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The University of Phoenix, and
the future of higher education.

The Internet is sending shock waves shuddering up the ancient ivory tower, and no school has exploited the Net's potential more than the University of Phoenix.

The University of Phoenix is run by a 79-year-old former history professor named John Sperling who enjoys nothing more than rebelling against the traditional academic establishment. His university, with 15,000 students online and 75,000 more attending his bricks-and-mortar campuses in 15 states, Canada, the Netherlands, and Puerto Rico, has been accredited since 1978, but in the last several years has mushroomed into the nation's largest private university. At its present growth rate, within five years U of P will have 100,000 online students; its campus classrooms alone would have more students than the biggest public university system in California or New York.

Sperling, who delights in calling his students "customers," has accomplished all this without a full-time tenured faculty - classes are taught by an army of 7,000 part-time "facilitators". Even those 75,000 customers who attend real classrooms go to campuses that are little more than generic office buildings, with no adjoining football stadiums, no physical libraries, no dormitories, and no quads with wide green lawns.

The University of Phoenix has been criticized by many of those associated with traditional universities as a "diploma mill" and "McUniversity" for creating a fast-track curriculum that allows working adults to get degrees almost as quickly as full-time students. These critics argue that U of P has always been more interested in pleasing shareholders and watching the profit margins from its schools than ensuring that its students get a good education.

But to its customer base of adults - you have to be 23 years old to be admitted - U of P has been a godsend. Many say their lives are so busy that they almost certainly couldn't get their degrees any other way. Even the university's unusual pedagogy, which stresses group learning and real-world experience, is finally gaining respect from peer institutions. Much of the animosity toward U of P, Sperling's defenders say, has come because he has done much better than traditional academia in serving the burgeoning adult market that now makes up about half of the nation's college students. Quite simply, he's stealing their customers.

The University of Phoenix's total student body of about 90,000 may not seem like much until you realize how deeply fragmented the higher-education industry is. It's an enormous pie - $225 billion in revenue annually - that's currently being carved up among 4,000 public and private institutions. The industry garners a huge customer base of 14.5 million students, but the largest nonprofit, the University of Texas at Austin, has only 49,000 of them.

It's an industry, in other words, begging to be dominated by a handful of companies using the Web's magic word - scalability. But Sperling got the idea to mass-produce higher learning a long time before the Web came along. In the mid-1970s he created a standardized curriculum, owned by the university, that could be easily replicated on campuses across the country. Building bricks-and-mortar campuses, in retrospect, was doing it the hard way. When he founded the University of Phoenix Online in 1989, Sperling realized that reaching tens of thousands of students with his one-size-fits-all curriculum could take place as quickly and easily as clicking a mouse.

When the Web arrived in the mid-1990s, lots of people suddenly got the same idea. Today there are hundreds of dotcom startups creating online courses, all fighting for a piece of that huge higher-ed market. And every school from Harvard University to your local community college is exploring the Internet, with more than 3,000 institutions now offering Web classes. Big media companies, like publisher Harcourt General and the British conglomerate Pearson PLC, also are rapidly moving in.

Sperling's early success, combined with the recent rush to the Web by traditional institutions afraid of being left behind, has made it clear that the Internet is causing a fundamental shift in the way students are learning. This has triggered soul-searching in campuses across America. The debate is framed in the extremes you'd expect of such a debate: Are universities selling out their sacred educational mission? Will the education industry ultimately be swallowed up by a small number of giant corporations whose mission is not nurturing minds but maximizing profits? Or does the Net present a golden opportunity to revolutionize scholarship and education?

"This is the third great paradigmatic shift in learning history," argues Frank Moretti, head of the Center for New Media Teaching and Learning at Columbia University, one of the leaders in embracing the Web. (The first two great paradigmatic shifts, says Moretti, were the inventions of the Greek alphabet in the eighth century B.C. and Gutenberg's press in the 15th century.) "Now we have the chance to reinvent education and create something better," Moretti adds.

"Education is not what all this is about," retorts David F. Noble, a history professor at York University in Toronto and author of a series of articles called "Digital Diploma Mills." "It's about making money. This could be the end of the university as we know it."

