Be True to Your Cyberschool

(page 2 of 3)

Picciano says for-profits are eyeing the nation's 50 million high school students, a number far larger than the 15 million to 16 million students in higher education, according to Picciano.

Deal Makes Strategic Sense

And the transition to delivering online courses at the high school level should be relatively simple for companies that already have years of experience with this education model. Kaplan University, a branch of Kaplan's higher education division, has been offering online courses since 2001 and has more than 26,000 students.

Kaplan, which declined to comment for this story, has not yet released details on how it plans to expand Sagemont Virtual. The segment reported operating income of $130.2 million in 2006, on revenues of $1.68 billion. But Standard & Poor's analyst Michael Jaffe says Kaplan is expressing an interest in this market because it makes strategic sense (see BusinessWeek.com, 2/2/05, "A Big Score for SAT Tutors"). (S&P, like BusinessWeek.com, is owned by the McGraw-Hill Cos. (MHP).)

"To them, I guess it is just another source of revenue, plus it is not a bad thing if you do have online high school students if you're trying to sell SAT courses. They are certainly their target audiences," Jaffe says.

Appeals to States with Rural Students

Online high schools may sound counterintuitive to the idea of proms, football games, and teenage crushes. But online schools and courses are becoming a popular option for states with significant populations of rural students, said Jeffrey Silber, an analyst with BMO Capital Markets. In some cases, it can prove too expensive for cash-strapped districts to provide students with transportation to schools that are miles away, he said. "They don't have the funding to open up schools and provide transportation for people not close to schools, and a virtual high school is one way of getting around that," Silber said.

Officials from the Apollo Group, which has been struggling with lagging enrollment growth, say they aim to open online charter high schools in a number of states in the coming years. Plans are already under way to open an online charter high school in Wisconsin in September, and the company is in talks with several other states, says Brian Mueller, president of the Apollo Group. The company reported net income of $115.6 million for the fiscal first quarter of 2007, on revenues of $668.2 million. It was Apollo's eighth straight quarter of lower enrollment growth (see BusinessWeek.com, 10/18/06, "A Harsh Lesson for Apollo Group").

Apollo's entry into the online high school market began two-and-a-half-years ago, when the company formed a partnership with Orange Lutheran High School in California. It converted many of the school's courses so they could be delivered in an online format, a move that was embraced by the school's students and faculty, according to Mueller. "We became convinced we could provide that service to the high school students, and it would have the same kind of value educationally—if not greater—at the high school level than even at the higher education level," says Mueller.

Graduating to Online College?

Mueller says Apollo decided to acquire Insight Schools so the company could expand its reach into the high school market. It is reaching out to students from a wide variety of backgrounds who are looking for a different high school experience. Their schools will be modeled after Insight School of Washington, a virtual charter high school run by Insight that opened in September, 2006, and has 650 students. Mueller says, "High school is not a one-size-fits-all model, and a lot of parents are doing a better job at evaluating the needs of their children and a lot of them are finding this environment might suit them better academically and socially.