Next Up For Disruption? College

from the this-could-get-interesting dept

One of the reasons we spend so much time talking about the music and news industries, is because the disruption and upheaval happening in those industries right now are likely to impact nearly every industry you can think of in the near future. Understanding the mistakes being made by those in the industries that are further along the disruption curve should (hopefully, though, I'm not entirely optimistic on this) help keep those newer industries from making the same mistakes down the road.

Jake points us to an inkling of how the higher education market is beginning to be disrupted -- and it goes beyond just cheaper textbooks or courses being offered online. By now, online distance learning is well-known and not all that big a deal. But, really, all the old school online university efforts, like University of Phoenix, did was to take the traditional college model and move it online. True disruptive innovation is never about just moving a legacy model to a new medium, but about embracing some aspect of that new medium to offer something in a different way that really wasn't possible prior to that.

The article in Washington Monthly discusses a company called StraighterLine, which offers online college classes, but it totally disrupts the traditional business model of university learning. While the classic model is that you pay per class (or per semester as a fully matriculated student), StraighterLine has a simple model: you pay $99/month and get an all-you-can-eat offering. You go at your own pace -- so if you have lots of time (and can complete the work) you can take multiple classes in that month. In the opening story of the article, a woman completes four full classes in just two months -- for a grand total of $200. Taking those same classes at either local universities or online would have cost thousands, and would have taken much longer to complete. And, it's not as if the StraighterLine courses skimp either. According to the article (and it would be great to hear from anyone who's tried it to see if this is true), they use the same materials found in many college courses.

The reasoning behind all of this will sound familiar to those who read Techdirt on a regular basis:
Even as the cost of educating students fell, tuition rose at nearly three times the rate of inflation. Web-based courses weren't providing the promised price competition--in fact, many traditional universities were charging extra for online classes, tacking a "technology fee" onto their standard (and rising) rates. Rather than trying to overturn the status quo, big, publicly traded companies like Phoenix were profiting from it by cutting costs, charging rates similar to those at traditional universities, and pocketing the difference.

This, Smith explained, was where StraighterLine came in. The cost of storing and communicating information over the Internet had fallen to almost nothing. Electronic course content in standard introductory classes had become a low-cost commodity. The only expensive thing left in higher education was the labor, the price of hiring a smart, knowledgeable person to help students when only a person would do. And the unique Smarthinking call-center model made that much cheaper, too. By putting these things together, Smith could offer introductory college courses a la carte, at a price that seemed to be missing a digit or two, or three: $99 per month, by subscription. Economics tells us that prices fall to marginal cost in the long run. Burck Smith simply decided to get there first.
Just like Craigslist. In fact, the article goes on to make that comparison, and highlight how similar the newspaper business and the University business are. It notes that freshman lectures are "higher education's equivalent of the classified section" in that they're insanely profitable and subsidize many other areas of the business.

And, just like Craigslist and newspapers, colleges started pushing back against StraighterLine, worrying about how it would impact them. In fact, it's caused quite a bit of trouble for StraighterLine, causing it to be split off from its original parent company, Smarthinking. Meanwhile, other complaints have made it difficult for StraighterLine to follow through on its partnering strategy to deal with questions concerning accreditation. So, StraighterLine itself may never become a huge success, but it gives you a glimpse of how the world is changing and how the higher education system may be ripe for disruptive innovation as well.
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Filed Under: disruption. college, distance learning
Companies: straighterline

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  1. identicon
    Richard, 11 Sep 2009 @ 7:25am

    Re: A view from inside higher ed

    "very rarely view it in terms of a business that has to meet the needs and demands of customers,"

    Yes - but it all hangs on identifying who the customer really is.

    When I worked in industry we made training simulators for the Royal Navy, US Navy and Australian Navy. I remember once remarking to a senior manager that we should add something "because the customer wanted it" . "Who wanted it " he said "the officer from the Naval training establishment" I said. I was then told off in the severest terms. "He isn't the CUSTOMER - he is the USER" the customer is the official from the MOD procurement executive who signs the cheques.

    This is the point. Most students are NOT customers. Where there is a substantial state subsidy (as still in the UK and in pre-18 education in most countries) the state is the customer and where parents provide finance they are customers. Potential employers are also customers. A true academic institution - if it is to survive beyond the typical short lifespan of even the most successful commercial enterprises needs to have a mission that goes beyond simply making money by satisfying obvious needs.

    For a true academic institution the real customer is knowledge itself, everything else is just a means to an end. Research is performed to build new knowledge, teaching is done to preserve existing knowledge to the next generation. Funding is obtained to serve these purposes rather than as an end in itself.

    Institutions that play properly by these rules have huge durability. The Universities of Bologna, Paris, Oxford and Cambridge are each 4 times older than the United States. They have withstood massive social, political and economic changes already. They will still be around after every company on the stock exchange has gone bust or been absorbed and digested by a newer organisation. The only way they will fail is if they forget this and try to behave like commercial companies, only worrying about money.

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