The Great Unbundling of Higher Education

In 2003, the iTunes Store unbundled the CD. For the first time, consumers could purchase the songs they wanted rather than the bundle designated by the artist and label. Sales of digital singles soared but overall revenue fell 50 percent in a decade. Prior to this transformation, the business model for the music industry relied on bundling the music that consumers wanted (singles) with the music that they didn’t want (the rest of the album). That meant the music industry made money it wouldn’t have made without the bundle.

The music industry isn’t the only place unbundling has driven fundamental change. In television, thanks to DVRs and Netflix, viewers now watch individual shows rather than channels or networks. As viewers are given a mechanism for paying only for the shows they watch rather than the thousands they don’t, expect cable and satellite TV bills to collapse. This was the primary reason the stock price of Disney, owner of ESPN, dropped dramatically in early August.

Unbundling was also the undoing of enterprise software. Remember enterprise software? A big-ticket item companies had to customize and implement and then every couple of years upgrade to a new version. But Software-as-a-Service (SaaS) companies changed all that. Businesses (and universities) now “rent” software per user per month, and vendors have unbundled their offering into component parts so that customers only need to buy what they need.

The college degree is higher education’s version of the bundle. In the tuition price of a degree program, colleges and universities combine a vast array of products and services – some educational, some not. As Anant Agarwal, CEO of edX, asked in a 2013 Huffington Post article, “Universities are responsible for admissions, research, facilities management, housing, health care, credentialing, food service, athletic facilities, career guidance and placement, and much more. Which of these items should be at the core of a university and add value to that experience?” It’s a good question; Although these items do not add time-to-credential, as the academic program bundle does, they add to the cost. At the end of the day, this has the same effect on return on investment.

In the enrollment declines evident across a range of non-elite institutions – from for-profits to law schools to liberal arts colleges – many observers see the beginning of the rejection of the bundle by the American higher education consumer.

The “Just-In-Time” Revolution

Consumer preferences are shifting to smaller/faster/cheaper products I call “Just-In-Time” (JIT) education. Coding bootcamps – the first manifestation of JIT – are experiencing remarkable growth. One recent survey projected 138 percent growth from 6,740 graduates in 2014 to a 16,056 in 2015 – greater than any other sector or program in postsecondary education.

In the parlance of enterprise software, JIT is the higher education equivalent of SaaS: buy only what you need, when you need it; when you need more, come back. Just as the goal of SaaS companies is to win and profit from customers for life, JIT providers aim to serve their students for life, providing a range of programs and credentials as students’ needs evolve over time.

The JIT revolution isn’t limited to coding. Take YearUp, for example. YearUp is Boston-based not-for-profit that provides JIT pathways to a professional career for underprivileged students. The program combines 21-week educational programs in several functional areas – IT, operations and finance, sales and marketing, and customer service – with a 26-week internship at employer partners. Moreover, YearUp is definitely not a “Top-Up” program for students who’ve already earned degrees. The program serves students who otherwise cannot access, or are unlikely to succeed at, traditional colleges. Now in 14 cities, YearUp serves over 2,500 students each year and 85 percent of alumni are either employed or in college within four months of completing the program.

JIT also opens up the door to a new revenue model for colleges and universities. Remember the great line from The Blues Brothers, “We got both kinds [of music]. We got country AND western.” In the same vein, colleges and universities “got both kinds” of revenue: tuition AND fees. Unfortunately, both come from the same source, students. JIT providers like YearUp are already generating revenue from a completely different source: employers. YearUp does not charge tuition to students. The entire program is paid for by employers. Most employers are happy to pay for placement if they can be certain they’re hiring qualified employees trained to be productive from day one.

The US Department of Education (ED) is well ahead of our colleges and universities in recognizing the potential of JIT. ED is planning a pilot for universities to partner with JIT providers, allowing Title IV financing for select JIT programs – critical for growth of JIT as it allows providers to compete on a level playing field. Title IV financing reduces out-of-pocket expenses to near-zero for many students, and it’s very hard to compete with “free.” This program is also critical for getting JIT providers to target students out of high school rather than those who already have (expensive) degrees.

Dancing with Debutantes

Whit Stillman’s 1990 film Metropolitan chronicles the adventures of a group of rich, young toffs during debutante ball season. Historically, these events had a practical purpose: to display young women to eligible bachelors from equally impressive upper-class families to foster intermarriage and perpetuate class dominance. But as the lead character notes in the film, debutantes have gone through a rough patch in recent years. Even Prince Philip, a man not known for his progressive views, barred the main London event from being held at Buckingham Palace, calling it “bloody daft.”

Today’s colleges and universities are already too much like debutante balls in their failure to promote social mobility; you shouldn’t have to be a debt, or know one, to have the opportunities that a great college can provide. Debutante balls are also expensive, encompassing membership fees in excess of $16,000 in addition to dance lessons, dresses, and the other accouterments of the event. And like the traditional degree, the bundle of outcomes that constitutes the return on this investment is opaque.

I find it easy to imagine that, in a decade or two, once JIT programs and providers have proliferated across disciplines and professions, a friend telling you his daughter is enrolling in a degree program might provoke a similar reaction to hearing today that she’s planning to come out as a debutante: Is that really necessary? Isn’t that elaborate, expensive and over the top?

The Great Unbundling of higher education will mean many changes for our programs, institutions, faculty and – most importantly – students. Those of us that don’t begin to prepare for the unbundling of degree programs may find ourselves a decade from now with the time – but perhaps not the money – to attend debutante balls.

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