Big Tech won’t take over higher education, but tech entrepreneurs might

BY MARK JAMISON

Universities are scrambling to figure out what to do if the COVID-19 pandemic keeps many students off campuses this fall. But they might do better to watch out for people like Jeff Bezos.

Bezos’s statement, “Your margin is my opportunity,” seems tailor made for higher education. Universities are costly to operate and to attend. But adding students to online classes is less costly according to marketing professor Scott Galloway (this is consistent with my experience). Galloway concludes that brand-name universities can add online students at minimal cost, causing serious damage to lesser known universities by drawing away their students.

Galloway is one of many voices arguing that the pandemic has doomed the traditional university business model. (AEI’s Jonah Goldberg, Frederick Hess, and Mark Perry have added their voices herehere, and here.)  Galloway believes top schools will partner with Big Tech companies and effectively drive out schools that aren’t currently in the top 50. Top schools provide brand value because of their effective systems for identifying the best and brightest high school graduates. Big Tech companies would provide brand and scale economies, in his view.

He might be right, but it is equally likely that the future will belong to new entrepreneurs. To see why, let’s do come competitive analysis.

What do universities’ customers want?

Universities have at least five types of customers: Research sponsors, elected officials, alumni, students and parents, and students’ future employers. Research sponsors prefer students to be on campus as they are cheap labor, but that applies primarily to doctoral students.

Elected officials primarily want to be recognized for providing high-quality education at little expense. Officials and other alumni want their alma maters to receive money and continue to enjoy special status, so watch for regulations that protect the traditional university business model from competition. What good is your Ivy League diploma if the next generation values Seth Godin’s ALTMBA more?

The interests of parents and future employers revolve around students. In general, students want a good brand (for their careers) and ease. IGI Global says potential students focus on ranking and reputation, career potential, nearness to home, and costs when choosing a university. A University of Michigan study finds that most students value amenities more than academic quality. Galloway says students prefer brand-name universities to signal quality.

Can non-universities provide brand value?

A brand that predictably delivers quality job seekers saves employers money. But there is no reason to believe that the optimal time to screen people for potential is after high school graduation. If a brand was not tied to a university, the screening process could be continuous, through whatever combination of courses, experiences, testing, and other quality controls the brand provider chooses.

And there is no reason to believe that a single university will have the optimal mix of course quality for its students. A non-university brand could allow students to take courses and obtain tutoring from anyone as long as the quality and difficulty screen out students that won’t fit the brand. And it can be lifelong on a subscription basis.

So it is unclear that today’s brand-name universities will be part of the future if they are unable to beat non-university brands that are unconstrained by ivory towers.

Why won’t Big Tech dominate this space?

Big Tech’s business models and reputations don’t fit higher education, which needs scalability, adaptability, exclusivity, and brand. Big Tech can provide scalable infrastructure, but new tech companies can scale up, too. Blockchain will have a role to play: Note how Berkeley has begun using it to track students and award diplomas, and entrepreneurs flourish in that space. Big Tech can provide big data, but it is unclear that their data and algorithms are suited to higher education.

Entrepreneurs will be more adaptable than Big Tech. YouTube, Facebook, Twitter, and others are useful applications. But none are designed for education, where exclusivity, evaluation, and interoperability are important for a customized assembly of experiences that is a credible signal of quality throughout a career. And social media filters exclude people and content that can be important for education. And how many professors will tolerate Twitter or Facebook fact checking their content? Locals.com might be a better model.

Furthermore, none of the Big Tech brands convey the message that they create the world’s best experts in civil engineering, law, medicine, or accounting. A completely different brand is needed.

What holds the transformation back?

It might not be viable. Only experiments and time will tell. Also, regulation provides golden handcuffs for higher education. The president of a major university recently told me that he spends most of his time working with the numerous government agencies that regulate his university. This holds his university back, but the regulations and the numerous higher education subsidies also serve as barriers to competition.

Mark Jamison is a visiting scholar at the American Enterprise Institute.