Opinion
Money & Finance Opinion

What DeVry’s Entry into Online High Schools Means for Virtual EMO K12

October 20, 2007 1 min read

DeVry Inc., a publicly held firm you probably associate with television ads for adult technical education, is coming to public schooling. Today it signed an agreement to acquire Advanced Academics Inc., a venture-backed provider of online education for high school. AAI’s clients include virtual high schools formed by school districts and as charters as well as traditional “bricks and mortar” public schools who employ online courses to supplement their own teaching and learning capacity.

I bring this transaction to readers’ attention because of previous edbizbuzz postings about “virtual EMO” (Education Management Organization) K12’s proposed initial public offering, an opportunity I have not embraced. On the one hand, DeVry’s entry into the market says that at least one investor believes online public education is something to consider, so maybe K12 is worth looking into. I don’t disagree. My view is that on review K12 is a risky investment, for reasons stated earlier.

One of those reasons was that others will enter a market in a service that is becoming commoditized. Public education doesn’t need the “turnkey solution” to online education it required even five years ago. More important, it will need it much less five years from now.

State education agencies in particular are setting up their own online activities and seeking courses, professional support and technical infrastructure. Like the bricks and mortar EMOs, the virtual EMO is only a contractor who can be replaced. As it builds capacity in its public school partner, it necessarily looses bargaining power to its client. Lots of providers can offer something that goes into an online school, and administrators are moving towards becoming their own general contractors. My own work listing RFPs weekly for several years through K-12Leads and Youth Service Markets Report leads me to argue that this car is fast being cut up for parts.

A second reason was that more powerful providers would find the market attractive and reap whatever benefits may have been created by K12’s “first mover” efforts. DeVry’s acquisition of AAI is presented as evidence.

Investing now in DeVry is to invest in a firm that has diversified its risks - and just maybe added to the pipeline for its post-secondary students. Investing in K12 is to make a bet on a firm that’s placed all its eggs in one basket.

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