Online Education and the University

This is Future youe with Jeff Salingo and Michael Horn.

Welcome to Future youe. I'm Michael Horne, joined by my co host, Jeff Salingo, and delighted to have today's guest here, Chip Palacek, the co founder and CEO of 2U, the largest online program management company in the world that has really put that category on the map and really worked with some amazing institutions to bring their programs online. And Chip, a question that we always like to ask our guests when they start is how did you get started in this crazy world of education? And I know in your case it was More in the K12 field before you sort of migrated into higher education itself.

Well, if I go back even further, just tell you a little bit about me. You know, got a Pell Grant to attend gw. First generation college graduate. GW couldn't have changed my life in a more powerful way. Sort of opened my world to the world, bought my first winter coat of my life. When I arrived here in D.C. i'd never seen snow, and I could keep telling you about that, but the reason I start there is just to ground it in still. Today, the greatest path of social mobility is higher ed, without question. And I feel like one of the reasons I love 2U in particular is that we're offering people access to some of these great schools. But so once I graduated, I started a company right out of college that produced a PBS television show that was called Standard Deviance. It was middle school, high school, college courses taught by comedians and actors. Ran that for a long time. Unfortunately, that outcome was sort of the opposite of 2U. So I ran that for 10 years. And, you know, I had a very difficult day eight years in, where I laid off, you know, 75% of my company in a day. So I've seen it go the other way. And it makes me very, you know, cherish this particular opportunity in a whole bunch of ways. And then after I left that company, I ran a U.S. senators reelection campaign for a short time. And then I got recruited into a public education company to start a consumer products group. We acquired the Hooked On Phonics brand, which was failing at the time, and I ran that for four years. So I spent a lot of time on QVC selling Hooked on Phonics, and then left Hooked on Phonics to start this. And so 2U has been just an incredible journey, and thrilled to be here with you today to talk a little bit about it.

So not only has it been an incredible journey, but it's been an incredible success. You have a piece in a recent issue of Forbes, a profile in 2U and it talks about in its first decade, 38,000 students have enrolled in 2U administered programs. 2U now is six 64 degree programs with 26 universities and is adding more than 14 new programs a year. What's the, what's the secret to success?

You know, one of the. So thank you, Jeff. One of the. I think ultimately 2U is a pretty simple business. We really think this way internally. If the student wins, the university wins. If the university wins, we win. And that's not PR copy. That's like what we believe. And ultimately as an example, the one number to rule them all is when a student enrolls, if we retain the student and they graduate, that retention number does drive not just the student outcome because honestly, if you graduate from the Master of Data Science in Berkeley, you have a pretty fabulous outcome, but it also drives the financials of the business. So there really is this aligned interest between us and the partners in a whole bunch of different ways. But philosophically the question is why should you pick up your life, quit your job and move to attend a great school if you could do everything, if you could get everything that that school represents, including some of the physical interaction which all of our programs have a real hybrid form. If you can get that through the online environment, you know, fundamentally we think that that is where all of the space goes. We do think that this is a better value proposition. So you know, we try to stay focused on the right things for our partners, which is delivering really high quality student experience, student satisfaction, student outcomes and of course faculty outcomes because ult, the entire system is very faculty driven.

You have also partnered with mostly very name brand schools, right? Top institutions from unc, Vanderbilt, usc, which was one of your first partners, of course, I mean there's only a limited number of those types of institutions. As you think about the future growth, where does this go?

