Modern online education as a promising additional source of income for universities

According to Michael G. Moore and Greg Kearsley (2011) “Distance education is teaching and planned learning in which teaching normally occurs in a different place from learning, requiring communication through technologies as well as special institutional organization” (p. 2). For many years, significant attention has been given to distance education as an effective tool for teaching and learning. At the same time, this type of education is also an outstanding source of commercial revenue for higher educational establishments. It has a great potential not only in the teaching-learning area, but also in the area of business and commerce. The globalization and commercialization processes in 1990-2012 made a great influence on all spheres of online education and, first of all, on distance education. “Since computer-based learning can involve partnerships with for-profit organizations, and be viewed as a route to increased revenue, and potentially be used to reduce labor expenses, it is naturally tied to what is often described as the commercialization of higher education, or what Slaughter and Leslie (1997) term “academic capitalism.” Generally, commentators on the commercialization of higher education point to the following issues: technology used for exploitation and profit (personal and institutional), businessuniversity partnerships, the rise of for-profit institutions, and a corporate administrative approach” (Berg, 2005, p. 654).

For about two decades, significant attention has been paid to entrepreneurial revenue generation in financing public and private educational establishments in the US [entrepreneurial revenue generation can be defined as “those institutional activities that produce revenue without significant direct state support” (Doane and Pusser, 2006, p. 93)]. This attention was necessitated and caused by the changing financial dynamics of postsecondary institutions, as they received less and less of financial support from the government, and had to find ways to stay afloat. As Blumenstyk (2003) put it, “the flow of [private] capital into the [education] industry is especially notable because it is taking place as many states slash their financial support for public colleges, and as many private, nonprofit colleges struggle to pay bills” (p. A25). In search for ways of improving their financial situation, many nonprofit universities began trying to generate additional revenue by offering courses, degrees and training through continuing education and extension programs (Pusser and Doane, 2001).

There are two options such revenue can be generated:

  1. educational institutions may increase their revenue by production of “non-preferred goods” – “goods produced to generate revenue in support of preferred activities” (Doane and Pusser, 2006, p. 93) and
  2. direct production of the preferred goods that are directly related to the activities of a higher education establishment. The first way can be referred to as a commercial activity (selling of some services) which does not directly support the mission of a university. For example, classes for business executives in the form of continued education conducted in a local community college, which mostly educates 18-22 year olds, are not directly related to educating students enrolled in that educational establishment.

At the same time, revenue generated by conducting these classes can help purchase equipment or other resources necessary to educate enrolled students (which is direct mission of the college). The second way takes place when revenue is generated by selling educational services, which directly support the mission of a particular educational establishment. Continued education classes for alumni of this community college can serve as a good example here. The same project may serve as a non-preferred and a preferred good depending on the institutional environment, its mission, and the target audience.

This article talks about distance learning an activity, which may belong to both types depending on the kind of an institutional program or an institution it is used at. Higher education at a distance, or on-line learning, may be a very profitable activity, which is capable of both – enhancing student learning and generating significant profit.

What is Distance learning?

First, what is online education (distance learning)? Basically, inline education is education that extends beyond campus boundaries and borders. It can extend not only to nearby cities and remote villages, but even to other countries in the world with the help of internet. Consequently, this type of education can reach to new groups of potential students and to alumni, which together creates new student markets that are so needed (more enrolled students means more revenue generated for the university). Distance learning was not possible until recently, when computer and internet technologies were not well-developed. Development of technology, specifically instructional technology, is the major cause for the emergence of this type of education. Deliverance of instructional material has been made possible with new computer software and a new system’s organization. All learning materials are uploaded and delivered to students via the web. A very prominent feature of webbased education is that all instructional materials and tools are easily portable and can be constantly modified according to the future needs of students and requirements of the field.

The Dawn of Distance learning

Distance learning traces its origin to mid-19th century Europe and the US. The founders of this approach to education used the postal service to provide educational opportunities to people who did not have access to conventional schools (mostly people with disabilities and women, who were not allowed to study at universities, which were open only for men). The first American university that used distance learning was Illinois Wesleyan University. In 1874 that university started a program where bachelor and graduate degrees could be earned in absentia (What is Distance Learning?).

