San Francisco
Chicago
Minneapolis
New York
Emerging Trends in Post Secondary Education –
The View to 2012
Michael T. Moe, CFA
The St. Regis, Washington, D.C.
December 9, 2002
The Healthcare and Education Analogy


Healthcare in 1970:
–
Huge Market - 8% of GDP
–
Highly Fragmented - Cottage Industry
–
High Cost
–
Low Technology
–
Lack of Professional Management
–
Negligible Market Capitalization
–
Essential Human Service
–
Less than 2% of U.S. Capital Markets
Healthcare in 2002:
–
Huge Market - 14% of GDP
–
Segmented by Category
–
Consolidating
–
Historically Low Costs
–
Implementing Strong Management Controls and Accountability
–
$2.3 Trillion, or 23%, of U.S. Capital Markets
ThinkEquity Partners
2
The Education Industry in 2002

Huge Market - 9.5% of GDP

Highly Fragmented - Cottage Industry

Essential Human Service

Very Inefficient

Low Technology

Lack of Professional Management

Total Market Capitalization: $27 Billion
–
Small fraction (<0.3%) of the $10 Trillion U.S. Capital Markets
ThinkEquity Partners
3
Major Sectors in the U.S. Domestic Economy
$ Billions
% of GDP
Health(a)
$949
14.1%
Education(b)
$740
9.5%
Social Security
$336
5.0%
Defense
$272
4.0%
$7,790
100%
Total GDP
Education = $2 trillion global market!
(a) Health Care Financing Review, vol. 17, no.3.
(b) Defined as pre-kindergarten, post-secondary, consumer products, training/vocational and specialty service markets.
ThinkEquity Partners
4
Size of Global Education & Training Market

Global education & training market:
$2 trillion
– U.S. market:

U.S. higher education market:
–

$250 billion
Students: 42 million (1990); 97 million (2010); 150 million (2025)
U.S. online higher education market (2001):
– U.S. online higher education market (2005):

$750 billion
U.S. corporate training market:
$4.5 billion
$11 billion
$100+ billion
– Corporate spending:
$65 billion
– Government spending:
$40 billion

Global corporate & government learning market:
$300 billion

Global corporate & government e-learning market:
$18 billion
(a) Source: ThinkEquity Partners, Eduventures.
ThinkEquity Partners
5
The Evolving Higher Education Marketplace

The higher education market is huge…
–
Globally, 84 million students and 20,000 colleges and universities; in the U.S., 15 million students and
4,100 colleges and universities
–