It's easy to miss the main campus of the University of Phoenix. Tucked away on a little road just off Interstate 10, it consists of three red-brick buildings with a small courtyard, a splashing fountain, and some shade trees. Its 2,000 students walk around as though they were going to the office.

The same bland atmosphere can be found at the other 97 brick-and-mortar U of P campuses. "It's sort of like a Wal-Mart education," says James Perley, who heads the American Association of University Professors's accrediting committee. He does not mean this as a compliment. The school's semester-long subjects are broken into manageable chunks of five or six week courses, and you have to go to class only once a week for four hours. Tuition isn't cheap -- a graduate student taking seven courses during a calendar year would spend about $6,500 and get 40 percent of the credits required for an MBA. That's generally more than the annual tuition at a public university but less than a private school (most U of P students are reimbursed by their employers). Phoenix offers an associate's degree in general studies, bachelor's degrees in business, information technology, nursing, and counseling, master's degrees in all those subjects plus education, and even a Ph.D. in business management. Ask why there are no libraries, and university officials will say they're unnecessary -- a wide range of publications is available online from the school's Learning Resource Center. If you ever need an actual book, they'll help you get it from a local public library.

The next, and perhaps most significant, phase of what Sperling calls his "revolution in higher education" resides in a building just down the street: The University of Phoenix Online.

U of P Online offers nearly the same degrees but without even a stripped-down physical campus. It's a long, white, single-story structure filled with a carpeted maze 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 U of P's older students, the convenience more than makes up for the higher price. Demand is so great that U of P's online facility will triple in size by next summer.

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."

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. 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 a stint in the merchant marine helped him to develop the insatiable intellectual curiosity he has carried with him for the rest of this life, eventually earning 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, 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

U of P almost went broke at least twice, but by 1986, revenue had reached $24 million and enrollment was nearly 6,000. The company went public in 1994 at a split-adjusted $2 a share; the stock is roughly 20 times that price on the current market. And U of P students aren't just cops and teachers anymore -- today about half of U of P's students are managers or supervisors.

When the Internet arrived in the mid-'90s, for-profit education companies began appearing everywhere, many with grand plans to bring mass-produced college degrees to the world and make a stock-market killing in the process. But Sperling had beaten them to the punch. U of P was establishing a solid record on Wall Street, and U of P'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 U of P has become, 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 talk 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, with $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

While Sperling's school has a frugality enforced by Wall Street's expectations, UNext is still privately held and is spending enormous sums developing its curriculum -- as much as $1 million per course. And while U of P is proudly low-tech, saying it focuses on pedagogy over technology, UNext is trying to exploit all the Internet's multimedia bells and whistles by hiring leading cognitive scientists and scholars to create its online classes. Cardean's course in assessing profitability, for example, starts with a scenario that feels like a video game for business professionals: You work for the fictitious Turing Computer company, which is losing market share to Compaq, Dell, and Gateway. A cartoon appears showing your "dynamic new CEO," Cathy McIntyre, anxiously tossing in her sleep. She wants to buy Psion, the handheld computer firm, and your job is to figure out whether this is a good idea. Can you save the company? "You have to explore and be frustrated, reach a point of confusion -- but not so much that you'll give up," says Donald Norman, president of UNext.com Learning Systems, a former chairman of the psychology and cognitive science departments at the University of California at San Diego, and a former Apple Computer design guru. "We thrust you into a problem before you know how to solve it." (By contrast, U of P Online's technology is strictly text-based -- lots of newsgroups and no fancy multimedia until bandwidth increases.)

By turning up his nose at Sperling's clientele, Rosenfield, 47, is merely playing for the biggest prize in Net education -- status. But for all his money and contacts, Rosenfield still has a big marketing problem: He can't sell a degree from Stanford or Columbia, only from someplace called Cardean University that nobody's ever heard of and that doesn't physically exist. That's because his elite partners would be crazy to let him mass-market their degrees over the Internet -- the value of a diploma from Chicago or the London School of Economics would sink like a rock.

