PRESS RELEASE

Cybera, Inc., today announced that it has closed on a new Series D round of convertible preferred stock. With this new round of capital, Cybera will be able to fund accelerating growth of its cloud-based security services. Recent customer wins with global Fortune 100 accounts are driving the growth and will result in significant expansion of Cybera’s service footprint. Adams Street, Chrysalis Ventures, Claritas capital, and several of Cybera’s existing angel investors were participants in the Series D offering.

“With some recent wins, such as ExxonMobil, we are poised for a very strong year of growth,” said Cliff Duffey, CEO and President of Cybera. “This new capital will allow us to ramp our staff and inventory to meet the tremendous new order volume that comes with these new customer deployments.”

“The company has created new high-growth market opportunities because it has successfully transitioned its business to focus on network security,” said Wright Steenrod, a principal with Chrysalis Ventures. “IT security continues to be a sector that we believe will outperform the market, and we feel Cybera’s strategy and position is strong.”

Cybera’s flagship product, Cybera ONE, is the only network security solution to integrate remote firewall, intrusion detection and prevention (IDP), wireless IDP, and guest hotspot services with cloud-based VPN, logging, archiving, and event management. Cybera’s SCA-315 appliance is also the only full-featured network security appliance to include embedded 3G/4G wireless for primary or backup connectivity. Proceeds from the Series D funding will go to expand Cybera’s technical support, sales and marketing capabilities.

About Cybera

Cybera Inc. is a leader in cloud-based security and application services for multi-location businesses. Cybera ONE is a cloud-based platform that provides the greatest flexibility in deploying security and application services to multi-site businesses at the lowest cost and risk. Cybera’s security solutions are deployed at more than 10,000 businesses throughout the United States across leading brands, including Shell Oil, Wendy’s, Taco Bell, Blimpie, Cold Stone Creamery, O’Reilly Auto Parts and many others. By certifying applications on the Cybera ONE platform, partners are able to benefit from the ability to develop and deliver new services, reduce sales cycles, minimize integration and support costs, increase revenue and reduce risk. Cybera has been named to the Inc. 5000 for five consecutive years, and the Deloitte Technology Fast 500 for two consecutive years. For more information, visit http://cybera.net/.

About Chrysalis Ventures

Chrysalis Ventures manages one of Mid-America’s largest funds for early-stage and growth investments with approximately $400 million under management. Since 1993, the firm has invested in over 65 companies, primarily in the healthcare and technology sectors. With headquarters in Louisville, Kentucky, Chrysalis has offices in Cleveland, Pittsburgh, Ann Arbor and Houston. The firm seeks to partner with entrepreneurs to build enduring businesses in industries undergoing significant transformation.

Rip Empson is a writer and rabble-rouser at TechCrunch. He covers startups, music, social, mobile, health, and education. You can reach him at rip[at]techcrunch[dot]com → Learn More

http://techcrunch.com/2012/04/14/straighterline-raises-10-million/

A year ago, Peter Thiel called it a bubble. Whatever you call it, the cost of attaining a college degree has skyrocketed to the point of absurdity — to the point of one trillion red flags. Student debt in the U.S. recently pushed over $1 trillion, and the average debt per student now stands at more than $25K. (And 30 percent of students are more than 30 days overdue on payments.)

StraighterLine, a Baltimore-based startup, is one of many young companies trying to find a solution to these rising costs, through online education. Founded in 2010, StraigherLine offers a low-cost, subscription-based service that allows students to take a variety of accredited, general ed courses online. And, now, with the goal of bringing its service to a wider audience, the startup has announced that it has raised $10 million in series A funding.

The round of financing was led by New York venture firm FirstMark Capital, with contributions from City Light Capital and existing investor Chrysalis Ventures, among others. The company said that it will use its new capital to accelerate its outreach to colleges, employers, and students, and focus on building a viable, next-gen market for credit-bearing, web-based general ed courses.

With unemployment remaining fairly high and with non-traditional students (older people, single mothers, workers retraining) returning to academia, competition for already-scant resources is growing. Institutions are struggling to carry the load. Yale recently decided to add 250 students to its incoming class, which cost the university a quarter of a billion dollars.