Higher education is a $250 billion market in the U.S.
…and growing
–
Domestic undergraduate enrollments will increase by 13+% in the next decade to 21.2 million by 2010
–
Baby Boom echo generation moving into their college years
–
College less of a choice and more of a “must-have”
…with significant demand imbalance
–
U.S. only 1 of 10 countries providing a college education to 1/3 or more of their college-age populations
–
Group of traditional host countries for foreign students (U.S., France, and England) expanding to
include Japan, Germany, Canada, and Australia
(a) Source: ThinkEquity Partners, National Science Foundation.
ThinkEquity Partners
6
There’s Something Going On Here…
Indexed Performance: March 2000 – Today
+220%
200%
100%
-75%
0%
-100%
NASDAQ
Postsecondary Index
(a) Postsecondary Index includes: APOL, CECO, COCO, DV, EDMC, ESI, STRA, UOPX, WIX.
ThinkEquity Partners
7
Substantial Growth of Public Education Market
Public Market Value of Learning Companies
$30.0
$27.7
$25.3
$25.0
$20.0
$13.7
$15.0
$11.4
$10.9
$10.0
$7.6
$4.5
$5.0
$0.3
$1.1
$1.9
$2.2
1993
1994
$0.0
1991
1992
1995
1996
1997
1998
1999
2000
2001
(a) Public companies included in 1991: DV, NEWH, NLCI.
(b) Public companies included in 1992: FC, SCHL, TUTR, as well as all previous companies.
(c) Public companies included in 1993: BTZ, SLVN, as well as all previous companies.
(d) Public companies included in 1994: APOL, ESI, as well as all previous companies.
(e) Public companies included in 1995: AMIE, LTRE, SMTF, as well as all previous companies.
(f) Public companies included in 1996: EDMC, STRA, VCMP, as well as all previous companies.
(g) Public companies included in 1997: BFAM, POSO, RLRN, RWDT, as well as all previous companies.
(h) Public companies included in 1998: CECO, CLBR, CLKS, POVT, SCHS, as well as all previous companies.
(i) Public companies included in 1999: COCO, ECLG, EDSN, ELLG, SCIL, as well as all previous companies.
(j) Public companies included in 2000: CTRA, DCNT, DTHK, ELOQ, LSPN, RVDP, SABA, SKIL, UOPX, WEBX, as well as all previous companies.
(k) Public companies included in 2001: REVU, as well as all previous companies, with the exception of BTZ, CLBR.
ThinkEquity Partners
8
$1 Invested at IPO…
Strayer
STRA Performance: 7/25/96 to 9/30/02
$70
$60
$50
$40
$30
$20
$10
$0
Jan-96
Jan-98
Jan-00
Jan-02
CAGR: 42.6%
$1 @ IPO = $9.02 Today
ThinkEquity Partners
9
$1 Invested at IPO…
University of Phoenix Online
UOPX Performance: 9/27/00 to 9/30/02
$40
$30
$20
$10
$0
Jan-00
Jan-01
Jan-02
CAGR: 111.6%
$1 @ IPO = $4.51 Today
ThinkEquity Partners
10
$1 Invested at IPO…
Education Management
EDMC Performance: 10/31/96 to 9/30/02
$50
$40
$30
$20
$10
$0
Jan-96
Jan-98
Jan-00
Jan-02
CAGR: 35.2%
$1 @ IPO = $5.98 Today
ThinkEquity Partners
11
$1 Invested at IPO…
Career Education
CECO Performance: 1/29/98 to 9/30/02
$60
$50
$40
$30
$20
$10
$0
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
CAGR: 71.3%
$1 @ IPO = $12.39 Today
ThinkEquity Partners
12
$1 Invested at IPO…
DeVry
DV Performance: 6/21/91 to 9/30/02
$50
$40
$30
$20
$10
$0
Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01
CAGR: 28.0%
$1 @ IPO = $16.21 Today
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13
$1 Invested at IPO…
Apollo
APOL Performance: 12/6/94 to 9/30/02
$50
$40
$30
$20
$10
$0
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
CAGR: 68.6%
$1 @ IPO = $59.57 Today
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14
Our Society is Changing…
Farmers as a % of the Labor Force
1800
1880
1900
2000
90%
49%
38%
2%

