Education, learning, and the Internet are rapidly becoming the priority topics everywhere–in schools and universities, in corporations, in economic and policy decisions, and in government. Most people have the sense that the information economy and the global network society have fundamentally and irreversibly changed the role of higher education, even if the way we might implement a new learning environment isn’t yet clear. No one wants or envisions the end of research, libraries, archives, museums, and the rich intellectual and scientific resources developed at great cost and over many years in our universities. But a marketplace has already decided that learning and credentialing needs to continue over a lifetime and that these services must be unbundled from the traditional university business. The Internet isn’t finished changing everything, and distance learning through the Internet–elearning–will become the main way to facilitate learning and build new knowledge. How will we solve the marketplace problems for greater access to learning over a lifetime? Will universities lead, follow, or lose out?
As a summary of current opinion, let’s consider the comments of Richard Riley, U. S. Secretary of Education, in his February 2000 Address on the State of American Education:
We have an old agrarian schedule, an outdated factory model and an antiquated wage system. But change is in the wind…. In the 21st century, public education will be different. Education will be more individualized yet more community based. Public education will be less about a fixed location and fixed schedule, and much more about learning anytime and anywhere. Technology or E-learning will penetrate every aspect of American education and change it.
Though his theme is the state of public education, Riley’s comments summarize the current assumptions about education and learning more broadly. In what follows, I’d like to focus on the economic context of the coming elearning revolution, the large social changes about to unfold in the shift to life-long learning, and the problem of innovation in the higher education industry.
The information or knowledge economy has fundamentally changed the value of knowledge and the kinds of knowledge valued. Intellectual capital has replaced material assets as the primary driver of new value creation in the economy. Education remains the single most important indicator of a person’s earning potential, the ability to be a "player" in this economy, and life-long learning is replacing one-time degrees as the model for knowledge work. For the vast majority of students in any type of higher education program, education is for gaining a knowledge base for a job and a professional career track, a credential for the marketplace, a ticket to higher earnings. "Learn to earn" has become the main priority above other learning motivations.
Education and learning services will be the next big consumer product delivered over the Internet. John Chambers, CEO of Cisco Systems, is often quoted for saying that elearning will be the next killer app on the Internet: "The next big killer application for the Internet is going to be education. Education over the Internet is going to be so big it is going to make e-mail usage look like a rounding error" (Keynote Address, COMDEX 1999). The Internet promise for education has been developing rapidly over the past 5 years, and now the marketplace and the state of Web-based interactive multimedia are reaching a flash point, the point of broad market acceptance up the adoption bell curve that Geoffrey Moore has called crossing the chasm." The Internet is allowing entrepreneurial companies and innovative colleges to unbundle learning and credentialing services from the whole campus-based industry with its high cost of research and residential services and to deliver these services to a growing marketplace. The elearning revolution has only just begun to capture the promise of the democratization of knowledge made possible with Internet technologies.
This economy has created the conditions for seeing education as a necessity, not a luxury, yet the economics of higher education keep college degrees at a luxury good price-point for most people. Peter Drucker’s bleak view of the future of universities and his optimism about the emerging elearning paradigm is now widely known:
[T]hirty years from now the big university campuses will be relics. Universities won’t survive. It’s as large a change as when we first got the printed book. Do you realize that the cost of higher education has risen as fast as the cost of health care?… Such totally uncontrollable expenditures, without any visible improvement in either the content or the quality of education, means that the system is rapidly becoming untenable. Higher education is in deep crisis… Already we are beginning to deliver more lectures and classes off campus via satellite or two-way video at a fraction of the cost. The college won’t survive as a residential institution. (Forbes, March 10, 1997)
Traditional universities now find themselves part of a new competitive marketplace with other online learning providers like UNext (part of the Knowledge Universe), KaplanCollege, University of Phoenix Online, Jones International University, and over 400 new companies entering the online learning marketplace.
|Company/launch date||Courses and Accredited Programs|
|Capella University/1993||500 courses by end of 2000; M.B.A., master’s degree and Ph.D. programs|
|Cenquest /1997||100 graduate business courses; 3 certificate programs; 2 master’s degrees|
|Fathom /2000||7,000 undergraduate and graduate courses by end of 2000|
|Jones International University /1995||80 courses; 26 certificate programs; M.B.A.|
|KaplanCollege /2000||9 professional areas, accredited degrees|
|Pensare /1998||30 business education courses; M.B.A.|
|Quisic /2000||Quisic and UNC-Chapel Hill’s Kenan-Flagler Business School offer the "Corporate MBA." and other degree programs|
|University of Phoenix/1989 Online /2000||800 undergraduate and graduate courses; 35 degree programs; M.B.A.|
|UNext /1997||100 graduate-level business courses by end of 2000 via its Cardean University|
Table 1: Major For-Profit Elearning Competitors.
