When Will the Cyberschooling Giants Start Acquiring EMOs?

April 12, 2012

For the past few weeks, I have been corresponding with some film producers who—encouraged perhaps by the commercial success of "Waiting for Superman"—have an inkling that some very important things are happening with public education in America...some things like crony capitalism, and an economy shifting to public risk and private profit. Recently they asked me whether the virtual schools trend was important. I offered the reply copied below.

Is the advent of online schools for elementary and secondary school students one of the biggest stories in public education today?

The emergence and growth of cyberschools at the k-12 level is a great story because it tugs at the heart strings: little kids—6, 7, 8 years old—staring at the PC screen for hours, alone or with a sibling, their intellectual development entrusted to a parent whose moral outrage is not matched by their intellectual curiosity or mastery of even the simplest school subjects? Yes, that is truly awful. My daughter once had neighbors who were homeschooling their children, and she could see that the kids spent most of the day in the backyard on a trampoline. And homeschoolers are among the biggest source of customers for the cyberschool companies—homeschoolers and potential dropouts.

But cyberstudents still constitute a very small slice of the total k-12 population. One could argue that they are currently getting more attention than they deserve because their situation is so striking. If their numbers reach 300,000 students, that’s just 0.6% of the public school population (300,000/50,000,000). Nonetheless, the brazenness of the commercial companies—primarily K12 Inc.—does make cyberschools a compelling story.

Incidentally, you may want to look into whether the military recognizes an online school diploma. Last I heard, it did not.

Although k-12 cyberschools are still a tiny slice of the public school population, charter schools are not. In some states—Arizona for example with 540 charter schools enrolling 135,000 students; Colorado with 185 schools and 80,000 students—charter schools are enrolling about 10% of the public school population. And although that movement started out with idealistic visions of brilliant young teachers and highly motivated students, it is devolving into a shoddy business with increasing numbers of charter schools operated by profit-making Education Management Organizations (EMOs).

Now the cyberschool companies use the charter school laws to make their money. It’s obvious if you think about it. So can alliances and mergers between the biggies—K12 Inc and Pearson (Connections)—and the EMOs be far in the future? For a report on the state of the EMOs, see http://nepc.colorado.edu/publication/EMO-profiles-10-11 .

Currently in the U.S., there are approximately 5,500 charter schools enrolling more than 1.7 Million students. That works out to about 1,700,000/50,000,000 = 3.4% of all the k-12 school children in the nation. Now if we strike a “price” of about $10,000 per student—the current average expenditure in the U.S. for a k-12 student—we can see that the charter school business is a $17 Billion market (“B”, not “M”). In 2010-2011, EMOs managed about 1,900 charter schools enrolling approximately 750,000 students in Kindergarten through grade 12. These three-quarter million EMO-managed charter school students represent a $7.5 Billion market for the cyberschool industry. K12 Inc., the big shot in the cyberschool business, has annual revenues just more than a half billion dollars.

What should we expect then? Obviously, the big players—K12 Inc. and Connections—must already be looking to acquire some of the small EMOs. Stock-holders expect such things, particularly when a major player like K12 Inc. disappointed them mightily in November 2011 when its stock price dived 50% from $37/sh to $18/sh, not coincidentally after the October release of a critical policy brief by the National Education Policy Center focused on cyberschools generally and an article in the New York Times focused specifically on K12 Inc.

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Gene V Glass

Gene V Glass is currently a Senior Researcher at the National Education Policy Center and a Regents' Professor Emeritus from Arizona State University. Trained originally in statistics, his interests broadened to include psychotherapy research, evaluation methodology, and policy analysis. He was...