Are the Benefits of OPM Partnerships Worth the Risk?


Are the Benefits of OPM Partnerships Worth the Risk?

Episode 147. April 18, 2023.

Welcome to the Office Hours with EAB podcast. You can join the conversation on social media using #EABOfficeHours. Follow the podcast on Spotify, Google Podcasts, Apple Podcasts, SoundCloud and Stitcher or visit our podcast homepage for additional episodes.

EAB’s Carla Hickman and David Kuehl trace the evolution of online program managers and offer advice to today’s university leaders on how to partner with OPMs to boost online enrollment. Carla and David explore the current regulatory environment as well as different contract models that minimize upfront costs without sacrificing long-term revenue growth potential.

The two also urge listeners to build accurate financial models to help you forecast when your OPM partnership should begin generating net profits.



0:00:11.5 Speaker 1: Hello and welcome to Office Hours with EAB. Today we look at the world of online program managers, OPMs for those in the know, and examine opportunities and pitfalls for institutions looking to partner with OPMs to grow online enrollments. Our experts today are bullish on the value of partnering with OPMs, but they urge institutions to be clear about their expectations, to negotiate contract terms carefully and to keep an eye on regulatory hurdles that might crop up in the months ahead. So give these folks a listen and enjoy.


0:00:50.4 Dave Kuehl: Hello and welcome to Office Hours with EAB. My name is Dave Kuehl and I'm a managing director on EAB's Strategy & New Ventures team. Joining me today is the head of EAB's research team, Carla Hickman. Carla, would you mind telling our listeners a little bit about your background and your current role here at EAB?

0:01:07.7 Carla Hickman: Sure. Happy to, Dave. Always good to be back on Office Hours. So as you said, I oversee EAB's research division. I've been with the firm over 15 years now. At some point you stop counting, but it's been about 15 years and we do a variety of insights. Always in the market, always trying to understand where higher education is going next, on behalf of our 2500 plus partners. Personally, I have spent the greater part of the last decade trying to understand all things online education, our strategy, how it fits in with enrollment and what the landscape looks like these days.

0:01:42.4 DK: Perfect, thank you Carla. Carla and I are going to dig into a topic today that is particularly relevant and timely for several reasons. The topic is whether and to what extent your institution should be pursuing partnerships with one or more OPMs to boost growth of your online portfolio of courses and programs. As we've seen undergraduate enrollments decline, institutional leaders have increasingly turned to online programs, both for undergrad and graduate programs to make up that difference. Online coursework has long been perceived as a money maker on campus, despite the realities of the deep investments needed to do it Well.

0:02:19.6 DK: Many institutions, at least 500 or more have turned to OPMs to help them find new students, increase yield, or quickly ramp up new programs that they're bringing online. The latest figures from a research body HolonIQ are that 2627 unique relationships exist between a university and OPM Bootcamp or Pathways partner. Carla, let's start by unpacking the alphabet soup of acronyms that we're about to throw around today. Starting with OPMs, which I believe most of our listeners probably already know, stands for online program managers. But what other acronyms, definitions and understanding of the landscape do we need to get straight before we dive in here?

0:03:02.4 CH: I'm happy to do that. I always find it easiest if we do. Let's do a very quick timeline of the landscape. So I'm gonna throw it all the way back to 1992 'cause that's where this starts. So 1992 we have the Higher Education Act, HEA, and that's where we find the incentive compensation ban. So this was, we were trying to prevent predatory practice, especially when it came to student recruitment, enrollment or the disbursement of federal financial aid. And for those of our partners who were working in higher education back in '92, this was mostly directed towards large for-profits where there were a lot of questions about their tactics. Okay, fast forward two decades, you get yourself to 2011. We're in the Obama administration now, and we're just a couple of years past the Great Recession and the tremendous impact that that had on higher Ed.

0:03:49.5 CH: This is when you start to see new initials on the scene. So 2011, we have online enablement vendors is actually the term EAB was using back in 2011. If I were to name the companies that have now become the OPMs we know and love, you might not even recognize half of the names that I use. It was a pretty nascent industry and people were still trying to figure out who exactly are these providers. This was also the day and age of the MOOC. So the massive open online course. So you had two things kind of happening in the market simultaneously. You had more institutions looking to generate tuition revenue, by growing their online presence. This is not to say that universities and colleges have not been delivering online education for a very long time. They have, but we started to see more urgency around it because of the reliance on tuition revenue and the fierce competition for enrollment.

