Class Dismissed?

You've signed up for Stanford Business School lecturer Ward Hanson's Introduction to Internet Marketing. But you won't be sitting in an auditorium listening to long lectures. Nor will you have to give up your job to earn an MBA. In fact, you won't even be enrolled at Stanford.

Instead, you can enter Cardean University, an online school run by UNext.com, a private company that has signed up Stanford and other top universities to provide content for its site. The program makes sense for busy professionals. It makes sense for Cardean, which can boast about its superior academics. But does it make sense for Stanford?

The Internet is revolutionizing the way Americans learn. Driven by an information economy, where knowledge is the hot commodity, the online education market is booming. Working professionals can log on at any hour, bone up on finance, accounting or engineering skills and study with professors from elite institutions. Growing numbers of accredited schools also offer law degrees, mbas and other master's and bachelor's degrees. The University of Phoenix, for instance, founded in 1976, now has 110,000 students, 20,000 of whom take undergraduate or graduate courses over the Internet. The school is expanding at an annual rate of 60 percent. At Stanford's School of Engineering, about 20 percent of master's students now earn their degrees off campus through a combination of Internet and tv courses. In the United States, online education is a $2 billion industry this year, says Gerald Odening, managing director of the research department at J.P. Morgan H&Q, and is likely to reach $9 billion by 2005.

With knowledge as today's oil, traditional U.S. schools find themselves sitting on vast reserves and attracting a rush of prospectors from for-profit companies and other universities. Seventy-two percent of the country's 3,700 universities offer some sort of distance learning. Private companies, following the scent of a moneymaking market, have entered the arena in droves--UNext.com, FT Knowledge, University Access/Quisic, Caliber Learning, Global Education Network, Pensare, to name a few--either partnering with a "brand name" university or going it alone.

The question is not whether Stanford should be involved in online learning. Almost everyone on campus with a hand in this field agrees that a top school sitting in the heart of Silicon Valley should be a player. Online education presents a new revenue source, an innovative way of teaching and a means to bring courses to people who otherwise would not have access to such quality instruction. It's also a great way to build loyalty among alumni.

But that's where consensus ends. Just how much of a player Stanford should be, how it should play and for whom are wide-open questions. There are no clear parameters because of the many uncertainties of the online education market. As with many entrepreneurial efforts on the Internet, the business model is undefined. So is the learning model. And the profitability of such ventures remains unproven.

High levels of uncertainty bring high levels of risk--and a lot of questions. How many educational products can Stanford sell before it damages its name? What happens if the University teams up with a less-than-credible partner? Will faculty, lured by the extra money from creating courses, have less time for students? For research? Will they become free agents, shopping their skills around to the highest bidder? Surely there are some indispensable attributes of classroom education that can't be reproduced online, but which ones, and how do you preserve the bricks-and-mortar experience? What will professors do with an entering freshman class, a third of whom have already finished their course work in upper-level math and physics? Finally, will undergraduates be content to use online course material as a lecture supplement, or will they no longer bother going to class?

"Because of the unknowns, Stanford is not at the front of this wave," says David Brady, acting vice provost and a Business School and political science professor, "but we don't want to be totally ignorant of this market, either. We're poised on the back of the wave so we can slide off at any time and cut our losses. Until we figure out this market, we are doing a lot of different things to find out what works and what doesn't."

Distance learning isn't new at Stanford. For 30 years, the Stanford Center for Professional Development has taken course content from the School of Engineering and delivered continuing education to professional engineers, computer scientists, managers and executives via satellite, television, videotapes, CD-ROM and, most recently, the Internet.

In 1995, with a $450,000 grant from the Alfred P. Sloan Foundation, the center gave birth to Stanford Online, making Stanford the first university to offer video-based courses on the Internet. Three years later, the University became the first major research institution to offer an online master's in engineering. President John Hennessy was dean of engineering at the time, and he continues to be an enthusiastic supporter of online learning. The master's program began with 18 courses and 450 students. Now, it offers 160 credit courses a year and attracts more than 5,000 students--even though tuition is about 40 percent more than for on-campus students because of the cost of crafting online courses.

But it's the noncredit professional-education courses that have really taken off. They typically run six hours for about $300 and focus on a concrete skill, such as decision analysis or advanced spreadsheet analysis. Andy DiPaolo, executive director of the Center for Professional Development, calls this program "chunky" education.

