The marketing of the UK eUniversity's courses to potential students was inadequate, Kim Howells, the Higher Education Minister, admitted to MPs this week.
He told the House of Commons Education and Skills Select Committee that he was "most mystified" by the lack of promotion for the ill-fated e-learning venture, which recruited only 900 students.
Very little market research had been undertaken and it appeared that no lessons had been learnt from the failure of other similar projects, such as one by the Western Governors University in the US, Dr Howells said.
The Department for Education and Skills "probably does think" there was insufficient marketing of the venture, the minister said. He told MPs that of £62 million allocated to the eUniversity by the Higher Education Funding Council for England, just £4.2 million was spent on sales and marketing.
While £13.9 million was spent on developing the technology to deliver courses online, Dr Howells said that not enough funding was allocated for course content.
Barry Sheerman, the committee's chairman, told Dr Howells that the committee wanted to discover what went wrong with the project and why alarm bells about poor student recruitment and lack of private sector investment did not ring sooner.
Dr Howells, who was not Higher Education Minister at the time and came armed with a chart detailing the eUniversity's history from its appearance in Hefce's spending review bid in 1999, said the funding council had opted for the structure. It meant that although civil servants would have been aware of the problems, Hefce could not be seen to interfere with the company's activities.