Luckily, as online content distribution media have matured, the quality of online ed is fast-improving as a number of startups, like Khan Academy, 2tor, ShowMe, Udemy, Udacity, Grockit, Lynda.com, and the Minerva Project are all showing how video, mobile devices, games, and advanced web platforms can transform distance learning into low-cost, viable supplement (if not alternative) to on-campus learning.

StraighterLine, too, is focused on bringing price transparency to online education, offering general ed courses that students generally take (and are often required) during their freshman and sophomore years, like Algebra, Biology, Calculus, U.S. History, and English Composition, to name a few — on the Web. If we say the average price for a private institution is about $32K per year, StraigherLine’s pricing compares favorably, with the option to pay $100 a month, plus $39 for each course started, $399 per course, or a full freshman year education for $1K.

Included in this pricing is free live, on-demand instruction, although if students choose to buy a textbook, they have to do so separately. But the cool part is that the startup’s courses are ACE Credit recommended and can be transferred for credit to a number of degree granting institutions. Over 25 grant credit today, with more than 200 universities across the U.S. having accepted post-review.

There aren’t yet many “big name” institutions accepting StraigherLine credits, and obviously it will be important for the startup to expand its list of participating universities if it hopes to reach the tipping point. But the model is certainly an appealing one, as it means that students can participate in a flexible, low-cost education and transfer into institutions that accept its courses for credit, significantly reducing the cost of a four-year degree. A degree that they eventually receive from the universities themselves, not StraighterLine.

It’s also all about quality when it comes to online education, something 2tor has been religiously focused on and is raising big money to take the necessary steps to ensure. StraighterLine, on the other hand, doesn’t have to offer an Ivy League education like that which Minerva is setting out to build, as long as it offers those quality, prerequisite courses that students can knock out on their way to an on-campus degree. In this way, it can provide a great complement to community colleges and equivalent feeder programs into four-year institutions.

The company said that it is working towards building out its platform so that it can begin to offer the kind of robust online education (multimedia, interactive content, live, on-demand instruction, employment resources, etc.) that is now expected of distance learning. It also plans to boost its offerings around placement, career training, and is hustling to engage the employer community so that its educational platform maintains relevance to students’ futures, beyond just being an easy way to knock out first-year requirements.

The founder and CEO of StraighterLine, Burck Smith, has experience building online educational programs, having sold his online tutoring and support services company, SmartThinking to Pearson early last year.

For more on StraighterLine, check ‘em out at home here.

Baltimore, MD – StraighterLine (www.straighterline.com) announced today that it completed a $10 million financing.  Led by FirstMark Capital (www.firstmarkcap.com), a New York City-based venture capital firm with a history of successful investments in online, consumer-focused and education businesses, the financing will accelerate StraighterLine’s outreach to colleges, employers and students. Further, it will extend StraighterLine’s existing offerings to include a next-generation market for credit-bearing, online, general education college courses. City Light Capital (www.citylightcap.com), a pioneer in impact investing, also contributed to the financing. Returning investors include Louisville-based, Chrysalis Ventures (www.chrysalisventures.com/).

“Rising education costs and declining graduation rates are among the foremost topics in the country. StraighterLine impacts both by driving the convenience and savings of online learning to the student,” said Amish Jani, Managing Director at FirstMark Capital and newly appointed member of StraighterLine’s Board of Directors.

“By bringing price transparency to online education, we believe StraighterLine can harness the attributes of online companies that have been successful in other industry verticals.” Says Josh Cohen, Managing Partner at City Light Capital, “Student debt is one of the most pressing problems facing the United States today. Adding affordability and accessibility to higher education is perfectly aligned with our investment thesis. StraighterLine presents a clear solution.”  StraighterLine, with its low cost, subscription-based model and self-paced, online college courses, has been recognized as a pioneering force in higher education by a variety of education thought leaders, including The Chronicle of Higher Education, Inside Higher Ed, U.S. Chamber of Commerce and leading news organizations like The Chicago Tribune, The Washington Post, Forbes, The Huffington Post, The New York Times and Fast Company.

“By providing a more affordable and lower-risk pathway into college, StraighterLine drives cost savings to the payer – whether student, taxpayer or employer” says Burck Smith, CEO and founder of StraighterLine. “Given the national discussion on college cost, student debt and degree completion, StraighterLine’s business model is timely.”

