Public Education Private Funding Rod Henry Bemidji State University

Or... The Shake-Out

My prediction for 2011 was...

That was optimistic... As we now know and as other speakers have illustrated, the reality is far worse. Not only are our budgets under attack, but the underlying idea that a college or university education is desirable and worthy of government support is also under stress.

Strategy Analysis If publicly funded education is being transformed into publicly assisted education, where can our institutions go? How can we compete with for-profit institutions to serve our public? Trends in the for-profit market are shown by public filings and analysis...which may indicate areas where we are competitive.

Overall State of For-Profit Higher Education... “...a bubble fueled by free government money...” “...online will continue to be more profitable...” “...lower-priced programs will do best...” Career-oriented, for-profit higher education is counter-cyclical.

Market Conditions The market for educational products tends to be counter-cyclical Demand depends on the eligible population and funding ability Public Higher Education is not-for-profit Competing against private non-profit and private for-profit institutions.

Comparison of Publicly-Traded For-Profits Name F 2010 Enrollment Enrollment Change Market Share High Stock Price Current Stock Price APOL 440000 -42% 35% 66 42 CECO 118000 3% 9.4% 36 25 DV 112000 9% 8.9% 74 56 EDMC 96932 24% 7.7% 27 23 COCO 114000 -21% 19 5 LOPE 42000 22% 3.3% 28 15 ESI 88000 -4% 7% 122 79 CPLA 39000 -11% 98 53 APEI 78000 10% 6% 49 43

For-Profit Strategies Commodity Product, Broad Market APOL, CECO Commodity Product, Narrow Market Differentiated Product, Broad Market CPLA, LOPE Differentiated Product, Narrow Market ESI, DV

Generic Strategies Cost Leadership -“No Frills” products or services - achieved through standardization, efficiencies in production, distribution, design, or technology Example: Generic online business degrees Differentiation Distinctive offering or truly unique offerings Distinctive to the consumer; using design, quality, service, variety of offerings, brand name, etc. Example: DeVry

Value-Based Strategies These will seek to maximize profits through maximizing customer perceived value. Best Price - None Best Product – LOPE, CPLA Best Service – Almost all have tight service requirements

Quick Strategic Comparison For - Profit State - Funded Must respond quickly to changes in markets Low overhead, lower labor costs Ability to quickly outsource No community service requirements More focused students Have not had to react quickly to change High overhead, high labor costs Outsourcing is done haphazardly Community service overhead Students less goal-oriented

Financial Comparison For - Profit State - Funded Many spend as much money on promotion as on instruction Able to place infrastructure wherever it is most efficient to do so Still able to generate substantial profits Promotion takes traditional forms – sports and PR Locked into infrastructure that may be very costly to maintain Generate less funds for new product development, etc.

Summing up... The for-profit sector is starting a shake-out where a number of firms will be forced to merge with other firms or go out of business. The for-profit survivors will be tough competitors for state-funded or assisted institutions that are forced to compete... The easy markets are already taken.