"Cardean is going to be an off-brand degree," says Sperling, returning Rosenfield's favor of trashing the competition. "It's gonna be like a discount mall. You don't get a Stanford, you get a Cardean. Well, what the hell is a Cardean?"

Another problem is that, unlike Sperling's U of P, Cardean is not accredited by the North Central Association, the traditional peer-review regional accrediting body, which will make it hard for Cardean to be taken seriously as a degree-granting institution. (It is accredited by the non-peer-reviewed U.S. Department of Education's Distance Education and Training Council and is licensed to grant degrees by the state of Illinois.) Rosenfield contends that most online students don't want a degree, just a course or two that will give them a particular bit of knowledge or skill they need to keep up with a fast-changing world. He also acknowledges that, in some ways, Sperling is right: Getting an online degree can't compare with the experience of living at a prestigious campus.

"We'll never compete with that," he says. "That's not our goal. But that doesn't mean there aren't 20 million people kicking around India and China who would be thrilled to have the experience we can provide."

Landing Columbia gave UNext the cachet to pursue other elite schools, providing Rosenfield with a distinct advantage over the hundreds of Internet education companies that have sprouted up in recent years. Even with clever names like NotHarvard.com, the startups all found consumers hesitant to pay for an online education when there are still so many physical schools to choose from. Dotcoms like Hungry Minds offered courses through established universities like the University of California at Berkeley and the University of Maryland, but the Nasdaq's dive has hit hard: Hungry Minds, which started with about $11 million in venture funding, ran out of money and was sold in August at a fire-sale price to IDG Books Worldwide, publisher of the For Dummies manuals. Michael Saylor, the brash 35-year-old chief executive of the Virginia technology company MicroStrategy, boasted last March that he would be spending $100 million to offer "free education for everyone on earth, forever" -- spinning rapturous dreams of Bill Clinton teaching politics, Warren Buffett teaching investing, and Steven Spielberg teaching filmmaking. Then his stock tanked when his company restated earnings to comply with new SEC accounting rules. Saylor hasn't been talking much about his Virtual U since

Rosenfield believes his partnerships with famous schools are critical to succeeding where others have failed. How big could Cardean get? "Gigantic," he says. "How big did the printing press make literature?"

This is Rosenfield's main pitch -- what was once available to just 1 percent of the population can now reach the other 99 percent. But, he is asked, isn't that trying to have it both ways? How can Cardean be mass-market and elite at the same time? Even if you hire a few chefs from Le Cirque, if you're selling a million hamburgers, doesn't that still make you McDonald's?

"Well, wait," he says, clearly displeased with the comparison. "I mean, you can make things in very high quality that are widely available. Take opera. Go back to the Medicis. You had to be very wealthy to hear Verdi or Mozart, not a regular guy. But the scalability of media -- opera on videodiscs, CD-ROM, CD -- made something of extremely high quality more broadly available. So our view is you can take a first-class education and make it widely available. It's the same as the printing press. That hasn't debased literature."

Perhaps not, but you can make a lot more money selling Limp Bizkit or Danielle Steel to the masses these days than Verdi or James Joyce. And just as the music and publishing industries inevitably reflect the sensibilities of their audiences, why shouldn't the American university? As Sperling has proven over the last two decades, higher education can be an extremely profitable consumer business. And UNext's deals have shown that stuffy academia is becoming aggressively entrepreneurial. Now that virtual universities can offer courses to a potential market of millions, it raises many vexing questions, not the least of which is: What happens to a college education when it's transformed into a commodity that is increasingly being delivered not in person on a campus but online?

Roger Schank thinks he knows the answer: It gets better. "I'm a revolutionary," he declares. "I am interested in overthrowing the system. The system is broken. This is our one chance: the computer. It's a new entry into the system, so we can change everything."

Schank is 54 years old, burly and bald, with a thinning white beard. In 1995, he founded Cognitive Arts, a privately held company based in New York with 200 employees and $10 million in annual revenue. It is working with Harvard Business School to develop remedial business software designed to help incoming students before school starts. Schank is also creating virtual business courses for Columbia.

