Adapt or Partner: What elite universities can learn from Steinway & Sons

I’ve been playing the piano since 1973. I’m lucky enough to own a Steinway & Sons grand, one of the best pianos in the world. Every Steinway is hand-built by artisans with years of training, drawing on the best materials and 150 years of design experience, much of it embodied in patents and trade secrets. As a result, the least expensive Steinway grand lists for $65,000. And the company is not apologetic about it; leadership is reputed to have said “There’s no such thing as a cheaper Steinway.” Steinway owns the high-margin, high-end piano market worldwide, but it’s a small market that’s not growing — Steinway sells about 2,000 pianos per year, compared to over 100,000 for the largest mass-producers. Let’s indulgently call Steinway buyers like myself disciples: people who, for good or ill, are sufficiently fanatical about their feelings for the brand that they are willing and able to pony up quite a bit in order to own one. (Apple fans have been similarly described.)

To compete in the much larger and rapidly-growing midrange and entry-level piano markets, in the 1990s Steinway designed pianos that included their intellectual property and design experience, but could be manufactured in Asia (Boston Pianos by Kawai in Japan, Essex Pianos by Pearl River in China) under Steinway’s supervision and at far lower cost, allowing them to be sold for 1/4 to 1/3 the price of a Steinway. They are permitted in “Steinway-only” music schools and distributed exclusively through Steinway dealers, both of whom are encouraged to use Steinway branding in connection with these pianos. Notably, both brands offer a full-value trade-up to a Steinway during the life of the piano.

Surely some Boston and Essex purchasers are aspirants — they want a Steinway at some point but can’t afford one now, and a Boston or Essex provides a guaranteed upgrade path. But I suspect many more purchasers have no real intention of upgrading, but are still tipped toward those pianos over their competitors because of what economists call signaling: Boston and Essex can bask in the (well-earned) reflected glory of the Steinway brand because Steinway vouches for their design integrity, build quality, and durability. Signaling theory calls these buyers principals, but that’s boring, so I’ll call them adherents. Unlike aspirants, adherents probably will never upgrade (whether they admit that to themselves or not).

Could Steinway have put its own name on Boston and Essex pianos? Perhaps, but I suspect they wanted to preserve clarity around a brand name that has become synonymous with “handcrafted and concert-class.” Could they have built Boston and Essex pianos themselves? No. Steinway’s entire manufacturing process, labor arrangements, dealer and distribution relationships, high-touch customer experience — basically their entire value network — has been so heavily optimized over 150 years to deliver the high-margin product that building the other products would amount to starting a new business entirely. Hence: Designed by Steinway, produced by Kawai or Pearl River with Steinway’s blessing.

What does all this have to do with higher ed? True, the $65,000 price of a Steinway is about the cost of one year of attending Harvard, and the 2,000 pianos Steinway sells per year is about the same as the number of freshmen Harvard admits per year, but there is more to the analogy. As higher-ed researcher Fiona Hollands recently reported, MOOC purveyors such as edX and Coursera have now shifted focus towards alternative credentials awarded for a completing series of MOOCs with high-stakes (so-called “credit-grade”) assessments. These credentials are priced much closer to an extension school professional certificate than to a full degree, typically $700 to $1500. A particularly interesting such credential is the edX MicroMasters (hereafter µM), which unlike professional certificates, Udacity Nanodegrees, or Coursera Specializations, provides a credit pathway to a brick-and-mortar Masters degree. Taking MIT’s µM in Supply Chain Management as an example, a learner who successfully completes that µM has several choices:

  • Adherents will use the µM credential itself for workplace advancement. They’re not interested in the “upgrade path” to a Masters, but the signaling conveyed by the availability of that pathway, enabled by MIT’s well-earned reputation, becomes part of the product and therefore part of the purchase decision. (Adherents may also believe this signaling is important to their employer.)
  • Disciples intend to apply to MIT’s corresponding Masters program. Only about 5% of them will be admitted, but those lucky few can complete their Masters at MIT in 1/2 to 2/3 the time usually needed.
  • Aspirants (including disciples who don’t get into MIT) will apply to selected Masters programs at “university partners” whose brand names aren’t as prestigious as MIT’s, but whose faculty culture and institutional rules allow them to more readily accept an MIT µM as external credit towards a graduate degree. Two examples in MIT’s case are the University of Queensland in Australia (UQ) and the Rochester Institute of Technology in upstate New York (RIT).

