Arlene Hiss is a former Indy race-car driver, now the owner of a commercial recording studio and an occasional washboard player in a bluegrass band. She lives in a geodesic dome in Lake Elsinore, Calif., where she logs on each week to conduct an undergraduate class in critical thinking at the University of Phoenix Online. A Phoenix professor since 1991, Hiss loves teaching in the distance-learning program. "They give you everything: the syllabus, the textbook, weekly assignments," she says. " They put the lectures on the Web." By "lectures," she means the written documents furnished to her, and her students, by the Phoenix courseware servers.

With a Ph.D., MBA and 30 years of teaching experience, Hiss is perfectly qualified to create her own course materials. But Phoenix has built its business through economies of scale, developing a course once and then replicating it, so that many teachers can administer the same course to the school's vast 200,000-plus student body.

That model of replicable courseware is taking hold at other schools as well. When she's not teaching at Phoenix, Hiss leverages her Phoenix experience to develop courseware for the University of Liverpool, where she works as a so-called module manager, creating class syllabuses and assignments for online business classes. After she develops the course, Hiss then oversees a network of lower-paid instructors who teach the class using her materials. The other instructors are welcome to make suggestions, but as the module manager, Hiss has the final say, ensuring that teachers won't make idiosyncratic changes to the curriculum.

When she's not teaching at Phoenix or Liverpool, Hiss also finds time to teach online courses at Capella University, Southern New Hampshire University and Upper Iowa University.

Hiss may have her hands full, but she's happy. "As long as my eyes work, as long as my fingers work, and as long as my computer works, I can't even imagine going back to the ground." Teaching at Phoenix gives her time to juggle other teaching jobs, manage her recording studio, play with her bluegrass band, and enjoy the freedoms of the contractor lifestyle. But personal freedom is one thing, academic freedom quite another. Like the other 8,000 faculty members who teach at Phoenix Online, Hiss will never have tenure.

Computer-based distance learning has been around in one form or another since the 1970s. But most of those efforts remained confined to academic computing labs until the Internet boom of the 1990s. The explosion of Web access, coupled with advances in educational software, set the stage for an expansion that quickly mushroomed into a dot-com-era boom.

Amid the contagious optimism of the IPO era, universities began investing aggressively in online learning initiatives. Starting around 1998, big schools like UCLA, NYU, Temple, Columbia and Cornell all kicked off heavily funded virtual-campus initiatives. Other schools hedged their bets by joining online consortia like UNext (funded by Larry Ellison and Michael Milken, among others) and the Western Governors' University.

In many cases, these dot-edu projects took shape as for-profit subsidiaries, owned by the parent institutions but operating with a clear mandate to generate profits. In some cases, universities launched their dot-edus as joint ventures with commercial software companies. In 2000, four companies -- Kaplan Ventures, Knowledge Universe, Pearson and Sylvan Ventures -- invested $3.6 billion in online initiatives.

To the MBAs and university administrators who led the charge, the dot-edu business looked like an unbeatable proposition: a proven product, new markets unbounded by geographic constraints, economies of scale in the form of "write-once, run-anywhere" courseware, and potentially higher operating margins than all those labor-intensive physical classrooms.

"The dream was to transform colleges into record companies, selling CDs and 'colleges in a box' for $49.95," says Feenberg. "But the people who made these predictions had never themselves used the technology for education and knew almost nothing about it."

Amid a flurry of press releases and mostly breathless media coverage, the dot-edus built their businesses in a hurry, only to find themselves staring down a stark reality: the students never showed up. "University presidents and administrators were talked into this by computer companies and journalists," says Feenberg. But like many other would-be Internet entrepreneurs, the dot-edus discovered that building an Internet business turned out to be considerably more complicated than buying a few million dollars' worth of hardware and software, hiring pricey consultants, and waiting for the money to pour in.

Worse, faculty members were getting restless.

The UCLA faculty threatened to walk out when the administration issued a dictum requiring the submission of lesson plans to the for-profit subsidiary (without offering the faculty a dime in extra compensation). More galling yet, the administration wanted to invite corporate sponsors to paste their logos across the professors' syllabuses, in exchange for a $10,000 "curriculum development" fee. Similar protests erupted at other schools, as the faculty rose up to defend the curriculum against what they perceived as shameless profiteering.

By 2001, the dot-edu bubble was bursting fast. NYUOnline closed its doors after burning through $25 million of the school's money; Temple shut down its dot-edu before it even opened; Wharton's online business school -- in no small irony -- filed for bankruptcy; UNext laid off half its staff; and Harcourt Higher Education, an ambitious online venture that had launched with much fanfare and a plan to enroll 50,000 students by 2005, shut down in 2001 after enrolling a grand total of 32 students.

Other schools managed to keep their dot-edus afloat, but with drastically lowered expectations. "The overselling was so enormous that it was self-defeating," says Feenberg. The result: a boom-and-bust cycle familiar to anyone who bought Internet stocks in those days.

"E-learning was massively misconstrued early on," says Matthew Pittinsky, the chairman and co-founder of Blackboard, "with predictions of the transformation of higher education -- where everyone would go to the elite schools online -- that just proved to be plain false."

With millions of dollars' worth of software and infrastructure sitting on the shelf, however, administrators and university information technology departments weren't about to just pack up and admit defeat. After all, distance learning was hardly a failed business model. DeVry and Phoenix were flourishing; and the corporate education market was going like gangbusters. The business was still out there; they had just gotten the formula wrong.

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