Getting the Money Right

By Judith V. Boettcher, Designing for Learning

A clear sign that online and distance learning is maturing is that we are struggling with how to organize and fund these programs on an ongoing basis. One of our early questions regarding online learning, e-learning, or blended learning programs was, “Can we do it?” A question that quickly followed was, “Can we make any money doing it? We now face the next question, which is “What are the organizational structures and financial models that support revenue, sustainability, and growth of online programs?

Judith V. B'ettcher

Judith V. Boettcher

Informal interviews with a few online learning leaders in the spring of 2006 provided a few insights into this question. (The leaders – all with extensive experience in the design, development, and implementation of online learning programs – represented large, mostly public and some private higher education institutions. Data from a wider range of institutions is contained in Business Models for Online Learning: An Exploratory Survey.) The most basic insight is that online learning is a business and that we must approach it with this mindset if we are to be successful. Other insights from the interviews suggest the need for increasing: A.) the differentiation of the markets that online programs are serving and B.) the organizational structure of the institutional organization supporting these programs.

The comments by the leaders interviewed suggest that funding models for distance and online learning are strongly influenced by these three institutional variables:

Organizational structure and mission . Is online learning part of a strategic institution-wide initiative or an initiative primarily being launched by a college? Obviously, broad institutional support means better infrastructure, more available and consistent services, and more stable budgets.

Purpose for online learning and distance learning. Are programs for increasing access or serving campus students? Programs designed for access serving working professionals and place-bound students are generally better funded, as tuition revenues can be more flexible. (This generally means higher.)

Institutional leadership. When leaders identify distance/online learning as a strategic part of an institution’s future, more favorable funding models are likely.

A good example of a strong institutional leader in this area is Graham Spanier, president of Penn State. In 1998 he launched the Penn State World Campus, now called the university’s “25th Campus” and offering more than 50 online degrees and certificate programs. Similarly, in September of 2005, in his inaugural speech as the new president of the University of Illinois, B. Joseph White included a vision that a fourth campus – a virtual campus – might be part of UI’s future.

Basic Funding Models

Funding models for distance and online learning are in a state of flux even at some established institutions. A funding model might be instituted at the launch of distance and online learning programs and be quite effective in providing support and investment of new programs – only to be modified over time and under new administrative management or leadership. In other words, these programs are subject to the vagaries of the budgeting process, shifts in strategic priorities, and changes in leadership at either the institutional or college level. Many of those interviewed also suggest that funding models are quite sensitive. They maintain that small changes in revenue sharing can have large effects: the famous butterfly effect at work here!

As with any business, funding models need to accommodate three types of activities: venture capital/start-up funds, operational funds, and research and development funds for growth. Here is how some institutions are budgeting for these activities:

Venture capital/start-up funding . Most of the successful distance and online learning programs were started with seed money/development money from one or many sources, including grants, central administration, and state initiatives. Another strategy is to partner with another business entity.

Operational funding. Institution-wide distance and online learning organizations, occasionally morphed from historical correspondence organizations, tend to be cost centers and thus assume responsibility for a wide array of services and support targeted at the online learner. The trend toward reliance on course management systems often means that the distance and online learning organization uses the central course management system and is assessed a fee for the staff and services of this part of the infrastructure.

Research and development funds. A successful funding model for distance/online learning programs often includes revenue sharing with deans and faculty while also providing sufficient revenue for all the elements of a quality support and learning organization. These elements include marketing, recruitment, admissions, registration and payment, orientation, records and advising, and technical and information resource access.

Revenue-sharing models at the central institutional level recognize the need to provide incentives to the faculty and deans of the colleges. The funding model at the University of Florida’s Distance, Continuing, and Executive Education (DCE) division illustrates this revenue-sharing model: 76 percent of revenue is used for marketing, operations, faculty, program support, and updating and program development; 14 percent supports the infrastructure services, and 10 percent is distributed to the college and department. This basic model is subject to change, depending somewhat on the amount of risk and development costs assumed by the college.

Any successful and sustainable funding model must include provision for the revision and updating of existing programs and investment in new programs. Yet this is the portion of the budget that is increasingly squeezed and faculty and colleges are often asked/expected to produce products and services without reasonable compensation or with appropriate training and support.

What Next?

Online learning as a significant growth area within non-profit higher education sector is a given. The funding models and organizations committed to online learning must embrace the move from subsidized programs to self-sustaining programs based on good business practices as well as quality academic practices. How well quality programs are delivered at what cost and what return providing for reinvestment are some of our future challenges and opportunities. Thanks to all those who took the time to share their ideas and experiences.

Check These Resources

“eLearning: Are We Making Money?” Judith V. Boettcher, Campus Technology, Aug. 2005, http://campustechnology.com/article.asp?id=11507

“What Do We Need To Learn About the Business of Education?” Stephen Schiffman, Elements of Quality Online Education: Engaging Communities, John Bourne and Janet C. Moore, eds. Sloan-C Consortium, 2004, http://www.sloanconsortium.org/sloancseries-order/vol6_web.pdf

“Business Models for Online Learning: an Exploratory Survey,” Karen Vignare, Christine Geith, and Stephen Schiffman, Journal of Asynchronous Learning, Sloan-C Consortium, May 2006, http://www.sloan-c.org/publications/jaln/v10n2/v10n2_5vignare.asp

Judith V. Boettcher is an independent consultant specializing in online and distance learning and the applications of new media.

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