0:04:41.5 CH: Okay, so why does 2011 matter? Because the Department of Education in the Obama administration, they came up with an exception to that incentive compensation ban from '92. This is our now infamous bundled services exception. And what that said is, if you are providing a bundle of related services, it can include recruitment, then you receive an exception from that incentive compensation guidance. A lot of people sitting here in 2023 would say, oh, they had no idea what that was gonna mean across the next decade. I kind of think of it as like, look, we might not have cooked the recipe yet, but all the ingredients were on the counter, right? So the conditions in 2011 were already ripe for more competition, more online growth, and more third party partnerships.

0:05:27.8 CH: So the last couple of acronyms I'm gonna throw at you, I'm gonna get you to the present day. So the last, let's call it year, we have had a push for more regulatory oversight of these arrangements between higher education institutions and these third party servicers, TPS. Most of that was directed towards online program managers, OPMs and this bundled services exception and really wanting to understand, you know, should that exception still be in place? Have we really audited these arrangements and how clear and transparent and obvious are they to students? But as the department is often want to do, they've given us the good favor of kind of conflating two things. So we got a lot of people trying to figure out what's going on with OPM oversight.

0:06:19.9 CH: At the same time, back on February 15th, the department decided to pretty expansively broaden the definition of a third party servicer. So I probably just added to the confusion in the alphabet suit. But I think all of that context really matters if you're a university or a college leader today and you're trying to answer the question of do I go this alone? And by this I mean my online growth or do I work with someone else? And if I work with someone else, what kind of risk does that expose the institution to? What are the terms of that arrangement and what kind of regulatory environment should I expect for either my existing partnerships or anything new that I strike? So Dave, does that help? I think that timeline helps me a little bit and kind of just zipped through 30 years, but I think it's important.

0:07:08.8 DK: No, I think that is perfect context laying Carla. And you know, I think it becomes obvious that the timing around these efforts to bring programs online really matters for a handful of reasons. For one thing alluded to the Department of Education signaling that there may be greater regulatory scrutiny of the market, coming down the pike, but at the same time there has been tremendous growth in terms of the potential OPM players out there, the flexibility to customize contract terms, even sometimes partnership scope. So, what else do we need to know to kind of unpack that regulatory environment?

0:07:40.0 CH: Yeah, I think what's really interesting for a higher education institution today in 2023, you're usually gonna find yourself in one of three situations. You were either potentially an early mover in wanting to radically expand the number of online degree programs, courses, certificates, what have you, that you offered and you realized, I can't do this by myself. Usually you can't do this by yourself because you don't have enough seed capital to get to market quickly enough. These are very competitive and concentrated market. So you went out and you struck an arrangement, usually with an online program manager.

0:08:16.0 CH: And if you were an early mover, you probably got yourself in a 10 year master services agreement. And more often than not, about 80% of you out there are looking at a revenue sharing arrangement. Early deals, again, 10 years, not just the program that you picked in the beginning, probably anything you launched thereafter. And you're giving away 50% to 80% back to your OPM. So that's kind of scenario one. I'm already in it. I've got one or more OPMs I'm working with, I'm in a long-term arrangement, and I've got a revenue share that I'm managing.

0:08:46.5 DK: Okay.

0:08:48.1 CH: The second situation is, from the outset, online was so important and central to who I am as an institution, how I serve undergrads, how I serve grad students, I built that infrastructure myself. And for the vast majority of our schools, that's a luxury. So most people are not building it and taking care of it themselves. But frankly, some of the online giants are. We call them online giants, EAB, these are the Southern New Hampshires of the world who are, mostly, providing all of the services that they need for marketing and recruitment to student services, to instructional design on their own.

0:09:24.2 CH: There's also a situation where it's like, you know, I got an OPM relationship. It's going okay, maybe some of my programs have been more successful than others, but I'm starting to wonder, is this what I want for the long term? And so that's where we start to see people say, hey, maybe I need to renegotiate the terms. Tell me more about this fee for service phenomenon that's starting to happen in the market. Maybe I need to think about this differently for the two to three programs that I think can actually achieve big enrollment numbers and national scale versus everything else that I offer to my students.

0:10:05.1 DK: Helpful, very helpful. And talking about kind of selectivity around the right programs is certainly something I've heard from a lot of different partners, and I think it's a reality of working with an OPM vendor is there's some selectivity on their end in terms of the right programs to support and place that kind of seed investment behind, at least from what I've heard from leaders at various institutions. But what are some of the other business factors, Carla, that the schools really should be taking into account in terms of what's going on in the market for the OPM players, partnerships? What should we be considering and maybe what should we be cautionary about?