Just 13% of working American adults had a high school education in 1900

Only 3% had college degrees
(a) Source: Department of Labor.
ThinkEquity Partners
15
U.S. Economy Shifting to Service Jobs
45%
38.9%
40%
35.4%
35%
30%
25%
20%
17.7%
15%
13.7%
10%
5%
0%
1950
1960
1970
Services
1980
1990
2000
Manufacturing
(a) Source: Department of Labor.
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16
A Changing Paradigm
Human Capital is Replacing Physical Capital as Primary Productive Asset
Price/Book Ratios
14
12.1x
12
10
8
6
4
2
1.2x
0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999
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Education Counts
Educational Attainment Outcomes
Salary Gap between Male High School and College Graduates
150%
112.2%
100%
47.3%
50%
0%
1971
2000
(a) Median earnings in 2000 dollars for all wage and salary workers ages 25-34. Source: National Center for Education Statistics.
ThinkEquity Partners
18
Education Counts
Educational Attainment Outcomes
Earning Power of a 30-Year Old Man With a High School Diploma
$40,000
$35,350
$30,000
$26,110
$21,620
$20,000
$10,000
$0
1973
1982
1995
(a) Source: Michael Milken. Data in 1995 dollars.
ThinkEquity Partners
19
Fastest Growing Occupations (2000-2010)
Employment
(thousands of jobs)
Occupation
2000
2010
Change
Computer software engineers, apps
380
760
100%
Bachelor’s degree
Computer support specialists
506
996
97%
Bachelor’s degree
Computer software engineers, systems
317
601
90%
Bachelor’s degree
Computer systems administrators
229
416
82%
Bachelor’s degree
Data communications analysts
119
211
77%
Bachelor’s degree
38
63
67%
Long-term OTJ training
Database administrators
106
176
66%
Bachelor’s degree
Personal and home care aides
414
672
62%
Short-term OTJ training
Computer systems analysts
431
689
60%
Bachelor’s degree
Medical assistants
329
516
57%
Moderate-term OTJ training
Desktop publishers
Education Required
(a) Source: Bureau of Labor Statistics.
ThinkEquity Partners
20
The Need for Skilled Workers
% of Jobs Requiring Skilled Workers
100%
85%
80%
65%
60%
40%
45%
28%
20%
0%
1950
1991
2000
2005E
(a) Source: ThinkEquity Partners.
ThinkEquity Partners
21
The Need for Skilled Workers
Less Than 25% of U.S. Adults 25 and Older have a Bachelor’s or Higher Degree
75%
25%
Adults without Bachelor’s
or Higher Degree
ThinkEquity Partners
Adults with Bachelor’s
or Higher Degree
22
The Demand for Knowledge Workers is Fundamental
Global Corporations
Demand for Knowledge Workers
Internet-Based Employee Solutions
Transformation of Knowledge
E-Human Capital Solutions
Testing and Assessment
E-Corporate Learning
Higher Ed Solutions
Improved K-12 Solutions
70% of Fortune 500 CEOs say finding knowledge workers is a major issue of
growth
ThinkEquity Partners
23
“I skate to where the puck is going to be,
not where it has been.”
- Wayne Gretzky
ThinkEquity Partners
24
The New Knowledge Economy
Industrial Economy
Knowledge Economy
Cost
ROI
Local
Global network
One-size fits all
Tailored programs
Just-in-case
Just-in-time
Isolated
Virtual learning communities
Four-year degree
Forty-year degree
ThinkEquity Partners
25
ROI
Bottom-Line Effects of E-Learning

Custom multimedia learning saves 20% in the first year of implementation and 50%
in subsequent years

E-learning produces a 60% faster learning curve than traditional instruction

Examples:
– Motorola: $1 spent on training yielded $30 in productivity gains over 5 years
– IBM’s Basic Blue management training e-learning initiative: 2284% ROI
– Omega Corporation:
 100% improvement in hit ratio on sales calls
 Improvement of customer commitments from 33% to 93%
 Achievement of 50% of yearly sales goal in quarter after training
– Union Pacific Railroad:
 Increase in bottom-line performance of 35%+
 Implementation of new processes 12 months earlier than with traditional training
(a) Source: THINQ.
ThinkEquity Partners
26
Higher Education Landscape

66+ million adults and more than 50% of all employed persons participate in some
form of continuing education

56% of the workforce, or 66 million people, is without an advanced degree

Number of corporate universities skyrocketed from 400 in 1988 to over 2,000 today,
including 40% of Fortune 500 companies

More than 60% of corporate universities have alliances with institutions of higher
education, increasing to 85% by 2003

Executive education particularly salient in light of recent corporate scandals, with
newfound interest in studying “good” corporate governance
(a) Source: ThinkEquity Partners.
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27
The Corporate Market Opportunity
Number of Corporations Offering Distributed Learning Courses to Employees
8,000
6,164
6,000
3,192
4,000
2,270
1,333
2,000
391
735
0
1998

1999
2000
2001
2002
2003
U.S. corporate business skills training market projected to reach $18.3 billion by 2006
(CAGR of 13.3%)

Worldwide IT education & training market projected to reach $28.6 billion by 2006
(CAGR of 7.1%)
(a) Source: ThinkEquity Partners.
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The Corporate Market Opportunity
Corporate Universities Up Tenfold
3,000
2,000
2,000
1,600
1,000
400
200
0
1970
1980
2000
2003E

Over 40% of Fortune 500 companies have implemented a corporate university

As a point of reference, there are 3,700 postsecondary institutions in the U.S.
(a) Source: ThinkEquity Partners.
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29
Six Megatrends Shaping Higher Education
Demographics
Higher Education
Market
Outsourcing
ThinkEquity Partners
30
Eve-o-lution: Woman Power
Women: Changing the Face of Higher Education

