Half of U.S. Business Schools Might Be Gone by 2020

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by Patrick Clark, Business Week:  http://www.businessweek.com/articles/2014-03-14/online-programs-could-erase-half-of-u-dot-s-dot-business-schools-by-2020

Richard Lyons, the dean of University of California, Berkeley’s Haas School of Business, has a dire forecast for business education: “Half of the business schools in this country could be out of business in 10 years - or five,” he says.

The threat, says Lyons, is that more top MBA programs will start to offer degrees online. That will imperil the industry’s business model.

For most business schools, students pursuing part-time and executive MBAs generate crucial revenue. Those programs, geared toward working professionals, will soon have to compete with elite online alternatives for the same population.

Lower-ranked business schools, rather than recognized names such as Harvard Business School and Wharton, are most vulnerable to this phenomenon.

When the big players start offering online degrees, they’ll draw far-flung students who might otherwise have opted for the convenience of a part-time program close to home.

Part-time and EMBA programs are a financial engine because they award less financial aid than full-time programs.

Since most of their students are corporate strivers already living near campus - and because competition for those students is limited by geography - part-time programs can count on a steady stream of high-quality attendees.

Say you’re a consultant with young kids in Phoenix who wants to boost her career with a business degree. You’d probably choose a part-time MBA program at the University of Arizona or Arizona State University because committing to a long stint away from home is impossible.

Education technology “has the potential to make the proximity factor go away,” says Lyons, taking some high-margin students with it.

While most schools don’t publish the total amount of financial aid they award MBAs, Lyons estimates that the average full-time student at an elite school gets a 25 percent discount on tuition. At part-time and EMBA programs, the average student pays something much closer to the sticker price.

If brand-name schools lure the best students, part-time programs with lesser reputations may have to become less selective, says Lyons. Without a high quality student body, they have less of an argument for staying in business. They’ll have to ask themselves: “How down-market would you go?”

While few top-tier schools have put MBA programs online, a slew of other business schools have. The elites are slowly warming to the digital world, dabbling in non-degree online education.

Online education has mostly shed the stigma of association with such down market institutions as DeVry University and University of Phoenix; as its legitimacy grows, Wharton, Stanford, and their ilk are likely to offer online degrees.

Big names have strong brand recognition that attracts top students (and helps justify their price tags).

A school like the University of Arizona’s Eller College of Management can compete on price against higher-ranked programs, but that might not be enough to hold on to that Phoenix-based executive - at least, if she’s good enough to get into an online program from Wharton or Stanford.

Online MBA programs aren’t siphoning choice students from campuses yet, says Ash Soni, executive associate dean at Indiana University’s Kelley School of Business.

Kelley ranks 15th on Bloomberg Businessweek’s list of full-time programs and was an early player in online MBAs.

The school draws students from across the country, but it is more likely to compete with online MBA programs offered by the University of North Carolina’s Kenan-Flagler Business School and Arizona State’s Carey School of Business.

Says Soni: “If you’re a dean from a regional school and you’re asking, ‘Are these online guys tapping into my space?’ The answer is: maybe in the future, but not yet.”

Michael Desiderio, the executive director of the Executive MBA Council, says change is coming, but his group isn’t panicking. “We’re not saying it’s a threat or this is the end of the EMBA space,” he says. “It’s stimulating a discussion: How do we adapt to continue to serve a population that has changing needs?”

Online education is sure to shift the ways schools compete for students. For-profit MBA programs such as DeVry’s Keller School of Management have been the early losers as more traditional universities go online, says Robert Lytle, a partner in the education practice at consultancy Parthenon Group. That trend could extend to lower-ranked schools as the big-name brands follow.

When Lytle talks to directors at schools who are debating the merits of online learning, he tells them to stop dallying and start building programs. “Once you get out of the top tier of schools, you’re either already online, on your way there, or dead in the water,” he says.

It isn’t clear which online models will be most successful, but many schools are feeling pressure to get on board.

When Villanova School of Business announced a new online MBA program earlier this year, Dean Patrick Maggitti said there has never been a more uncertain time in higher education. “I think it’s smart strategy to be looking at options in this market.”

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.