0:10:37.7 CH: Yeah, I always tell people first question, if your first question is do I need an OPM or not, you're asking the wrong question, right? And so this is a very important strategic decision that the university or college leadership team needs to make, is how does online delivery, online education fit into our larger mission and strategy as an institution and what is driving our plans for growth, right? Is this just part of how we want to be a multimodal institution where any student, no matter what they're enrolled in, has choice? Are we doing this because we do need to generate pretty significant returns so we can continue to invest in our mission and maintain our financial sustainability? Do we think we're gonna be a big national player? Can we compete in business where like throw a rock and hit 25 online MBAs, right?

0:11:29.1 CH: Do we think we can compete in that market? Are we trying to be dominant in our region or our local area? There's a lot of really important strategic questions you gotta answer first. Then you gotta figure out, can I do it on my own or is it gonna be more expeditious? Am I gonna get to the numbers that I need to make this go around the block both financially and for my student value proposition, by working with someone else? And I think what's really fascinating right now is the number of people who say, you know, I actually want to think more about what are the different services in the bundle, right? That I want to always have a partner provide for me because it is a little more distant from the core operations of the university.

0:12:11.0 CH: And we'll that will be awesome at it, right? Somebody else can go be awesome at that. Versus I wanna build that and learn how to do that myself. And it's not actually mutually exclusive from an OPM. I know plenty of universities who have really great partnerships with OPMs and they're still doing, they own the content, they're owning the admissions racks, right? The instructional design. Like they are certain things they really wanna keep closer to the campus. And that's where I think the fee for service is. It's gonna be interesting to see much of a trend that becomes, particularly given the regulatory environment we talked about at the start.

0:12:46.5 DK: Helpful. It reminds me, conversations I've been having recently with institutions around making those decisions of where do I find a vendor partnership? Where do I consider what we want to do in-house? One of the big influential factors there is, you know, do I have the resources now? Am I able to hire for them? I think we hear time and time again, how hard it is to find the right resources to support, for example, something like a marketing strategy, marketing campaigns, and especially knowing, you really need to be almost world class to cut through the noise out there in the digital landscape and beyond. That's certainly one area that I've heard some challenges from institutions in terms of being able to resource some of those functions in-house.

0:13:26.0 CH: Yeah. And that makes me think, Dave, about what I think is getting missed maybe in some of the national conversation and the work the Department of Ed is doing through their listening sessions and written comments, there are universities and colleges that would never be able to offer online education absent partner. So my fear actually is if there's so much regulation, if we make this so hard or so risky to have a relationship with an OPM, you are essentially telling certain universities and colleges, "This is not for you." And those online giants get even bigger. They see the markets becoming even more concentrated. And I don't actually think that that is good for students at the end of the day, nor what the department is trying to strive towards. So I hope everyone out there took advantage of the opportunity to either present testimony or written comments, to make sure smaller campuses and the real value that some of these vendors are providing to you was heard by the regulatory bodies.

0:14:32.4 DK: Such a great point, Carla. And you mentioned the student perspective. I try to put myself in their shoes. And as you talk about some of the testimonies and written comments, there have been many perspectives shared from the students as well. But I think, cementing your point in my mind is if I'm a student, more choice is better for me, right? I have more options that I can pursue, as opposed to the concentration that you alluded to, that might be the consequence of some of the regulatory things that are coming down the pike.

0:15:00.5 CH: Yeah. Transparency is the key, right? So when I read those student confidence...

0:15:02.8 DK: So true.

0:15:03.0 CH: It was just make sure they know, right? So am I talking to a representative of the institution or an employee of the OPM and is this a program that is supported by an OPM or is it not? Students can make rational decisions, but let's give them information. Let's be open and honest. And I think that if we take a student first perspective on the regulatory environment and the partnerships that that pretty much always serves you well.

0:15:30.2 DK: Couldn't agree more. So let's say you're a university president, Carla, and you set ambitious goals for online program growth. And we're asking to evaluate the extent to which your institution should go big or go home in terms of betting on a potential OPM partner. How do you analyze the opportunities and really figure out how much of your growth do you want tied to the performance of that OPM?