So I would say one of the distinctions between when people say, and I appreciate you, Michael saying where the sort of most important or largest opm, you know, this notion of online program management, you know, in general we prefer not just because of the sort of term, but digital enablement. There's so many different people in the space. And I would say what people don't fundamentally understand about 2U is that still today there's really no one going at the market specifically the way we do. So everybody takes a very horizontal approach to the space. It's sort of a degree aggregation play and we don't do that. So when you Say, how many can you do? Is there this kind of growth? We're really. We don't measure our success by the number of schools we have or even the number of programs we have, because each individual program we are investing in heavily to get to scale. And that's actually very different than the rest of the space. And we feel like that's something that is probably pretty well understood by our investors because we're a public company, but probably not that well understood by the overall sort of university or education space today still today, from day one until now, we've really committed to this notion of building quality and scale. And that takes a significant investment. So if you compare the investment per program in a 2U program of, let's say, 10 million net negative cash over the first four to five years, if you compare that to the rest of the space, you would find very small footprints of cash investment, like a half a million or $250,000 investment. And it's not so much about the money, it's about what you're trying to accomplish in that spend. So I actually think that is, in some ways one of the things I've been saying more recently is I really believe where 2U is today, we feel very blessed to be the market leader. We're not taking it for granted. We're putting our foot on the gas. And right now we're in this space of sort of where Amazon was when they were adding the tabs. Now before they. Now they're kind of eating the desk and everything. But like, you know, the basic tabs, like back when, you know, we all first started experiencing Amazon and then this exponential growth of books, video, electronics. In our case, all the tabs are different disciplines. You know, nursing, speech, physical therapy, data science. And then each individual tab has a variety of different programs and products. And that today now includes also not just degrees, but this entire spectrum of different products at different price points.

I'd love you to expand on that notion of quality that's so central to the two experience, because I remember, gosh, this is probably seven, eight years ago or something like that, you had me hop on some virtual sessions so I could just experience that quality. And it was demonstrably different from most of the online programs that were out there then. But I think a lot of people, when they look at 2U, they also say, well, they just work with great brands. So people equate it with quality. Who knows what's going on behind the curtain?

Sure.

How do you define quality and really think about it?

Well, I mean, first and foremost, student outcome. Right. So in other words, we're very careful about our program selection. So one of the reasons you haven't seen us do a master of Criminal justice is not because there's not a market there or we couldn't sell it. We actually think we could. But we've been careful to not do programs that we actually think it's not obvious what the outcome's going to be. So first and foremost, ROI surveys, are students succeeding based on the program itself? There are some programs where that's super obvious. Like in nursing, as an example, you get an advanced practice nursing degree. It is a life changer. Like, for that person, it's a total life changer. So what's your board pass rate? That's an example. And I feel like in the case where we really sort of won, the faculty in each individual school isn't really signing the deal. It's years later when you have your first graduates and then ultimately you have this thing called the board pass rate and did you have something that was equivalent to the campus? And then we're pretty obsessed with things like net promoter scores, because satisfaction does matter, and it matters in terms of how are people staying in the program, Are they being retained? Now, I happen to believe that there's a bunch of different approaches to the space. We happen to believe that our approach has a bunch of positives in terms of alignment of interest between us and the school long term. But I would say there's no moral superiority to any of these models. Like the model of whether you're doing a revenue share or a fee for service or some sort of blend. In our opinion, there's no moral superiority. But the reason I go there is ultimately, what value are you providing for the dollars you're being paid? And so in our case, we're very careful to make sure that we're also not just producing an outcome for the 2U side from the standpoint of us being a rare edtech public company because there's not many of us. I like that there's more now, we think that's a really good thing for the ecosystem. We need more successes. So the fact that Pluralsight IPO'd 5 weeks ago and is on a heck of a run is really good for edtech. But we care about the school side also doing well financially. So that is an important metric. Sustainability is not optional. It needs to work. And it needs to work for all sides. Student, university and 2U.

So let's talk a little bit about the. I want to make sure we get to the future of online ed. You know, when I think about it, I think of that first phase, you know, when the Internet really kind of took off and the for profit universities were really kind of in online ed. And then, you know, last decade when more traditional nonprofits got into the space and started to use the OPM model to do that. But now we're kind of seeing a big shift again. Within the last year we had Purdue by Kaplan. We've seen a number of the biggest players in online education just get even bigger. The ASU's of the world, where we are today here in D.C. and southern New Hampshire. And then of course, recently we've seen places like Pan and others talk about undergraduate degrees online. So we're seeing, it seems like another shift.

We have one of those coming too.

Okay, well, we see another shift. So what does online 3.0 look like if we are, if we're on the tail end of 2.0?