These and other projects are Schank's chance to prove his radical theories about education, which made him something of an enfant terrible when he came bursting into academia decades ago. Schank holds a Ph.D. in linguistics from the University of Texas and was on the faculties at Stanford and Yale before moving on to Northwestern University, where he now holds three emeritus appointments -- in computer science, education, and psychology. But he has little patience for the traditional notion of a college campus as a chrysalis for self-discovery and intellectual growth.

"People love this fantasy about college life, but it's available to 10 percent of the population, if that," Schank says. Undergraduate college, especially the first two years, is "a joke" -- hundreds of students jammed into lecture halls being droned at by professors who don't even like to teach and would rather be off doing research. "Universities are, in many ways, fraudulent," he says

As with many Internet education revolutionaries, Schank believes that the computer is better than the classroom because it's a more active experience. Rather than passively listening to a lecture, a computer user is given a specific goal and has to figure out how to achieve it. This requires a student to absorb the knowledge by practical application, through trial and error. Like Cardean University, Cognitive Arts uses "goal-based scenarios" as its main teaching tool. Schank's art-history pilot course used at Northwestern, for example, puts you in the role of an investigator trying to determine whether a work of art attributed to Rembrandt is fake and sends you off to learn everything about the painter and his style.

But do these approaches educate? Advocates of online instruction point to the "no significant difference phenomenon," a group of 355 studies done since 1928 that argues that so-called distance education -- teaching done through correspondence courses and all other forms of remote instruction -- is just as good as traditional methods. But many educators dispute that, saying the studies are too narrow and otherwise flawed.

In fact, online education is so new that the jury is still out on how it compares with the physical classroom experience. For that matter, the experts say, there isn't even a consensus on how to measure the quality of education in any classrooms, online or otherwise. The usual method -- accreditation by one of the six regional bodies -- tends to focus on the "input" a student receives: the size of the library, the number of tenured faculty members, and so on. Those standards don't mean anything in a virtual university.

The biggest online learning laboratory so far is U of P Online, which has graduated a total of 6,663 students since 1989. Comprehensive exams that all degree candidates must take upon entry and at graduation show students "are overwhelmingly meeting the learning objectives and outcomes of their programs," says Terri Hedegaard, an U of P senior vice president. U of P's graduation rates are between 60 and 65 percent, she says, compared with 51.6 percent at U.S. colleges as a whole.

Conversations with alumni of virtual universities make one thing clear: They like it. Craig Brandt, a pharmacist working in an administrative job at a hospital in Westchester County, N.Y., got his MBA from U of P Online earlier this year. It cost him $25,000. No traditional university could have accommodated his schedule: Brandt says he usually crashed at 10 p.m. after a hard day's work, got up at 2 a.m. to study and post his comments in newsgroup discussions, then went back to bed at 4:30 a.m. for a few more hours of sleep before going to work. It took him just over two years to get his MBA that way.

Brandt says he's certain the skills he gained at U of P will give him an edge in the professional world, particularly over health-care colleagues who have clinical degrees but no business background. "Initially, I was worried about what kind of reputation a U of P degree would have in the job market," he says. "But then I realized that out in the real world, the important thing is not whether you went to some big, fancy school but whether you have an accredited degree, period."

One of the most significant boosts for techno-education -- giving it perhaps unstoppable momentum -- came recently with the announcement by the U.S. Army that it will spend $600 million over the next six years to subcontract with colleges and universities to create virtual degree programs that would give its soldiers more convenient ways to study. This makes the Army far and away the largest player in online education. Just as it has long done with university research, the federal government is now giving a huge boost -- at taxpayer expense, and in the name of national defense -- to the development of online education infrastructure.

U of P may be the world's largest virtual university, but as yet it is nowhere near Schank's digital dream of high-speed connections and 3-D simulations, though the product it offers may be quite acceptable. Nor is it the cynical rip-off that Noble and others fear. For far-flung or busy people, it's a near-miracle. And future generations may become so accustomed to online environments that they won't miss the lack of physical interaction. Regardless of what anyone thinks, the underlying theme to the whole issue seems to be: Distance Education, especially online education, is here to stay, and likely to grow in quality, availability and acceptance.

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This article adapted from a story by Paul Keegan that appeared in the December 2000 issue of Business 2.0

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