0:15:53.5 CH: Yeah, I think the thing I hope everyone out there hears and what I advise our partners is to remember that you have quite a bit of power at the negotiating table right now as the institution. And that is true whether you have been in an agreement or a partnership for a decade, a couple of years, or just considering one. So first of all is do your own diligence, right? So you want to do your own market research to understand student demand, employer demand, to think about what realistic enrollment growth targets are. Make your own financial model, what's the breakeven, time period. We always tell people, Master's, if you're lucky, takes you three to five years to break even. And so think about that on your own, bring that to the table, realize that you've got a lot more negotiating power when it comes to the length of the arrangement.

0:16:44.8 CH: And there are actually some clauses that you can write right into the contract that give you the flexibility that you and frankly your partner as well will want. So we don't have crystal balls, sometimes I like to pretend that we do at EAB, we don't. And so you're gonna bet on a couple of programs that you think are gonna be the right answer for students and your community. You're gonna get some of them wrong. So I would tell presidents and institutional leaders, you want some flexibility in the terms of your relationship so that you know, what's the notification period that either side the partner or the university could say, we gotta walk away from this one. It's not working out. Even if you put a 10 year agreement in place, how long do you want that program to be out in the market before you pull up and say, is it working?

0:17:30.8 DK: Right.

0:17:31.7 CH: And have you been really clear on a programmatic level? What are your service level expectations for things like enrollment? So that that is all spelled out from day one. So there's a lot of, again, there's more negotiating power, more flexibility in how these arrangements are being designed and negotiated today than I think the folks who inked them back in that 2011, 2012 time period. So that's one. The other thing, Dave, that I would say that's really important is think about what data you wanna own. So I said a little bit on the market intelligence side, but a lot of my partners, again, even if the OPM is exactly the right answer, it's probably not the right answer for everything you're gonna do online. So you still wanna probably have a good sense of what your application numbers look like yourself. Maybe you want those coming through your CRM.

0:18:21.4 DK: Yep.

0:18:21.6 CH: Maybe you want all those fantastic courses to live on your LMS, not the partner's. And you wanna be tracking that information on persistence, retention, enrollment yourself, not because you think the OPM is gonna give you bad numbers. They don't have any incentive to give you the wrong information, but just because you wanna be able to come to the table with that data too. And if you decide that you want to start insourcing and building more internal capacity over time so that you can manage more of these operations on campus, start now. Because what I hear from partners is even once they and the OPM have decided to end the terms of an arrangement, it can take 18 months to two years to fully unravel or disentangle themselves, for no other reason than the fact that the OPM owns your leads, right? They own your students. So just it is never a bad idea to invest in keeping your own data and records and thinking about what of your campus systems you want the information to live in, versus where you wanna be fully dependent on the OPM.

0:19:29.8 DK: It's such a great point, Carla. I have heard that ownership of data come up with numerous partners that I've spoken with that are in the middle of a OPM partnership contract term or coming to the end of it. And frankly, very few of them had kind of the foresight to be thinking about that when they entered partnership. And unfortunately, it's a little of a trial by fire and learning as they're coming out of those partnerships considering other paths forward, whether that be in-house or other vendors. It's a reality that they're having to deal with that wasn't necessarily on their minds when they were pursuing partnership at the onset. So, great advice. Thank you.

0:20:04.2 CH: And just realize too, the market keeps shifting and changing. So, one of the largest OPM players in the market was Pearson. Pearson long ago had acquired EmbanetCompass that used to be EmbanetCompass knowledge. I will not take you on a tour of all the OPMs and how they've changed over time, but Pearson has decided to exit that business and they have sold that to, actually, US-based PE firm, private equity firm. So, the market continues to shift and change. So look at your options. Back in 2011, no one probably put MOOCs, MOOC providers, MOOC platforms like Coursera in the same sentence as what is now to you and academic partnerships. They would today. So you really need to think about like, to what end and who is gonna give me the flexibility and functionality that I'm actually looking for.

0:20:51.6 DK: Absolutely. And I think going back to the perspective of the student, they are considering all those different options, whether it's a MOOC, Bootcamp, an OPM supported program at an institution as well. So that is the competition, I think, and the consideration set that's out there for students today.

0:21:08.1 CH: That's probably why people see it. I know I alphabet soup, but that's why you see OPX. So OPX essentially just means there's a spectrum now and there are people that are closer to fee for service where there might be a particular part of the value chain that you wanna work with the third party with, all the way up to the rev share, you know, fully bundled service providers. And we're all still just seeing this market continue to evolve and mature. And if you're a large institution, I wouldn't be surprised if you've got multiple arrangements with multiple vendors.

