The Changing Dynamics in Higher Education

Recently, Burck Smith, CEO of StraighterLine spoke with The Evolution.  An edited version of the interview is below.  Smith has spoken in the past about the growing ambiguity in defining a “college,” and on the importance of alternatives in the marketplace. In this interview, Smith expands on those ideas and discusses the impact of higher education’s recent democratization on students and on institutions.

You can access an audio recording of the interview here.   

 

Why are so many different providers entering the higher education marketplace today?

Smith:  Well, I think what you’re seeing in the marketplace is a lowering of the barriers to entry. Online learning in particular; it does not cost very much to create an online course. Heretofore, we have had to organize education in a central spot with big buildings. That’s how we attracted … the students who would be able to convey whatever knowledge we were trying to convey, but that’s not the case anymore. … Although [online courses] have traditionally only been offered by colleges, it’s becoming clear that anyone can really offer an online course as long as they meet whatever standards are set for a college course.

So, the barriers to entry are very low. Content is relatively cheap. The software is cheap or free. And now you’re seeing a growth of people in the space who are offering very affordable courses, but not necessarily through the accreditation channels.

 

How are colleges and universities adapting to this opening of the system?

Smith:  Well, I think they’re nervous and, I think, with good reason.

The colleges are subsidized by our government, whether that’s a direct subsidy to colleges themselves from state governments or that subsidization of students’ ability to pay for college through a loan. … There are a lot of government benefits that flow to colleges. Those benefits are maintained by accreditation, and accreditation has kept lower-cost providers out. And I think mostly because, to be accredited, you must offer a degree program as opposed to offering just courses.

So, what you’re seeing now is really … price equals marginal costs, which is one of the laws of microeconomics. In an efficient market, the price of something needs to equal its marginal cost of production. And you’re seeing, for online courses, marginal-cost providers of these courses coming to the marketplace.

So, they are trying to figure out what this means for them. Is what they offer more than the sum of its parts? If so, then they are in a great position to keep doing what they’re doing and probably enhance their offerings from these new providers. If they are kind of a sum of different parts — not more than the sum of its parts — then they need to figure out what that means when online courses could be offered at a fraction of what they previously have been charged for.

In order to compete with these providers, do you think universities are going to have to make any significant changes to their current model of delivering and pricing programs, or are they going to stick to a business-as-usual approach?

Smith:  Well, you will probably see both. Some will make changes and some won’t.

I sometimes [ask] myself, “If I were a university president, what would I do right now?” And I think if you can create an experience, something that is more than the sum of its parts, and you can price it as an experience as opposed to pricing by the credit or the course, and you have the market power that students are willing to enroll at that kind of pricing model; now, you have something that’s bigger than the sum of its parts.

If you don’t, you’re going to … have real price competition coming from lots of different points. But it requires a culture to really think about the experience it’s giving and to … break the pieces off that [don't] contribute to that experience; essentially, let someone else to do them because it’s going to be hard to maintain them over a long period.

College really has to think about what its value is. I think in many cases it’s going to be its buildings and its geographic assets and it’s not going to be online courses. I think it’s going to be very hard for colleges to compete on price online in the future.

So, if I was a college president, I would probably do what many might think is a contrarian thing right now, but to actually not focus on online but really focus on the physical assets, to focus on the geographic location and the things I do as a college that others can’t replicate more cheaply. And in many cases, it’s not going to be going online.

 

What are the most significant impacts of these changes on the higher education space for students? Is the democratization of higher education making the system work better for learners?

Smith:  Yes, absolutely. Also, I think that requires defining higher education broadly as opposed to accredited colleges. So higher education as a pathway to get your skills upgraded, or to get to the next step in your career, or to learn more, or whether it’s simply for personal growth; whatever it is, the options that are available to students are exploding and they are not going to decrease. I actually would imagine over time that elements of higher education — that is, the accredited system — may diminish over time as options outside of it emerge.

So I think as a democratizing force, you’re seeing tremendous opportunities. I do think there are a lot of questions, still, about what is education exactly. Is it the mastering of skills? Is it mastering of content? Is it something transferable as credits from one place to another? Is it the social stamp of approval? Is it selectivity? A pathway to a job? All of those are questions that are still being grappled with. We have kind of been able to sweep them, all of them, under the rug of higher education, but now we’re being able to tease those apart in sometimes useful and often controversial ways.

But that’s kind of a fun place to be. And it’s the kind of industry you want to be in and wake up in the morning and to go work in.

 

Anything you’d like to add about the changes that the commoditization of the higher education marketplace is bringing to the floor for higher education institutions?

Smith:  Yeah, I think one of the things I meant to note earlier about how it affects institutions: I think some will certainly put their head in the sand and avoid all these questions if possible. The internal dynamics of higher education make that likely the way the faculty government structures work, the ability for institutions to change make it very difficult to embrace changing market dynamics.

Others are going to go in the other direction and they are going to realize that what is happening means that colleges will no longer be able to price — online courses, for sure, but also some of their face-to-face courses — as they historically have and those that embrace that can now use some of these changes as marketing opportunities. And I think that’s where you’re seeing whatever the entity — whether it’s StraigherLine or whether it’s a MOOC, or whatever it is … — [being used] as marketing channels.

My belief is that most of the elite institutions that are getting into the MOOC game are really getting into this to extend their brand. They’re not really interested in taking credits for the MOOCs or lowering their prices, but what they want to do is extend their brand to around the world, really.

There are others, and the sorts of folks who we work with at StraighterLine, who see this as a marketing channel for new students. So, students who come from us are going to need a place to go and that place is the colleges with whom we have articulation agreements. So, others are doing a little bit of both, where they are offering their own MOOCs for maybe smaller amounts of credit in hopes that it translates for new students in their programs. But that is sort of where this market is. On the one hand, those who are embracing these marginal costs pricing opportunities are doing it in partnership with MOOCs, or StraighterLine, using it as a marketing channel. Those who aren’t are kind of hoping it goes away more than anything else.

That is kind of a snapshot of today. I imagine it will evolve rapidly over the next couple of years.