Traditional revenue sources for U.S. higher education are, and will continue to be, under downward pressure. When faced with such pressure, colleges and universities have a limited set of responses. They can cut costs (with or without cutting quality), raise prices, exit existing markets, pursue new markets, create new products, or pursue any combination of these strategies.
A few institutions have pursued aggressively a set of academic strategies designed to extend the reach of their instructional offerings geographically, or to offer for sale new or repackaged products in different markets. Many colleges and universities are only now engaging in structured dialogue about how emerging information technologies may be employed to enable such strategies.
This chapter identifies an important revenue opportunity for (or threat to) U.S. higher education, identifies strategies for exploiting this opportunity, and raises potential policy issues associated with it. The perspective offered here is unabashedly economic and entrepreneurial. At the same time, my premises honor the fact that colleges and universities are not businesses in the ordinary sense, and I am mindful of the fact that important issues of public policy are overlooked in pursuing an economic perspective. Some of the ideas reflected in the discussion will cut against higher education's cultural grain. The corresponding hope is that the business case for action is sufficiently compelling to stimulate serious dialogue in the academy about an area of growing importance.
Following are seven assumptions about how postsecondary instruction and the delivery and consumption of academic information may change in the next decade. These assumptions do not portend the demise of the classical classroom model of instructional delivery, but rather the enrichment and diversification of this model through the incorporation of emerging technologies. The central assumptions are that in the next decade:
While bold, the assumptions described above are defensible. Regarding network services, growth in use of the Internet and the World Wide Web have exceeded 20% per month for several years. Major investments by the Library of Congress, National Science Foundation, and others in digital libraries will accelerate network acceptance and usage. Importantly, non-higher-education use of the Internet and its resources is now growing at a rate exceeding the rate within higher education.
Trends in personal computing pricing and performance continue to outstrip even the rosiest industry forecasts. It is certainly reasonable to assume that network-ready and video-capable workstations will be commonly available at prices near $2,000. In addition, so-called "network computers" and sub-$1,000 personal computers are placing networked information within the economic reach of anyone with access to a wide-area network, including many of the domestic rural areas and developing nations that have been underserved by higher education.
As regards revenue potential, U.S. higher education, in all facets of its activities, is a $180-billion-per-year industry. While enrollments are rising nationally for graduates and undergraduates, many higher education sources of revenue are diminishing. Total revenue growth for most segments of higher education is likely to slow in the decade ahead, as compared with growth rates in the 1980s. In this context, educational leaders will have to choose among low-growth strategies such as cost containment and capitated enrollments, erosion of program quality, or revenue-enhancing revisions to their institutions' missions. The "infotainment" industry, which includes television, telecommunications, print media, entertainment and other segments, will soon be a $1-trillion-per-year industry. The segments of this industry that produce and manage information content will account for more than $550 billion in annual sales, and revenues in this segment will grow at 15 to 20 percent annually.
In sum, the most economically robust opportunities for postsecondary instruction and distribution of primary source materials may lie outside the U.S. higher education's primary planning delivery mechanisms and markets. New information technologies and trends in the infotainment marketplace will make it possible to bring U.S. colleges and universities into classrooms, and even living rooms, around the globe.
This opportunity carries with it tremendous implications related to the role and missions of many academic institutions and regarding the nature and meaning of access to a higher education experience. Some of these policy implications include:
Finally, participation in this new delivery approach to instruction is both risky and exciting and will require both early strategy setting and institutional planning and investment. In particular, at the microeconomic level, to realize the academic and economic potential embodied in this opportunity, colleges and universities must begin now to determine how to differentiate their instructional offerings from others in higher education or industry. At the macroeconomic level, the application of information technology to the distribution of post-secondary instruction is not necessarily a zero-sum game. As an industry, U.S. higher education leaders should explore how to leverage the global preeminence of U.S. colleges and universities in ways that can increase total revenues. Importantly, success in increasing such revenues will make it possible for institutions to support traditional modes of instruction and to subsidize important but non-remunerative areas of campus life.
In a 1995 speech, Vice President Al Gore stated: "The new marketplace will no longer be divided along current sectoral lines. There may not be cable companies or phone companies or computer companies, as such. Everyone will be in the bit business. The functions provided will define the marketplace. There will be information conduits, information providers, information appliances, and information consumers." Gore's bold but widely accepted vision begs the question of what role, if any, U.S. higher education will choose to assume in this evolving marketplace. After all, universities are both important providers and consumers of information and the evolution of the mass market for information technology will not leave such institutions unscathed.