0:21:35.5 DK: Sure.

0:21:35.7 CH: Oftentimes Deans can figure this out on their own. So again, if I gave you any advice, the world is gonna change a little bit between now and the fall. You know, the department is likely to make some revised guidance when it comes to OPMs and third-party servicers. So get your contracts in order. Good time to do a strategic review so you have a quick answer of which ones if these are meeting your expectations and what isn't.

0:22:00.2 DK: Right. And speaking of the fall, Carla, would love to understand at least your perspective around the expected timeline for the legislative or regulatory action. How should we be thinking about what's going to happen between now and having a little bit more guidance, and how should institutions be preparing today for that?

0:22:16.8 CH: Yeah, I don't think the Department of Ed realized they were gonna cause the stir that they did. I think they thought the dear colleague letters back last summer in this February were sort of run of the mill and just about OPMs. But when they originally said you needed to report all of your third-party service partnerships by May, higher ed flipped, right? And so we have seen that extended into September. They did take a step back. They did do written comments and listening sessions. I hope, as I said, everyone participated in that process and had your opinion expressed.

0:22:48.9 CH: I am expecting that we'll see revised guidance across the summer, particularly when it comes to probably increased regulatory oversight of any OPMs. I do expect that the definition of a third-party servicer, so anyone who you are working with, I think that that will be walked back a little bit or at least refined and made more concrete based on the comments and the feedback they've received from the industry. But both of those things are likely to become a little clearer for us across the summer going into the fall. And certainly, at least by the guidance we know today, it is September when you'll have to have reported, to the department, all of your TPS partnerships.

0:23:34.7 DK: Well, perfect. Carla, lots of good advice there and I think really helpful perspective as we're in a little bit of time of uncertainty, but hopefully we'll have more clarity and the very near future and the timing you just described sounds like we'll have that clarity hopefully going in to the next academic year, academic year on campus there. Anything else you would advise in terms of, you know, what's the EAB party line in terms of how we're advising partners with respect to leveraging the relationships with OPMs? I know we've touched on a lot of different elements there, but anything else that you'd wanna add as we get close to a conclusion of our episode here?

0:24:10.8 CH: No, I just, I think it's important to remember that you have options, start with your institutional strategy. So what part is online instruction or multi-modality going to play in the overall mission delivery for your institution? Be aware how concentrated and competitive most of these markets are, and that many people have gotten their years, if not decades ahead of you. And so it is important that you do your homework. If you are operating in the master's market, it is critical that you are constantly re-evaluating. So the big advice that I always have is, you may love your program, your faculty undoubtedly are excellent, but that is not what we decide to launch an online program based around.

0:24:52.8 CH: So we have got to be monitoring the student and labour market demand, and it changes all the time so we can help. No surprise, EAB for a long time has been focused on trying to help partners make better decisions. And I tell my team some of the best advice I can give a partner sometimes is walk away. That is not the one, they're not, there's not enough data at the table right now to feel confident about the growth. Reassess constantly and, again, figure out what's the long-term vision for you as an institution? How much of this do you wanna own, do operate into the future, versus continue to receive the support of someone else?

0:25:35.7 DK: Excellent. Thank you Carla. I do wanna mention to our listeners that there are a handful of resources available from EAB that really helps support a lot of the points we've hit here today and elaborate on some of the different perspectives and insights. Two in particular that I would point us to. One is we are doing a refresh of the OPM toolkit that we have available today, but updating that with a lot of the new perspectives and looking into that crystal ball that Carla alluded to. And so that is a very helpful resource that is going to be updated to the very near future. In addition, I've been working with a lot of my colleagues talking to different institutions, getting their perspectives on how they've made decisions of working with OPMs or other vendors, how this regulatory environment and direction or maybe lack thereof today informs their strategy going forward.

0:26:24.6 DK: And we are gonna be releasing a lot of those perspectives and feedback from institutional leaders just like yourself. And that insight report is going to be coming out, within the next month as well. So just wanted to do a quick plug for two great resources that everyone can keep their eyes out for. Excellent. So I think we've come to a close here. I want to thank again, Carla, for her time. All of our listeners here. Office Hours at EAB is a pleasure to be putting together these conversations with folks like Carla. Thank you all and have a great day.


0:27:00.1 S1: Thank you for listening. Please join us next week when we explore findings from a survey of facilities managers to find out what keeps them up at night and we'll explain why university leaders might want to pay closer attention to that deferred maintenance backlog. Until then, thank you for your time.


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