Education by correspondence became very popular by 1990, and that popularity brought the need to raise the issues of quality control and accreditation. The National University Extension Association was formed in 1915 with the goal of accreditation of college and university distance learning programs (Senecal, Smith, 1966). Since 1920s education radio was used widely, and since 1940s educational television. Those new technologies were used by educators to provide thousands of people with learning opportunities outside a classical university. Since that time, new communication technologies were always tried as candidates for use in online learning. With the spread of computers and internet in the 1980s and 1990s, educators got an opportunity to use them to communicate with their students via the satellites through tele-courses. Now internet is the basic and major driver of distance learning. Enhancement of abilities of students and instructors to communicate with each other is one of the major goal of educational IT.

Fisher (2006) suggests several very important reasons why universities have been attempting entering on-line education market in great numbers. He stated that universities are driven by economic pressures:

“(i) current market pressures demand that we do this (we will lose ground otherwise

  • for instance, students will go elsewhere;
  • the future of HE [higher education] is in this sector, so we need to be there soon, or first, to compete;
  • we should capitalize on intellectual property of instruction, as is done with IP in the case of patents;
  • we have a hybrid economic/ ecological motivation: we are doing this because we can – the newly open market spaces, the possibility of expanding existing markets, low costs, and high return allow traditional Higher Education Establishments to take advantage of the niche” (p. 122).

Features of online teaching and learning

The first very efficient feature of this kind of education is that its tools and materials can be quickly modified with very low cost. “Once the small pieces of a technology are built, you can aggregate, organize, and internally distribute them in many different ways – that is one of the most exciting aspects of toiling in code. The endless ways in which code components may be used means that the overall cost of development for any long-term use of such tools or materials is a diminishing number” (Fisher, 2006, p. 126). Another important feature is that the cost for every student added to a class or every added course is a diminishing number as well. As soon as the basic structure is built, this system can be expanded with low cost. This also may lead to instructor labor saving, as less class instructors are necessary.

Over the last several years, online learning methodology has been utilized by different players in the market of education: nonprofit educational establishments, for-profit universities and business companies. Some of them were successful although many failed. As Fisher (2006, p. 113) put it, “The landscape of higher education has witnessed emergence and collapse of for-profit educational subsidiaries of traditional higher educational establishments, as well as growth among their close cousins, for-profit educational partner enterprises, and their older, disavowing siblings, nonprofit divisions or consortia created first and foremost as revenue-generating units”. Generally, big and small universities that utilize distance-learning to conduct some portion of their courses or the whole courses for their enrolled students have had successful distance-learning experience. For example, elearning at Texas A&M University (, University of Texas (, University of Florida (

At the same time, attempts to create forprofit divisions specializing on providing distance education opportunities by non – profit universities have not been very successful. There are several examples, that some of readers have heard about. Among them are NYUOnline (a former for-profit subsidiary of the New York University), UNext (a former for-profit subsidiary of the University of Chicago), Alliance for Life Long Learning (AllLearn, which is a former a nonprofit consortium of continuing education of wellknown Oxford, Yale and Stanford Universities), UMUConline (Started by the University of Maryland University College). What persuaded such well-known prestigious universities that operate in the sphere of nonprofit “pure science” enter the for-profit world, and what went wrong afterwards? The main reason

for this is that opportunities and efficiencies produced by instructional technology promised entry to newt student markets at a very low cost, which could significantly increase student enrollment at low cost. At the same time, significant hidden costs existed, that were not taken into consideration, which led to the failure of the projects. Later in this article, we will briefly look at the mentioned above projects. Their stories will help us come up with some lessons for successful on-line programs.