To frame such a discussion, it is necessary first for colleges and universities to establish some general planning assumptions about information technology and to incorporate thinking about such assumptions into their missions and plans for delivering instruction. Information technology-intensive companies place the utmost importance on this kind of strategic thinking and, in many cases, have defined visions of the future that might surprise many in higher education. For example, according to Oracle Chief Executive Larry Ellison, "... the goal of the great Library of Alexandria was nothing less than to collect all of the histories, all of the science, all of the philosophy that had ever been written -- the collective knowledge of mankind. That's what this is going to be: all of the text, all of the image data, all of the tabular information, all of the audio, all of the video ... will be stored for you [electronically] to call up and review" (Allen, Ebeling and Scott, 1995, p. 31). Such a vision has tremendous implications for higher education.
The most important phenomenon in the evolving information technology marketplace is referred to as convergence. Convergence is the "accelerating trend of companies involved in broadcasting, cable television, computers, entertainment, and retailing businesses to form various combinations in order to gain competitive advantage in the huge new info-tainment market" (Allen, Ebeling and Scott, 1995).
The demise of both the anti-vertical integration consent decrees for the motion picture industry and the financial syndication (fin-syn) limitations on broadcast television -- and more recently the passage of the Telecommunications Act of 1996 -- pave the way for the creation, by merger or alliance, of monolithic information conglomerates. These legal changes make it possible for information developers to also own elements of the information distribution channel and/or the retail outlet. The mergers and alliance activity taking place now is strategic in nature and is designed to align information creation (manufacturing), communications (distribution), and retail selling (the "set top box"). Control of production and distribution has, since the 1920s, been discouraged due to the risks of fostering monopolistic practices. This risk of monopoly underlies the Justice Department's recent concern with Microsoft's Web browser. In this kind of competitive environment, colleges, universities, and other suppliers of instructional "products" will have to view the choice of information distributors as a strategic one, just as the motion picture production companies have been strategically selective about their distributors.
The rush to merge, join, or enter a variety of joint ventures is based on a number of shared assumptions about the nature of evolving information technologies and about the mass market for interactive multimedia. There is general support of these assumptions across a number of firms and industries that will compete in this marketplace. Some of the most important planning assumptions include:
First, it seems fair to conclude that both market forces and technology are converging to deliver many new capabilities in the very near future. Higher education, as both a major supplier and consumer of information resources can neither sit this dance out, nor wait to be asked. Inaction, for example, is making it possible for a variety of new and traditional educators to compete for students' time and allegiance in areas of high academic demand. The possible loss, to new competitors, of enrollments in areas like business or psychology will place new pressures on institutions with comprehensive curricula. In effect, new competition, enabled by information technology, will "cherry pick" those offerings that subsidize much of the academy. Second, higher education -- as a content producer -- occupies the most potentially profitable niche in this convergence and is a product of choice identified in many surveys of consumer preference.
Third, based on the potential for profit, newcomers are likely to be attracted to the business of selling courses electronically. The advantages that higher education enjoys in both accreditation and reputation may be tenuous (in some educational markets), when private industry suppliers weigh in with bigger budgets, better technology, more competitive institutional cultures, and more comfort with managing strategic alliances.
While colleges and universities rarely express their policies, intentions, and practices in competitive terms, the pressure on traditional resources coupled with the emergence of technology-based education delivery systems will force competitive thinking. One particularly interesting case of the assimilation of certain industry values in the higher education context is the University of Phoenix (UOP), which focuses on the educational needs of working adults. UOP is an accredited, degree-granting institution and is a subsidiary of Apollo Group, a publicly traded corporation. UOP's growth in revenues exceeds that of the higher education industry as a whole, by a considerable amount.
Several of the assumptions referred to previously will drive the need for competitive and strategic thinking in higher education. The primary drivers of a changed outlook include:
The early signs of the changing rules of competition are already in evidence. An independent for-profit corporation called the Home Education Network has acquired the right to distribute the content of UCLA Extension's courses via CD-ROM, online services, and direct broadcast satellite. Motorola University contracts with colleges and universities around the world to develop and deliver a curriculum to Motorola Corporation employees. Elsevier Publishing is working with universities to deliver the full text of its materials science journals over the Internet. Microsoft Corporation is working with many colleges and universities to license the distribution and sale of these institutions' library holdings. Finally, as the price-performance of important technologies, particularly network-based video, continues to improve, nearly every U.S. university will engage in offering "distance education." In such a context, competitive advantage will not follow simply because one delivers education this way. Importantly, competitive advantage will accrue to those who deliver such education cheaper, better, or in a more targeted fashion (Porter, 1980, p. 39).
The very idea of marketing seems antithetical, to some, to the mission, values, and ideals of the academic community. The term, if not the concept, is avoided in favor of more noble ones such as development, recruitment, and outreach. Curriculum development, often the exclusive purview of the faculty, is an activity conducted only secondarily with regard to market factors. Once matriculated, student choice is circumscribed by campus resource constraints, faculty schedules, and the underlying philosophy of in loco parentis. These forces are compounded by the fact that, at many of our institutions, faculty bereft of the gift of teaching are, for a variety of reasons, "sentenced" with their students to the classroom. This conspiracy of factors accounts for a portion of every campus's student attrition and is structurally unsuited to the likely competitive market for technology-enriched instruction.
