Monday, October 08, 2012

 

The Return of Mercedes U

A few years ago, I floated the idea of an upscale proprietary.  (For convenience, I called it Mercedes U.)  My argument was that for-profits have, until now, focused on the lower end of the market, where they have to compete with (subsidized) community colleges.  Since they can’t compete on price at the low end, I suggested, better to try on the high end.  (In California, at this point, they can compete simply by being open.  But in the other 49 states, the argument still stands.) The only attempt I saw, Founders College, quickly ran aground on the shoals of Ayn Randian ideology and some pretty iffy management.  Since then, nothing.

Now, for-profit Christian (?!) Grand Canyon University is taking another shot at the idea.  

The twist is that it’s using the profits from a national online graduate program to subsidize a smaller, more selective campus.  Presumably, the idea will be that the prestige from the regular campus will gradually rub off on the larger online program.  In other words, the campus becomes a loss leader that generates respect, and the online program uses that respect to make major money.

I’m not entirely sure how the Christian mission fits with that, but I’ll leave that aside for now.  Can the loss-leader model work?

I suspect it can.  It’s already how most community colleges work; the credit-bearing side of most community colleges operates at a loss, by design.  The “continuing education” and business services side turns a profit, which is used to help offset those losses.  Many traditional public four-year colleges use the same model.  

GCU started, reasonably enough, in Arizona, where the regulations are relatively lax and the private higher ed sector is small relative to population.  Now it’s expanding to Massachusetts, a blue state with tighter regs and a much, much more robust private higher ed sector.  (Off the top of my head, I couldn’t come up with a single private college or university in Arizona, other than the University of Phoenix.  In Massachusetts, there’s Harvard, MIT, Northeastern, BU, BC, Wellesley, Williams, Amherst, Mount Holyoke, Smith, Hampshire, Holy Cross...)  Depending on the version of Christianity with which they identify, they may be able to define a sustainable market niche, but they’ll still have more of an uphill battle than in Arizona.

But to the extent that the physical campus is about visibility, that might not matter.  GCU is being pretty savvy about it; they’re hiring a significant cluster of full-time faculty, pouring money into the physical plant and financial aid, and targeting students with higher SAT scores.  (They’re also pursuing Division I athletics, apparently, which strikes me as a fool’s errand.  But that’s another post.)  They’re moving in the Mercedes U direction, where you can charge more than the publics and still make a profit anyway.  If they’re smart, they’ll greatly beef up their tutoring and career advising services next.  Sell quality, and the prestige will follow.

The critical issue I identified for Mercedes U was patient capital.  It needs funders who are willing to let prestige build over time, and who won’t insist on maximizing quarterly profits.  It looks like GCU has that, at least for now.  If it can keep its investors patient, it doesn’t get too caught up in sports, and it understands what “loss leaders” actually entail, I like their chances.

In the meantime, the market niche for a secular upscale proprietary remains wide open.  I’m just sayin’...

Comments:
Don't forget Brandeis, Tufts, WPI, Berklee College of Music, etc.

Also, Grand Canyon University is getting its campus in Northfield, MA, free of charge, as a donation from an evangelical businessman who initially wanted to open his own college on the grounds of the former Northfield boarding school. That must be a godsend (so to speak) for their bottom line.

As a local (relatively speaking), I wonder what this is going to do to Northfield, which is a charming town but dying in business terms. A lot depends on the kind of student they attract.
 
How about something like Quest University? (http://www.questu.ca/)
 
Here at Proprietary Art School, we are suffering from declining student enrollments, which have resulted in large layoffs of both faculty and support staff. It is now so bad that if a computer breaks down or if a photocopier jams, your chances of getting it fixed are rather small. Other proprietary schools in my area are also suffering from declining student enrollments, forcing a lot of faculty out onto the streets.

So we are slowly auguring ourselves into the ground. Dean Dad’s essay on Mercedes University got me to thinking. While sitting around with other faculty members bemoaning our fate, some of us got to thinking that maybe the cure for our ills is to turn ourselves into an upscale institution. Maybe we should start up a medical school. Maybe we should open up a graduate school in all sorts of esoteric disciplines. Maybe we should bring in sororities and fraternities. Maybe we should build dorms with all sorts of expensive amenities. Maybe we should create a football team, and start offering athletic scholarships. Maybe we should turn ourselves into an R1 institution, building all sorts of expensive research facilities and we could start hiring a whole bunch of research faculty superstars. Perhaps we could bring in a tenure system and introduce a publish-or-perish environment......

Just kidding, of course:-)

 
The Christian mission is a gimmick that allows the school to vacuum money out of rubes' pockets. Because the Religious Right hates America, they will pay big money to send their children to places where they don't have to interact with Americans they don't like. It's a sound market move.

 
Prescott College in Prescott, AZ.
 
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