When new technology disrupts an industry, it does so by providing not just cheaper (and slightly worse) alternatives, but by splitting apart economic bundles which prior to disruption seemed innately tied together. For example John Hawks recently tweeted MOOCs are to Colleges what Craigslist is to newspapers. For consumers printed newspapers were about the news, but economically they were bundles of local advertising supported by news as a loss leader. Craigslist unbundled local advertising from newspapers by making it free, which destroyed newspaper revenue. By analogy, Massively Open Online Courses (MOOCs) will destroy college revenue by unbundling learning from college, making online video classes free to anyone. And Universities are (properly) panicking about it, as the Economist notes. To see how this will play out, first we need to split the college bundle into it’s components. Only then can we see which subset of the bundle will be undermined by MOOCs, and what that means for the economic model of colleges.
Taking ideas from here, here, and here, let’s split the college bundle into four top level categories: a) signaling, b) learning, c) norms and d) consumption. Then break this down into subcategories as below. For me the surprise was in seeing how many aspects of the college bundle were NOT about learning and job credentials.
Breaking Down The College Bundle
- Signaling: Job Credentials – a college degree signals employers you have learned skills they need. Note that this is distinct from actually learning the skills themselves (#5 below).
- Signaling: Diligence/Conformity – a degree shows you play by the rules, and signals you will fit into a normal work environment and complete tasks assigned to you.
- Signaling: Social Status – bragging rights to your school provides social rank. And having a college degree of any sort puts you into the top 40% of the US population.
- Signaling: Club Membership – A college degree is an initiation certificate, allowing you to join the club of college graduates from the upper middle class.
- Learning: Job Skills – learning skills you’ll use in your job/careers.
- Learning: Academic Research Skills – learning to be a researcher (getting a PhD, becoming an academic).
- Learning: Counseling – getting formal career and social advice.
- Learning: Social Skill Learning – learning to work and belong in a social group from the upper middle class.
- Norms: Peer Pressure – a college degree is a cultural norm for the upper middle class and anyone who aspires to it. The power of this norm should not be underestimated. Just as Victorian Englishmen were peer pressured to have their suits and top hats, so today you are a freak if you don’t aspire to a college degree. This is both good and bad, but either way is a deep cultural reality.
- Norms: Coercion to Credential – this is the self-inflicted parenting role of college, where administrative staff and culture put pressure on you to plug away. Without this social pressure many fewer people would complete their degree.
- Consumption: Self Improvement Learning – this is learning for it’s own sake. Self enrichment classes which may not pay off except it’s cool to learn about it.
- Consumption: Fun – spending several years going to parties with well off young people is great fun.
First note that a lot of MOOC discussion focuses on how it will impact things at Harvard. But that’s just media bias piled on top of academia’s own self-indulgent interest in top ranked schools. Community colleges make up 40% of college students. And their ranking of the bundle would put more emphasis on job skills/credentials (items #1 and #5 above) than Harvard students, who naturally have greater stakes in signaling and consumption. Disruption starts at the bottom. In fact the true sign of disruption is a product that starts by being of such poor quality it serves markets that could not previously be served. So MOOCs today are getting traction by serving people who would not otherwise be taking college classes at all. Over time this will change. MOOCs will work their way up. But they will attack the bottom first.
To get some context on various aspects of the college bundle, let’s look at Bryan Caplan’s arguement for the importance of signaling. Caplan assert the following are true:
- Students are happy if class is cancelled
- Students care more about their grade than reataing what they learn
- Students believe cheating won’t impact their life if they get away with it
- Students seek easy courses to get good grades
Sounds true enough for most students. Yet I’m a little skeptical of concluding signaling is all college is about, because this list conflates short and long term desires. A student may simultaneous be happy to skip class on a particular day, but be frustrated if class were cancelled all the time. With that said, we should recognize signaling is a critical part of the college bundle. And it’s importance grows as you get into elite schools, where a degree can open doors into the top 1% which would otherwise remain beyond reach. The point here relative to MOOCs is that online schools will be terrible at first at signaling, especially at the Harvard level.
Reviewing the college bundle, we should expect MOOCs to only be good at three things: 1) Signaling: Job Credentials, 5) Learning: Job Skills, and 11) Consumption: Self Improvement Learning. Today most MOOCs are attacking the latter, self improvement learning. But more recently MOOCs are moving into job skills and credentialing. For example this recently announced $7000 Master’s Degree in Computer Science at George Tech. These newer MOOCs are attacking the two most foundational pieces of the college bundle. We’ll see what this means for economic disruption in next week’s post.