Women have outnumbered men on college campuses since 1979

60% of distance or online learning are females over the age of 25
56%
Female Enrollment in Higher Education
10.0
8.6
41%
(in millions)
8.0
7.5
6.2
6.0
3.5
4.0
1.4
2.0
0.0
1960
1970
1980
1990
2000
(a) Source: Business Women’s Network, Diversity Best Practices.
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31
Working for the Weekend
Our Students Aren’t Getting Younger
Percentage of College Students Over the Age of 25
80%
60%
40%
43%
28%
20%
0%
1970
ThinkEquity Partners
2000
32
Working for the Weekend
Completion Rates for Postsecondary Education

As more adults work and attend school, the need for expanding traditional university
limits has never been greater
Certificate
Programs
Associate
Degree
Programs
Bachelor’s
Degree
Programs
Enrollment more than one year after high school
54%
14%
50%
Part-time student
41%
18%
13%
Also worked 1-20 hours per week
75%
42%
51%
Also worked more than 20 hours per week
47%
28%
40%
Level of Education
(a) Source: ThinkEquity Partners.
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33
University Tuition
$ Per Year for Residents
A Quality Education Is Becoming Increasingly Expensive
Actual
In Current $
University of Wisconsin - 1935
$55
$654
$3,408
UC Berkeley - 1964
$203
$1,067
$4,176
$3,430
$9,826
$24,570
Wharton - 1975
Today
(a) Source: ThinkEquity Partners.
ThinkEquity Partners
34
Largest U.S. Universities by Degree Enrollments
Fall 1995
University
Fall 2001
Enrollment
University
Enrollment
139,300
1
Community College of the Air Force
69,611
1
Apollo Group
2
University of Minnesota – Twin Cities
51,445
2
Community College of the Air Force
69,611
3
Ohio State University – Main Campus
48,676
3
DeVry University
55,735
4
The University of Texas at Austin
47,905
4
University of Minnesota – Twin Cities
51,388
5
Miami-Dade Community College
47,060
5
Miami-Dade Community College
49,836
6
Arizona State University – Main Campus
42,040
6
Ohio State University – Main Campus
48,352
7
Texas A&M University – Main Campus
41,790
7
The University of Texas at Austin
48,008
8
Michigan State University
40,647
8
Arizona State University – Main Campus
42,463
9
Pennsylvania State University – Main Campus
39,646
9
Texas A&M University – Main Campus
41,892
10
Houston Community College System
39,541
10
Michigan State University
41,545
11
University of Florida
39,412
11
Career Education
40,800
12
University of Wisconsin – Madison
39,005
12
University of Florida
39,863
13
University of Illinois – Urbana-Champaign
38,420
13
Pennsylvania State University – Main Campus
39,855
14
Northern Virginia Community College
37,144
14
University of Wisconsin – Madison
39,289
15
University of Michigan – Ann Arbor
36,687
15
University of Illinois – Urbana-Champaign
38,841
16
Purdue University – Main Campus
36,427
16
Houston Community College System
38,493
17
University of South Florida
36,142
17
Education Management
37,658
18
New York University
35,835
18
University of Phoenix Online
37,600
19
Indiana University – Bloomington
35,063
19
Purdue University – Main Campus
36,893
20
University of Arizona
34,777
20
University of Michigan – Ann Arbor
36,525
(a) Source: Chronicle of Higher Education.
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35
World’s Ten Most Valuable Brands
WHERE ARE THE EDUCATION COMPANIES?
Rank
Brand
2002 Brand Value
($ in billions)
1
Coca-Cola
69.6
2
Microsoft
64.1
3
IBM
51.2
4
General Electric
41.3
5
Intel
30.9
6
Nokia
30.0
7
Disney
29.3
8
McDonald’s
26.4
9
Marlboro
24.2
10
Mercedes
21.0
(a) Source: Interbrand Corp., JP Morgan Chase & Co.
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World’s Most Valuable Higher Education Brands
Brand
Location
Claim to Fame
Harvard
Cambridge, MA
Professional Schools
Oxford
Oxford, England
Liberal Arts
Cambridge
Cambridge, England
Liberal Arts
Stanford
Stanford, CA
Professional Schools
Sorbonne
Paris, France
Liberal Arts
LSE
London, England
Economics
MIT
Cambridge, MA
Technology
Juilliard
New York, NY
Performing Arts
INSEAD
Fontainebleu, France
Business
Cordon Bleu
Paris, France
Culinary Arts
Bolshoi Ballet School
Moscow, Russia
Dance
University of Tokyo
Tokyo, Japan
Research, Science
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37
Global Higher Education Landscape
Former USSR
Germany
82,000 people
1.7 million students
198 faculty
287,000 people
5.3 million students
404 faculty
China
1,215,000 people
2.2 million students
397 faculty
Japan
126,000 people
271 faculty
United States
265,000 people
15 million students
2,600 faculty
India
945,000 people
4.5 million students
303 faculty
(a) Source: ThinkEquity Partners.
ThinkEquity Partners
38
Global Higher Education Landscape
Students Abroad Hungry for Top-Quality (U.S.-Based) Education

