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Elite universities won't upend the online learning market (essay)

EdX Airways
May 25, 2012

In the past few weeks the twin quasars of the New York Times opinion page -- Thomas Friedman and David Brooks -- have waxed poetic about the coming revolution in higher education as presaged by  recent announcements of elite universities moving online: MIT and Harvard with edX; Stanford, Princeton, Penn and Michigan with Coursera.  According to Friedman, “In five years, this will be a huge industry.”

The exuberance is understandable and stems from two factors: (1) Quality; and (2) Affordability. It’s hard to argue with either given the reputations of the institutions involved and the current pricing for these MOOCs (massive open online courses):  free.

Online higher education is already an industry of some scale – over $30 billion annually in the U.S. – and there’s no question that it will be huger still in five years as it takes off across the rest of the world.  There’s also no question that affordability will play a major role in its acceleration – the Internet axiomatically causes the effective price paid for information and online services to plummet – and that free is a pretty good place to start.

***

“Colleges are a bit like funeral homes.

Talking about getting your money’s worth strikes some as a little crass.”

--Rick Wartzman, writing on The Drucker Exchange

This may have been true a year ago, but a lot has happened in America since the Occupy protests last fall.  Even The New York Times has come to understand that the cost of actually providing a quality education isn’t close to what our universities spend, and hence charge as tuition. 

The days of charging the same for an online program as a traditional on-ground program are numbered; much lower tuition models are coming to online education. The question begged by the Times is this: Are Stanford, MIT and the Ivy League likely to lead the way?

The threshold issue is the gap between non-credit-bearing MOOCs and meaningful credentials, currently in the form of associate, bachelor's, master's and doctoral degrees. These are what matter in higher education for now and the foreseeable future. (This week’s exhibit: the college skeptic Peter Thiel’s hedge fund posting an analyst position last week explicitly calling for candidates with a “high GPA from a top-tier university.” The fund changed the posting following Slate’s reporting.)  We would live in a better world if love of learning were the key motivator for payment and persistence in higher education.  Alas, based on the 85 percent drop rate in Thrun’s non-credit bearing MOOC, we can fairly conclude that it is the credential that attaches to you for a lifetime.

Higher ed. commentator Kevin Carey (Education Sector, The Quick & The Ed) noted last week that Stanford responded to a piece he had written wherein he described last fall’s MOOC offered by then-Stanford professor Sebastian Thrun:  “Over 100,000 students around the world [took] the course…. Those who did well got a certificate from the professor saying so.”

Stanford’s official response to Kevin was as follows:

“Students who did well did not receive a certificate.  Neither Stanford nor the professors issued a certificate. All students who completed the courses received a letter from the professor saying that they had completed the course. And that’s it.”

Hell may freeze over before Stanford is willing to provide any credential for these learning experiences.  The gap between exclusive residential degree programs for elite 18-22 year-olds and online learning open to the hoi polloi is a chasm that few will cross.

Even so, given the number of elite institutions with MOOC dreams, in time a few may talk themselves through the obvious brand and reputational concerns and cross the chasm to something like a meaningful MOOC credential, perhaps with a differentiated brand like edX. Still, is this hypothetical adventurous elite university likely to dominate the online future?

***

We would submit that colleges today are less like funeral homes and more like airlines 30 years ago, when flying the friendly skies cost much more than it had to and there was similar grousing aplenty.  When the discount airline model became possible as a result of deregulation, many traditional carriers started their own discount carrier:  United begat Shuttle by United and then Ted; Delta begat Delta Express and then Song; US Air begat MetroJet; Air Canada begat Air Canada Tango.

They all failed.  They failed because they attempted to leverage the operations of the parent carrier.  The traditional operations were hub-and-spoke, whereas the new discount model worked best point-to-point.  The traditional operations had more costly product and process design. Traditional operations were less productive per labor unit.  And traditional operations had labor costs sometimes 50 percent higher than what a new entrant would pay. 

One can envision similar conversations along the Infinite Corridor at MIT. Quality comes first and can only be guaranteed in the new edX online venture via full participation by faculty and other highly paid employees. It’s also tempting for the institution to allocate some of its lofty cost structure to the new online project. There are certain defined expectations as to what a program from or affiliated with the university must include. (It took traditional airlines over 20 years to do away with the in-flight meal; imagine how long it will take MIT to do away with the cohort in a credit-bearing course.) Productivity, which is the hallmark of successful discount carriers – turnaround times of 20 minutes vs. 45 minutes for traditional carriers -- is much more studied than practiced by these institutions.

So it’s hard to envision any top-tier university launching an online program with the objective of keeping every aspect of its operation separate.  Clearly, it couldn’t if it wanted to grant degrees; degrees must be granted by the accredited institution.  But realistically, no online program would be completely separated from the mothership.  The allure of trading off the brand is irresistible, as United, Delta and Air Canada demonstrated with their choice of discount carrier names.  Even MetroJet, US Air’s discount airline, invoked the parent brand with its logo.

Of course, the winning discount carrier is Southwest.  With one type of airplane, no meals, no paper tickets, no lounges and online booking only, Southwest has redefined the industry and the traditional carriers are still trying to catch up. 

So the right question to ask is:  Who will be the Southwest Airlines of online education – delivering what customers need, but doing so much more cost-effectively?  It could be a private-sector university.  Or perhaps a very innovative traditional university with a clear vision of educating and granting credentials to millions of qualified students from around the world, along with a willingness to throw aside its existing model. 

Either way we arrive at a conclusion that refutes the Times:  it will not be MIT, Stanford or an Ivy League institution. Their impact is likely to be limited to the extent other universities opt to incorporate their content into new programs – equivalent to today’s textbook publishers.  And just as many people who can afford to pay much more actively seek out Southwest over traditional carriers, rather than cementing their leadership, the coming revolution could very well change up the pecking order in higher education for the first time in the history of the Republic.

Bio

Ryan Craig is a partner at University Ventures, a fund focused on innovation from within higher education.

 

 

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