Be True to Your Cyberschool
Ask a typical teenager what he or she likes about high school and the teen will rattle off a list that includes such quintessential traditions as homecoming, prom, and spirit days. Despite the enduring appeal of these group activities, two major players in online education–Kaplan and the Apollo Group– are betting the students will rally around cyber-high schools.
Recently, Kaplan, a unit of the Washington Post Co. (WPO), and Phoenix-based Apollo Group (APOL) have both acquired companies that run online high schools, allowing them to expand their reach to teenagers seeking a nontraditional education experience. The companies are jumping in on what looks to be the next promising market in online education–online charter and private high schools. Eduventures, a Boston-based research group, estimated the total online higher education market at $8.1 billion in 2006.
Kaplan announced on Apr. 11 it had acquired Sagemont Virtual, a company that runs the private University of Miami Online High School and Virtual Sage, which develops online high school courses. Terms of the deal were not disclosed.
Skipping the Classroom That deal came just three months after Apollo, which runs the University of Phoenix and is the largest publicly traded for-profit provider of higher education, paid $15 million for Insight Schools, a company that runs an online charter school in Washington state. Both Kaplan and Apollo have used the online education model at their universities for years, but have not reached out to high school students–until now. They will have to convince educators, politicians, and parents that they can deliver a quality education to students who, in many cases, will never step foot in a classroom.
That might not be so hard. About 700,000 public precollegiate students were enrolled in at least one online or blended course, according to a survey released in March by the Sloan Consortium, an education research group that reviewed K-12 online learning. Sixty-three percent of the public school administrators who responded to the survey said their schools offer students the chance to participate in some form of online learning. “I think there is a lot of potential for particularly the high school to really start offering more courses fully online or blended,” says Anthony Picciano, a co-author of the Sloan report and a professor at New York’s Hunter College. “I could see a lot of the growth following what happened in higher education.”
An online course is generally defined as one in which all or most of the content is delivered online, while a blended course is one that mixes online and face-to-face delivery of instruction.
Spurred by State Decisions Both companies are entering the virtual high school market at an opportune time, says Trace Urdan, a senior research analyst at Signal Hill Capital in San Francisco, who follows the for-profit education industry. “Schools and students and parents are all becoming more comfortable with the online delivery of education, so that this is all kind of gaining steam in real time,” Urdan says. Apollo has estimated the online secondary school market at $500 million, according to Signal Hill.
The growth of the online market is spurred by important policy decisions being made by states like Florida and Michigan, Picciano says. Florida Virtual School, which is operated by the state of Florida, was founded in 1997 and now has more than 31,000 students in academic year 2005-06, according to the school’s Web site. The school started out as a strictly virtual high school, but now provides online courses to students in traditional schools who supplement their studies with online courses.
Meanwhile, Michigan became the first state in the country last year to require every high school graduate to take one online course in order to graduate, Picciano says. “There are a lot of other states that are following or will be following them,” he says. Picciano says for-profits are eyeing the nation’s 50 million high school students, a number far larger than the 15 million to 16 million students in higher education, according to Picciano.
Deal Makes Strategic Sense And the transition to delivering online courses at the high school level should be relatively simple for companies that already have years of experience with this education model. Kaplan University, a branch of Kaplan’s higher education division, has been offering online courses since 2001 and has more than 26,000 students.
Kaplan, which declined to comment for this story, has not yet released details on how it plans to expand Sagemont Virtual. The segment reported operating income of $130.2 million in 2006, on revenues of $1.68 billion. But Standard & Poor’s analyst Michael Jaffe says Kaplan is expressing an interest in this market because it makes strategic sense [see BusinessWeek.com, 2/2/05, "A Big Score for SAT Tutors"]. [S&P, like BusinessWeek.com, is owned by the McGraw-Hill Cos. (MHP).]
“To them, I guess it is just another source of revenue, plus it is not a bad thing if you do have online high school students if you’re trying to sell SAT courses. They are certainly their target audiences,” Jaffe says.
Appeals to States with Rural Students Online high schools may sound counterintuitive to the idea of proms, football games, and teenage crushes. But online schools and courses are becoming a popular option for states with significant populations of rural students, said Jeffrey Silber, an analyst with BMO Capital Markets. In some cases, it can prove too expensive for cash-strapped districts to provide students with transportation to schools that are miles away, he said. “They don’t have the funding to open up schools and provide transportation for people not close to schools, and a virtual high school is one way of getting around that,” Silber said.
Officials from the Apollo Group, which has been struggling with lagging enrollment growth, say they aim to open online charter high schools in a number of states in the coming years. Plans are already under way to open an online charter high school in Wisconsin in September, and the company is in talks with several other states, says Brian Mueller, president of the Apollo Group. The company reported net income of $115.6 million for the fiscal first quarter of 2007, on revenues of $668.2 million. It was Apollo’s eighth straight quarter of lower enrollment growth [see BusinessWeek.com, 10/18/06, "A Harsh Lesson for Apollo Group"].
Apollo’s entry into the online high school market began two-and-a-half-years ago, when the company formed a partnership with Orange Lutheran High School in California. It converted many of the school’s courses so they could be delivered in an online format, a move that was embraced by the school’s students and faculty, according to Mueller. “We became convinced we could provide that service to the high school students, and it would have the same kind of value educationally–if not greater–at the high school level than even at the higher education level,” says Mueller.
Graduating to Online College? Mueller says Apollo decided to acquire Insight Schools so the company could expand its reach into the high school market. It is reaching out to students from a wide variety of backgrounds who are looking for a different high school experience. Their schools will be modeled after Insight School of Washington, a virtual charter high school run by Insight that opened in September, 2006, and has 650 students. Mueller says, “High school is not a one-size-fits-all model, and a lot of parents are doing a better job at evaluating the needs of their children and a lot of them are finding this environment might suit them better academically and socially.”
Mueller said Apollo hopes that some of its online high school students will decide to continue their education at the University of Phoenix, Mueller said. “I think there will be significant numbers of students who find that the University of Phoenix is a good option for them,” Mueller said.
But analysts said they are skeptical that Apollo will be able to move a cohort of online high school students into their online universities. Signal Hill’s Urdan says, “There is no real evidence to support the notion that the kids who go to virtual high schools then go on to virtual universities. It is really just a thesis at this point.”
May Pose Risk to Students In the meantime, the companies also will have to deal with wary politicians, teachers’ unions, and public education watch groups, which are closely following the growth and performance of online charter schools, Urdan said.
Barbara Stein, manager of 21st century education at the National Education Assn., is concerned that students who attend virtual high schools may be losing out on the benefits of a traditional high school experience. She says many online virtual high schools do not meet the NEA’s criteria for a quality education and have come under scrutiny by public education groups. “We think those are not a great idea. Most students do not do that well when they have no face-to-face interactions,” says Stein. “There may be extreme situations where that is the appropriate recourse, but for most students it is not.”
Students who sign up for an online high school may be taking a academic and professional risk, worries Gene Maeroff, author of A Classroom of One: How Online Learning Is Changing Our Schools and Colleges. He says it is unclear yet how online high school diplomas will be viewed by college admissions officers and employers. “Whether or not entities can make this into a profit program really depends on recognition,” says Maeroff. “If they expect to grant a diploma, who will recognize this diploma besides state education officials?”
Those fears may subside as online courses and high schools become more commonplace. But it is unlikely that these schools will ever replace traditional brick-and-mortar high schools. After all, there’s little room for school spirit in the hallways of cyberspace.