"The high demand for the chunky education tells us that what is driving online education is a necessity to upgrade in a job and the need for flexibility in course and program delivery," DiPaolo says. "An ee [electrical engineering] degree is obsolete in five years. For computer science, it's half that amount. Individuals know this. And companies have become more interested in investing in employee education and training."

DiPaolo isn't the only one who's noticed the growing demand for continuing-education courses for professionals. Enter the newest entities in education: private companies with proprietary technology, marketing power and deep pockets. These online education businesses all want access to reputable, brand-name content. So they are traveling from elite school to elite school making deals.

"Stanford has been approached by nearly every one of these companies," says Sam Steinhardt, '79, the University's chief financial and operations officer for extended education and distance learning. After UNext.com of Deerfield, Ill., came calling in 1998, Stanford made its first deal. Geoffrey Cox, former vice provost and dean for institutional planning and operations, was so impressed with UNext he left Stanford to become the firm's vice president of academic affairs and continuing education.

UNext was attractive, in part, because its founders came from academia. Andrew M. Rosenfield, chairman and CEO, was a University of Chicago professor, an economist, a lawyer and a legal consultant. Board member Gary Becker, also from the University of Chicago, was a Nobel Prize-winning economist. The company's board also includes two of Stanford's Nobel laureates in economics: Kenneth J. Arrow and Myron S. Scholes. UNext already had signed on Columbia University and was adding Carnegie Mellon, Chicago and the London School of Economics and Political Science. The company came well financed, too, with more than $100 million from Oracle CEO Larry Ellison, and former junk bond czar (and convicted felon) Michael Milken, who owns 20 percent of UNext--"a nonvoting, passive interest," says Rosenfield.

UNext presented a solid learning model. Through its online university, Cardean, it uses a problem-based curriculum. No lectures, no passive learning; instead, you begin the online course and suddenly you're running a hypothetical natural gas and oil company, for example. The CEO wants you to evaluate the company's assets and decide which facilities to keep open and which to close. Different spreadsheet analyses are provided. You write a three-page memo to your boss, telling him what to do.

Students don't just finish their assignments then e-mail them in. Cardean instructors track their progress and areas of difficulty through special software. "What makes the Internet so different and transformative is its peer-to-peer environment," says Rosenfield. "Napster gets it. They've linked people together. And that's what we are doing."

Such high-quality courses do not come cheap, although Rosenfield says costs are coming down. According to UNext's Jennifer Karras, the first dozen courses cost the company about $1 million each. Why so expensive? In addition to paying instructors, they engaged software developers, cognitive psychologists and animation artists. Not least was the expense of buying course content from sources like Stanford.

Although the University cannot disclose the exact terms because of a confidentiality agreement with UNext, officials say the incentive for Stanford was "substantial." UNext pays a royalty to use the University's name, includes Stanford as a financial partner, and underwrites course development and production, including faculty time. The courses are marketed as Cardean courses, and students earn a Cardean University mba.

But when the call went out for faculty to provide content for the new partnership, there was a pregnant pause.

"I'm skeptical about online learning," says Bradley Efron, professor of statistics and biostatistics. "If you've done any shopping online, you won't think an online education is a substitute for classroom education." The problem, he believes, is that few students are self-motivated learners. "A classroom situation provides a tremendous amount of motivation to learn," he says. "You have students asking questions, discussing issues with the professor. That will get a student to do a lot of work."

Efron concedes that online courses are beneficial for students who don't otherwise have access, but he asserts that most of the talk about online education is laced with hyperbole. Some of the Faculty Senate meetings have been particularly contentious when discussion turns to Stanford's role in this arena. "Such junky things are being said. I've heard things like, 'In 10 years, the wave is going to wash over us if we don't do something,'" he says. "Universities have been around for thousands of years. Stanford won't be put out of business if we don't do a lot in this area."

Some professors at other schools more adamantly oppose the encroachment of online education into the bricks-and-mortar world. "I don't think the marketplace of money is a good metaphor for the marketplace of ideas," says Steven Gerrard, a professor of philosophy at Williams College.

Despite the concerns expressed, six Business School faculty members agreed to supply course material for Cardean. They had the choice of options in the company or cash or some combination.

