A Disruptive Technology survival analysis
The industry chosen for analysis is the higher education services industry where incumbents are Universities and the disruptive technology the industry faces today is the MOOC (massive open online course) platform as provided by Coursera (among others).
Universities are vertical integrated incumbents in a geographically, cultural and value based segmented market. Traditionally the educational services offered by universities were provided as a bundled package, on site, to a very limited number of paying customers (students). Geographic or cultural barriers impose transaction costs significant enough to prevent the prevalence of a “free market” in education. Market segmentation based on efficiency frontier separate top tier high cost high value universities from average cost value all the way to low cost low value offerings that might include unaccredited programs.
While top tier universities have a worldwide recognized brand, their ability to scale up operations and significantly expand their current output is limited. MOOC platforms like Coursera provide them an environment to test, evaluate and fine tune their offer on a large worldwide audience at the minimum cost (for university) of producing the content. The large worldwide audience is obtained by pitching to students a free online course from a top tier university. MOOC platforms like Coursera are helping their partners move the efficiency frontier in the industry and gain a competitive advantage.
MOOC platforms are not the first disruption in this industry. The first disruption in the market was the distance learning pioneered more than 120 years ago that leveraged low printing and postal services costs and widespread literacy in order to offer scalability to educational services offering in line with society needs that resulted from the technological revolution at the end of the 19th century. As technology evolved radio and television was used to enhance the distance learning experience in the mid-20th century. With internet and cloud services, the ability to provide worldwide on demand education leaded to the creation by universities of the first MOOC offerings.
It is important to notice that MOOC platforms are not really competing in the educational services market (as prohibitive sunk costs prevent them) but rather partner with some of the incumbents (top tier universities) in order to significantly extend their market reach and benefit of a profit sharing agreement. The MOOC platform’s business model is up to a point similar to that of a supermarket chain leveraging its logistics in order to increase sale volumes of its suppliers.
For universities the impact is on the business model as they end up competing in a global market. The higher education services: provided by top tier universities are transitioning from “handmade” to “mass production” while struggling to maintain the premium status “quality and scarcity”helped build over time.
General denial or lack of imagination cannot be hold against incumbents in this industry as numerous universities are present on MOOC platforms. However, as they have generally resisted successfully for the last 100 years to the distance learning disruption, universities are reluctant to jump both feet in on the MOOC bandwagon.
We can see challenges differ depending on incumbents positioning on the market. Top tier universities might find morphing their model to accommodate for new opportunities an appealing idea but long history, worries of brand dilution / impact and a long therm profitability decline might hold them back from actively pursuing the transition path. It is easy to notice the hold-back as their offerings typically are unaccredited and the course results not at all recognized. A long history and worries of brand dilution plus a resistance to change and the worry of profitability loos are clearly influencing their approach and acceptance. Risk aversion and cost (even if minor, still a challenge under budgetary constraints) prevents them from developing and delivering their courses on MOOC platforms to their traditional “customers”. There is also the risk, the new business model will not be able to deliver the value customers got used to expect. Distance education lacks the social lever that on campus education at these universities deliver to alumni helping boost their career paths by providing socially enhanced opportunities.
For universities generally catering to specific geographic areas, the MOOC can bring lower costs and extra flexibility to customers thus extending the potential customers base. However here too some challenges might appear as denial, resistance to change and a certain lack of imagination might hold universities back from embracing this disruptive technology.
There is little chance “buyout or liquidate” options will confront universities as they provide a type of public service with deep political support and public financing. Merging capabilities might be a late partial response to market decline for those stalling behind the curve as there is little chance this disruptive technology can be completely avoided in the long therm. Merging capabilities will also be a great answer to talent acquisition limitations they will face in the new environment.
Adopting the new business model and giving up on the old one is a highly improbable programmatic choice for universities that are not already focused on providing distance education services. As supplemental revenue is brought in by MOOC and as market share is extended, it would not be unusual for some incumbents to find out their revenue stream is fueled by the new business model.
From a customer perspective, as MOOC platforms gain acceptance and recognition, the current business model of bundling courses (of high and low quality) will need to face the reality that music industry faced as empowered customers bought only the tracks they wanted from albums after online music platforms emerged (iTunes, amazon). The new efficient frontier will lower the cost of providing high quality education to the great number thus “low cost low quality” providers or even “average” will be at odds.
Some universities will embrace the technology, reduce their field of focus and grow while increasing the quality of their offerings. Other universities will partner or merge capabilities in order to get the critical mass of talent necessary to cover all the curricula. Two forces will be in balance: one pulling towards mutualization/standardization in order to optimize cost and one pulling towards differentiation as key to competitive survival. This will insure quality finally prevails: customers, they will have the freedom to build personalized curricula that matches better their needs and be better served as their particular career needs will require particular continuous education packages.
As for recommendations:
– Universities should evaluate their competitive position in light of the new disruptive technology and the new trend of lifelong continuous education needs. Adopting a strategy allowing them to benefit from growth opportunities and per unit cost reductions, mutualize MOOC courses and reach a global market is a strategic move to make.
– As education is a highly regulated market and incumbents have a significant lobbying power, collusion in order to avoid the effects of the technology is also a possible solution at this time. This will however put them at odds with their mission to “promote and advance knowledge”.
– In the end we should all keep in mind that there is nothing to regret about the disappearance (unlikely) of educational institutions if only due to their inability to adapt to disruptive technologies.