Types of on-line programs: traditional view

Some traditionalists view online medium at a very minimum – simply as a new mode of delivering instruction keeping it otherwise with a very traditional character. Traditional teaching materials, almost without significant changes, are simply offered over the internet. In spite of the traditional character of the material, its deliverance via internet makes it more likable and attractable for students. Many respectable universities, such as Stanford (, Pennsylvania State (http://, Duke, etc. offer such types of online programs (Fisher, 2006). On-line addition to regular classes is a very wise-spread phenomenon. Instructors conduct conversation groups, team-projects, etc. via internet as a significant addition to students’ work in class. Generally, students enrolled in such classes are resident students who show up to class every week, and simply participate in on-line portion of the class with the help of their personal computers from any place they want to (their own home, coffee-shop, park, etc.). Other classes are completely on-line. This is very convenient for students who live far and who don’t want to or can’t come to campus. This is also very convenient for students who work, because they can participate in on-line class any part of the day they wish to. They study the same material and almost in the same form that other students study while coming to campus. Many universities use WebCT approach, where groups of students located in different locations can really participate in class with the help of video cameras in each of the locations (sometimes called video-bridge). Texas A&M University is a real champion in this kind of teaching and learning (

Types of on-line programs: continuing education programs

Other programs depart a little more from this traditional approach (it’s important to note that the same university may pursue several types of on-line program simultaneously). A common feature of such programs is that they are oriented toward continuing education for two major groups of the audience – alumni and people not associated with the school earlier. Online courses and seminars range from professional and technical fields to arts and sciences.

One of the types of such programs is international partnerships that are facilitated via online instructions. For example, MIT collaborates with two universities from Singapore (the National University of Singapore and Nanyang Technological University) and together they form the Singapore-MIT Alliance ( This innovative engineering and life science educational and research collaboration among three leading research universities in the world was founded in 1998. The vision of this program is “to be a premier and unparalleled interactive distance educational and research enterprise that is internationally recognized and that attracts the very best engineering and life science graduate students and researchers from Singapore an allover Asia” (

The mission of this program: attract and develop talented human capital for Singapore industries and universities and research establishments; provide a platform for org learning that will raise the general level of the partner institutions; create world class educational programs and high-impact research initiatives in areas crucial to the growth of Singapore’s economy; foster strong academia-industryresearch linkages and collaborations providing the basis for an enduring and viable partnership; establish a standard for quality, diversity, integrity commitment, and service to the global knowledge community (http:// web.

The Singapore-MIT Alliance is a success both in online continuing education programs and in the research. For example: the Singapore-MIT Alliance Research revenues in 2011 Fiscal Year (FY) was equal to $23.5 million, or 0.9% of Total $2,750.6 million Operating revenues in 2011 FY (MIT Facts, 2012).

Types of on-line programs: non-profit universities collaborating with for-profit companies using traditional educational rules

Other type of programs is a business partnership between a traditional higher education establishment and a for-profit enterprise. Several traditional universities have established for-profit subsidiaries whose responsibility is providing their alumni with continuing education courses. Subscribing to such courses, alumni indirectly support universities as parts of payment for such programs goes to the university and is used for various purposes at the university. Executive and professional education in Cornell University (http://www. can serve as a good example of this type of education.

Another good example of this approach can be, for instance, Universitas 21 Global (, which is a course-offering for-profit arm of the international consortium, Universitas 21 (http://en, founded in 1997 which consists of 21 traditional universities (University of Virginia and McGill University are members of this consortium). The universities collaborate on many levels, undergraduate and postgraduate research, and thousands of students participate in student exchange programs called the U21 Student Mobility programs. Universitas 21 Global (an online university) was started in 2001 in a collaborative effort with Thomson Learning. “Ventures of the sort represented by… Universitas 21 Global, typically focus on curricular offerings intended to attract student population for whom the ‘classic’ university or college in a standard setting is an unlikely option. Like their counterparts among the for-profit institutions, their target populations include single parents, nighttime and weekend students, and members of geographic communities underserved by existing nonprofit schools” (Fisher, 2006, p. 117).

At the same time, there are hidden problems with this kind of partnership. If the online education company thrives, the university’s reputation is bolstered, and faculty and students get access to a new technology. However, if the company fails, the university’s reputation is negatively affected. According to Frank Newman, a former President of the Education Commission of the States, “universities often underestimate the possibility of harm to their reputation when working with commercial companies” (Carr, 2001, p.A33).