Ward Hanson, of the school's Center for Electronic Business, was one of the first to complete a handful of courses--Introduction to Internet Marketing, Web Value, Traffic Building, Hybrid Strategies, and Privacy. UNext reps thought professors would need 10 days to design course modules equivalent to a quarterlong class, but it took twice that long. "It's a fair amount of work," says Hanson, ma '80, PhD '85, who hammered out real-life business scenarios that taught specific learning outcomes. He also put together a library of resources, links to articles and textbooks to help students arrive at solutions. "When you print it all out, it's probably 200 pages of material."

But Hanson sees the work's value. "The cases tilt toward the practical and skill-oriented," he says. "Actually one of the strongest uses that I can think of is as a complement to in-class work." Under a licensing agreement that allows Stanford to use Cardean's online courses for 250 students a year, Hanson does just that, and Stanford is pursuing a broader arrangement to use these courses on campus.

UNext's vision of the future includes courses in arts, sciences and humanities. But first, they are trying to get the business courses right. "The marketplace will tell us if we are right or wrong," says Rosenfield. "I think we are right pedagogically. We just need to make sure we are right businesswise."

And so does Stanford. To cover its bases, the Business School has struck a deal with Pensare, a corporate training company in Los Altos. It has also entered into a first-time partnership with Harvard Business School.

Last November, Harvard approached Stanford about jointly developing and delivering online executive and management courses. Both business schools had begun wondering whether just handing over their content made sense and whether their professors might sign up with a myriad of private companies, risking dilution of the university name. Maybe the schools should get into the distribution business. "The worldwide need for management skills has never been greater, and the demand for innovative approaches to management education is high," says Robert Joss, Stanford's Business School dean.

So the schools signed a memorandum of understanding and launched a marketing study of 13,000 people, according to Joel Podlony, Business School professor and senior associate dean for academic affairs. The partners are also conducting focused interviews to determine the best way to deliver content, and the School of Engineering is sharing its expertise. The Harvard Business School Press is working on a prototype website.

"We don't know if the model will be B to C [business to consumer] or B to B [business to business]," says Podlony. "In fact, we don't know if the target audience should be professionals at Fortune 100 companies or a larger subset." The marketing studies are designed to answer those and other questions--and, most important, whether the partners should handle their own distribution. The schools hope to complete a business plan this spring.

While activity swirled around professional business and engineering courses, Stanford also began looking at humanities and wondering about a different audience--namely, alumni who might be interested in lifelong learning. In addition to making money, such a plan could reconnect graduates to their alma mater.

Other top schools were going through similar exercises. In September 1999, representatives from Stanford, Oxford, Princeton and Yale met to talk about what they might do together.

Collaboration among like-minded institutions made a lot of sense. They could hedge their investment by pooling resources, produce sufficient content more easily and quadruple their target market. In September 2000, the four universities set up a nonprofit company, The University Alliance for Lifelong Learning, and chipped in $3 million each to launch a distance-learning venture offering arts and science courses to their combined 500,000 alumni.

"If you know anything about distance learning, $3 million is a small amount of money," says Charles Junkerman, associate provost and dean of continuing studies. "That was intentional. We wanted a modest investment because there are still a lot of questions whether there is a market for these kinds of courses."

Each university named two representatives to serve on the board. Provost John Etchemendy, PhD '82, and Srinija Srinivasan, '93, vice president and editor in chief of Yahoo! Inc., represent Stanford. Herbert M. Allison Jr., mba '71, former president of Merrill Lynch & Co. and an alumnus of Yale, is president and CEO.

Like his counterparts in the Harvard/Stanford partnership, Allison is putting together a business plan and gathering market data, partly through alumni focus groups in San Francisco, New York and London. He, too, hopes to have the business plan finished this spring. "We want to make sure our courses are of the highest quality. We want to set the standard on the Internet," Allison says. "My sense is that the distance-learning market is in its infancy. That's especially true for the quality of courses that will be offered by these institutions."

Right now, the stickler is course interactivity, says Junkerman. Early market data indicate that alumni prefer lots of it. And that raises some concern. The schools' regular faculty don't have time to field questions from throngs of online learners, but hiring teaching assistants would raise the cost of the product. Allison would not guess at the price, but given the cost of producing something more than a "talking head" video, it's likely distance courses will cost significantly more than an on-campus continuing-education course.