You know, it's interesting, I would have said maybe the 4.0. And the reason I say that is like, in my opinion, the three waves would be for profit. And it's not great for the world that that didn't all work the way we want it to. Like, we need more access, not less. And so. And then the second wave, I would argue was the MOOCs. And the reason I go there is not because I believe the MOOCs were transformative. I don't believe that. I actually believe now the moocs are figuring out that they need to turn themselves into us, candidly. But they did get a bunch of people engaged in online learning with schools like Harvard, and I think that's fantastic. And I would argue the third wave is the real schools. And when I say real school, I don't necessarily just mean at our brand level, like Purdue. Buying Kaplan, I think is really interesting and really good for the space and good for the world. I think what Mitch Daniels is doing there is important. What Paul LeBlanc has done at Southern New Hampshire is pretty incredible and fundamentally completely changed that institution. What Michael Crowe is doing at asu, there are pockets of examples of people that were sort of out in front. And I think what you're seeing now, in part because of companies like us, is much wider adoption of the Internet. What's interesting about it to me is if you look at other sectors, we are so early in our evolution. Like higher ed is so early compared to, like, take retail as an example once again, to go with Amazon. If you look at like the companies like Me that existed through the ecosystem over the years, enabling various aspects of retail. You know, you've now got players like Walmart that have gone in full. Right. And have basically realized that their future as an organization is, of course, this blends on it.

Yep.

And so what I like about our position and in higher ed is you can't compare a company like Walmart to a brand like any of our schools. You know, my youngest university partner is 12 years old than Walt Disney. Companies don't last this long. There's a reason the brands in higher ed. When you say the word brand, I worry people immediately think you're talking about marketing, and in my opinion, you're talking about relationship. These brands are so powerful and so important. You know, that like, as they embrace it and it's not too late, quote, unquote. I put that in quotes because you hear people say, oh, well, you know, you're getting in late. No, honestly, most people still aren't in, like, it's early days. And I feel like, you know, I feel on some level blessed to be in a position of being able to lead the transformation for a lot of these schools. But it's not about 2U. It's about institutional will. Like, if you get real institutional will behind you and you can sort of shift it from fear of change. People say fear of change, I don't believe. I believe it's fear of loss. If you can get them away from fear of loss to sort of embracing it, then you get the faculty engaged and, you know, it's a pretty incredible thing that happens. So you do have situations like our first ever online PA program, physician assistant program, which we're pretty proud of, and that's at Yale. You know, that's a discipline that there's a huge shortage. You desperately need more of it. I don't know if you've been to the hospital lately, but, you know, my son had a ACL for a second time, unfortunately, so spent a fair amount of time in hospital. And like, you're talking about everybody you're dealing with is the pas. Like, it's. So that's a huge issue for the country and we need more of it. So, like, this notion of broadening access through great schools, whether they're at our brand level or not, I think is important.

So question in terms of staying with that retail analogy for a moment. Jeff wrote a great piece in the Atlantic about you all, and this retail analogy was, I think, two of the most interesting and important moves in online learning in, in the last year have come out of moves that you all have made. One was the acquisition of Get Smarter, so short courses for online learning, and the other was the partnership you drove WeWork, where you gave a new definition of hybrid, if you will, with people being able to have an in person community to their online experience. Can you talk about in the context of those? Where is online learning going? Where in five, ten years will we be?

