Higher Education’s Competitive Moat

Technology has changed dramatically, but distribution technology in higher education has not. We figure out how higher education bundles different products together to create a competitive barrier to new entrants, and then make a prediction about how everything will change in the future.

Two Ways to Make Money

Jim Barksdale, legendary entrepreneur, and the former co-founder of NetScape along with venture capitalist Marc Andreessen (also legendary), has been credited with the following aphorism:

In business, there are two ways to make money. You can bundle, or you can unbundle.

Marc Andreessen explains:

The way I think about it is– at least in the world that I work in, sort of tech and internet media– bundles sort of emerge as a consequence of the current technology.

So the newspaper bundle– of the idea of this kind of slug of news, and sports scores, and classifieds, and stock quotes that arrive once a day– was a consequence of the printing plant, of the distribution network for newspapers, using trucks, and newsstands, and newspaper vending machines, and so forth.

But that newspaper bundle was based on the distribution technology of a time and place. And when the distribution technology changed, with the internet, there was going to be kind of the great unwind.

I’d like to talk about this aphorism within the context of higher education. The bundle in question is “college” or “university” itself. That’s the bundle.

Higher Education Distribution Tech

Like newspapers, the higher education bundle evolved in a technical era completely different from the one that exists today. The technical innovations available in higher ed hundreds of years ago were effectively pen and paper, chalk and chalkboards, and lots of books. Based on these technologies, the “distribution technology” of knowledge evolved accordingly and required:

  • Finding humans who could teach something of value and hiring them to teach full-time (professors)
  • Creating a physical space for professors to teach other humans (a classroom)
  • Knowledge assessment by professors in classrooms (proctored, written tests)
  • Efficient utilization of both professor’s time and classroom capacity (full-time instruction)
  • Learners with the time and resources to afford spending their days doing nothing but learning from professors in classrooms (full-time students)
  • Accommodations for students to live close to classrooms and professors (a campus)
  • Activities for students to engage in when not stuck in a classroom (college athletics and Greek life)
  • Credentials distributed on hard to copy, elaborate pieces of paper (diplomas, often framed and hung on a wall)

Technology Has Changed Enormously

Imagine all of the technologies that have changed over the last 100 years alone: television, computers, the internet, podcasts, video and audio recording and streaming. If it began today, higher education would evolve in a completely different way. Based on today’s technology, imagine how the “distribution technology” of knowledge might be different:

  • Humans can transmit knowledge by recording their knowledge and distributing it online in their spare time. No full time professors required.
  • Every human with access to the means of knowledge production and distribution (today, a smartphone and an internet connection) is a potential “professor”. (No imagination required for this example. Sal Khan basically founded Khan Academy this way.)
  • There are no professors or classroom resources to “utilize” because there are no full time professors and no buildings
  • Full-time instruction is unnecessary because education material only needs to be created once, then copied at a marginal cost of $0
  • Knowledge consumption can be done anytime, so the need to be a full-time student is also unnecessary
  • Knowledge consumption can be done anywhere, so even campuses are unnecessary
  • Since campuses are unnecessary, so is the need to fund campus sports and activities
  • Knowledge assessment can easily be performed by software and performed anywhere

Has Distribution Technology Changed, Too?

The level of innovation in higher ed should be measured by the distance the distribution technology has traveled along the continuum above: from professors, classrooms, and full-time students, to part-time, continuous learning, software certified networks. So, how has 100 years of technology innovation changed  distribution technology in higher education?

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Typical college classroom, 1903.
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Typical college classroom, 2017

Answer: It hasn’t!

You may notice that PowerPoint slides have replaced chalk, projector images have replaced chalkboards, and laptops have replaced pen and paper. However, these are not the “distribution technology”! They are the presentation software technology, optics technology, and data storage and retrieval technologies. The “distribution technology” is all those full-time students in all those classrooms listening to lectures in person from full-time professors.

No change.