Types of on-line programs: non-profit universities collaborating with for-profit companies using nontraditional educational rules

Another way of using on-line instructional technology is deliverance of educational material created according to absolutely new educational standards, which helps reach nontraditional target groups of potential students. Such programs change traditional norms of acquiring degrees, re-create course contents and length, etc. A good example of this is Western Governors University (http://www. – a non-profit university completely online. This university has been using a system of competency tests – not a traditional credit-based curricular. Students there receive competency-based diplomas (an approach usual in commercial field), and not the diploma in classical understanding of this word.

Modes of operation under which distance education can take place

Professionals in the area of on-line education differentiate three modes of operation under which distance education can operate:

  1. The first one is the mode where distance education is the sole responsibility and purpose of the institution (http://www. A good example of this mode is the Open University in the United Kingdom. Administration and faculty of this higher education establishment focus only on distance education teaching methods and philosophy. They view designing new innovative methods of on-line teaching as the primary goal of the university.
  2. The second model can be called a mixed model (http://www. In such institutions both-conventional and distance, approaches to education are used. Most traditional American universities use this model. Special Distance-learning departments and IT departments are generally responsible for organization of on-line education at the whole university. They provide their services to academic departments which offer distancelearning courses. Although each academic department administers its own program and has special IT personnel for this purpose, the special university-level distance providing the overall technical and logistical help.
  3. The third mode can be called consortium. Consortium is a group of institutions or distance education programs devoted to distance education, which together create and share on-line programs. Students, enrolled at one university, can take on-line classes provided by another university-member of the consortium. Credits are easily transferable. The major problem that weakens this mode is the fact that collaboration between several organizations which may have different philosophies of education can be problematic. Cost sharing issue is also a problem in consortiums.

Dawn and fall of some on-line ventures

Now let’s go back to the mentioned above on-line ventures and study the causes of their failure.

NYUOnline. As NYUOnline originally stated, “NYU Online brings the world’s class resources of the nation’s largest private university right to your desktop” (http://www. Its motto was: “The classroom is virtual, the diploma is real.” It offered undergraduate programs in a variety of areas, such as business, economics, psychology, IT, etc. According to them, “our highly accessible and relevant undergraduate programs were created especially for adult students who want to come back to college and earn their degrees” (http://www. NY University invested $25 mln to establish this for-profit distance learning company. At the same time, this endeavor turned out to be much more expensive that originally expected. Furthermore, inability to break from its academic roots and operate as a business was another reason of failure. That was why this project was closed in 2001.

UNext. UNext was founded in 1997 and it started as a promising and sophisticated high-profile company that sold online business courses for corporate customers. According to UNext slogan, “learning as you know it, is about to change” ( It worked closely with the University of Chicago, and several other well-known schools, such as Columbia University, Carnegie Mellon, Stanford University, and the London School of Economics. Universities were responsible to developing courses, while UNext bought their courses and took the responsibil-

ity to deliver it to potential customers. UNext was a separate company, which was run by its own management team. Having world’s most prestigious universities as its partners, UNext didn’t have any problems of attracting the investors it needed to support its operations. The quality of courses was high. “All the courses include interaction with other students and Unext instructors, through email messages and on discussion boards, as well as a variety of multimedia features” (Carr, 2001, p.A33). Control process of quality control was very elaborate: “almost every day the company pays people to come to its offices and test its courses. As they progress through them, UNext officials watch the testers via dozens of television screens” (Carr, 2001, p. A33). Here is a description of how courses were created: “Raghuram G. Rajan, a professor of finance at the U of Chicago who worked with UNext to create a course in corporate finance, says he sat down with representatives from the company and went over the different points he wanted to get across. ‘Then they went away and filled in the details,’ Mr. Rajan says. After the course was completed, Mr. Rajan had the right to review it and request changes. UNext’s webpage states that the course was ‘developed with’ Mr. Rajan” (Carr, 2001, p. A33).