You know, WeWork is a. I mean, WeWork first of all is a super interesting company led by great people that we have really gotten to know and we really like them. I mean, Adam Neumann came to our company meeting just for our employees. And you know, what's interesting is like where they're going, they fundamentally believe that they're actually leading a community, not a real estate business. And I think that's what people don't fully understand. And when you go into those buildings, it is palpable. Like there's a very real community of people that are coming together and people do want to be connected to people. Like your greatest experiences of your life, including education experiences, I believe are being part of something bigger. And so in our cases, you know, we've had a bunch of marriages in our programs, we've had a bunch of like people get together all the time. And typically it happens in a rather episodic way at like an immersion where students go to Carolina, go to the Dean Dome together in a planned way. And you've got 500 online students at the floor of the Dean Dome cheering their Tar Heels. Right. As one example, what we were trying to do with WeWork is to be able to allow them to aggregate in their communities in a way that they were doing ad hoc. And we felt like it was important to give them a more purposeful way to do that. Now what we think, where we think that goes longer term is we will be able to do things in the WeWorks that we wouldn't be able to do without the WeWorks. And there really is no other company like WeWork where they're now the largest tenant in all of Manhattan, as one example, single largest tenant. So like, you know, they're at scale that is super impressive. Now, on the side of Get Smarter, we do think, you know, people for a long time said, well, you're the degree company, you're the degree company. And then we bought Get Smarter. We had a lot of selling to do to our community of investors. We did. People didn't immediately get it. And one of the things that I think is very important is we really believe that is a story of and not. Or people say, oh, is that disruption? Disruption, disruption. I think everybody. And by the way, speaking to the person who co authored Disrupting Class, we do believe in the notion of enabling the disruption of the delivery method. But the question is, is the Get Smarter certificate or a certificate from any of these other options going to fundamentally disrupt higher ed? It's my belief that it's an. And like you've got skills attainment, you've got the need to continue retraining. An example of this is like our Oxford Blockchain course where you know, Oxford Blockchain, like every consultancy in the world should buy that product. I'm selling now. But because they're running around talking about blockchain and it's not obvious that everybody really knows what it is. Like it's a critical new technology that we do think is going to have a very material impact on our civilization and you need to train people on it. So we think that that's a great opportunity for the company, but we don't see that at odds to our core business at all.

So one final question, Chip, and you said something earlier that was really interesting. It's not about a fear of change, it's about a fear of loss. Right. So you're coming into these institutions that are hundreds of years old that have outlasted basically every Fortune 500 company out there. They have strong alumni base who remember the place like it was when they were there. Is it getting easier as you go to institutions? Okay, and why is that?

When we started, I think it was much more of a missionary sale. I mean we had some famous moments where we had one school where the students did a sit in to prevent the program from launching. So that doesn't happen anymore. It has been a decade, it's still not easy. And part of that is the 2U model.

So then what is it? Because there is so much discussion about change. Sorry. So how do you kind of get over those hurdles?

What I can tell you is offering a short course from a company like GetSmarter, which is now part of 2U, that is a much shorter putt. It's an easier lift. It is, it's a single course from a single faculty member. Now you do have to get the university's blessing, of course, but you're not, it's not as difficult if you're going in and taking the core of the school. And in all of our cases, whether it's people tend to focus on MBAs and data science and these types of, of topics. But speech pathology with nyu, it's one of the most important. Or with Emerson, our two programs, those are two of the most important speech schools in the country, right? So like you're going in and taking their core degree, bringing it online, completely changing the modality, doing local clinical placements and you're simultaneously asking them on the business side for a 10 year non cancelable arrangement in which you're going to share more than half the tuition. Like that's not a short putt. It's not an easy conversation. It doesn't take one conversation. We had the blessing of Kent Severud coming to our investor day, which he's the chancellor of Syracuse and like, you know, the fact that he would come down from Syracuse, New York to Maryland to be at our investor day, you know, that even that alone is not, you know, we appreciate it like he doesn't have to do that. And in coming down, one of the reasons I had him come is to describe to our, the community of people that invest in the company what, like what it's like to run a school like Syracuse. I mean, it is not a company by definition. There's no single decision maker. And so in every case, all of these relationships, typically we see faculty votes, so you can argue it's like a mini political campaign. Now other models with a much lighter touch and a much lower investment, they don't need a ten year term. Like by definition I can't have a five year relationship because it wouldn't make any financial sense. Now we believe we have a ton of data to show, you know, GW is producing 6% of the public health workers in the country out of our program. So like we have a ton of data to show quality, we have a ton of data to show scale, we have a ton of data to show the fact that they are doing well financially. And we just passed 1.4 billion in tuition generated for our partners. So like, I have a lot more to say than I had to say back then, but still today, you know, they have to believe and they have to want to change fundamentally most of their operation, not their core value, but how they do that things, even things like, yes, they make the admissions decision, but I have to package those students in a way that they can handle the volume like it's an operation. It's not 10 people sitting around a table talking about candidates. This is a very different thing. So getting them to change those things is hard change.

