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From 1987 to 2000, over 100 traditional four-year colleges closed in the U.S. while, over the same period, the number of for-profit ones increased from 400 to 1,600. Getting inside the universities’ decision cycles The University of Phoenix reacted to the emergence of working adult students long before others. One might be tempted to assign its early success to foresight. But this misses the most important half of the equation, for the signs that the mix of college students would shift were evident early on. It was not that Sperling saw what others did not, but rather that he reacted more quickly, unhindered by entrenched beliefs, habits, commitments, or stories. This ability to react fluidly paid off for the University of Phoenix again over the 1990s when the university bet on web-based learning. Again, the evidence was clear. New technologies were making it possible to deliver lectures, exams, and class discussions online more effectively and at a lower cost. The working adult student would rather stay at home taking classes than waste time driving, parking, and then driving home again. Logic directed the University of Phoenix to prioritize its online offerings. But this simple logic faced the brakes of entrapment among traditional universities who struggled with various conflicting agendas and who, because of their business models, needed first to prove the efficacy of online learning. This is not to say that traditional universities took too long to respond. They were probably acting appropriately given their shared concerns. But their hesitancy allowed the University of Phoenix and its young peers to move inside the decision cycle. By 1993, 93 “cyberschools” had started operations. By 1997 that number had ballooned to 762.7 It was not until the late 1990s and the 2000s that traditional universities began taking online education seriously. By 1996, the Apollo Group, owner of the University of Phoenix, was serving over 38,000 students and operating 51 campuses. It earned $285 million in revenue and from this produced $30 million in net income. As the second-largest regionally accredited private institution of higher education in the U.S., and an organization that also ran one of the country’s largest business schools, the Apollo Group had arrived. eartH/ conSolidation The challenge now for the Apollo Group is to consolidate its gains. The key indicators do not show the company has yet navigated the Earth phase. 1. It has not shifted its source of competitive advantage but continues relying on its original source: the targeting of working adult students. As traditional universities increasingly organize around this customer segment, it remains unclear whether the Apollo Group can maintain its unique relevance 2. It has not locked in clients. There are, for example, no compelling signs of strong loyalty among University of Phoenix students or any structural hook that keeps them coming back. Gillette locks in consumers by selling them inexpensive razors that require they return for higher-margin blades. The University of Phoenix has created no similar dynamic. 3. It does not seem to have locked out competition except to the extent that its organizational processes may make it more efficient 4. at delivering its unique model of education. Such “experience” advantages tend to erode over time as the competition improves each year. It is unclear what resources the Apollo Group could lock up. It relies primarily on part-time faculty who would find it easy to move to competing universities. Each year the cost of duplicating Apollo’s online learning technology decreases as independent technology firms offer better, less-expensive options. This is not to say that Sperling and the Apollo Group have not changed the world. The statistics evidence Sperling’s impact (with over 200,000 students, the Apollo Group runs the largest private university in the U.S.). But whether Apollo can continue to “own” its innovation is uncertain. Then again, perhaps this is just what Sperling had intended. If the U.S. educational system wakes up to the needs of working adults and reorganizes around a new model of college education—one that begins after years of work and not just after high school—perhaps Sperling will have achieved his original goal. Either way, he will have transformed higher education in the U.S. and possibly the world. Sperling, John, Rebel with a Cause, (New York: John Wiley & Sons, 200), p. 24-25 Adamson, Loch, “America’s 25 Most Fascinating Entrepreneurs: John Spelling, Apollo Group,” Inc. Magazine, April 1, 2004 3 Apollo Group web site accessed June 9, 2007 (http://www.apollogrp.edu/History.aspx) 4 Adamson, Loch, “America’s 25 Most Fascinating Entrepreneurs: John Spelling, Apollo Group,” Inc. Magazine, April 1, 2004 5 Apollo Group 10-K SEC filing, 1995 6 “Apollo Group, Inc.,” International Directory of Company Histories, Vol. 24, St. James Press, 1999 7 InterEd report, 1997 1 2 h o s p i t a l i t y d es ign s ummit 2 0 0 9

http://www.apollogrp.edu/History.aspx

Hospitality & Design Summit 2009

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