500,000+ foreign students, or 3.5% of total postsecondary enrollees, study in the U.S.
and spend $13 billion

America educates one-third of all foreign students

For every foreign student studying in the U.S., there are three to five students who
would consume U.S. education online, if they had the access or the resources
–

Potential of 1.6 million international distance learning candidates
Global demand for higher education forecast to reach 160 million students in 2025
–
Conservatively, 45 million users of online higher education
–
Assuming average annual tuition of $4,800, global market for online higher education will top $215
billion
(a) Source: ThinkEquity Partners, Chronicle for Higher Education.
ThinkEquity Partners
39
The Global Brain Drain: Outward Bound
But the Demand for a U.S. Education and Job Remains High
% of Foreign Students Who Planned to Stay in the U.S. After Completing Studies
100%
Non-Definite Plans
Definite Job Offers
80%
60%
40%
20%
0%
India
China
Britain
Iran
Canada
Israel
Japan
Mexico
(a) Source: OECD. 1997 data.
ThinkEquity Partners
40
Global Higher Education Landscape
Access to Higher Education (18-22 Year Old Students)
Current %
China
Projected by 2020 _______
% of Students # of Students (mm)
3%
20%
240.0
14%
40%
8.3
4%
8%
11.0
Hong Kong
15%
20%
0.1
US
42%
45%
16.1
Malaysia
India

In Malaysia, for example, an additional 5.4 million higher education slots are
needed to get to 40%

Online courses will capture at least half of this growth - $200+ billion opportunity
by 2020
(a) Source: US Census Bureau, World Bank, Government of Hong Kong.
ThinkEquity Partners
41
The Global Education Gap
By Region, Excluding High Income Countries

