Note: This is Tchad Rogers's section. Please note that it has been heavily revised since October 31st to include both the midterm Individual Company Writeup and the final Individual Company Writeup, including sections on capabilities, key relationships and success factors in the future for each.
University of Phoenix [UPX] is a for-profit, private university and is a wholly owned subsidiary of Apollo Group Inc. At the end of the fourth fiscal quarter (ending August 31st) of 2011, UPX had 380,800 enrolled students, down from a peak of nearly 600,000 in 2010.
UPX makes up nearly 90% of the total enrollment of the Apollo Group’s schools, which includes four other institutions of higher education and two high schools.
UPX first offered an online degree program in 1989, when it became the first accredited online university with initial class size of 12. UPX’s online university presently offers over 40 degree programs [Associates through Doctoral; concentrations were not counted as separate degrees.] In fact, they have more degree programs available online than they have available on their physical campuses.
UPX is presently developing a new version of its learning management system with advanced computer-learning features built-in . The new project is presently dubbed the Learning Genome Project, and the goal is to create a learning platform that dynamically adjusts how it teaches each individual student according to how that student best learns.
In February of 2009, University of Phoenix launched their online University Marketplace, a content portal which provides students with access to content and school materials through a series of strategic partnerships. 
This platform can certainly be described as a capability. First, UoP has proprietary technology in both the delivery and the analytics of their educational content. They have the people and processes in place to translate traditional classes into online classes. Their prominence in both the online and traditional market place, combined with their analytical capabilities in each, allows them to compare teaching efficacy between the two. Finally, they have processes in place to streamline online courses and reduce the teaching overhead, allowing for much greater scalability than a traditional classroom.
The combination of the proprietary technology, the processes and the people (teachers, administrators and students) gives UoP a distinct advantage in the transition to online learning. While this is not a unique advantage, they may be able to continually innovate more effective teaching methods based on their capability, high online enrollment numbers compared to competing schools, and unique analytics.
In August, 2011, the Apollo Group announced that they would acquire Carnegie Learning, a company which makes a mathematics-teaching software platform, for $75 million. In a separate transaction, Apollo Group will acquire related property from Carnegie Mellon University for $21.5 million.
According to the press release, these acquisitions will allow Apollo to accelerate its efforts to incorporate adaptive learning into its academic platform.
In fact, a look into Apollo’s acquisitions and corporate structure, we see a number of trends. Apollo has operating companies in Chile, Mexico and the UK. They have holding companies in the Netherlands and one operating company in the US with a name that indicates Apollo is expanding into China presently.
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One of the University of Phoenix's strengths is strategic partnerships. UPX has literally hundreds of partnerships with other companies. UPX partners with other educational institutions to offer its programs to students at other schools and to cross promote various offerings between themselves and other institutions. UPX also partners with technology and consumer goods companies to leverage their size in order to obtain discounts for their students and themselves. They engage in joint marketing campaigns with groups such as the EPA and the Boys and Girls Clubs of America.
The graphic below shows just a sampling of the total network that UPX and Apollo have created.
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University of Phoenix is the largest entity in the for-profit institutional delivery market by a large margin. If leveraged properly, this can be a distinct competitive advantage.
University of Phoenix's hundreds of thousands of customers are unique consumers that many companies would pay to gain access to. By striking data-sharing deals, cross-promotional deals and even educational deals with these companies, UoP can leverage access to hundreds of companies. In this way, they can create a two-sided platform with their educational customers on one side, and strategic business partnerships on the other. Each side drives positive network effects for the other side, increasing the branding power of UoP.
As the below graph of the Apollo Group's board of directors illustrates, many of the individuals on the board sit on other boards as well. This creates additional strategic considerations and biases, which will be analyzed further at a later date.
Each layer in the Educational Market stack is undergoing dramatic change due to technological shift and each one of these affects University of Phoenix and the Apollo Group.
Lawmakers have as much of an influence on the entire Education sector as ever. Technological shift is increasing the pace of change in the industry and making it more difficult for educational legislation to keep pace with changing trends. The explosion of charter schools and subsequent controversy from recently implemented voucher programs is one example of this.