I mean, it also helps that there's a little bit of a pack mentality in higher ed. So once you get some leaders, you get other institutions who want to follow.

Yeah, we have some incredible leaders that I could put point to over the years like Kent, that have, you know, that took the risk when they had no data, took a bunch of arrows in their back. And, you know, we. One of the things I feel very strongly about internally at the company is every single deal that we announce, we have to make sure internally that we celebrate because like they're, they're making us brand stewards of some of the most important brands that have ever existed. You know, it's not an overstatement. I mean, if you look at the human history like my first three partners, usc, Chapel Hill and Georgetown, one of the sort of standard metaphors that we use is like, Chapel Hill and Georgetown have 100 years on maybe the second best known English language word in the world, which is Coke. Like Coke is 1886, Georgetown and Chapel Hill 1789. Think about that. Companies just don't have this kind of heritage. And it's not just about brand resonance. People don't go back and get married at the Coke factory. Like people form this permanent relationship with a school like Georgetown or usc. And that's a big deal. So we have to be careful and thoughtful of how we express it in this modality.

Well, it was great to have you with us today. We could probably talk for twice as long, but we have to get going. But thanks, Chip, for joining us and we'll be right back.

This episode of Future youe was made possible with support from the Academy for Innovative Higher Education Leadership. The Academy is a partnership between Arizona State University and Georgetown University and is the premier training ground for those who aspire to senior leadership positions in higher education and those who want to lead organizational change at colleges and universities in the future. This episode was also made possible with support from Entangled Solutions. If you want to shape the future of education, Entangled Solutions would like to hear from you. Entangled Solutions is hiring smart, mission driven team members interested in helping world class institutions solve their most vexing challenges in learning and education. Learn more at Entangled Solutions.

And we're back on Future youe. I'm Michael Horne, joined by Jeff Salingo and Jeff, fascinating conversation with Chip. Would have expected nothing less, but we both were taking copious notes and circling and underlining when he said the same phrase about this. It's not about the fear of change, it's about the fear of loss. I'd love to hear because you asked him about that. What was going through your mind? Having covered higher ed for as long as you have when you heard him say that?

Well, you know, I think a big theme on. On Future youe and when we had Michael Crow on several months ago, he talked a lot about culture before strategy and a lot of what needs to change in higher ed. And I see this on a board I sit on at a small private college. I see this at Georgia Tech, which is a well known worldwide university. It's all about how we change. And part of that change in higher ed is because of its history. People are afraid of the loss. And we see this among alumni who don't want the institution to change because they don't want their favorite sports team or that usual culture of the institution to change. So it is, I think a lot of this is about a fear of loss. And, and maybe we need to talk about what's gained here. Right. So when a company like 2U comes in, you expand the student body, you serve more students who need it. High quality students. I should in interest full disclosure, I was in a two year program and

at Vanderbilt, I might take the blockchain.

Yeah. I mean, so, you know, you start to open up new opportunities for the institution and obviously you open up new revenue streams for the university. So instead of a fear of change or a fear of loss, we also should talk about what's gained by online education. I think most of the institutions that are experimenting with it are seeing that. Yeah.

It's interesting actually. Clark Gilbert, who's now president of BYU Idaho, was a doctoral student of Clay Christensen's at Harvard Business School. He wrote his dissertation. If I'm not confusing my facts about this notion of threat, opportunity, framing. And basically what he concluded was in all cultures, not just people, but actually animals, when you see a threat or something new, the initial thing is to go into this crouch stance and view it as a threat. And the key to being able to embrace change and disruption is to, yes, go through that moment of that's a threat and go into this crouch. But if you stay in that crouch, it's paralyzing and you don't move beyond it. And so you have to very quickly reframe it as an opportunity if you want to act on it.