Less than 1/3 of adults outside the U.S. have completed high school, let alone
earned a postsecondary degree
Average Years of Schooling
Percentage of Adults Enrolled
in Postsecondary Education
14
80%
12
60%
10
8
40%
6
4
20%
2
0
0%
United States
East Asia & Pacific Latin America &
Caribbean
Middle East &
North Africa
South Asia
(a) Source: World Bank. Data as of 1999.
ThinkEquity Partners
42
Global Higher Education Landscape
Asia Is Changing
Global Demographic Changes Mirror the U.S.’:
Aging Populations, Increased Postsecondary Attendance, and Need for Skilled Labor
Current
Projected by 2020
31%
40%
Postsecondary graduates
93 million
141 million
Skilled white collar jobs
81 million
103 million
Over age 40
 Skilled white collar segment growing in excess of 2% per year in most Asian countries
 In the next 20 years there will be 36 million additional skilled white collar workers
(a) Source: Asian Demographics Ltd. Includes India, China, Japan, South Korea, Taiwan, Hong Kong, Thailand, Philippines, Malaysia, Singapore, Indonesia.
ThinkEquity Partners
43
Global Higher Education Landscape
Asia Is Changing
Untapped Potential: Growing Pool of Postsecondary Students…
% of Workforce with Secondary Education or Better: 2000 vs. 2020
93%
100%
80%
56%
60%
40%
68%
67%
45%
85%
84%
82%
80%
71%
49%
31%
20%
0%
Thailand
Japan
China
South
Korea
Hong
Kong
Taiwan
(a) Source: Asian Demographics Ltd. Includes India, China, Japan, South Korea, Taiwan, Hong Kong, Thailand, Philippines, Malaysia, Singapore, Indonesia.
ThinkEquity Partners
44
Global Higher Education Landscape
Asia Is Changing
Untapped Potential: …Needed to Fill a Labor Force Demanding Skills
% Average Annual Growth Rate 2000 to 2020
4.6%
5%
4%
Total Labor Force
Skilled White Collar
3.3%
2.7%
3%
2%
1%
2.1%
1.9%
1.3%
0.5%
0.7%
0.3%
0.7%
0.2%
0%
(0.6%)
-1%
Japan
China
Taiwan
Hong Kong Singapore Philippines
(a) Source: Asian Demographics Ltd. Includes India, China, Japan, South Korea, Taiwan, Hong Kong, Thailand, Philippines, Malaysia, Singapore, Indonesia.
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45
The Blowing Up of a Bubble
Growth & Composition of Venture Capital Investments in Nominal Dollars (1991-2000)
83%
$100
$87.7
Internet - Content / Business Services / E-Commerce
Internet - Infrastructure / ISP / Software
$ in billions
$80
Non-Internet
$60
$46.3
32%
$40
$4.9
$5.3
$9.8
$2.5
$5.1
$6.7
$12.6
1991
1992
1993
1994
1995
1996
1997
$20
$17.4
$0
1998
1999
2000
(a) Source: 1991-1994 Venture Economics; 1995-2000 PricewaterhouseCoopers / VentureOne Moneytree Survey.
ThinkEquity Partners
46
The Blowup of the Bubble
(a) ThinkEquity Partners.
ThinkEquity Partners
47
High Hopes for e-Learning
Capital Invested
Company
Capital Invested
Company Status
Blackboard
$103 million
Private
Caliber
$74 million
Bankrupt / Acquired by Sylvan
Campus Pipeline
$91 million
Acquired by SCT Group
Cognitive Arts
$33 million
Private
CollegeClub
$64 million
Bankrupt / Acquired by Student Advantage
DigitalThink*
$45 million
Public: $90 million equity value
Docent*
$80 million
Public: $45 million equity value
KnowledgePlanet
$67 million
Private
Mascot Network
$22 million
Out of Business
Pensare
$38+ million
Bankrupt / Acquired by Duke University
Saba Software*
$50 million
Public: $80 million equity value
WebCT
$120 million
Private
ZUniversity
$15 million
Out of Business
$802 million
* Money invested through pre-IPO mezzanine level.
ThinkEquity Partners
48
Colleges, Students, and “Average Joes” Have Embraced the Web
Years to Attain 25% Market Share
54
46
44
35
34
30
26
22
15
13
Internet
Cellular
Phone
PC
Radio
Television
Microwave
Oven
VCR
Telephone
Automobile
Household
Electricity
Airplane
7
(a) Source: ThinkEquity Partners.
ThinkEquity Partners
49
Colleges, Students, and “Average Joes” Have Embraced the Web

133 million U.S. adults – 66% of the adult population – have Internet access

IT spending on web initiatives by U.S. companies will exceed $282 billion – at 27%, more
than 2x in 1999

84% of four-year colleges will offer distance learning courses in 2002, up from 62% in
1998

Over 90% of college students access the Internet, with 50% accessing the Web daily

By 2004, 2.2 million degree-seeking students will be enrolled in distributed courses –
CAGR of 33%
(a) Source: ThinkEquity Partners.
ThinkEquity Partners
50
Embracing the Web: A Global Perspective


Huge global opportunity
–
By 2003, 65% of Web users will be international
–
Non-U.S. countries will account for over half of worldwide Internet commerce by 2003
–
Percentage of American users will drop from one half in 1998 to one third in 2003
Jump in Internet spending outside the U.S.
–
Up to $913 billion, two-thirds of the projected $1.64 trillion worldwide 2003 e-commerce total
–
Western Europe and Japan: 29% in 1999  47% in 2003, or $764 billion
–
Chinese universities project a 5% increase in IT budgets in 2003 (vs. a 5% decline in the U.S.):
800,000 Chinese students online next year