At the same time, the cost of creating UNext courses was very high. According to Carr (2001) the cost of creating a Unext course, which was the company’s biggest expense, dropped considerably during the years, but still was high. According to Richard P. Strubel, UNext’s President ad COF, “the company still sometimes pays as much as

$700,000 to create the equivalent of a fullsemester course” (Carr, 2001, p. A33). High cost of courses’ creation, and inability to attract enough of students to cover the cost as well as several other factors led to demise of that project. Later, UNext was replaced by the Carden Learning Group (UNext’s subsidiary), but ceased to be connected to the university of Chicago. Now it is a well-known and profitable for-profit educational organization, which utilizes more modern and advanced technology According to them, “knowledge s conveyed in virtual online environment that encourages both discussion and real-life application of the curriculum. Interactive social media like chat rooms and discussion boards keep learners connected to classmates and instructors. Carden’s proprietary learning platform integrates multimedia elements like video and graphic simulations to engage the audience. This allows students to grasp the content more quickly, and with greater retention and meaning” (

AllLearn. AllLearn was started in 2001 as a joint not-for-profit online venture of Oxford, Yale, and Stanford (http://www. or http://www. alllearn. org/ online-degrees/ index.html). The initial audience was the alumni of the three universities, but in 2002 his provision was opened to general public (http://www2. in order to improve brand visibility. Provision focused on general education courses rather than on higher education qualifications, primarily in humanities and social sciences. Content of courses was developed by faculty members of the involved universities, and free public access was available to an online library of about 12000 academic websites. Over the years, AllLearn offered 110 online courses and more than 10 thousands for students from 70 countries were involved. Top-level professors were involved into creation of these online courses. AllLearn courses were more cost-effective than online continuous education online programs offered individually by each of the involved universities.

However, this venture was closed in 2006, when the members of the project released a statement that “the cost of offering top-quality enrichment courses at affordable prices was not sustainable over time” ( What happened? It turned out that the number of people who would want to take such courses was significantly overstated. At the same time, the cost of courses creation was high. The founders of the project underestimated the cost of production of courses and overestimated potential enrollment. For example, the cost of courses was about $10-150,000 to produce, which necessitated 40-600 students to be enrolled. By June, 2005, AllLearn incurred a deficit of about $783,000 (http://www2. One of the major explanations of such a situation was that the project offered non-college courses, such as Travel and Adventure Writing” or “Encountering

Homer’s Odyssey”, while most of people want to get at least a certificate for their investments of time and money. Another explanation is that a large amount of the collapsed on-line ventures were started as for-profit projects. “For-profit status might be aimed at enhancing the financial competitiveness of the parent institution, but here might be certain risks attached to creating a spin-off for-profit online venture separate from the university. These could include tension with the parent institution over straying away from traditional values and institutional identity, lack of faculty involvement, and concern over assuring the quality of provision” (http://www2.

Lessons to learn

What lessons can be learned from the experience of these projects? Many mentioned in the beginning of the article on-line projects are very successful, and have been in operation for many years, while the projects described in the previous section failed. Discovering the causes for their failure can help us avoid their mistakes and establish very successful on-line programs.

  1. First of all, most of projects that failed included for-profit status of some subsidiaries that work with non-profit universities. Entering the “dangerous waters” of the commercial market, such educational establishments put themselves in positions including unpredictable situations with financial risks, commercial regulations, and threat to their reputation. As Fisher (2006, p. 119) put it, “There are good reasons for traditional Higher Education Establishments to retain nonprofit status for all of their instructional units. Why wade the dangerous waters of the commercial education market? All of the usual reasons for caution appear to be relevant: financial risks, legal liability, threat to reputation, expense of time, energy, focus, and financial assets; unwanted government regulations; and the erosion of political and social capital. These reasons are still more pressing when one considers that moving into for-profit ventures involves starting from historically well-established but often precarious fiscal and organizational status as nonprofits. Much is at risk in any such for-profit enterprises.”
  2. The cost of starting up and maintaining such programs is enormous. Generally, a university needs a sponsor, (usually a private company) to undertake the initial financing of the project. A university cannot start such a big project by itself without outside support. While teaming up in such a project, an investor looks for profit, while universities’ goal is more socially and morally oriented. As Fisher stated it very well, there is a problem with motivating investments just on the bases of moral appeal and social good. “The problem with this way of motivating in for-profit ventures is that however morally correct it may be, no one really invests on the basis of such reasoning” (Fisher, 2006, p. 120).