Currently, the StraighterLine curriculum offers thirty-eight entry-level college courses online including College Algebra, Precalculus, Calculus I, Calculus II, Business Writing, Introduction to Biology, Introduction to Biology with lab, General Chemistry I, General Chemistry I with lab, English Comp I, English Comp II, Accounting I, Accounting II, Managerial Accounting, Macroeconomics, Microeconomics, Business Statistics, Anatomy & Physiology I & II, each with a lab option, Medical Terminology, Introduction to Psychology, Introduction to Business, Introduction to Criminal Justice, Introduction to Nutrition, Introduction to Sociology, Western Civilization I, Personal Finance, United States History I, Student Success, Pharmacology I, Pharmacology II, General Physics I, General Physics I with lab and two developmental courses, with another 9 new courses slated for launch during the first half of this year.

Course credits transfer to StraighterLine’s partner colleges and universities or through the ACE Credit service.

StraighterLine partner colleges and universities include the following institutions:

• Albany State University
• American College of Dubai
• American InterContinental University
• Ashford University
• Assumption College
• Capella University
• Charter Oak State College
• Colorado State University-Global Campus
• Concordia University Chicago
• DeVry University
• Excelsior College
• Granite State College
• Jefferson Community and Technical College
• Kaplan University
• LaSalle University
• Nazarene Bible College
• New England College of Business
• Potomac College
• Thomas Edison State College
• Thompson Rivers University
• University of the Incarnate Word
• University of Phoenix
• Western Governors University
• WGU Indiana
• WGU Texas
• WGU Washington

About FirstMark Capital
Based in New York City, FirstMark Capital is an early stage venture capital firm investing in visionary entrepreneurs who are creating new markets with innovative technology solutions or fundamentally changing existing markets by applying a fresh approach or new business model. FirstMark partners early in a company’s lifecycle, offering deep industry insight, a broad network of relationships and the operational expertise to build lasting businesses. Select historical investments include Riot Games (Acquired by Tencent Holdings); Duck Creek Technologies (Acquired by Accenture); Netgear (NASDAQ: NTGR); Boomi (Acquired by Dell); StubHub (Acquired by eBay); Netegrity (Acquired by CA); OutlookSoft (Acquired by SAP); and Navic Networks (Acquired by Microsoft). Current investments include: Pinterest, Knewton, Aereo, SecondMarket, Shopify, Lot18, and Lumosity. For more information, visit: www.firstmarkcap.com. For more thoughts on the StraighterLine investment, please visit Amish Jani’s blog: ajnyc.wordpress.com.

About CityLight Capital
Founded in 2004, City Light Capital is a venture capital firm based in New York seeking market-based solutions to major social problems. The firm invests in early stage companies in the Safety, Education, and Energy and the Environment sectors. For more information, please visit http://www.citylightcap.com.

About Chrysalis Ventures
Chrysalis Ventures manages one of Mid-America’s largest funds for early-stage and growth investments with approximately $400 million under management. Since 1993, we have invested in over 65 companies, primarily in the Healthcare and Technology sectors. With headquarters in Louisville, Kentucky, Chrysalis has offices in Cleveland, Pittsburgh, Ann Arbor and Houston. We seek to partner with entrepreneurs to build enduring businesses in industries undergoing significant transformation.

About StraighterLine
StraighterLine has been recognized as a revolutionizing force in education by major news organizations and the U.S. Chamber of Commerce for offering students online courses that earn real college credit for just $99 a month. Fast Company named StraighterLine one of the “10 Most Innovative Companies in Education.”

In order to facilitate the award of credit, StraighterLine has forged partnerships with leading accredited online colleges and universities. A student ultimately earns a degree from those institutions but realizes tremendous savings and convenience by starting with StraighterLine.

StraighterLine’s courses are evaluated and recommended by the American Council on Education’s College Credit Recommendation Service (ACE CREDIT). In addition to the institutions with which StraighterLine has a direct relationship, more than 300 other schools are reported to have accepted StraighterLine coursework for transfer credit.

Currently, StraighterLine offers 38 entry-level college courses online in the Sciences, Humanities, English, Math and Business.