In three years, 1/3 of all Internet users will prefer using a language other than English
–
Fastest Internet user growth in the Asia-Pacific region
–
Triple to 75.6 million from 19.7 between 1999 and 2003
(a) Source: International Data Corp., World Bank, ThinkEquity Partners.
ThinkEquity Partners
51
The Higher Education Landscape
The Growing Demand for Online Higher Education(a)
16.2
16.0%
CAGR: 33%
millions
16.0
14.0%
15.8
12.0%
15.6
10.0%
15.4
8.0%
15.2
6.0%
15.0
4.0%
14.8
2.0%
14.6
0.0%
2000
2001
2002
2003
2004
Total enrollment in degree-granting institutions
Online enrollment as a percent of degree enrollment
(a) Source: IDC, U.S. Department of Education, ThinkEquity Partners.
ThinkEquity Partners
52
Same Movie, Different Actors
 Railroads
–
23 miles of track in 1830  166,703 miles in 1890
–
Overexpansion led to bankruptcy: investors lost nearly $2 billion in 1893 alone
–
1,500+ railroads in 1917 / 254,000 miles of track  562 for-hire railroads in 2000 / 173,000 miles
–
Today, rail transportation is a $50+ billion industry
 Automotives
–
Between 1904 and 1908, 240+ firms manufacturing cars were established in the U.S.
–
By 1923, there were 108 firms – just 10 accounted for 90% of annual production
–
By 1926, there were 43 – no new U.S. manufacturers entered the industry afterwards
–
Today, there are 3 – total U.S. market over $630 billion
 Commercial Banking
–
Between 1860-1921, number of banks in the U.S. increases by over 19x, peaking at 30,000
–
Number of insured banks declined annually from 14,413 in 1984 to 8,007 in 2001
–
Number of banks dropped by 33% from 1990 to 2000; number of branches grew by 27%
(a) Source: Multiple sources, including AACA.
ThinkEquity Partners
53
Mega Universities: A Global Phenomenon
Universities with 100,000+ Students
Country
University
No. of
students
India
Indira Gandhi National Open University
875,000
China
China TV University System
690,000
Turkey
Anadolu University
630,000
Indonesia
Universitas Terbuka
400,000
France
Centre National d'Enseignement a Distance
350,000
Pakistan
Allama Iqbal Open University Islamabad
325,000
Thailand
Sukhothai Thammathirat Open University
210,000
South Korea
Korea National Open University
206,000
Spain
Universidad Nacional de Educacion a Distancia
200,000
United Kingdom
The Open University
200,000
Iran
Payame Noor University
183,000
South Africa
University of South Africa
127,000
Bangladesh
Bangladesh Open University
NA
(a) Source: Best Educational E-Practices, The Open University, UK.
ThinkEquity Partners
54
Successful Online Initiatives
FL Comm. Coll. D.L. Consortium:
85,278
Univ. of Maryland Univ. College:
68,250
Florida Virtual Campus:
56,198
Illinois Virtual Campus:
46,678
Georgia Globe:
40,000
Maryland Online:
27,060
Arizona Regents University:
12,353
eArmyU (23 campuses):
12,000
Connecticut D. L. Consortium:
9,683
UMassOnline:
7,824
(a) UMassOnline.net.
ThinkEquity Partners
55
Higher Education: Combining Richness & Reach on the Internet
Richness
Ivy League
State
University
Correspondence
Education
Reach
ThinkEquity Partners
56
Reconceptualizing Effective Learning
How People Learn
Learning Method
% Learned
Teach Others
90%
Learn by Doing
75%
Discussion Groups
50%
Demonstration
30%
Audio Visual
20%
Lecture
5%
(a) Source: Andersen Consulting.
ThinkEquity Partners
57
The Higher Education Landscape
University of Phoenix Online: Case Study

