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M.A. Cusumano
publishing, and newspaper and magazine businesses. Many companies
struggled
or failed to make the
transition
in business models. In education, the
negative
effects could occur if free online education sets a new
threshold
price for
the
industry
– zero, or near zero – which becomes commonly accepted and
difficult
to undo. If this happens, education might go the way of other businesses
affected
by platform dynamics and
network
effects, with a few large
organizations
such as
Microsoft, Intel, Google, Amazon and Apple emerging to dominate the
market.
Free
products
and services appear over the
Internet
because the
marginal
cost of
reproducing
a digital good is essentially zero. The marginal cost of
adding
users to an online class of
thousands
of students is also close to zero,
assuming
that there are no human teaching assistants and grading is done by
computers
or
voluntary crowd-sourcing.
But these calculations ignore the
expenses
associated with creating and delivering the content: faculty research,
curriculum
development,
marketing and sales,
infrastructure
overhead, quality control
and
administration.
So, yes, digital goods and services such as software
products,
newspapers, magazines, books, music, videos and even college classes may
have
close to zero marginal costs and theoretical ‘gross margins’ of up to 99%, as
I
wrote about more than a decade ago with reference to the software business [7].
But if revenues collapse, whether they are software
product
sales,
newspaper
subscriptions
or college tuition, then at least some
institutions
will have
another
calculation to make: 99% of zero=zero. In this
environment,
only the large
and
rich survive, except for a few niche players, and the large and rich tend to
become
larger and richer due to the
phenomenon
of
‘winner-take-all’
dynamics, driven
by
network
effects and
positive-feedback
loops [8,9].
When universities offer free courses or inexpensive extension
school
classes as part of their
non-profit
mission, it is laudable. It is even feasible
econom-
ically if they can subsidize their free efforts from other revenue sources:
students
who pay tuition, donors who add to the
endowment,
or companies,
governments,
and
foundations
that fund research and education. But most colleges and
univer-
sities have high costs and limited resources, and revenues tend to be
cyclical.
Someone ultimately has to pay for creating and delivering online
educational
content and services. Some
institutions
will also have to absorb the loss of
what
would otherwise have been
tuition-paying students.
My biggest concern in 2013 was that universities and colleges who are
not
so flush financially or
government-supported
will struggle in the new
environment.
For-profit
universities, whose degrees and promises of
employment
are
already
being
questioned
and investigated by the U.S. Congress, will
probably
be the
first
institutions
to decline or disappear [10]. That may be a positive consequence
for
society. We also do not have to worry too much about the survival of schools
of
very high quality and global
reputations,
which usually also have large
endowments
and multifaceted sources of income. Their ability to charge tuition rates that
reflect
or exceed actual costs may well be
threatened
in the future,
however.
For example, as seen in Figure 1, 10 years ago MIT ran a deficit
and
would not have been able to fund free
MOOCs
during the period 2001–2008,
very different from the surpluses of recent years. In the nearer term, however,
we
should be very concerned about
second-tier
and other universities and colleges as
well as
community
colleges that depend on tuition combined with very
limited
© 2016 Authors; published by Portland Press Limited