In the first part of this two-part work, the economics of higher education are explained. It is made clear how a university’s business model differs from that of a company that has to compete on the open market.

On this basis, it is explained:

• Why universities are in no way threatened by low retention-rates and graduation-rates
• Why universities cannot significantly improve or otherwise alter the quality of their educational services without imperiling their very existences
• Why universities do not have to improve the quality of their educational services
• Why universities couldn’t improve the quality of their services even if they wanted to
• Why the fact that many universities have low retention and graduation-rates does not a represent a business opportunity, or opportunity of any other kind, for anyone, whether inside or outside of academia
• Why principles of knowledge management (KM) that are so useful when it comes to helping businesses that compete on the open market are completely useless, and indeed of negative utility, when it comes to helping universities solve their problems.

In the second part of this work, it is explained how to construct an online university that is both lucrative and also provides instruction that is faster, better, cheaper, and more useful than the instruction provided by any existing (or possible) brick-and-mortar university. Finally, it is explained how the principles of KM can be used to optimize such a university, once it is up and running.