Began operations in 1989

Current market cap = $3.7 billion

FY 2002 revenue = $327 million

50,000 degree-seeking students

2,600 faculty members

11 accredited degree programs in business, education, IT and nursing

Recent outperformance:
–
$1 invested at IPO is $4.50 today
–
CAGR of 112%
ThinkEquity Partners
58
The Higher Education Landscape
University of Phoenix Online: Case Study
UOP Online Ending Degree Enrollments
90,000
Annual CAGR: 60.5%
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
Nov-97
ThinkEquity Partners
May-98
Nov-98
May-99
Nov-99
May-00
Nov-00
May-01
Nov-01
May-02
Nov-02
May-03
Nov-03
59
The Higher Education Landscape
Apollo International: Case Study

Formed by Apollo Group executives in 1998

Taking educational products & services worldwide – especially to emerging markets
–

1,200+ students in the Netherlands, Brazil, and India
–

Leveraging Apollo Group model
K-12 feeder system in Brazil – over 250 affiliated schools and 110,000 students
Offers workplace-oriented undergraduate and graduate degrees
–
Business, nursing, information technology

Investors include Kaplan and principals in Apollo Group

Led by Chairman and CEO Jorge Klor de Alva
ThinkEquity Partners
60
The Higher Education Landscape
Capella University: Case Study

Founded in 1993 by former Chairman and CEO of Tonka Corporation

$50 million in revenue in 2002

5,000 enrolled students

Projected annual enrollment growth of 80+%

Seed capital of $2.8 million invested

$35 million Series E financing in 2000 – Forstmann Little and SmartForce

$16.7 million round in 2002 – Forstmann Little and Putnam Investments

Initial strategy: focus on Ph.D.-level online education and Master of Science in business
education and human services
ThinkEquity Partners
61
The Higher Education Landscape
Capella University: Case Study
Programs Offered by School
PH.D.
MASTER’S
EDUCATION


BUSINESS


HUMAN SERVICES




PSYCHOLOGY




TECHNOLOGY
BACHELOR’S
CONTINUING
EDUCATION
PROFESSIONAL
DEVELOPMENT







The Capella Way of Learning

Outcomes and assessment-based curriculum

Broad program offering

Relevant, applicable content

Modular approach to learning delivery

Individualized learning approaches

Meaningful student interaction

Strong sense of community

Exceptional customer service
ThinkEquity Partners
62
The Higher Education Landscape
Open University: Case Study

Britain’s largest university – 200,000+ students

22% of all part-time higher education students

Established by Royal Charter in 1969

Two-thirds of students are between 25 and 45

75% of students are in paid employment; 150,000 are online

Offers 360+ undergraduate and postgraduate courses in arts, languages, social
sciences, science, math and computing, technology, business, education, and law

Average time taken for a degree is 6 years, at an average cost of 4,100 (pounds sterling)
ThinkEquity Partners
63
The Higher Education Landscape
Sylvan International / Walden University: Case Study

Founded in 1970, a pioneer in distance and online learning for adults

Accredited by the North Central Association of Colleges and Schools

Offers Ph.D. and other graduate-level, regionally accredited degree programs in
management, education, and social and behavioral sciences

Walden Institute established in 1998 to provide online certificate and degree programs in
technology and business

Sylvan Ventures acquired 41% stake with a $32.8 million investment in February 2001
–
Sylvan acquired an additional 10% interest in FY 2001 for $8 million
ThinkEquity Partners
64
Land of Opportunity
Issues
Trends and Opportunities

Branding: relationships and content


Accreditation

Impact on traditional universities

Intellectual property

Teaching with technology

Certification vs. degree
programs

Older students

“Skilled” sectors

Corporate universities /
alliances with corporations
Regulation


Sources of funds

Student aid

Student life
Alliances between universities
(a) Chronicle of Higher Education, ThinkEquity Partners.
ThinkEquity Partners
65
Education Solutions in the Knowledge Economy
The Four Ps Plus The Five Cs
 People
 Convenient
 Product
 Condensed Instruction
 Potential
 Cost-Effective Education
 Predictability
 Career-Oriented Curriculum
 Customer Service
Mega-Winners
ThinkEquity Partners
66
The Future Mega-Winners

Access + Cost + Quality = ROI

Seamless solutions & invisible technology

Lifelong learning and career focus

Problem-solving: learn by doing

Distributed, yet integrated, interactive and intimate

Flexible bargaining power of actors

Choice within a consistent framework

Assessment = currency of the Knowledge Economy

Branding is key
ThinkEquity Partners
67