Previously technology providers simply supported the other layers in the stack. Today, many of these providers and technology companies are being acquired and integrated into other layers of the stack in order to provide competitive advantage and differentiation for competitors in other layers. For example, the Apollo Group recently acquired Carnegie Learning, a platform provider of mathematics-teaching software.
With the rise of self-publishing and electronic distribution, I expect the continued erosion of power for existing textbook authors. Rather than using off-the-shelf and poorly matched textbooks, I expect an uptick in the number of professors writing their own textbooks, then self-publishing and electronically distributing them.
Technology is eroding the power of traditional publishers and shifting it somewhat to new entrants. The massive capital investments required for printing and physical distribution is no longer necessary with digital publication and distribution, dramatically lowering the barriers to entry. Electronic-publishing is enabling new entrants to compete with powerful publishers, and self-publishing is enabling authors to go directly to market without the need of a traditional publisher.
Power in the content distribution market is dramatically shifting also, with physical storefronts being reemphasized and reduced in the face of exponentially increasing electronic distribution.
The shifts in the content creation, publishing and distribution sectors will enable University of Phoenix and other Apollo Group schools to easily create their own textbooks for each class, and integrate them into their online learning platform. This will enable them to capture a stream of revenue that previously went to content providers, while offering a more customized experience for their students and eliminating the need for physical distribution.
As online degree programs continue to put pressure on the inflation of traditional education, we expect testing and certification companies to also increase their product offerings and marketing in order to cater to the low-end of the high education market. The increased availability of certification programs in more subject ares may lead to certifications supplementing or replacing degree program requirement for lower-end white-collar jobs as companies work to compete with cheap outsourced labor and seek alternatives to the salaries expected by university graduates.
The Apollo Group's schools could potentially expand into this market in the future, although they are disadvantaged by their brand perceptions and lacking technology in this area compared to existing testing companies such as Pearson.
The tuition rates of traditional schools are under pressure from both sides, with rapidly expanding global demand putting upward pressure on prices and the increased availability of cheaper, online options putting downward pressure on prices. In the short-term, while the efficacy and reputation of the online programs is uncertain I expect tuition rates to continue to rise. In the long-term, as online degree programs continue to proliferate and reach acceptance in the market-place, the dramatically lower overhead of these alternatives will put increased pressure on brick-and-mortar schools, likely deflating the price of tuition substantially in all but the most prestigious institutions.
University of Phoenix is investing heavily in its online platform and has been for many years. Clearly, they hope to be one of the frontrunners of online education when public perception of online degrees begins to tilt.
Fundamental teaching theory is evolving, new methods are being tested that require students to interact with their teachers on a more limited basis. The popularity, if not proven success, of the Kahn Academy model and online degree programs may dramatically disrupt the traditional education sector. The rise of online education is slowly legitimizing it and economies of scale are making it more affordable, as platforms are built out and scaled.
As the eLearning / Collaboration, and Digital Publishing sectors continue to grow, and the Traditional Publishing sector continues to shrink, the Institutional Delivery segment will come under unique pressures from the increased prominence of remote and digital learning. International students from emerging markets will continue to flood into US schools, both online and in-person. The cost of traditional education will continue to rise under inflated international demand in combination with the continued ease of obtaining educational credit.
University of Phoenix is well-positioned with their online delivery platform capability and their two-sided network, with their customers on one side and business partnerships on the other. They need to continue to focus on increasing the efficacy of online learning through research, development and analytics-based comparisons. They should start funding independent research to demonstrate the viability of online educational delivery in order to de-stigmatize what can become their primary source of revenue and a strong driver of profit within ten years [by my own, very informal, estimates].
The largest threat to UoP presently is continued political action against their alumni's high default rates on federal educational loans. UoP should redouble their efforts to educate their students about debt prior to enrolling them. They should continue their efforts in increasing the efficacy of the education students receive from UoP, to increase the market value of their graduates. Finally they should invest heavily in their career services centers to be more powerful forces in the jobs market, in order to place more of their graduates, which should lead to lower default rates and better political favor. They could leverage their size and key relationships into a new online job-market capability for companies and alumni, driving their key corporate relationships, improving placements, default rates and their brand's value.
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