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Bubble Analysis: Trace Urdan on Why This Era of Ed Investing Could Be Different

By on May 5, 2013
Continuing Education, Cost of Education, Domestic, For-Profit, K-12, Required, Startups, Technology, Universities & Colleges

once upon a time...Cornelia Kopp via Compfight

By Paul Glader, Managing Editor

PALO ALTO, Calif., — Wells Fargo analyst Trace Urdan was the bank industry interloper at a meeting of education writers this past week at Stanford University and he provided a key observation to the scribes: Money is pouring into the education industry (yes, it is an industry) and aims to disrupt that business.

Urdan rattled through a few data and slides that show the dramatic rise in venture capital funding in the space: up to $1.3 billion invested in more than 100 deals in 2012 from around $30 million on less than 30 deals in 2006. “Basically what’s going on here is the sense that we have destroyed the music and news business so we might as well go into education,” Urdan said, partly in jest. “That enthusiasm is definitely there. It has definitely arrived. It is the hot thing.”

Urdan breaks the education “market” into three sectors: 1) K-12; 2) Higher-Ed and 3) Consumer. Some of the big trends affecting each of these market segments include: Gamification, freemium models, adaptive learning, big data, affordability and consumerization. The latter means that with mobile devices proliferating, people want to bring and use devices into the education world the same way some people bring personal devices into the corporate world.

Urdan and the audience noted that this kind of enthusiasm has surfaced in the education sector before. Some earlier experiments crashed and burned. So what makes it different this time? “The justification offered by smart people in Silicon Valley as to why this will work this time is that we finally now have scale,” he says. “10 years ago teachers weren’t really on the web. Now the students are native to digital content. The teachers are much more inclined to be open to it. There is an opportunity to see scale with teachers that you didn’t before.”

The other driving factor is the Common Core stand standards that roughly 46 states have adopted, which creates some common standards for K12 education. “If we are moving to the common core, perhaps there is a way to gain scale so every different app doesn’t have to customize itself in 50 states but it can work across state lines,” Urdan says.

For-profit massive open online course (MOOC) providers such as Udacity, Coursera and Mooc2Degree are gaining attention and buzz. Other models such as, PowHow and are showing traction.

Urdan is more skeptical of the Minerva Project, which claims to be the coming Harvard of the online higher ed industry. Urdan has seen several similar ideas like Minerva fail before and, therefore, views it with “a high degree of skepticism.” He also agrees the overall hype by Silicon Valley in the edtech space shows that “we are experiencing something of a bubble. I’m not suggesting this (VC spending) is money well spent,” he says. But “At the macro level, it is inevitable tech will change the way education is delivered.”

We asked Urdan about his views on For-Profit colleges and what role they will play in the ongoing transformation?

“I’m pretty sanguine about the survivability of the for-profit online universities,” he says. “The fundamental issues of higher ed today is affordability. A couple of them are going to include low cost credit for gen ed courses.” He points out that traditional university model of having freshman and sophomore students subsidize upper level students and having adjunct faculty subsidize the cost of tenured faculty is ripe for disruption by MOOC providers and other low-cost credit innovations.

“For profit guys lead the charge in accepting credits from other schools,” he says. “They have given up on the idea they need to preserve those first two years of school.” He notes that the For-Profits are also very focused on serving employers needs by offering flexible degree programs and programs geared toward specific workplace needs.

That being said, with regulations from Washington decimating enrollments and revenues at some For-Profit colleges, they have a huge challenge ahead. “They have had their margins destroyed. They have the opportunity, if they are smart, to rebuild businesses in a way that doesn’t focus on margin but on providing something to the market that works.” He points out that Grand Canyon University says it will hold margins at 25% and pour money back into the company, aiming to become a good guy rather than a bad guy.




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