Even in today’s gloomy business climate, market experts predict that the K-12 online education industry will continue to grow, albeit at a somewhat slower pace, as rapidly increasing enrollments in virtual schools begin to taper off and the country’s economic troubles persist.
“Because the market is growing as fast as it has been, we’ve had plenty of access to capital in a time when so many other companies are seeing diminished access to capital,” says Caprice Young, the chief executive officer of the Portland, Ore.-based , a company that provides distance-learning programs for high schools. “And that makes it possible for us to build the kinds of high-quality products and services we provide to schools.”
According to a September 2008 education industry report published by the Toronto-based BMO Capital Markets Corp., a financial-services company, “the virtual school market, while still relatively new, has been growing dramatically” and will likely continue to grow at a moderate pace. The report cited increased enrollments in K-12 virtual schools, as well as other factors, such as an increase in the number of home-schoolers and students interested in online-only Advanced Placement courses.
The economic downturn will likely slow the growth in the industry, says Jeffrey M. Silber, a managing director in New York City for BMO Capital Markets. But while state and district funding levels for students may flatten, enrollments in virtual schools will likely continue to grow, although not as quickly as in past years.
James Maher, a senior research analyst for the San Francisco-based investment bank ThinkEquity LLC, who specifically follows , a Herndon, Va.-based provider of online-learning services, agrees that the virtual school market is growing.
“I think the opportunity to use online delivery for at least some of the curriculum for K-12 [public education] is likely to be something that gets embraced more going forward,” he says. “It may be challenging right in the midst of budget difficulties, but over time it permits a school district to have more flexibility and capacity.”
Plus, more districts may turn to private providers for online education services as a way to save money, says Terry M. Moe, a professor of political science at Stanford University and the co-author of a forthcoming book about technology and education called Liberating Learning.
“If the districts literally don’t have the money to have their own physics class, then private providers can come in,” Moe says. “The main cost in education is personnel, and it is a huge advantage of technology that it is cheap compared to the cost of the labor of teachers, and distance learning involves a much smaller number of teachers per student.
“If it’s done right, over time the cost will go down even more dramatically,” he says.
But before districts decide to partner with private, third-party providers for online curricula or other services, it is imperative that school officials do extensive background research on the services and set up a system of continuous oversight, cautions William R. Thomas, the director of the Atlanta-based .
“There are some private-sector companies just out to make a dollar,” he says. “Their primary motivation is profit, so they will cut corners in terms of the teacher or the teacher’s qualifications, or the way that the course is designed.”
As long as there is enough communication and evaluation, however, “outsourcing to a third-party provider makes a huge amount of sense,” says Thomas.
Barbara J. Dreyer, the president of the Baltimore-based Connections Academy, which provides virtual education services to 16,000 students in 14 states, argues that private companies have a strong incentive to provide high-quality, effective learning tools because their future depends on it.
“We have the students, we have the families, we have the teachers, we have the legislative community, and we have whatever regulatory authority is involved, and we have to try and give them what it is they want,” she says. “If we’re not giving them what they’re looking for, they’re not going to pay us anymore. It gives you a much more deliberate focus.”
But while partnerships between private companies and school districts can be beneficial for both parties, districts should ask critical questions and do their research before signing any contracts, says Pamela H. Ice, the online-support director for the .
“Third-party providers are creating curriculum at a national level, so they’re trying to meet the needs of a whole nation,” says Ice. As a result, “individual states or districts must do their own alignment with their state standards.”
Most companies have software programs that will align their curricula to state standards, says Ice, but even then educators should manually go through the materials, “because there are going to be some holes.” And while some companies allow school districts to tweak the curricula, others don’t, she says.
Similarly, for districts or states that are considering using comprehensive virtual education services—including curriculum, teachers, and support services—she says school officials need to take a hard look at the structure of the organization and make sure it fits with district and state policies.
“When you sign a contract with a third-party provider, and it’s one of those turnkey solutions, they’re in control,” Ice says. “You really need to have a clear idea and a clear understanding of what’s in your control and what’s not in your control in order to really make an informed decision.”
Unlike most public school districts, which are required to balance their budgets every year, companies in the private sector can make bigger investments in research to create high-quality products, says Ron Packard, the chief executive officer of K12 Inc., which works with more than 55,000 students in 21 states.
“The amount of capital and expertise [in the private sector] is tremendous,” he says, and that money can be leveraged from the private sector to improve public education.
Charles Thornburgh, the president of the Hollywood, Fla.-based , agrees that the budget constraints on school districts keep them from investing the money and time needed to start a program such as a virtual school and see the payback.
“It’s a cost-intensive process. That kind of investment is difficult for a school district to make when they have to balance their budget every year,” he says.
Private companies can afford to take a longer-term perspective, he says, which allows them to earn back the investment over five or 10 years.
And after the curricula are created, companies can contract out to provide those services at a lower cost than if school districts were to build the content on their own, says Cheryl Vedoe, the executive director of the Seattle-based , which provides online curricula for students.
“One of the greatest benefits of online education is that it has the potential to be a very cost-effective way for learning opportunities for students who otherwise wouldn’t be able to take those classes,” she says.
But although contracting out services may be a cost-effective option for districts, Young, from KC Distance Learning, warns against turning to online education options solely to save money.
“Lots of states are under the misperception that online learning is less expensive,” she says. “But really, the investment is in a different place. Instead of investing in bricks and mortar, we’re investing in technology,” as well as teacher training and one-on-one coaching, she says.
Another advantage of partnering with private companies, says Packard of K12, is the ability to scale instruction.
K12, for example, offers a range of services from providing learning assistance to a handful of struggling students in one district to supplying curricula, teachers, and operational support to entire schools, he says.
“Although,” he adds, “sometimes the policies have not kept up with the demands.”
One state policy that Young, from KC Distance Learning, believes legislators should avoid is capping the number of online education providers allowed in the state.
“That’s exactly the wrong thing for them to do if they want to improve quality. That guarantees that the companies [that are already there] are not going to do any better,” she says.
Private companies also have more flexibility to change, says Dreyer, from Connections Academy. “We can see what’s working and what’s not,” she says and quickly adapt to improve the program.
“It’s the difference between the speedboat and the aircraft carrier,” Dreyer says. “It’s not easy to change when you may have thousands of teachers involved.”
Still, experts caution schools not to embrace the speed of change unless it clearly leads to improvement. Because online learning is still a relatively new development in education, especially at the K-12 level, researchers are just beginning to evaluate its effectiveness. As it is, there are no definitive studies proving that e-learning is more effective than traditional learning.
Experts such as Ice recommend that schools ask lots of questions upfront and avoid making hasty decisions about going in this direction. "[Third-party providers] really do provide some valuable resources, and districts just need to do their homework so that it can be an optimal education opportunity,” she says.
Dreyer points out that if you look at higher education, online education started with private companies, and that movement continued to grow because of increased student demand.
“That’s why, ultimately, even though [the K-12 sector] is much bigger, and it has the unions and bureaucracy, which makes it much harder to change than higher ed was, it was the student demand,” she says, that was the catalyst in higher education, “and I think you’re going to see that same thing really kick in in the K-12 space.”