And I think most of higher ed has been in that Crouch position since 2008. Recession. Right. They all think the good times or the old times are going to come back. And you know, and I think we both believe we were in a very different mode here. So we also talked a lot about the partnership they have with WeWork and this idea of a new way of blending education. And a lot of online providers are now experimenting with the idea of a hybrid model where, you know, as he said, you know, people want the face to face as well. Right. And they used to see that in the immersive or they still see that in the immersive programs with, with 2U. I guess the question is, though, part of the scale of online education, part of the cost savings has been around the online piece of this. Can you add a physical element to it and still kind of maintain the, I guess, the integrity of the online model?

Yeah, here's. I think it's a super interesting question, and I think the question is how you are blending. And so what I mean by that is if I am Walmart, to use his analogy, and I am adding online, but I'm keeping all the cost structure and the inventory and the huge footprints of my stores, that's what we would call a hybrid innovation. And it's not disruptive and it's not jumping you into the next gen. And it may sustain you for 10, 20, 100 years, I don't know. But it's not the future. I think the future is much more like Amazon, Bonobos, Warby Parker, where they are adding physical locations, but they're more like showrooms. They're small footprints. And there are places to connect. There are places where you can look at the inventory and then click something and it shows up at your door the next day. And I think what I was so interested with the WeWork partnership is it's not replicating all of the campus functions. I think of it almost as like

the campus and it's a partnership. Right. So they're not taking on the real estate, not taking on the costs.

And so, so I really think that model is so intriguing in terms of this because I do agree for online learning to continue to improve, and that's the hallmark of these innovations, is they have to keep improving that sense of community and togetherness and connectedness and social network. That Chip, I think persuasively talked about, that's at the heart of brands in higher ed. That's going to be important for online learning. But I don't think it's going to be through the monolithic, huge, sprawling campuses that we have. You reported on this, Freddie Atlanta yeah,

and so I want to make one point on that and then we. One last question before we wrap up. And it's the idea of also, I think that this offers an opportunity for more students for these institutions. This we work partnership because you know, we are in this gig economy, which we've talked about a lot and what's happening, I think most of the people at WeWork are part of that gig economy and they're going to need continual training and education throughout their life. So I think, for example, a lot of the short courses that 2U is now able to offer through Get Smarter, but even full degree programs are going to be incredibly enticing to those students at, or Those people at WeWork who will need to get, you know, blockchain or some of them will need to get an MBA. And now they have this experience with 2U because of WeWork that they're going to be able to do so. One final question before we wrap up, Michael. You know, 2U mostly focuses, almost exclusively focuses on the, on the graduate level, of course, although he hinted that. But he hinted, I know we didn't get to follow up with him on that, but we'll have to have him back for that reason. So the question is growth in online. You know, all the top schools are seeing tremendous growth. Other schools are seeing okay growth but, but basically most of the, especially at the undergraduate level, most of the enrollments are at a handful of institutions. As we continue to grow online, especially at the undergraduate level, do you continue to see that happening or as he said, it's not too late to get into this game.

So I think he's right. It's not too late to get in this game. But I think it's hard to get into this. It's much harder to get in this game now than it was say five years ago.

Which is why I guess you saw Purdue buy Cap.

Yes, I think that's why Mitch made that decision, which is I can have 30,000 students, I immediately go to scale. And I think scale has a different advantages in this world. My gut is fewer institutions serving more students and scale becomes sort of the way that they create those networks and positive impacts on top. What do you think?

I think so too. And I think that's what's going to need to happen in the future in terms of online enrollments. I don't think it's too late, but I don't think you're going to see some of these lower level players suddenly

gain huge market share and network effects matter in terms of the marketing dollars that you spend spend to get students. And if you're a small undifferentiated program and you're spending a lot to acquire students, that's going to hurt you in the long run. So something to keep exploring, though.

That's great. Well, anyway, this has been a great episode of A Future youe. I'm Jeff Salingo, and thank you for joining me and Michael Horn. And we're going to be back soon with another episode. So thanks for listening and please rate us and tell your friends to listen when you have a chance. And we'll see you next time on Future.