth was to offer more degree programs online. The growth in online offerings had been nothing short of spectacular since the late 1980s with the likes of the University of Phoenix reaching in excess of 450,000 students at its peak. Many institutions looked to online as an easy solution to stalling growth with on-campus programs but lacked the technical skills to deliver marketable programs at scale.

OPMs were touted as a pathway to open online enrollments to traditional, campus-based programs. But, as illustrated by the latest case of 2U’s bankruptcy, things did not work out. 

Although the post-mortem on the OPM sector is still being written, it is fairly clear that there was a collision of for-profit growth business models in most OPM operations with the realities of higher education. Injecting an OPM for-profit model of perpetual year-on-year revenue growth with demands of high profitability into a higher education sector posting declining enrollments since 2010 was never a recipe for success. 

The irony of the OPM shakeout is that there still is a significant need to support many higher educational institutions for assistance in delivering online education and next-generation certificate programs. Higher education is transitioning from place-based degree programs to a world where micro-credentials and stackable degree programs delivered through hybrid technologies are the norm. Given this shift, the need to be on top of the needed marketing, student support, and delivery tools, technologies, and skills is even more pressing for many of the institutions served by OPMs. 

One could then ask about how to create an alternative to the for-profit OPM model to meet this need. Modern cooperatives may just provide the needed approach.

Could an education management cooperative (EduMgtCoop) be a better way?

So, what solutions might exist for institutions unable to handle the challenges of ever more complex learning pathways, technologies, and support needs? 

One model could be a modern cooperative in the form of a limited cooperative association or LCA. Unlike familiar consumer cooperatives such as credit unions or cooperative grocers, the LCA provides flexibility to develop an organization that can meet the challenges.

The limited cooperative association or LCA is a new model that offers promise for higher education

A defining difference between the LCA and historical cooperatives is the ability to define different classes of members with different voting, governance, and economic participation roles and rights. The model has been supported in the U.S. with the Uniform Law Commission and the Uniform Limited Cooperative Association Act. The Commission's website lists nine states that have adopted the ULCA provisions.  California also permits LCAs under its own legislation.

The flexibility in the LCA organizational structure would allow a range of options to support institutions joining a cooperative. These options could leverage the different types or classes of members allowed in the LCA.

Producer, worker, and investor cooperative member classes are key to the flexibility of the LCA

One class could be a “producer” class of institutions wanting to pool resources for the acquisition, management, and sharing of key technologies such as student information systems, learning management systems, and other backbone operating systems. The producers could also share marketing assets and systems. The producers would have a voting structure specific to their class of membership.

Another member class for the LCA could be a “worker” class.  In addition to faculty, this class could include support personnel such as recruiters, curriculum and instruction designers, and some administrative positions. This class would have voting rights within its class of worker-owners.

The final cooperative member class, and perhaps the key differentiator of the LCA, is the “investor” class.  Unlike historical models of cooperatives, the LCA model permits direct investment by third parties. The investors belong to a separate class and typically do not have voting rights in cooperative governance. Their rights and potential returns are determined by investment contracts.

The investors in LCAs should be more of the nature of social investors aligned to the seven cooperative principles serving as core values for the coop as well as investors. The model will not be attractive to investors focused solely on extracting high returns from an investment. A solid co-op business model can generate a reasonable rate of return but not a 3-year, 300% return, which is all too frequent with venture investors.

Modern complex business models require up-front investment. Cooperatives often fail or cannot scale due to lack of investment. The LCA can solve this problem in a way that is consistent with cooperative principles rather than extractive for-profit investment ideas.

The LCA enables an umbrella coop structure. This novel structure provides plenty of room for creativity in fashioning an organization.

Will an EduMgtCoop LCA actually work?

Existing cooperative or shared services offerings to higher education institutions clearly confirm that an EduMgtCoop LCA can work well. As an example, Minnesota has used service cooperatives in the Minnesota Service Cooperative structures to support K-12 school districts since 1967. The model, which has evolved over time, provides a range of services to schools that might be out of reach to smaller school districts. The services offered are those requested by the members, which is very much in line with the cooperative principles of member control.

Edge (formerly NJ Edge) operates a member-owned consortium for a range of technology services for owners including colleges and universities. This type of consortium model is one that has emerged for certain specific support areas. One key difference to the LCA model is that, generally, consortium members will avoid competing with one another. A consortium could be problematic if, for example, two members wished to compete for the same students or share faculty. Within coop structures competition among members is far less of an issue or problem.

An interesting emerging model from Europe is Woolf.University. Woolf holds itself out at a “collegiate university.” The offerings appear to be a technology and academic quality consortium. The model appears to fall short of the wide range of options available in an LCA structure. In particular, the distinction between classes and types of members is not clearly defined.

The last example, and one well worth mentioning, is Mondragon University in Spain. Mondragon is a consortium university formed in 1997 as a combination of three faculty cooperatives, Faculties of Engineering, Business Studies, and Humanities and Education Sciences. A fourth faculty in culinary science was added in 2011. Mondragon has been able to leverage the very flexible cooperative law in Spain. It provides perhaps the closest model to an LCA operating as an EduMgtCoop. It has survived, grown, and thrived for over 15 years and clearly demonstrates the viability of a coop model in higher education.

A call to action

The potential demise of the OPM model presents an opportunity to rethink ways to work together to share resources in areas of critical need and resource scarcity. Forming an EduMgtCoop using the flexibility of the LCA structure should be seen as a major opportunity.

Several existing models validate that collaborative models of organization such as consortia and coop structures can address the critical needs of institutions in areas such as recruiting, technology, and staffing. Perhaps its time to develop such an entity.

The work of EduPartners.coop includes developing market analysis and business models for an EduMgtCoop. We would welcome the opportunity to form and seek funding for a working group to explore the potential of an LCA. Please feel free to contact us 

About the EduPartners.news, the Ex4EDU.Report, and the Student360.Report

This publication is offered as a free-of-charge contribution by EduPartners.coop, an educational services limited cooperative association focused on transformation in higher education. Our services are focused on solutions for the development of institutional and program strategies, crafting engaging LearningScapes™, and developing programs of the scholarship of teaching and learning.

Lone Tree Academics LLC and EduPartner.Solutions also provide a newsletter, Ex4EDU.report, which focuses on bigger pictures issues in higher education from the perspective of transformational quality.

Another related report is the Student360.Report, which focuses on more granular topics of educational design and delivery. It also is offered as a free-of-charge contribution.

For more information visit www.edupartners.coop.