For information, visit www.straighterline.com or call 202-507-7020 or 1-877-str8erline (1-877-787-8375)

Entrepreneurs often find conversations with venture capitalists to be somewhat schizophrenic. In a blink, the questioning can veer from, “Why would anyone use your product?” to, “How do you scale when everyone uses your product?” This can easily make a confused entrepreneur answer, “Um… what’s most important?” For me, both as an entrepreneur and a venture capitalist, there are only two types of problems: Problems you want to have, and problems you don’t want to have.

I recently met with a terrific entrepreneurial duo. Theirs was the classic partnership: one of them was the charismatic sales and business leader; the other was the technical and visionary brains of the operation. Their product was a web-based software application for health insurance companies. They met while they were both working for an insurance carrier, and instantly connected over their mutual aggravation with the same problem.

Their frustration spawned an idea, and then a company. They toiled away for a year, bootstrapped the product to life, found a first customer, and made that customer deliriously happy. Sales force? Development strategy? Support organization? Investors? They had none of that. A product that a customer loved? That they had.

Until this point, their work had been hard: They were coding 24/7, trying to convince others to help for free, selling the product, and pretty much giving up on eating or sleeping. But their decisions were easy: Nothing else mattered if they didn’t have a product and a customer.

Now they were coming up for air and realized that their problems were getting harder to prioritize. Hire sales people or developers? Pursue investors or customers? Customize the product or insist on the cookie-cutter model? Provide high-touch or self-serve support?

In the urgent “now-now-now” frenzy of an early-stage/high growth company, problems fly around like trucks and cows in the eye of a tornado. This is when judgment matters – how does the entrepreneur approach these whirling problems? Which do you avoid, which do you embrace, and when?

Entrepreneurs who succeed eliminate the problems they don’t want to have – a bad company culture, lack of focus, tepid user response, a small market, or a lousy revenue model. Once those are gone, they’re hopefully left with only the good problems: the market’s too big, there are too many customers, not enough employee talent, too much demand for new features or services, and often, copycat competitors.

When confronted with competing problems, I focus on just two things:

1. Eliminate the “don’t want to have” problems first, and in the right order, so you’re not wasting time and money;

2. Be honest with yourself on whether you’ve actually eliminated the problem or are just caught up in your own passion.

Ultimately, staying disciplined and self-aware is easier said than done, but worth the effort.

A couple of weeks ago when Norwest Venture Partners announced its investment in health care cloud provider ClearDATA, the firm said it was the third time it had worked with CEO Darin Brannan. His previous startups Verio Inc. and Website Pros both resulted in IPOs.

So here’s a question for VCs: Do you prefer working with entrepreneur that you’ve worked with before?

I asked that question today during a panel I moderated at Partner Connect 2012 on How to Find a First Class Entrepreneur. The panel featured Jeffrey J. Bussgang, general partner of Flybridge Capital Partners; David Jones Jr., chairman and managing director of Chrysalis Ventures; Scott Kupor, partner and COO of Andreessen Horowitz; and Edwin Poston, general partner and co-founder of TrueBridge Capital, which is an investor in Flybridge and Andreessen Horowitz.

“Great entrepreneurs fail,” said Bussgang, but past failures are not a deterrent to backing an entrepreneur again. “What matters most is whether that entrepreneur has the humility and blueprint to do it again.”

The panelists agreed on that note, and Jones added: “I’ve made money off of those who previously failed.”

Poston pointed out that some of today’s highest valued VC-backed companies, such as Facebook, were started by first-time entrepreneurs.

In terms of geographic preference, the panelists agreed that good entrepreneurs can be found anywhere. Kupor, whose Silicon Valley-focused firm is based in Menlo Park, Calif., says geography doesn’t matter as much as whether there’s a supportive ecosystem and entrepreneurial culture.

That was a refrain echoed by Poston: “We have a big belief in California. It’s easier to acquire talent there and achieve an exit.”

Jones, who acknowledged that he invests in health care and tech companies in the “flyover state” of Kentucky and in surrounding regions, said there are pluses and minuses to investing based on geography. But what matters most is whether the entrepreneur has the right skills set. ”Proven entrepreneurs have fire in the belly,” he said.

“The question is whether the East Coast can generate a mega winner,” Bussgang said. Bussgang, who teaches a class on entrepreneurship at the Harvard Business School, said that although, entrepreneurs can be found anywhere, the next hot spot for entrepreneurs may be in the Big Apple, where his Boston-based firm has already opened a branch.

