Higher education faces serious challenges. Their ability to generate intellectual property still matters. Their reputations still matter.
- But the physical plant--the campus--is expensive.
- Long-term contracts are already being unilaterally re-written at state universities under the cover of state budget crises. But the precedent has been set.
To think this through, it can be helpful to remember two industrial transitions: (1) Hollywood after World War II, and (2) bookstores, video stores and music sellers in the last decade.
Take Hollywood first. The declension is three short steps.
1. The status quo is very profitable. Hollywood's business model is simple.
- Own the whole chain--from production to distribution to consumption (movie theaters).
- Own physical plants: film studios and movie theaters. Costs to start a new production are minimal. You must produce a lot of product so as not to have unused capacity. Owning theaters means you can always show sub-par product.
- Keep top-notch talent under long-term contract.
- Collude to control supply. The major players only produced a limited amount of product.
2. A big change comes. In 1948, Hollywood studios were forced to sell their theater chains. At the same time, television comes along.
- The physical plant and long-term contracts are now drains on the bottom line, rather than advantages.
- The new distribution system of TV brings lower costs in the physical plant and creates an advantage for temporary labor.
3. Competitors proliferate; the big companies downsize. Hollywood studios sell their physical plants. They get rid of long-term contracts for talent. They start selling to television.
Recently we've seen something similar with books, music and videos.
Convenience. Small bookstores and videostores were never wildly profitable. But people liked the convenience of a local vendor, curated contents, knowledgeable sales staff.
- Now, social networks mediate recommendations.
- Crowdsourced reviews tell shoppers what they need to know.
- The convenience of online and overnight delivery trumps the convenience of leaving the house and walking a few blocks or driving a couple of miles, stopping in the middle of a trip, adding one more errand.
- Shopping becomes more convenient, efficient and impulse-driven. The shopper need not leave the house. Only a click is required.
- Everyone buying from the same vendors means information can be aggregated to help the shopper. Shoppers choose based on other users' input, and software steers shoppers towards likely interests.
- Delivery efficiencies emerge. Books show up on your doorstep. Music downloads to your computer. Movies and TV shows stream to your phone.
Downsizing. Borders is gone. BN.com is hanging in there: some say its chief value is now in its ebook reader. The major music chains--Tower, Virgin--are gone, their flagships now selling inexpensive furniture (in some cases). Blockbuster closed locations. A kiosk outside of the 7/11 is the new form of convenience.
In this context, it's not hard to see what will happen to higher education. An Amazon will come along. Or an iTunes or a Netflix or a Youtube or a Hulu or a Redbox.
Surely, you say, education cannot be like making movies or selling books, videos or music. Maybe not.
But if distance learning is not the Amazon-iTunes-Hulu-Netflix-Redbox for higher ed, then something else is.
--Edward R. O'Neill