IMO, the competition needs to be based on quality. If institutions offer a quality education, people will recognize that and choose that instead of online system.
Over the time both class room based as well as technology based classrooms are bound to get better.
Absolutely on the dot.
As an aside, there are intangibles associated with actually going to a University, e.g. interacting with people in person (serendipitous learning), that online classes cannot undermine.
I see online classes as a excellent supplement to what's being taught in class and in cases where in-class learning is not an option for an individual (monetary, time or location based constraints). It is such an exciting time to be around; we can witness exactly how social networking and online education can interplay vis-a-vis in-person, in-class learning.