“In my class, a third of the students want to go to New York to be entrepreneurs. Not hedge fund managers, but entrepreneurs,” he said. “They used to want to go to Silicon Valley or Boston, but New York is a becoming a talent magnet for entrepreneurs.”

http://www.inc.com/alan-ying/are-you-in-love-with-your-product-or-your-business.html

Every business starts with an entrepreneur looking to solve a problem. The entrepreneur creates a product they love, and are absolutely sure others will love it too. Real business success isn’t about a lovable product, though – it’s about sustainable growth and profitability.

The key to this success is to love the business as much the product.

I started my first business by drawing screenshots on printer paper at a nursing station desk in Duke Hospital. When I finished my pictionary scribbles on the page, it was love at first sight.

As with all passionate long-term relationships, I learned a few things along the way: raising money requires more than a vision and enthusiasm; customers have different goals than users; getting a contract is just the start of the real work; getting 100 employees to work seamlessly is much tougher than 10; and making all your customers happy gets harder the more you have.

The most important thing I learned, though, is that loving my product was necessary but not sufficient for my business to succeed. The passion of my team swayed customers to buy the product and users to give it a chance. But after the sale, what they continued to pay for was quality follow-through – consistently great service and valuable new solutions.

Successful follow-through required me to master the unsexy operating details – customer acquisition costs, software release schedules, version control, HR policies, trouble ticket fulfillment, revenue recognition, consistent contracting, strategic planning, product management.

None of these things were on that sheet of printer paper that I fell in love with years before. As with any successful relationship, though, I grew to love (and tried to be good at) these unforeseen details. I loved them because they were necessary for my product to have any chance of fulfilling its world-changing potential that I dreamed of.

As a venture capitalist, I really enjoy hearing the entrepreneur’s story and seeing their passion for their baby… their product. This love for the product is always there, but where entrepreneurs differentiate themselves is in how they approach the business issues.

I’m not saying two guys in a garage should include comprehensive global HR policies in their pitch. But 80% of their slides shouldn’t be product screenshots (like I had when I first pitched), either. In finding the right entrepreneur, I do a couple of things.

First I look for the mature awareness that their startup isn’t always going to be just about the product and the problem it solves.

Second, and much harder, I assess whether the entrepreneur can make good Sophie’s Choice-caliber decisions between their beloved product and competing non-product business priorities.

In the end, great business execution is a commodity. It’s very valuable and certainly not ubiquitous, but it’s not magic. The magic is in the entrepreneur’s passion and its infusion into the products and services they create. But you need both the magic and the execution to achieve meaningful success.

While the U.S. health care system is not yet on life support, it remains a fragmented and unwieldy structure whose rising costs bear little relation to improvements in access or quality. This is despite the introduction of patient management programs, some restructuring of insurance models and efforts to adjust incentives for decision making all across the care continuum.

Click here to read the rest of the article.

As a long-time healthcare investor, I’m glad to report that now, more than ever, many causes are combining to create a “perfect storm” of disruptive change and leading to an attractive investment climate. First, healthcare reform legislation has significant structural impact, with new features such as administrative cost caps, new pay-for-performance models, healthcare insurance purchasing exchanges and information technology mandates. These features create a deep need for innovative services and technology solutions that reduce costs, focus on outcomes, and improve coordination and productivity for all participants.

Second, other secular trends in healthcare and technology are converging to create opportunities. The rapidly declining cost of genetic testing is creating a new market for information and analytics services. The increasing share of healthcare costs borne by the consumer (by one estimate, growing from $200 billion today to $500 billion by 2015) calls for the development of health literacy, shopping support and spend management tools helping the consumer navigate what has traditionally been a business-to-business marketplace. And the explosive proliferation of information both as the industry continues to digitize and as more parties continue to create, organize, manage and synthesize all this data will cause a significant boom in innovative healthcare IT companies.

All of this takes place against the backdrop of broader technology change, bringing mobile devices into the hands of more and more physicians, allowing consumers to communicate in new ways and navigate intelligently through a world awash in information.

As a result, this “perfect storm” is creating a huge wave of innovative companies that are advancing change inside the traditional healthcare system and increasingly helping deliver health and wellness outside the confines of a doctor’s office. Born of innovative technology and services models, these companies are revolutionizing how healthcare is planned, delivered, evaluated and paid for.

