Kaplan is starting an online college -- minus the keggers

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April 10, 2000
Web posted at: 9:46 a.m. EDT (1346 GMT)

by Mark Healy

(IDG) -- John Jascob works hard to get ahead. Every morning he drives, takes a bus and walks from his home outside Portsmouth, N.H., to his job at Scudder Kemper Investments in Boston. The commute takes about two hours each way, but the 35-year-old analyst is grateful for the time. On the way, he cracks the books, and when he gets home he goes to school, logging on to Concord Law School, an online division of Kaplan. Think of it as law school on demand.

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"I'd always been kind of an independent learner," Jascob says. "A law degree would be a tremendous benefit to my career, as well as a resume builder."

Jascob's schedule is extreme, but he is far from unique -- at least that's what Kaplan is hoping. Concord is the cornerstone of Kaplan College, Kaplan's ambitious Web university. With new classes starting May 1, Kaplan's online courses cover everything from nursing and criminal justice to information technology. The idea, Kaplan executives say, is to draw millions of students like Jascob from around the world and offer them the education they want, when and where they want it. Kaplan's version of college has no dorms, no keg parties and, essential to the distance-learning mission, no boundaries. What it does have is the Kaplan brand.

An academic pioneer of sorts, Kaplan was the first company to make a business out of tutoring students for standardized tests like the SAT, LSAT and GRE. Over the decades, its system has helped countless students improve their test scores, and Kaplan wants to take its reputation for success to broader fields.

As in the offline world, online academia is highly competitive. Hallowed schools such as Stanford University and the Massachusetts Institute of Technology are moving toward offering classes online, while startups Learn2.com and Hungry Minds are trying to outflank them. And then there's the $100 million wild card from MicroStrategy (MSTR) CEO Michael Saylor. As yet unnamed and sketchy in details, Saylor's free university proposal is the sort of deep-pocketed scheme that could turn the burgeoning sector upside down.

While Kaplan's competition looks to rebuild the ivory tower, Kaplan COO Andrew Rosen has no such intention.

"A 17-year-old is looking forward to college not because of the academics that he's focused on absorbing -- he wants the experience," Rosen surmises. "So far, the Web can't fulfill those desires."

Instead, Kaplan will target the less-glamorous -- but potentially more lucrative -- market of working people looking to learn their way up the corporate ladder. Kaplan's quarry is students like Jascob, who won't quit their jobs to attend class, but fit them in when they can. "We're trying to reach people who just can't take two years off to go back to school," Rosen says. "People who just can't physically commit to going to some fixed facility for learning."

Online education is the latest leap for the company, which was founded in 1938 when Stanley Kaplan began tutoring students in his Brooklyn basement. The business flourished as GIs came home from World War II. But it wasn't until the 1970s, with baby boomers scrambling to get into college, that Kaplan stormed the country with its test preparation courses. By the time the Washington Post Co. bought the firm in 1985, Kaplan had cornered the market with 100 nationwide testing centers.

But in 1994, when then-29-year-old Jonathan Grayer took over as CEO of the Kaplan unit, the test-prep company came down with an acute case of expansion fever. Grayer opened Kaplan centers in every major U.S. city and now executives are pleased to point out that the largest city in America without a Kaplan testing center is Wichita, Kan.

With the Post Co. picking up the tab, Kaplan began to acquire unglamorous education concerns like Schweser Study Programs (which trains certified financial analysts), the National Institute of Paralegal Arts and Sciences, and Dearborn Publishing Group (an adult-education company that offers training for real estate, securities and insurance certification). The company lumped together its operations under the Kaplan College name, but its real destination was the Web.

"When I first started here, we'd get people in high school who'd take the SAT and we'd hope that maybe they'd come back to us four years later when they were going to law school. But that's it," Rosen says. "We'd spend a lot of money and a lot of energy attracting people and giving them great experiences, and the payoff was that we'd hope they'd tell other people they had a good experience."

Grayer's arrival was fortuitous for another reason: In 1994, the Internet was seeping into the national consciousness. One of the first companies to take note was the Washington Post. In late 1993, the company created a new subsidiary, Digital Ink, now known as Washingtonpost.Newsweek Interactive, to develop the company's editorial products on the nascent medium. Soon, Kaplan was leveraging the Washington Post name into one of the most ambitious editorial efforts on the Net.

In the same way, Kaplan's online effort is all about leveraging its brand. If it has its way, the company will provide education in one form or another, practically from the cradle to the grave. It starts with after-school educational centers called Score, moves to the core test-prep business, on to Concord University School of Law, the nation's first online law school, and right up through BrassRing, a career development service Kaplan formed with Accel Partners and the Tribune (TRB) Co. last year.