Sources: Company announcements and Websites
Internet-based distance learning or elearning is on every educator’s and corporate leader’s agenda, but the higher education industry is so fragmented that it can’t respond coherently to the demand-side needs. A learning revolution is underway despite the higher education industry, a revolution ironically facilitated by the technology first developed by universities and the government in the ’70s and ’80s. The new learning marketplace and demand-side drivers of the Internet economy are the best wake-up call universities will ever get. Those who wake up will be able to participate in creating the future of higher education and the underlying business of learning and credentialing in a global economy.
The Life-Long Learning Model
Life-long learning is replacing the one-time degree model for post-secondary and higher education. Post-secondary education is a continuum, and the largest and fastest growing demographic for education is adults past 25 years old. The following chart from the National Center for Education Statistics shows the rise in number of people participating in post-secondary education from 1991-1999. Students largely in the 18-22 year old demographic in 2 and 4 year colleges and universities has leveled at 15 million in 1999 (only a million increase from 1995), while 90 million adults participated in some form of ongoing education in 1999 (which includes university programs, corporate and professional training, and distance learning), up from 76 million in 1995.
Source: National Center for Education Statistics, Participation in Adult
Education in the United States, 1991-1999 (Statistics
in Brief, November, 1999)
The typical 18-year-old wants the social experience at a residential college away from home; this is not the case for the adult learner in the 25-54 age demographic. The adult learner wants learning and credentialing to be unbundled from the campus-based and high-cost college experience. The elearning revolution closely parallels and now responds to the demographic shift in the marketplace for post-secondary education.
Because working adults with continuing learning needs are beginning to see themselves more as learner-consumers who place a high value on cost, convenience, and ease of access, education is poised to become one of the largest consumer industries of the current decade. The idea of education products as commodities from various competing learning providers may seem abhorrent to traditional academicians, who enjoyed monopolistic, supply-side control of education, but the marketplace is ready to adopt this idea. The Internet economy usually treats centralized control as damage and routes around it.
The Elearning Revolution
Internet-based elearning is rapidly becoming the model for the next phase of education. The Web is already taken for granted in K-12 schools and universities as a learning resource without a fundamental change in the economic or social relationship among educational institutions, learning content, and students of all ages. Most educators now use the Web simply as an alternative delivery platform, a digital textbook, and online library. The revolutionary potential for learners and the fundamental shifts in control and authority are still kept under check through most institutional uses of the Internet today.
But we’re in the midst of a fundamental shift, a kind of Copernican revolution in education and the economy, which will take another decade to play out. These are some of the reconfigurations underway as we move from an academic model with a legacy system tied to industrial and agrarian economies to a learner-centered Internet economy model. The future, of course, is always already a hybrid, so while these changes are well underway, the older system will be subsumed or transformed in the new.
|Agrarian seasonal academic calendar and institution-determined schedule.||Learning anytime according to learner’s schedule and timeframe with the Internet’s 24/7/365 realtime environment.|
|Industrial, Fordist assembly line model of credentialing in lockstep time and place programs.||Customizable learning modules done anytime, anyplace, on demand with common assessment-based outcomes.|
|Academic institution determines schedule of courses and learning objectives.||Learner determines schedule and shops for opportunities that best meet goals and needs.|
|The academic credit-hour course system and credit-hour degree requirements.||Reusable learning objects in customized modules with assessments for specific outcomes (certification, degree).|
|Teaching, institution, and professor-centered models of education.||Learner centered and marketplace validated models of education. Shift in authority and agency to learner.|
|Monopolized control of credentialing and accreditation in institutions.||Market pressures will force adoption of open standards for accreditation and credentialing by multiple learning providers.|
|One-time degrees or sequential degrees under institutional control.||Life-long learning continuum. Learners with ongoing educational needs and continuous education between and beyond credentials.|
|Value created through economics of scarcity, restricted access, geographical constraints.||Value created through economics of ubiquity and abundance, ease and convenience of access, and network effects of mass participation.|
|Students go to library. Archival and research materials restricted by local access.||Digital library comes to students. Information accessible worldwide through the Internet.|
|Campus-based instructional and business models.||Hybrid elearning and place-based learning and business models.|
|Students affiliated with one institution at a time, with current economic and administrative consequences for credit transfers and location changes.||Students have multiple institutional associations and multiple business relationships with learning providers and use various methods of instruction in location-independent programs.|
|Zero-sum thinking, turf-bound competition for scarce (finite) resources.||Growth and ubiquity model: value in ubiquity and abundance, not scarcity. New wealth through network effects.|
|Supply-side control of educational services and products. Control culture with a disconnect between services and customer.||Demand-side orientation for serving needs of learner-consumer. Service and value culture for close connection with learners as customers.|
Table 2: Copernican Economic and Educational Shifts
It’s not possible to unpack all of these Copernican shifts here, but the major drivers, as you can see, are the demand driven economy of the Internet, which communicates the needs of customers and markets more rapidly than ever before to suppliers in the marketplace, and the corresponding learner-centered paradigm of elearning, in which the learner-customer has far more authority, control, choice, and agency in personal learning and knowledge production.