Here at Chrysalis Ventures, our nearly two decades of healthcare services and technology focus gives us a front-row seat to the rapid changes going on in the industry. In 2011, we invested in two companies that are great examples of new and innovative approaches to healthcare, adding to our portfolio of great companies.

We look forward to working with you in 2012 and beyond.

Kevin Carey
March 13, 2012 | 12:00 am

In the last years of the nineteenth century, Charles Dow created an index of 12 leading industrial companies. Almost none of them exist today. While General Electric remains an industrial giant, the U.S. Leather Company, American Cotton Oil, and others have long since disappeared into bankruptcy or consolidation. Today, the Dow Jones includes giant corporations that hadn’t even been created when Ronald Reagan first sat in the Oval Office. That transition is generally understood as the natural consequence of innovation and competition in a changing world.

Four years after Dow invented his average, a group of 14 leading research institutions created the Association of American Universities. All of them exist today. While a few have faded from prominence, most of the original members—including Harvard, Princeton, Stanford, Berkeley, and Yale—are now, as they were then, the most sought-after and well-regarded American universities.

The historic stability of higher education is remarkable. As former University of California President Clark Kerr once observed, the 85 human institutions that have survived in recognizable form for the last 500 years include the Catholic Church, a few Swiss cantons, the Parliaments of Iceland and the Isle of Man, and about 70 universities. The occasional small liberal arts school goes under, and many public universities are suffering budget cuts, but as a rule, colleges are forever.

I think that rule is going to change, and soon. Many factors explain the endurance of higher education institutions—the ascent of the knowledge economy, their crucial role in upper-middle class acculturation, our peculiar national enthusiasm for college sports—but the single greatest asset held by traditional colleges and universities is their exclusive franchise for the production and sale of higher education credentials.
In the last few months, however, that monopoly has begun to crumble. New organizations are being created to offer new kinds of degrees, in a manner and at a price that could completely disrupt the enduring college business model. The question is: Which colleges and universities will be the G.E. of the twenty-first century, and which will be as forgotten as U.S. Leather?

THE FIRST SIGN came in mid-December, when the trade publication InsideHigherEd wrote about a group of adjunct professors at Stanford University who were offering their courses in Artificial Intelligence and other computer science topics to anyone in the world, online, at no charge. Tens of thousands of students had signed up. The availability of free Internet courses itself wasn’t all that innovative—MIT’s Open Courseware initiative is a decade old and elite schools like Yale and Carnegie Mellon have followed suit. The news was that the Stanford professors were letting students in their global classroom sit for the midterm, at proctored sites around the world. Those who did well on the A.I. test and a later final exam got a letter saying so, signed by the professors, a pair of well-known roboticists from Silicon Valley.

A few days later, MIT made a major announcement: The world-famous research university would be creating a new non-profit organization called MITx. It, too, would be offering free online courses, designed from the ground up to serve tens or even hundreds of thousands of students worldwide. And it, too, would administer exams to students who, if they passed, would receive a certificate saying so from MITx.

Then, in January, the online higher education company Straighterline announced that, starting this year, its students would be able to take skills and literacy tests developed by ETS, the maker of the SAT, and from the non-profit Council for Aid to Education, whose well-known Collegiate Learning Assessment of higher-order critical thinking and communication skills is used by hundreds of colleges and universities. Those who do well on the exams will get a certificate saying so. The following week, the Stanford professors announced the creation of an independent for-profit company called Udacity, backed by Silicon Valley venture capital, that will offer the same computer science classes that proved so popular, and, again, certificates to those who pass exams.

What all of these new ventures have in common is that they are outside of the existing system of college credits and degrees. The traditional college degree monopoly has long been sustained by three mutually-reinforcing factors. First, colleges are highly subsidized through some combination of direct government funding, non-profit status, and student financial aid. Second, only accredited colleges can receive government subsidies and offer credits and credentials that are recognized by employers and other colleges. The accreditation system, meanwhile, is controlled by existing colleges themselves. Third, our society has made an enormous psychic investment in the idea of traditional colleges. Most people don’t know how to think about credentials any other way.

