Online Extra: Apollo: Growth by Degrees

CEO Todd Nelson is convinced that fear of outsourcing is leading lots of workers back to school, especially to his for-profit colleges
The BusinessWeek 50

Apollo Group has leaped onto the BusinessWeek 50 list of top-performing U.S. companies -- as No. 47 -- because it's a genuine growth company. Best known for its University of Phoenix, Apollo (APOL ) specializes in offering college-level and advanced degrees to working adults. Unlike conventional colleges, which are designed to meet the needs of full-time students 18 to 22 years of age, the University of Phoenix was built to make it possible for adults to earn a degree even while they continue to work.

Thus, classes are usually held in the evenings. Courses tend to be short -- five to six weeks long. And students have the option of studying at a conventional campus or at the University of Phoenix Online, which offers the same degrees online.

Clearly, Apollo has spotted a hot growth market. About 70% of working adults don't have a college degree -- yet increasingly they realize they need one to succeed in today's economy. As a result, enrollment at the University of Phoenix and Apollo's other universities surged 28%, to 211,300, in the past year. And few expect it to slow anytime soon. In mid-March, Apollo CEO Todd S. Nelson talked with BusinessWeek Boston Bureau Chief William C. Symonds about the reasons for Apollo's success and the outlook for his company. Edited excerpts of their conversation follow:

Q: Since 1999, Apollo's revenues have nearly tripled, while your net income has more than quadrupled. How do you explain such rapid growth?


There are two factors. One, we're in a good market for growth. Education is second only to health care as an industry in the U.S. And the particular market we serve -- working students -- is very large and growing. The second thing is that we've always focused on providing a quality education. So while other [for-profit universities] have done the same thing, we have grown faster because of the value of the degree we offer.

Q: These days, there's a tremendous amount of anxiety around outsourcing. Do you think that fear is helping drive your enrollments?


Absolutely. It's a key factor. A lot of our [students] haven't been affected by outsourcing [yet], but they fear they could be. So it's [both] people who are afraid of losing their job and people who are saying "How do I become more competitive so I am not eliminated?" And there are only two things you can do to keep your job or get a better job: get more education or more training.

Q: What programs that you offer are most attractive to those worried about outsourcing -- programs that are seen as least vulnerable to this trend?


The professoinal-level programs, like the MBA, are probably the most important, because then the student can end up in a management or leadership role. The second area are fields like teachers and counselors -- where the human element is needed. You can outsource a technical job or software development, but it is very hard to outsource teachers, counselors, or nurses.

Q: What's your timetable for building the first truly national university?


The University of Phoenix is in 30 states now. We just got licensed and approved in New Jersey, and we will open in Minneapolis in the near future. But over the next 10 years, our plan is to have a physical campus not only in every state in the U.S. but also in every major metropolitan area.

Q: Recently, your strongest growth has come from your online campus, the University of Phoenix Online. In the past year, enrollment surged 60%, to 91,000 students. Why have you done so well when many conventional universities have struggled in distance education?


Five years ago there was a lot of excitement around distance education. But if you look back, a lot of those programs [offered by conventional universities] have been discontinued. But meanwhile, the credibility and acceptance of [our] distance education is increasing. In fact, in the next few months, our online program will pass up our on-ground campuses [in terms of numbers of students].

Q: Many conventional colleges are facing a real financial squeeze. Yet you continue to post record profits and have been predicting that your operating profit margins will reach 30% in the current fiscal year. How do you keep increasing your margins?


One reason our margins are growing is that we opened a lot of new campuses a few years ago. In the first few years, new campuses lose money [because of marketing and other startup costs]. But [as they mature], more of them are contributing to our overall profitability, and that is driving up margins. Also, as we improve our customer service and use more automated systems, that produces a certain amount of leverage.

Q: Many experts believe the international arena offers enormous growth potential for U.S. for-profit colleges. What are your plans for expanding outside the U.S.?


We are already actively recruiting students internationally for our online programs. We also have several pilot programs [where we're testing offering programs at physical campuses outside the U.S.]. Based on the results, our plan would be to partner with some existing universities in the next 24 months. So, for example, if there was a school that only offers the associate degree, we might partner with them to offer bachelor degrees.

Q: Have you targeted any countries yet?


One of our universities -- Western International University -- already has students [in pilot programs] in China, Dubai, and India.

Q: What's the outlook for Apollo?


For this year, we're predicting that our overall growth rate in enrollment will continue to be in the mid-20% range. And based on the growing market and our flow of [potential students], we feel very positive about our ability to grow. So it's safe to say that we expect double-digit growth for quite a while to come.

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