Unbundling the Higher Education Product
Let’s consider the current economic realities for universities and the challenges they face in adopting the market-driven elearning paradigm. When you say "university," most people imagine a complete, a higher ed experience on a college campus. This view of higher ed is already becoming more a nostalgic image corresponding to an elite experience than an image of a broad-based reality. (Compare once again the 90 million adults in post-secondary education with the 15 million students in traditional colleges.) The traditional package with its underlying university business model includes many of the following services:
- Courses and degree programs at undergraduate,graduate, and professional levels
- Mentoring and advising
- A residential program (colleges, dorms, food services)
- Student social life (clubs, entertainment, fraternities and sororities)
- Research funding
- Research labs
- Classrooms, lecture halls, auditoriums
- Athletic services: gymnasiums, swimming pools,etc.
- Sports programs
- Distance Education
- Career services
- International programs
Having working in universities most of my life, I think most people would feel that the following package represents the core services and experience that they expect from campus-based colleges and universities:
- Knowledge production and transmission
- Mentoring and master/apprentice relationships from teachers
- Access to library and research resources
- Social experience of university life and learning the human network of a profession
- Dating, mating, social life
- Career services
Colleges and universities also have expensive "overhead" services that are often invisible to students and those outside the education business: the standard business functions (HR, payroll, finance, legal, etc.), academic administration, security and police, counseling and career services, health care, utilities (including Internet access), entertainment and special events, facilities and maintenance. This total package accounts for the high cost of most college education.
The chief barrier to entry for traditional universities in the lifelong elearning marketplace is the difficulty in unbundling the product for those who do not need the campus-based experience with its high fixed costs. In academic year 1999-2000, the average of total costs for 4-year residential colleges was $10,909 for public and $23,651 for private colleges. For 2-year colleges, the average costs were $6,599 for public and $14,264 for private. The College Board announced in Oct. 2000 that tuition at 4-year colleges increased an average of 4.4% for the 2000 school year, up from 3.4% on average last year. Private colleges and universities increased tuition 5.2% this year (source: The College Board and The Chronicle of Higher Education). These continued high costs create two unsustainable marketplace barriers: colleges find it difficult if not impossible to offer lower-priced, unbundled educational services, and many first-time students and adults who want additional learning cannot afford the high cost. Unbundling the needed components for a marketplace ready to buy them is the only sustainable solution.
Some, but not all, of the traditional higher ed package can be migrated to the Internet. There will be a continuing market for the campus-based university product, but it will be the smallest part of the total higher education market. The Internet and marketplace demand are the driving forces in unbundling the needed learning experience from the campus-based and high-cost college product. Elearning thus represents a "disruptive innovation," in Clayton Christensen’s term, because it breaks apart the bundled higher education product into the components desired by a market segment that needs less and at a lower price.
||Elearning, assessment, competency testing|
||Communication with instructors and peer-members online|
||Online libraries, research data, Web resources|
||Web-based career services, job placement, self enhancement|
Table 3: The Elearning Disruptive Innovation
The Innovator’s Dilemma in the Higher Education Industry
Higher education is a $300 billion dollar per year industry that spends precious little on basic research and development for its core business of education services. Companies in the information economy typically spend between 5-10% of profits on R & D in order to innovate and maintain competitive advantage. Higher education historically has been both a fragmented industry with multiple standards and jealously guarded local control and a quasi-monopoly with few competitive pressures for innovation. The once secure position in the industry is being challenged by the convergent forces of the information economy and global network society: the information economy has redefined the value of intellectual capital, which obeys the laws of the circulation of capital; the centralized control and gatekeeping function of traditional universities has been disrupted by learners able to gain access to information and knowledge previously accessible only to a few, and new credentialing competitors are providing services to people who want their knowledge validated in the marketplace and not merely by academia.
