Phoenix's success and also a source of criticism is due to its liberal admissions policy and therefore it accepts students who might not be considered fully prepared for college level courses by other institutions. People can legitimately come down on both sides of such an enrollment policy, on the one hand, it can be argued that it deprecates the value of a college diploma while on the other it can be argued that the enrollment policy provides access to capable people who would otherwise be denied.
With nearly half a million students and a liberal admissions policy, there are a lot of poor performing students. It is statistically inevitable. But I would suspect that the least prepared students are not much worse than those major US universities admit on athletic scholarship based on their meeting the NCAA's minimum qualifications. Like the major universities, financial gain is the reason Phoenix admits such students.
Like any school, a student's education is dependent on a number of factors. One thing Phoenix deserves credit for is the size of the classes and the emphasis on discussion. Even within mandatory freshman classes, class size is typically twenty students or less and meaningful participation in these discussions is 25-30% of the grade by university policy. Unlike many prestigious public universities, Phoenix doesn't create 200+ student classrooms and does not allow faculty to structure courses in a way which discourages open discussion. In terms of class structure, Phoenix is akin to a small liberal arts college, and that has real educational value.
Technologically, classroom communication uses is entirely disconnected - basically NNTP style newsgroups with a web front end available and most of Phoenix's classrooms are relatively low tech and emphasize reading and writing rather than streaming live video and chat. Importantly, this offers the financial advantage of reduced overhead for the University, and improves access for students with limited bandwidth.
As a publicly traded company, there is no doubt that Phoenix is in the business of selling degrees - but then again, the marketplace also plays a meaningful role in establishing the price of a Harvard degree, and the recent movement into online education by public universities is no less motivated by the bottom line.
While reduction in costs is one reason public universities are moving into online education, the real driver in many cases is increased fees. Online education offers public universities the opportunity to attract more student's from out of state which translates directly into higher tuition. But more tellingly, it is not uncommon for public universities to charge out of state rates to all online students regardless - including those who would qualify for in-state tuition rates on the bricks and mortar campus.
Because Phoenix's online faculty is largely adjunct, they can handle declines in enrollment more readily than their public university based competition, and because they don't try to compete based on cutting edge high bandwidth classrooms, their technology costs are relatively low. That's why they have been able to maintain revenues.