A Major Setback for the Apollo Group

We’re breaking news today as it appears that the Apollo Group (NYSE: APOL), the parent company of the for-profit University of Phoenix, the largest private educational institution in the United States, appears to have had a major setback in its technology-based strategy to retain students and improve graduation rates in its Associate’s degree programs, which have seen a dramatic decline in enrollment since peaking in 2010.

The setback is tied to the Apollo Group’s August 2011 $75 million acquisition of Carnegie Learning, a developer of computer-based math instruction. The New York Times described the motivation for the Apollo Group’s purchase.

Hoping to keep more of its students from dropping out, the Apollo Group, which operates the profit-making University of Phoenix, said Tuesday that it would pay $75 million to buy Carnegie Learning, which offers computer-based math instruction.

Carnegie Learning, based in Pittsburgh, was founded in 1998 by scientists from Carnegie Mellon University who developed an approach to teaching math that combines classroom work with computer instruction. Its Cognitive Tutor software analyzes students’ weaknesses as they work through problems and offers new problems until they are ready to move on.

“Math is a subject where we see a lot of students having difficulty” at the college level, said Gregory W. Cappelli, Apollo’s co-chief executive. “We think by adding the Carnegie Learning solution into our platform, we’ll really help our students to have better outcomes in math.”

The acquisition was an integral part of the Apollo Group’s billion dollar bet on its development of an adaptive learning platform, part of its internally developed “Learning Genome Project”, in which it would seek to personalize the learning experience of the students enrolled in its classes.

The Apollo Group implemented Carnegie Learning’s Adaptive Math Practice system in its University of Phoenix’ Associate’s degree program math classes in the period from October 2013 through December 2013, replacing the My Math Lab system developed by Pearson Higher Learning (NYSE: PSO) that it had previously used.

On 27 February 2015, University of Phoenix faculty members were notified that Carnegie Learning’s Adaptive Math Practice system would be phased out of use in its Associate’s degree program math classes with a transition back to Pearson’s My Math Lab system beginning on 1 April 2015, which would be completed by 1 June 2015.

The notification indicates that the change was based upon negative feedback provided by students and faculty members, and that a pilot effort to transition math classes in the University of Phoenix’ Bachelors degree program from the Carnegie Learning system back to Pearson’s My Math Lab system earlier in 2015 had been successful in drastically reducing technical support tickets.

That technical situation must have been extraordinarily bad for the Apollo Group to return the system that it had previously attributed to be a cause of its declining enrollment. According to Pearson, access to a MyMathLab course costs $85.50 per student. With our estimate of the University of Phoenix’ Associate’s degree program enrollment of 66,000, the Apollo Group may be required to pay Pearson as much as $5.6 million over the course of a full year to abandon its Adaptive Math Practice system, which perhaps gives a sense of how costly those technical support tickets were.

The setback is particularly significant in that it was such a clear part of the business strategy behind the Apollo Group’s effort to develop a Learning Management System (LMS) that could be sold to other educational institutions.

Facing new regulations and slowing enrollment for their degree programs, companies like the Apollo Group, parent of the University of Phoenix, are quietly developing or expanding other educational services that they could sell to nonprofit colleges and corporations, moves that could signal the future direction of the for-profit college industry.

Among other things, that means it might not be long before the Apollo Group seeks out other colleges as customers for the electronic learning platform it has spent years and millions of dollars developing. A company spokesman said licensing that platform to other colleges is one of the many options its new Apollo Educational Services division is exploring. Although the entire Phoenix student body won’t be fully on the new platform until spring, Apollo has been inviting higher-education leaders to its San Francisco development center to show off the new system for the past several months.

“We’d love to partner with existing educational institutions. We’d love to partner with global companies,” says Mark Brenner, Apollo’s senior vice president for external affairs.

With the apparent failure of Carnegie Learning’s Adaptive Math Practice system in its own classes, that option would no longer appear to be as viable in the near term for the Apollo Group as it had previously appeared.