Essay Question: The Web is Transforming the University. How and Why? (Please Use Examples.)
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By Paul Keegan, December 2000 Issue
The next phase of what Sperling calls his "for-profit revolution in higher education" resides in a building just down the street: The University of Phoenix offers nearly the same degrees but without even a stripped-down physical campus. It's a long, white, single-story structure filled with carpeted mazes of cubicles, which makes it clear why tuition is so much higher at the online school -- about $10,000 for those same seven graduate courses. Hundreds of advisers are talking to students through telephone headsets, helping them decide which courses to take, assisting them in applying for financial aid, and making sure their classroom software is working properly. Throw in the costly technological infrastructure and the salaries for enough teachers to keep online classes small, and online education suddenly becomes an expensive proposition.
But for UOP's older students, the convenience more than makes up for the higher price. Demand is so great that UOP's online facility will triple in size by next summer; Apollo is paying for the expansion with the $80.5 million raised by the recent sale of 5.75 million shares of a UOP Online tracking stock. Starting at $14 per share in late September, the stock rose to a high of $25 within a few weeks and was still trading at around that level at press time.
The man behind this growing academic empire, John Sperling, has a physical presence as underwhelming as his campus. He's a short, quiet fellow with wire-rimmed glasses and curly gray hair. Sperling will be 80 in January, but his wrinkles are few and he shows no signs of slowing down as he describes plans to expand his brick-and-mortar campuses aggressively into Europe and Asia. "My whole life has been a flight from boredom," he says, sitting in his fourth-floor campus office. "Right now, I can't say I'm bored."
That evening, Sperling drives his Jaguar to the sumptuous faux-Italian ranch house where he lives, alone. His residence has marble floors, Warhol originals in the foyer, and a 2,000-year-old horse statue from China in the dining area. University administrators don't typically live in such splendor -- but then, Sperling's annual salary of $400,000 is twice the median for the chief executive of a university system (and most of them don't get stock in their universities). He says there's less outrage over his wealth today than when Apollo went public in 1994. "Now all these dotcom kids out there are becoming millionaires and billionaires," he says. "People say, 'Jeez, at least he's worked at it.' "
That is indisputable. Sperling was born in a log cabin in the Missouri Ozarks, his mother a "malign influence" and his father so mean that Sperling says the happiest day of his life was when the old man died. When Sperling was 7, his left lung filled with pus after he'd been lying in bed for nearly a year with pneumonia, and he almost died when a doctor, using only a local anesthetic, sawed a hole in his back to drain the fluid. He was taunted at school and had difficulty reading and writing (he still can't write cursive script today; he prints everything except his signature). But he developed an insatiable intellectual curiosity and eventually earned several university degrees, including a Ph.D. in history from King's College in Cambridge.
Sperling spent years as a humanities professor at San Jose State, where he was noted more for his left-wing activism and campus rabble-rousing than for his scholarship. In 1973, his career going nowhere, he applied for a federal grant to teach a humanities course to a group of 30 teachers and police officers. Nearly all of them liked it so much they signed up again and wanted to know how they could get degrees.
Sperling, then 52, developed a curriculum, brought it to his superiors at San Jose State, and was promptly rejected. But he couldn't give up on these students, he says, after seeing the excitement on their faces as they discovered Homer and Shakespeare. Besides, Sperling calls himself an "implacable opportunist," and the opportunist in him sensed a lucrative market. By the early 1970s, a college diploma had become mandatory for social advancement, and a growing number of working adults wanted to continue their education part-time but found the deck stacked against them. Classes were offered at inconvenient hours or not at all. Getting an undergraduate degree while holding down a job could take 10 years. Sperling took a leave of absence and set up a for-profit company that would seek contracts from nearby universities to offer classes to working people.
His first client was the University of San Francisco. "It was almost instantaneously successful," Sperling recalls. Revenues shot from $200,000 the first year to $2.8 million the second. But as he signed up other schools, Sperling was branded a heretic for bringing his moneymaking machine into the temple of academe. Competing colleges complained to state bureaucrats and politicians that they were losing students to Sperling's "diploma mill." He moved his operation to Phoenix and, battling prostate cancer along the way, finally persuaded a regional peer-review board to grant his university accreditation in 1978. That freed him to pursue his dream of expanding into a national university
Sperling's Apollo Group almost went broke at least twice, but by 1986, revenue had reached $24 million and enrollment was nearly 6,000. He took the company public in 1994 at a split-adjusted $2 a share; the stock is roughly 20 times higher these days, and Apollo had net income of $71 million on sales of $610 million in the fiscal year that ended Aug. 31. UOP students aren't just cops and teachers anymore -- today about half of UOP's students are managers or supervisors.
When the Internet arrived in the mid-'90s, for-profit education companies began springing up everywhere, many with grandiose plans for bringing mass-produced college degrees to the world and making a stock-market killing in the process. But Sperling had beaten everybody to the punch. Apollo was establishing a solid record on Wall Street, and UOP's small online division, which had been grappling with the complex task of putting classes online since 1989, suddenly found its enrollments skyrocketing. "Our [annual] growth rate for the online school went from 20 percent to 50 percent," Sperling says today, merrily drawing a chart in the air. "We said, 'My God, this could be big!' This is an incredible machine!"
No matter how huge and profitable UOP has become, let's face it -- it ain't Harvard. What Sperling still doesn't have is that intangible called prestige. Elite schools have it, the new Web-education entrepreneurs want it, and with academics behaving more and more like business executives, today it has a price.
Sitting in Andrew Rosenfield's office, listening to him quote McLuhan and ramble on about how the "empowering and transformative" power of the Internet will bring higher learning to the impoverished nations of the world -- and how "spiritually right" it feels to be selling it to them -- it's hard not to be struck by the contrast between today's education pioneers and Sperling, the plainspoken old-timer. A law lecturer and trustee at the University of Chicago, Rosenfield in 1997 founded a company called UNext.com, which has $110 million in funding -- some from the former junk-bond king (and convicted felon) Michael Milken. Last July a handful of students began taking graduate classes at UNext's new virtual school, called Cardean University, in business and information technology.
With the kind of venture capital and exclusive connections Sperling could only dream about, Rosenfield has signed up an advisory board that includes three Nobel Prize winners and has partnered with five of the most prestigious universities in the world -- Stanford, Columbia, the University of Chicago, Carnegie Mellon, and the London School of Economics. Each will get millions of dollars in royalties plus the chance for a big-time payoff if UNext has a successful public stock offering.
Columbia's deal is sweet -- and typical: It will get a guaranteed minimum of $20 million after five years, which it can convert into a 5 percent stake in the company before it goes public. Rosenfield hopes to turn a profit by 2002.
UNext is probably Sperling's most formidable competitor, but Rosenfield goes to great pains to avoid being lumped in with the lowbrow University of Phoenix. "He offers students the opportunity to pull up into a shopping center and go to school at night when they're busy and tired," he says. "We're not trying to serve the same students."
But that's pure spin. All virtual universities, unconstrained by geography, are in competition with one another. Both schools market primarily to corporations. Both require 45 credits for a graduate degree and break semester-long courses into five- and six-week periods of intensive study. Tuition is also about the same -- around $500 per credit
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