Operating costs of on-line programs are high as well, much higher than it may look originally. Although this is true that the longterm costs of using some on-line program are very low, IT is a field that has a very short product shelf-life. This means that when the time comes to reap the benefits of low longterm costs of some earlier established methodology or programs, this methodology becomes obsolete and a new one needs to be developed. Furthermore, although delivery of educational materials via the web is really very inexpensive, adding more students to a class without adding additional instructors lowers down the quality of feedback, which is very important in this kind of education. Furthermore, the need for IT specialists always increases. Cost per student after rising dramatically in the first few semesters, stabilize, but not lower than on moderate to high rate, “as reflective of huge expenses in support of maintenance and support of the technologies” (Fisher, p. 130).

Moreover, when nonprofit educational establishments get involved in the commercial market with the purpose of revenue generation, they have significant chances of losing money because of strong financial risks involved in the market activities. At the same time, most of classical nonprofit educational establishments have a responsibility to guard their assets carefully, and to invest very carefully. They do not have rights to play the market as business corporations do. However, when they join the market, they are treated as regular players without respect to the social purpose that they want to achieve.


As the above discussion indicates, estice.

Hybrid teaching which combines ontablishment of on-line educational programs may be both – great success and great failure. This means that development of these types of programs needs to be pursued with lots of care and wisdom. Nonprofit educational establishments are advised to develop their own online programs without significant involvement with for-profit on-line education companies. As Fisher argued so convincingly, “the allure of fashioning a commercial education enterprise around the use [of on-line education] is likely to wear off quickly” (Fisher, 2006, p.131).

Following is an example of a successful distance-education program at a medium-size private higher education establishment – Ukrainian-American Liberal Arts Institute “Wisconsin International University (USA) Ukraine” (WIUU).

Experience of WIUU

WIUU has been striving for introducing innovative teaching formats since its foundation in 1996. At the very beginning, the innovative teaching techniques were limited to implementing interactive in-classroom sessions, using computers for in class activities and projects, and over-head projectors for visual materials. As the university developed and grew in the early 2000s the first steps to introducing distance learning were taken. They included computer testing, audio conferences and correspondence through Internet. Though, those attempts were occasional and inconsistent.

Currently, WIUU implements four formats of teaching which can be categorized as the following:

  1. Traditional face-to-face teaching in which course content is delivered orally or in writing; no web-based technology is used; this format of teaching constitutes about 10% of the courses offered at WIUU for the businessadministration curriculum.
  2. Web-facilitated teaching in which 25% of the course content is posted on the web for the students’ access 24 hours a day/ 7 days a week; this type of teaching facilitates traditional face-to face classes while syllabus, assignments, project descriptions and other coursesupportive materials are posted on the web. Most of the courses implement this pracline and face-to-face delivery; substantial proportion of the course content is delivered via the web through on-line discussions, video sessions, completion individual and group projects and on-line interaction with the instructor as well as with the classmates; though, this format of teaching assumes that there are facetoface meetings with the students; the meetings might perform the functions of lectures, seminars and assessment sessions. Currently, three courses are offered in this format for the students majoring in business administration.
  3. On-line teaching which assumes that all of the content is delivered on-line with no face-to-face meeting between the students and the instructor; the teaching techniques implemented in this format involve participating in weekly on-line discussions, monthly video sessions with the instructor, on-line tests, completion individual and group projects, selfprocessing of the recommended course resources which included textbooks and on-line material. Currently, there are two graduate courses offered in this teaching format. E.I. Volovik, the Dean of the American programs, is the enthusiastic leader of distance program in WIUU.



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Year: 2012
City: Almaty