That growth has been expensive for Kaplan. Last year, the unit provided $257.5 million in revenue to the overall firm -- making up about 12 percent of the Post Co.'s $2.2 billion in overall revenue. But Kaplan saw a net loss of almost $38 million, largely due to its efforts in creating BrassRing, opening Score centers and porting its operations online.

Still, it's not like the company has any choice. The market for online education has grown as fast and gotten as crowded as anything on the Internet. On the one side are Web-based personal learning spaces like Headlight.com, Hungry Minds, Learn2.com and Quick to Learn; on the other, Harvard, MIT, Stanford and other established universities are entering the distance-learning market.

The guys at Kaplan aren't concerned; finding that space between the two is the core of their strategy. "We kind of broke the whole education space into three rough categories," says Kaplan College President Bill Rosenthal, outlining a market for traditional institutions and degrees on the one hand, and for personal learning on the other. "Smack in the center of that," he adds, "we discovered an opportunity for the learn-to-earn category, which is helping professional adults obtain higher learning that they can use as leverage to make more money. So it's not the full, 'I'm gonna go get an academic degree for academic standard' or 'I just want to find out how to grill a steak.' It's just the real middle market that hasn't been addressed in any significant way, and certainly not on the Net."

Kaplan's niche could easily be eroded from the top and the bottom, though, as both personal learning spaces and established universities see opportunity in more narrow, career-focused courses. Princeton, Stanford and Yale have already made moves to create a distance-learning alliance (Harvard backed out at the last minute) that would offer Web-based courses; in February, the Stevens Institute of Technology and the Institute of Electrical and Electronics Engineers announced a joint plan to offer courses in telecom and wireless communications. And then there's Michael Milken's UNext, a distance-learning company that has enlisted the University of Chicago and the Columbia School of Business.

Terry Nulty, CEO of ZDU, Ziff-Davis (ZD) ' online education unit, had Rosenthal's help building ZDU before Rosenthal joined Kaplan. "The biggest challenge Bill faces is how does he defend Kaplan's position in a space where they're not as well known," Nulty says. "I'm just wondering if they can compete effectively with the major universities out there."

Moreover, today's big mergers may give birth to hard-to-beat Internet learning partnerships, according to Clark Aldridge, an education analyst at Gartner Group (IT) . "I think the biggest single provider of e-learning is going to be AOL (AOL) Time Warner," says Aldridge. "When you look at their broadband capabilities and their brand management, their Net smarts, their consumer smarts and their mindshare, it seems like a destined-to-win combination." A finance course under, say, the Fortune brand would be hard to resist.

Kaplan executives wave off the notion that the space is already too crowded -- or that the pool of students who need real estate certification or nursing training online might not be that vast. Rather, they point to a 1998 International Data Corp. survey of emerging markets, which predicted that Web-based training is poised to explode. According to the data, the market for Web-based training will rise from just under 1 million users in 1999 to close to 2 million this year, and up to more than 5 million by 2002.

Rosen and Rosenthal are looking for a big chunk of that, especially those students eager to "learn to earn": nurses who would see a salary gain if they get certified in Legal Nurse Consulting, teachers who have to earn a master's degree, policemen who'd get a career boost from a few criminal justice courses, would-be stockbrokers in need of trading licenses, IT professionals who need to learn new programs, and anyone else whose jobs and lives are so demanding that they can't attend a physical facility for education. It will focus on graduate programs like MBAs and specialized associate degrees, as well as offer single-course certifications in fields such as criminal justice.

And lest students start feeling lost and on their own, a student union of sorts is planned, where students can meet online to swap notes and talk about their teachers. The professors -- most of whom teach at more traditional universities -- administer tests and conduct office hours online, offering, at least in theory, office hours around the clock.

Concord Law is fully accredited by the California Bar Association and the Distance Education Training Council, the industry's national standard bearer, and most of Kaplan College's other online courses also are accredited through their associations and boards. To Rosen, it's a good way for the company to prove itself. "Wherever there's an objective measurement, we want to be in that space," he says. "One of the reasons we started with law school is because there is an objective measure at the end by which anybody can see how we're doing."

Rosenthal brazenly predicts that Kaplan College will have more than 1 million enrolled students by 2004. That seems farfetched, but consider that Kaplan already has alumni in the millions. Hopefully, those graduates of its test-prep and education services will be as interested in learning for earning as is the company.

Rosen insists that he'd never send an 18-year-old to an online college: "But the flip side [is that] at age 40, there's no way you'd consider going anywhere else."

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