Online Disruption in Post-Secondary Education

Is everything the next music industry?

My friend, Martin Smith (HBS ‘13) recently wrote a thought-provoking post on Quartz about why he thinks the education industry is like music and ripe for digital disruption. In this post, I wanted to provide a framework to assess this claim.

Why do industries get disrupted by the internet?

The common understanding seems to be that industry disruption happens when the same value proposition can be delivered cheaper or more conveniently online.

I have not read the academic work on the matter (#irony), but in addition to previous statement, my personal theory on why industries get disrupted comes down to three major themes:

1. Market failure (supply does not meet demand due to structural reasons): e.g. Uber vs taxis
2. Commoditization of distribution: e.g. record labels, stores and Blockbuster vs digital distribution
3. Commoditization of product: e.g. Local newspapers and lower quality newspapers/subscriptions vs blogs

Value Proposition of Post-Secondary Education in the US

Before we look to see if education will be disrupted by online, we need to understand why people seek it (scope limited to post-high school in the US). Some popular theories are below:

1. Vocational Skills: e.g. medicine, engineering
2. Soft skills: e.g. “learning to learn,” socialization skills, network
3. Signaling: i.e. simply the ability to attend college makes you attractive in the job market
4. “Joy of learning”

Does the post-secondary education market fit the conditions for disruption?

Firstly, it’s a large assumption to think that the value proposition of post-secondary education can be replicated online. It’s difficult to build vocational or signaling credibility with an online-only education. Certain vocational skills require practical knowledge and the point of signaling is that what you are accomplishing is difficult (read, NOT convenient). Soft skill learning through online education is limited at best. As for the “Joy of learning,” the vast majority of people (80%+) do not go to college for this reason.

Assuming that it can be replicated online, let’s assess the education market along the themes facilitating rapid disruption.

1. No immediate market failure: There are more seats in US colleges today than students (except the most elite institutions)
2. Distribution is not commoditized. Where you get your education matters. A LOT. Reputations are one of the key differentiating factors of colleges.
3. The product of education is inherently intertwined with its distributor. But certain elements of the education product (e.g. curriculum plans, textbooks, professors) are more commoditized. If you went to Yale or Princeton for undergrad, people probably do not care what textbooks you read. However, most of these items that are easiest to disrupt are a small part of the college education cost bar.

Verdict

Certain previously mentioned elements of the education may get digitally disrupted rapidly (e.g. digital textbooks, tele-professors). However, its unclear if the value will accrue to the end-consumer like other digital disruptions. The best-operated distributors of the education product (i.e. university systems, colleges) have so much brand and market power that they may likely keep most of the cost savings.

In other words, my theory on online disruption in education is that the real winners will be the universities who already have the largest endowments.

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