Before the market research was gathered, Stanford put together two classics courses, one on archaeology with Professor Michael Shanks and another on Homer's Odyssey with Professor Richard Martin. "We like them a lot," says Junkerman. "They have great audio tracks, but they are not interactive. They may not be something that the alliance can use." (Perhaps the experience of others will prove useful: in March, Harvard--in a budget-conscious, self-styled "low-impact" experiment in distance learning-- began offering online, noninteractive minicourses to its alumni free of charge. mit, challenging the "privatization of knowledge," announced in April that nearly all its course material will be freely available on the web, without interactive instruction.)

The race is on to come up with the right business and learning models, and Stanford, with its long history in distance learning, its hand in many pies, stands a good chance of figuring out both.

The self-financing Center for Professional Development, for instance, uses a business-to-business approach, signing up companies that pay anywhere from $5,000 to $50,000, depending on staff size, to subsidize their employees' tuition. The employees then apply to the School of Engineering. The center has found that students enrolled in the master's program are focused, motivated learners. Consequently, the courses don't need a lot of special effects, and the cost to produce one is about $30,000. For less motivated learners, courses need more entertainment value, DiPaolo says. "And that drives up the cost of production."

DiPaolo and others are trying to address the faculty-as-free-agent concern by developing a production and distribution system so superior that faculty won't want to work with anyone but Stanford. "We're not even discussing exclusivity agreements," says DiPaolo. "Instead, we are putting together the right incentive package, the right support and marketing effort, so if a Stanford professor has an idea for a product, we are the convenient, easily accessible and high-quality group to turn to."

The University's Education Program for Gifted Youth offers a precedent for both direct distribution of distance courses and online interactivity. The program serves 3,000 students with 50 courses in math, physics and writing. It charges $450 for a one-quarter course--and is financially self-supporting. Classes use textbooks and CD-ROMs in addition to live Internet sessions.

"Our real-time sessions on the Internet allow students to talk to each other and the professor, just like a classroom," says Ray Ravaglia, '87, deputy director of the program. "There's a whiteboard that all the students can write on that shows up on the computer to talk about equations." Ravaglia is collecting data on how students learn, but one thing is clear, he says: "Interaction is key to learning."

A Stanford-Sun Microsystems study comparing undergraduates' online learning experience with their classroom experience supports Ravaglia's view. Undergraduates who saw a lecture online and had online discussions about the subject scored higher than those who only attended the live lecture. Interestingly, though, students evaluated online lectures less positively than they did live professors.

That finding may temper fears that technology will suddenly make classroom teaching obsolete. "I would like all of you to be more worried than you are," President Casper told a Faculty Senate meeting last year. At the same meeting, Provost Hennessy drew attention to a generation of students emerging for whom the web will be the primary means of communication. "We already see students opting not to go to class in order to watch the class on their computer in their dorm room." The answer, Hennessy said, was for Stanford to lose no time experimenting with new teaching technologies.

Even busy, highly focused professionals can find flaws in the virtual classroom. Arpan Shah, a software engineer enrolled in Stanford's online master's program, says online classes work well for elementary courses. But as he advanced, he felt he ought to be on campus. "You need to meet with other students to discuss problems, form study groups and have contact with the tas," he says. "It's extremely hard to simulate that kind of learning experience online." Luckily, Shah's employer let him rearrange his schedule to attend campus classes two mornings a week. Now he goes online if he misses a class or wants to review one.

What Stanford is finding out is that the best learning model includes a high level of interaction--and that the more interaction, the more expensive the course. The very thing that distinguishes the Internet as a distance-learning medium is the thing that sinks the business model. "To build the interactive component, you need chat rooms and teacher's assistants, and that drives up the cost," says Provost Etchemendy. "The amount of time spent per online student is two to three times that of the ordinary class."

It turns out that gathering everyone in a room for a lecture is an incredibly efficient way to teach. The professor says things only once. Students learn from other students' questions. Study groups can easily be formed.

No one at Stanford is saying that online education will replace the campus experience. Nor is that anyone's aim. But for those who can't follow the traditional route, virtual classrooms fill a need. And, says Hanson, online courses may be an ideal supplement to campus learning. "My students are getting a deeper knowledge and they are working harder," he says. "Will online courses work as a stand-alone delivery system? I don't know, and I don't think anyone knows. But I suppose I'm just as curious as the next person to find out."