Four lessons universities can learn from the booming business of learning


Apr 10, 2018

It’s a tough time for colleges. Enrollment has declined in each of the past five years, largely concentrated in for-profits, but public schools are seeing drops as well. Demographers predict further drops in demand, one of many factors putting pressure on the traditional business model of college.

At the same time, it’s an incredible moment for the business of learning. Waves of technology are driving growing demand for life-long learning. Observers predict a significant increase in demand for credentials in order to meet the economy’s need for a more skilled workforce. Edtech is seeing massive inflows of funding, and successful startups are proliferating in higher ed.

The market for higher education is experiencing tectonic shifts, not just in the demand for learning, but also in the models of how it is supplied. New providers are offering online-enabled, bite-sized learning experiences tailored to the needs of the workforce.

But can traditional institutions play in higher education’s growth markets?

Some are starting to. Here are four lessons that colleges and universities can learn from the disruptive change taking place in higher education:

1) Online learning can expand access and lower costs…with the right business model

The internet has increased access and lowered costs in a range of industries, from therapy to real estate to servers. It holds disruptive potential in higher education too, although it doesn’t always play out this way. In many cases, schools are using online education as a hybrid innovation; that is, employing disruptive technology (the internet) to sustain their existing business model. This can mean that online courses actually cost more than their brick and mortar equivalents, and that schools aren’t always taking advantage of online courses to scale and bring new consumers into the market.

Disruptive players, on the other hand, embed the disruptive potential of online education within a new business model. Schools like Western Governors (WGU) have re-engineered the design of college to expand access, increase supports for students, and radically lower the cost of college. Creating a new business model requires the creation of an autonomous unit (or in the case of WGU, founded in 1995, the development of an entirely new entity).

2) New funding models can change organizational incentives

In the traditional “pay-for-enrollment” funding model, students pay tuition for the privilege of enrolling. Whether they get a job after school, graduate, or even finish the semester, the school keeps the revenue, and the student holds the risk. A number of potentially disruptive players in higher education, however, have taken a different tack. Many are pursuing non-traditional funding models, including income share agreements (ISAs), and outcome-contingent tuition. For instance, Lambda School, a coding bootcamp, charges its students no tuition up front, instead taking 17% of students’ salaries for the first two years after graduation. Based on typical developer salaries, this should create healthy revenues for Lambda school. But it changes the equation of risk significantly.

In these new funding models, the school (or a third party) holds the risk. This means that schools have skin in the game—and a big incentive to make sure that they support students through the program, provide a relevant curriculum, and enable students to be successful in the job search process. Adopting these models could help traditional schools attract new students, but more importantly, it could help align their business models to allow them to compete on outcomes.

3) Workforce alignment can power the business model of higher education

Traditionally, the trajectory of competition in higher education has been defined by prestige. Schools have climbed the rankings by producing more research, taking in more financial resources, and by attracting increasingly elite students and professors—but none of these connects directly to improving student outcomes.

Disruptive entrants are playing a different game: they are laser-focused on workforce outcomes. This leads them to involve industry practitioners in program and curriculum design, to partner with employers on experiential learning opportunities, and to facilitate student’s job searches. These players aren’t competing based on how exclusive they can be. Instead, they are competing to create value for students and employers. Traditional colleges can embrace this strategy as well, by building partnerships with employers that influence curriculum design, project-based learning opportunities, and recruiting pathways.

4) The market for unbundled learning experiences could be massive

Traditional college is perhaps one of the most highly bundled products in the world. Lasting four (or more years), it not only includes a dramatic range of academic experiences, but also residential living, meals, social and extracurricular experiences, healthcare, and the opportunity to play ultimate frisbee.

But some learners are overserved by all of this, particularly working adults who need to upskill or reskill. These students are hoping for a bite-sized, unbundled learning experience to help them make career progress in the context of a turbulent economy. A plethora of microcredentialers, bootcamps, and online course providers are stepping into this market.

Traditional higher education could too—but it will require a new business model. This market doesn’t just require a different curricular offering, it also requires new product development, new sales channels, and new customer support. Only a handful of traditional schools are stepping into the market so far.

Alana leads the Institute’s higher education research and works to find solutions for a more affordable system that better serves both students and employers. In this role, Alana analyzes disruptive forces changing the higher education landscape.