Straighterline, Udacity, and MITx exist outside of that system. They aren’t accredited or subsidized. The value of their credentials will rest on nothing other than the authority of the grantor and the transparency of the process by which they were granted. That’s why it’s highly unlikely that these credentials will be worth as much in the job market as traditional degrees at first. But in that sense, they fit perfectly with the classic theory of disruptive innovation.

DEVELOPED BY Harvard business school professor Clayton Christensen, the theory holds that there is a consistent pattern across a wide range of industries where disruptive competitors start by competing against non-consumption—that is, by selling inferior goods to people who aren’t served by existing producers. These are generally low-margin businesses that existing industry leaders have little interest in serving because they became industry leaders by selling the best, most profitable products to the consumers who have the most money. But over time, the new competitors get better and better at providing the product or service, expanding into successively more profitable parts of the market, until finally they displace the incumbents.

Online colleges like to apply Christensen’s theory to higher education. But the way they apply it is often imprecise. The common analogy is between online courses and in-person courses. While an online class might not be as good as sitting in a classroom being taught in person by a learned scholar, the thinking goes, online courses are cheaper and getting better all time and so will eventually disrupt the providers of live instruction.

But just as people are ultimately interested in buying holes, not drills, higher education consumers aren’t buying courses or degree programs. They’re buying credentials. And until now, nobody has developed an innovative low-cost alternative to traditional higher education credentials. We’re still stuck with the handful of crude, time-based degrees that have been in use for decades or more. The vast majority of college students acquire an associate’s, bachelor’s, or master’s degree, corresponding to two, four, or six years attending school.

College credentials are a fantastic product to be selling in the twenty-first century. They’re pure intellectual property with a very low marginal cost of production and becoming more valuable all the time, as the economy continually reorganizes itself in a way that values the possession of deep knowledge and complex cognitive skills. They are universally recognized and never expire, golden keys to the parts of the labor market most worth entering.

Traditional colleges and universities exploit their monopoly over this market by overcharging students in order to generate revenue to support things that are important to them. Those things include producing academic scholarship, fielding cash-hemorrhaging professional sports teams, engaging in positional status competition with rival colleges, and avoiding the difficult work of overhauling inefficient administrative and organizational structures in which too many people get paid too much money. Online for-profit colleges haven’t disrupted the industry because while their business methods are different, their product—traditional credentials in the form of a degree—is not.

That’s why the recent emergence of new credentials is so significant. Companies like Udacity and Straighterline can operate without government subsidies and regulatory protections because their method of service delivery is phenomenally cheap at scale. The cost of serving 200 students isn’t that much less than serving 200,000. The predominant higher education business model of the future may be one where the education itself costs students nothing—the availability of free open educational resources is constantly growing—and students only pay small fees to cover the cost of assessing their learning.

The number of organizations offering outside-the-system credentials will only grow. The free online Khan Academy got tons of press coverage last year for Salman Khan’s charming instructional videos. Millions of students have watched them. Khan Academy also offers “badges” to students who pass certain milestones—“Artisan Arithmetrician,” “Master of Trigonometry,” and the like. These are just another kind of non-traditional educational credential. The Mozilla Foundation, funded by the people who developed the Firefox web browser, are sponsoring a competition for the creation of badge systems that will help students organize the credentials they receive from different providers.

The great unanswered question is when the abundance and quality of new credentials will reach a critical mass of acceptance among employers and society at large. Traditional degrees have the great advantage of being simple and universally understood. The problem is that they provide little information about what students actually know and are becoming more expensive all the time. The catalyst will probably be when some large, authoritative organization, like the government or a current member of the Dow Jones Industrial Average, compares the skills and performance of people with traditional degrees to those bearing certificates from Khan, Udacity, and credential-granters yet to come. If the latter can get the job done, they’ll hire accordingly, and then everything will start to change.

MIT seems like an early candidate for the General Electric role, the university that not only outlasts its peers but grows into a huge world-striding organization. Unlike Stanford, MIT is putting its brand name behind the new credentials. It can afford to, because the world will still need places where great researchers push the frontiers of human knowledge and the best and the brightest come together to learn. There will always be a market for boutique educational models that only the wealthy can afford. But for hundreds of other colleges and universities that lack such advantages or foresight, the future may not look anything like the past.

Kevin Carey works for Education Sector, a think tank in Washington, D.C.
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Source URL: http://www.tnr.com/article/politics/101620/higher-education-accreditation-MIT-university