The Post OPM Rorschach Test

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Two weeks ago I attended the Post OPM conference put together by Noodle. While I would have allowed access to more than just one revenue-sharing OPM provider (Everspring), I did find the conference to be quite useful and worthy of attending. As I described ahead of time, we need more, not less, discussion on the topic of future partnerships between academic institutions and private service partners. I had the opportunity to moderate a panel with Bob Shireman and Bob Moran. Both have experience in the federal government and in policy lobbying, but from very different perspectives. Shireman embodies the aggressive regulation / rein-them-in mentality, and Moran is quite effective espousing the be cautious and avoid harmful regulation mentality.

Despite the clever name and url for the event, it turned out that you could not ignore the revenue-sharing OPM model in the discussions. From Josh Kim’s comment in the kickoff panel to an audience question to close out the final panel, the topic was ever present. I found that the term “Post OPM” acted as a Rorschach Test for panelists with differing views on what that phrase means. But those struggles highlighted something that is going to need to be addressed - the issue of money and academia’s lack of a grasp about what the economics have been and will be around online and blended programs.

The Market Definition View

To Noodle’s credit, there was no effort that I saw to turn the conference into a sales event, but there was a desire to create a market frame that will benefit Noodle in the long run. And the Noodle corporate desire is to define not just the company but the market as what happens after the demise of the revenue-sharing OPM model.

This argument that the revenue-sharing OPM model is de facto going away comes from three key arguments. First, that the market no longer needs bundled services with a long-term revenue-sharing contract with an OPM provider, as colleges and universities have different capabilities and needs than was largely true a decade and a half ago. Second, that the revenue-sharing model led to bad behavior such as encouraging high-tuition programs and shifting resources towards profitable programs, which in turn harmed institutional ability to stand up break-even but important smaller programs. Third, that the Department of Education (ED) is likely to rescind or largely neuter the bundled services exception regulatory guidance that underpins and enables OPM revenue-sharing.

In essence, Noodle’s interpretation is quite literal.

The Not-That-Label View

I have been amused by the recent trend of companies with long introductions intended to not be labeled as OPMs, mirroring this classic standup bit about community colleges.

The self-description of Everspring at the event was no exception. Everspring offers bundled services that fall into the OPM definition (marketing & enrollment support, online curriculum and course development services, student support, market research, etc) with revenue-sharing as one of its primary models.

But Everspring also supports institutions more broadly, such as improving internal digital marketing capabilities at a brand level. In this regard, Everspring views the OPM label as too restrictive, implying support for just online programs that are run quite separately from the main institution operations.

What is post in this case is the label OPM.

The Reintegration View

This last point, about the increasing need for higher education institutions to support a spectrum of offerings, from traditional on-campus to blended to fully-online, with student mobility across modalities, was a view that from all appearances was shared by panelists and attendees. In fact, I see this view increasingly being adopted by the traditional revenue-sharing OPM providers as well. And this is a topic that needs more discussion - namely that the revenue-sharing OPM contract structure can be an inhibitor to this market shift, and what business model revisions might better align with future market needs. Given the participant limitations, this issue was treated more as a sound bite than as a topic of deeper exploration.

The Questioning-the-Premise View

After a review of our internal company Slack messages, and in consultation with my wife, it has come to my attention that I am actually opinionated. However, my primary role is to describe accurately what is, how it came to be, and what is likely to happen in the future of EdTech and related areas. From this perspective, my view aligns with Morgan’s in that revenue-sharing is the primary OPM business model and one that is still preferred by institutions more often than not. There are reasons why this model is still predominant. Investment and risk mitigation, alignment of corporate interests, etc. You can’t just wish that model away, at least if you are not responsible for policy at ED. Put another way, I do not agree with the “Post OPM” framing, despite the interesting views described above.

One of the too-common blind spots for administrators and faculty is a naive view of for-profit companies. Every company is VC-funded and driven by pocketing profits, essentially extracting riches from taxpayers and institutions.

Reality is different. While public markets (equity and bond) and private equity funding are far more prevalent than venture capital funding for OPM companies, that is not the important misunderstanding. Instead, it is on the nature of profit.

In a nutshell, what we have seen in the OPM market is not profit extraction, it is capital injection. Just because a company is technically for profit doesn’t mean that it is making a profit. And most revenue-sharing OPM companies have either lost money or at best roughly reached break-even status. 2U has never turned a profit, nor has Coursera or Keypath, at least with GAAP-based net loss measurements. Pearson and Wiley offloaded their OPM businesses (to Boundless Learning and Academic Partnerships, respectively) because they were not profitable in general and slowing the growth of the main company.

A far more common goal of these for-profit companies has been to use free money (effectively zero interest rates and secondary equity offerings and debt) to fund growth, such that the enterprise value of the company is higher. These companies have sought to make money by becoming more valuable and either being sold or figuring it out in the future. Extracting profit has not been the goal, at least before 2023.

And the way these companies have invested in growth has been to fund the online operations of higher education institutions. Providing far more services than the company’s share of revenue-sharing covers, at least for the first three to five years of a program. But even after a program becomes “profitable” for both the institution and the OPM, the habit has been for the OPM provider to re-invest that money into other programs. Overall, the OPM market has been funding higher education on a marginal basis, not extracting profits.

This business model is both good and bad, however. It is good in the sense that a healthy minority of online programs at nonprofit institutions have been enabled by revenue-sharing OPMs, and many of these programs would not exist or would not be of the scale to be self-sustaining without this capital investment from private companies. But it is bad in the sense that it has helped fund its own problem - an oversupply of online programs, making it more and more expensive to scale (mostly from the rising cost of digital marketing and the increased competition per student).

The financial reality and new trends are important to explore in more depth. Now that money is no longer free, and now that companies like Boundless Learning and 2U are cutting non-profitable online programs, what will be the impact on nonprofit institutions in the future? With the shift in investor emphasis on profitability, will OPM companies start extracting profits? OPM companies are revising business plans to adjust for new market realities (which is a major purpose of markets, to adjust and improve offerings), but will it be enough? And how should institutions handle contracts to account for this increased risk? These are questions that the higher ed community needs to understand.

Valuable Conference But We Need More

In the end, I credit Noodle for creating the Post OPM event and enabling some valuable conversations. But we need more, and we need these conversations that are not constrained by aggressive limitations of who is allowed to attend, and not framed with such preferred narratives. I look forward to next year’s Post OPM event, but I also see the need for discussions in more neutral formats.

And I also should note that ED might change the whole conversation this year if it rescinds the bundled services guidance and effectively disallows revenue-sharing OPM offerings.

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