Since MIT is too far away for most UQ applicants and too selective for most RIT applicants, MIT doesn’t cannibalize its own program (which is basically at capacity anyway) by marketing to aspirants. UQ and RIT get co-marketing with MIT, including the attendant signalling value, and they get access to applicants who can demonstrably complete MIT-level coursework.

Both disciples and aspirants can save tens of thousands of dollars: for about $1200, they reduce time-to-degree by 1/3 to 1/2, typically saving $20,000 to $50,000 per year in tuition. Sounds like a good deal, right? Yet 2/3 of surveyed students in three µM programs self-classified as adherents with no interest in pursuing a full Masters. Would these adherents be equally interested in Udacity Nanodegrees or Coursera Specializations on the same topics and with comparable employer endorsements but no possibility of a pathway to credit? Anant Agarwal (founder of edX) has said that the #1 criterion used by students to choose online degree program is the university’s ranking. If he is right, it will confirm the µM’s signaling value.

If so, how should the elite universities, whose signaling makes the µM feasible, participate in the µM program? Most elites trying to launch µM programs have run afoul of archaic policies controlled by committees of less forward-looking (some might say fearful) faculty. (Even Georgia Tech’s successful MOOC-based Online Masters in CS exploits a loophole in a prior university agreement that allowed for distance learning but never contemplated MOOCs.) Indeed, why should they fight to bend those policies when only a tiny sliver of µM “disciples” will ever be admitted to their own programs, which are often already at capacity? I argue that the elites (and edX) should pursue a two-phase approach in which neither phase necessarily focuses on feeding students to elite Masters programs. Both phases have clear benefits to all stakeholders, avoid institutional battles around credit transfer, and broaden the applicant pools of universities who might not normally see those applicants.

Phase 1: Design programs that leverage µM signaling to Aspirants. The µM’s successful signaling to Aspirants is based largely on the signaling value of residential Masters’ degrees they feed into. Elites should develop µM programs in whose intent is primarily to “feed” learners to partners’ Masters programs. Aspirants get degree choices, partners improve their admissions funnel through co-branding with elites, and elites get revenue and an increased applicant pool while preserving brand reputation.

Phase 2: Partner aggressively to co-develop programs that attract more Adherents. Today, MOOCs and µMs still primarily serve learners who already hold a traditional degree, so it’s not surprising that marketing surveys suggested framing the µM offering within that same value network. But 2- and 4-year degrees will eventually yield their signalling monopoly to a new value network populated by alternative credentials, which will be within the reach of learners who would never have had access to a traditional degree. That’s when MOOCs will become truly disruptive — when they create a new market by serving customers who have no access to the incumbents’ product (i.e. the residential Masters) at all. When that happens, there will suddenly be far fewer Aspirants, so universities would do well to partner with entities whose competencies are better aligned to serve the many Adherents with a compelling product that the elites are ill-positioned to create.

I don’t know how the value of these new credentials will be determined, but unlike the current system, it won’t rely primarily on the reputations of universities. Like Steinway, those universities have certainly earned their reputations, but enumerating and valuing specific student-facing features that justify those reputations (and the high price) is tricky and opaque, and students are beginning to catch on to this. Meanwhile, for every disciple, there are hundreds of aspirants and thousands of adherents. Like Steinway, most universities won’t be able to develop products on their own that appeal to those learners; they are too heavily optimized to deliver an expensive product, and understandably apprehensive about applying their own brand to a product they don’t control from top to bottom (where the “product” here is the combination of µM plus the remainder of the brick-and-mortar Masters degree). Instead, they will have to find innovative partners with whom a mutually beneficial relationship can be formed. Indeed, edX has an opportunity to jump-start the value networks of both phases by “matchmaking” among the over 100 excellent universities and many prominent employers under its umbrella to create both Phase-1 and Phase-2 programs. If I were them, I’d turn over platform engineering to the open-source community, where there is plenty of talent, and focus edX on this kind of business development, which no one else is really positioned to do.

It has become cliché for pundits to warn traditional universities to “adapt or die” in the face of MOOCs. But Steinway & Sons didn’t adapt, and they didn’t die. “Adapt or partner” seems both more sensible and more actionable.

Thanks to Fiona Hollands (Columbia University Teachers’ College) for comments on the early draft, and to Charles Isbell (Georgia Tech), Jim Hall (RIT), and Kathy Pugh and Krister Svensson (edX) for answering various questions that came up while putting this together; and of course to Steinway & Sons for building great pianos.