Webucation

By James W. Michaels and Dirk Smillie

While a lot of people are having second thoughts about the ultimate profitability of business-to-consumer dot-coms, some very smart investors are placing their Internet bets on a different horse: education. So far the biggest player in education on the web is Michael Milken, who is partnered with Oracle's Larry Ellison in Knowledge Universe, based in Los Angeles, a conglomerate and new-venture-hatchery for educational and training ventures, online and otherwise.

Knowledge Universe has lots of company. The Washington Post Co. is investing heavily in webucation. The Wall Street magnate Herbert Allen has big but as yet unspecified plans to finance an online university. There are hundreds of smaller ventures. The rush is on. Education may yet turn out to be one of the biggest things on the Net.

An estimated 90,000 courses at U.S. colleges and universities are delivered by some form of distance learning. Among the current and prospective operators of virtual classrooms are established universities that want to expand their reach without expanding their physical plants. Many have already spun off such for-profit web operations as Columbia University's Morningside Ventures or New York University's NYU Online.

Shrewd investors Milken and Allen are getting into education because they think the field could benefit from an injection of good management practices and professional applications of multimedia techniques. They see in the Net's interactivity a reasonable proxy for a real-life classroom.

Certainly an imaginative combination of technology and capitalism has the potential to bring much-needed efficiency to education. As education has grown to compete with medical care for the claim of being America's largest single industry, it has so far resisted all efforts to improve its productivity.

Among those who want to help change that is The Washington Post Co., which counts Warren Buffett among its directors and heavy investors. The Post Co. has long owned Kaplan Inc., a major provider of education and career services. Last month Kaplan launched KaplanCollege.com, a site offering nearly 500 online courses across nine professions. The Post Co. is pouring serious money into its online ventures, almost as if its future depended upon them-which it well may, the long-term viability of newspapers being in serious doubt.

The thirst for U.S. knowledge and know-how has brought countless students to American shores. Britain's educational product, too, enjoys strong demand worldwide. Yet the number of foreign students flocking to American and British universities is only a tiny fraction of those who could benefit from those countries' higher education systems. With the Internet, higher education and technical training could well become major American and British exports.

Andrew M. Rosenfield is the chief executive officer of UNext, an educational web company backed by Milken's Knowledge Universe. Rosenfield's vision for his company embraces the whole world : "Only 1% of the world's population oven have the chance to go to Stanford or Columbia," he says. "We're going to focus on the other 99% who want quality education. Brazil, for example, has 200 million people, but its college participation is under 5%."

Rosenfield understands that developing countries desperately need better trained and educated people but can't afford the infrastructure, to say nothing of the teachers required to deliver the necessary knowledge to masses of people. Rosenfield says the potential is so vast that "For us to succeed, others don't have to fail."

Webucation will be big, but will it be profitable? After all, the public has grown accustomed to getting information for free on the web-as it has on network television. Will webucation be like so many dot-coms that can produce revenue but not profits? Education is fundamentally different from consumer goods, says Corpedia's Alexander Brigham. It is not a commodity product like the books, shoes, airplane tickets and appliances that most dot-coms offer.

How is it different? Whereas most dot-coms compete on price, educators will not necessarily be required to do so. This is especially true for the business education market.

"Corporations don't want 'free' education for their employees," Brigham says. "They want prestige education and quality education and are willing to pay for it. Education will be one of the few parts of the Internet where the more you charge, the greater will be the demand. Doesn't everyone want to go to Harvard?"

But of course you can charge a premium only if you deliver quality and prestige. That's the challenge facing education on the web. Michael T. Moe, Merrill Lynch's director of research, says: "So far Internet companies have been pretty much repurposing educational material. The opportunity is to select the best content and deliver it anywhere in the world.'

Can capitalism deliver quality education? Peter Drucker clearly thinks it can. Cushing Anderson, who tracks webucation for IDC, a Framingham, Massachusetts, market research firm for the computer industry, agrees. Says Anderson: "The best online instruction is as good as the best in-class experience."

Business education has attracted many of the early players-and for obvious reasons. It is generally less expensive to market to business than to consumers. A single sale to a corporate human resources department can produce hundreds or even thousands of customers, whereas consumer goods must be sold one by one to millions of customers.

Moreover, chief executives and their boards aren't likely to haggle over price in training and educational programs. There is a premium today on managers with broad outlooks, plus there is the need for technological refreshment among engineers and other specialists. At a time when it is hard for employers to retain the best people, job-enhancing education, delivered at company expense at an employee's convenience, can be an enormously attractive perk-and one that even the most bloodthirsty governments would find difficult to tax.

An early player in web education was Jones International University, launched in 1995. Jones recently crafted custom certificate programs for AT&T Broadband Internet Services and the Ball Corp. Academics from the Wharton School and the London School of Economics helped design the courses.

Jones also offers an accredited M.B.A. degree, as does the Arizona-based University of Phoenix. A Jones M.B.A. may not have the prestige of a Harvard degree, but at about $11,000, it is a fraction of the price. It is also physically far more accessible.

Hidebound academic accreditation committees will certainly drag their heels on granting formal degrees for many web programs. But they will, in the end, have to succumb to progress.

In an upwardly mobile, fast-changing world, education is becoming a lifelong activity for ambitious people. As webucation spreads beyond business training to the liberal arts and the sciences, you can bet that it will become a rich consumer market as well as a rich business market. With its interactivity and multimedia capabilities, the web is by far the most efficient means of delivering this valuable but intangible product.

B2C is yesterday's story. Education-to-business and education-to-consumers is tomorrow's story.

Article from Forbes Global, May 15 2000.

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