With the shift to a knowledge economy and the "learn to earn" driver, universities now seriously risk a diminishing position in the education marketplace. Most institutions will miss the large 90 million professional and life-long learning market since this group’s needs can be served by new, lower-cost and service-oriented education providers who will offer less to customers who want less than the bundled university product. They will offer a new product with lower prices, more convenience, and the ability to customize the service to a customer’s needs. The new learning and credentialing services will be provided through an
increasingly ubiquitous Internet with its customer and learner-centered communications and information platform.
Furthermore, the escalating costs of bundled higher education will continue to price new learning and credentials beyond what the largest market can afford, creating barriers to winning new customers for the education industry, barriers to employers seeking educated employees, and barriers to earning potential and life satisfaction for many workers. Continuous education is a necessity, though usually priced as a luxury. The coming education revolution will result from satisfying marketplace
demand with the commodity pricing of a necessity, rather than a luxury good.
As Clayton Christensen has shown in The Innovator’s Dilemma, disruptive innovations usually sneak in from below while the dominant players in an industry are focused on satisfying existing customers and providing more of the same product with only incremental improvements. Disruptive innovations typically come from smaller companies serving customers who demand less–simpler products or services–and provide them at lower prices. The new technology enters at the low end of the market, thriving on low margins but generating positive cash flow to plow back into improving the product (for example, the PC industry). Over time, the products improve and draw in more customers attracted by lower costs, convenience, and improved quality.
With a growing market and revenues, the disruptive technology eventually gets better, and starts biting off more attractive market segments controlled by the older industry leaders. The dominant players, who couldn’t devote resources to developing products that seemed only for the low end or marginal markets, then become threatened by a disruptive market shift brought on by the innovation. At the end of the industry disruption, the established technology goes head to head against
the disrupter for the choicest markets, and usually loses.
The market dynamics for disruptive innovations have hit every industry, and it would be foolish to think higher education is immune to these forces. In each case where a disruptive technology reshaped an industry–computers, cars, telecommunications, retailing, ecommerce, for example–the "superior" established technology failed to an up-and-coming disrupter. Why? Because the market was unwilling to pay the price for the increased functionality of the superior product. IBM’s mainframe and Digital’s minicomputers were excellent technology, but the new PC was cheap and "good enough" for many personal and business users. Christensen’s rule, simply stated, is this: knowledge, technology, or a proprietary product that exceeds what the market is willing to pay ceases to be a competitive advantage.
The Internet itself as a technology isn’t the disruptive innovation that is changing education, but it is the enabler or necessary condition of the major disruption: the disruption is being caused by the convergence of the Internet’s user-centric information and communications platform, the customer-centric economy of Internet-enabled business, and the demand for learner-centric continuous education. The disruption represents a thorough market shift from supply-side to demand-side control: universities, the traditional supply-side controllers of the product, are no longer in control of the marketplace. The learner is a customer
with choices, and elearning will be validated by the marketplace and by employers, not by the established education suppliers. Higher education is certainly undergoing a disruption through the Internet’s ability to deliver a "good enough" learning and credentialing product for a growing market segment. The innovations will be made by companies and organizations that will offer unbundled products, offer less for customers who want less, and the revenues will fuel the growth of a whole new industry outside the traditional higher ed industry. The cash flow to the new elearning industry will allow new learning providers to improve their products and services and reach an even larger market, one that was once assumed to belong mainly to colleges and universities. Soon, all learning will be, or include, elearning. Universities now risk having the future defined in advance by forces they could not capture.
Even Harvard Business School, according to Christensen, is vulnerable to disruptive innovations from below their market. While the school sees itself as the leading school for corporate leaders, a growing trend is for corporations to train their own people in corporate universities and through just-in-time elearning from outsourced providers. Harvard is in danger of becoming, in Christensen’s phrase, a finishing school for management consultants. Why? Because a Harvard degree costs $200,000, and corporations can create something "good enough" for a whole lot less. Few people will be able to get a Harvard degree, but elearning will allow many to get fungible knowledge and credentials that will serve them in the marketplace.
As I consider the conditions in traditional higher education today–an internal culture of professional rivalry and zero-sum competition for resources, local fiefdoms, risk-aversion, supply-side and control orientation, and the inability to convene the organization for making decisions affecting the entire institution–it seems almost
impossible to deploy a new business model based on the Internet demand economy that is already creating a new learning marketplace. With Clayton Christensen’s model for describing how industries react to disruptive innovations, it’s not difficult to extrapolate a future from the current conditions in most universities.