Higher Ed’s Competitive Moat

The transition to new, online-only, education models hasn’t happened by any stretch of the imagination. The college or university bundle, unlike the newspaper, remains largely intact. Turns out, higher education has used the last few hundred years to build a huge, competitive moat. The question is, how?

Humans have multiple abilities, some learned and some natural, that I call the Ability Ladder.

AbilityLadder2

It’s obvious that higher education helps students enhance and certify their learned abilities: knowledge, skills, and tools. Colleges provide a standardized bachelor’s degree to students that complete four years of education. We use bachelor’s degrees to demonstrate our level of ability in the job market. For example, a bachelor’s degree in Economics certifies that a person has a sufficient degree of knowledge, skills, and tools required to work in banking.

So, is a bachelor’s degree the secret to the higher education bundle? Not quite…

Consider the following: is a bachelor’s degree in Economics from Harvard the same thing as a bachelor’s degree in Economics from Missouri State University? If you’re thinking to yourself “No!”, the question is…why? Are the classrooms at Harvard shaped in a special way? Are the professors at Harvard exceptional at making PowerPoint slides for their lectures? Are there special chemicals in the air above Cambridge, Massachusetts that enable students to memorize more equations?

Looks like we’ve found the competitive moat of the higher education bundle…

Intelligence Certification

Higher education has pretty much everyone fooled that its product bundle is training students to learn new tools, skills, and knowledge. However, higher education has a competitive moat: its social role as the primary arbiter of a student’s intelligence.

bundle3.png

We all know instinctively that a degree in Economics from Harvard is not the same as a degree in Economics from Missouri State University, and this is why. Harvard has a higher rank, and therefore, if you went to Harvard, you’re perceived as being more intelligent than the person who received the same training, but went to a lower ranked school.

The brand or rank of a college or university is the way we (and most employers) judge your level of intelligence ability, and why every airport bookstore is cluttered with magazines ranking colleges and grad schools. Until there is an alternative method for employers to judge the intelligence ability of graduates and job candidates, the higher education bundle is going to be difficult to unravel.

However, “difficult” does not mean “impossible”.

The Great Unbundling

Here’s my prediction for the future. At a point in the not too distant future, the pressure of technological change will become too great, and the higher education bundle will completely unravel. I call this point in time the “Great Unbundling”. This is when every layer of the Ability Ladder served by the modern University, will have several, well-known, competing businesses serving each individual layer all by itself.

Here’s what the Great Unbundling might look like:

  • Every high school senior submits their SAT scores, GPA, and 3 essays to a national non-profit that grades each component and provides you with your national percentile score relative to your national graduating class. The percentile ranking comes with a handy guide for employers to compare your ranking to traditional universities (e.g. 95th percentile = Harvard, 65th percentile = State U), and an online badge to put on your LinkedIn profile.
  • Adults who never finished high school or took the SAT can complete an IQ test and write 3 essays, send them to the same non-profit, and get the same percentile ranking.
  • Some students and adults will choose instead to work with one of several companies to create a portfolio of work products that demonstrate they can do whatever may be required in their job of choice. Instead of signaling their intelligence to employers, they’re just going to do the work itself.
  • Finally, anyone can work with one of several companies to certify their knowledge of a subject matter, area of skill, or ability to use a specific tool. These micro-certifications, coupled with intelligence certification, will enable employers to evaluate them in a similar way as they could evaluate an adult who purchased the higher education bundle itself.

In the coming weeks, we’re going to look for evidence of the Great Unbundling, starting with the online education companies that are using technology to certify our knowledge ability. We’ll then look at how bootcamps are changing the way we acquire and certify skills and tools. Finally, we’ll find examples of technology that can help us shortcut the need for intelligence certification altogether to cross higher education’s competitive moat.

The Great Unbundling has begun.

 

 

 

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Micah

Micah is the author of Rethink the MBA. He works and lives in Silicon Valley.

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