Universities will react with fear and control to protect their market and the bundled campus product and will focus on satisfying today’s customers. Fear of the open, customer-centered, and demand-driven Internet economy will cause most universities to retreat into defensive positions, using old methods to guard brand equity, reputation, "quality," and exclusiveness of entry. Few universities will understand the new economics of value created by the networked knowledge economy, which is based on abundance and ubiquity as opposed to scarcity and exclusivity. Most universities will be unable to unbundle their product, and newer companies and lower tier schools with entrepreneurial foresight will step into the large lifelong learning and convenience learning marketplace and deliver less for people who want less and at a lower price point than major universities can provide.
The newer elearning paradigm and the business model that will be built around it will become widely accepted in the marketplace, causing a necessary "trickle-up" to most universities and colleges who will eventually see that these services have become a marketplace expectation for students of all ages. By then, universities and colleges that could have led the transition to a new business model and could have captured a larger piece of the marketplace for themselves will find that they have
become dangerously uncompetitive, like IBM’s mainframe business in the 1980s.
Many universities will retain a boutique, specialized business for an elite, wealthy market, but they will face great challenges to move into the larger marketplace created by the disruptive innovation of elearning, distributed knowledge, and ubiquitous access to information. Instead of moving into an emerging market that is being formed regardless of the higher education industry’s active or deliberate participation, most universities will miss the opportunity to extend their missions as education providers, to expand their marketplace to include new sectors with new revenue sources, or to be leaders in the creation of the new learning paradigm generated from the Internetworked world.
A New Business Model for the Elearning Revolution
There is an alternate future to the disruptive innovation outcome. Universities can respond to changes in the marketplace and seek to capture some of the 90 million adults in continuing education by developing a new business model around a new, and different, unbundled product.
|Steps Toward a New Elearning Business Model for Universities|
|1. Unbundle the product to
include the components sought by the larger life-long learning marketplace:
learning services and credentialing.
|2. Identify those areas where
the university has a competitive advantage in the marketplace, and respond
to the demand drivers of the Internet economy.
|3. Segment the total market
served and bring differentiated products and services to the marketplace
|4. Price differentiate for
the market segments and differentiated products. Match pricing to product
(e.g., differentiate campus experience from elearning product/service).
|5. Focus on core business:
quality elearning products and customer service. Appoint a guru for Instructional
Design and Educational Technology to coordinate elearning course design
and quality control. Focus on assessment and competency based outcomes.
Outsource everything that isn’t in core competency.
|6. Use the Web to place the learner at
the center of the experience and build collaborative communication environments
for online students.
|7. Install appropriate IT infrastructure
(build or outsource). The system must be reliable and provide a good experience
|8. Provide customer service
and focus on providing a satisfying online experience for learners according
to their criteria for quality.
Table 4: A New Elearning Business Model for Universities
An ongoing challenge to universities as quasi-monopoly industry leaders is the need to differentiate elearning services and knowledge products for the marketplace of online customers. This means determining whether the university can move into new and different business lines. If so, the university must differentiate the online product or service for different customers and be clear about not confusing or conflating the bundled campus experience with the online product. There are different market segments and customers, different products, different pricing, different business models.
The growing life-long learning market is similarly segmentable, and the largest segment will respond to low cost and convenience over brand or prestige. The challenge for universities considering the elearning marketplace is the business design and the ability to develop new lines of business with appropriate market-driven differentiation. If we follow William Gibson’s observation that "the future is already here, just not evenly distributed," then it looks like few universities will emerge as leaders in this transformation of learning, and a big chunk of the marketplace will go to new learning providers.
The elearning revolution is already underway, and the marketplace for education services in the Internet economy is rapidly being defined without much leadership from the incumbents in the industry, the traditional colleges and universities. Education will become the next big consumer product on the Internet, and there will be multiple providers of learning services and credentials in the marketplace. This transformation is nothing short of a Copernican revolution in education through the converging forces of interactive technology and the demand-side economy of the Internet. Of course, no thoroughgoing social and economic change is ever totally
"good" in some absolute sense, and Americans are prone to treat technology with excessive quantities of hope, hype, and hysteria. But the education revolution underway isn’t vaporware or hype, although there’s been some hysteria and anxiety in the face of change. This revolution is great for students of all ages and for all of us life-long learners, who are also savvy enough to know that we’re consumers with choices who want marketplace or real-world validation for our knowledge, not simply academic credit. I’m looking forward to working with as many friends and colleagues as possible to create an education future that unleashes more of the democratizing power of the Internet.
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