A more likely structural and behavioral model is found in the context of university extension operations. Many university extension operations and other academic institutions that cater to the needs of the working adult student have developed values, business systems, and capabilities that will be required in this new context:
I offer this characterization of the cultural, behavioral, and business attributes of a "market-sensitive" academic institution not for the purpose of advocacy but to accent the fact that the needs of resident students and distant students are likely to be markedly different. Further, it is almost axiomatic that the network-based consumer of higher education intellectual content will be peripatetic in the extreme and, eventually, will have unprecedented choice in course offerings and institutional affiliations. Physical location, student events, or other traditional factors will not likely influence loyalty to an institution, in the network-mediated context. In this context, capabilities like market-influenced curricular planning, technical sophistication, advertising, and instructional quality control will be necessary elements of the instructional delivery system. Institutions that choose to follow this path must assess the compatibility of such value systems, competencies, and business systems with their existing academic cultures and business systems.
Of all the competencies and values that must accompany an institutional decision to pursue opportunities in the delivery of technologically enriched instruction, probably none is as important as the ability to differentiate the size, dimensions, and other attributes of academic market niches. For example, many analysts suggest that the market for lifelong learning is larger and growing faster than is the degree-granting segment (Davis and Botkin, 1994). If, following this example, much of the market growth (that is, public demand) for postsecondary education is to occur outside the traditional residential undergraduate context, institutions must be prepared to assess what serving such different markets might mean for the faculty as well as for the residential student body, and what requirements such service will place on the business systems of the campus. For example, business systems that assume that students will stand in line to register for classes are unlikely to meet the needs of the distant learner.
These needs are not likely to be met, in the long term, by a traditional course catalog, a traditional registrar, and a traditional admissions process. The consumer of geography-independent campus instructional offerings and information resources may -- in his or her worst manifestation -- be an educational "channel surfer," scouring the Internet and World Wide Web for timely, relevant, and well-priced courses. Such an individual will likely expect more than a short narrative description, will assume that registration and payment can occur online, and will expect online digital library privileges and a host of other services mediated over the network. Colleges and universities will want this individual to know about ancillary products that are available: related video and audio programs, online tutorials and books, and so forth. In all, the support environment for a college and university curriculum that is delivered over a network will require much greater integration and sophistication than does the counterpart support environment that is offered on the campus. Raising the integration standard for off-campus offerings will, in turn, raise the expectations of resident students and the campus capacity to meet these expectations.
A market-sensitive, planning-based approach will be important to the campus's decision about whether to pursue certain opportunities, and about what the possible financial implications of such decisions are likely to be. The market plan is at least three dimensional and should address:
While this three-dimensional model greatly over-simplifies the market planning process that information-age educators should consider, it does introduce the choice of instructional technology into curricular planning and decision making. Curriculum planning, in a place-bound (that is, campus) context is framed by the questions of curricular need, faculty availability, enrollment size, enrollment demand, and classroom size and availability. In the context of technology-enriched teaching and learning, the number of planning variables expands to include choices of instructional technology, market geography, customer attributes, and time. Asynchronous technology choices, such as instruction via CD or broadcast or taped video or audio, can actually reduce the constraint on faculty availability, while synchronous technologies (such as online "global" office hours) offer possibilities for customizing and personalizing instruction in ways that will likely increase the demand for faculty.
Campuses that choose to extend their instructional reach with the use of technology have many competitive options. For example, what is the demand for a technology-enriched Ivy League MBA curriculum in Russia? What might the market be for university-developed practical agricultural course material on cassette? What elements of U.S. corporations' training needs can be met by U.S. higher education and any campus in particular -- and in what format or medium? What is the educational role of credentialling and certification in this environment?
If this wealth of capabilities, markets, and intellectual capital represents untapped opportunity for U.S. colleges and universities in the emerging marketplace, the realization of this opportunity depends on: (1) faculty vision and business execution, (2) the creation of, and investment in, new academic and business strategies, (3) creative marketing, (4) risk taking, and (5) the development of strategic relationships. Absent early institutional intervention in establishing a framework for exploiting this opportunity, colleges and universities run the risk of:
The objective of this chapter is to organize information from the environmental context in which higher education may operate in the near future and to raise questions about how such contextual observations may be translated by the higher education industry and individual institutions into new strategic directions and programs. For this reason, this discussion is long on themes and short on recommendations. If the underlying premise that the convergence of technologies will enable new ways to deliver higher education's teaching mission is true, then leading institutions have a range of strategic options that can increase both their geographic instructional reach and their sources of revenues. This range of options extends from achieving cost efficiencies by leveraging course offerings among existing university students, to seeking new, potentially global, markets by franchising courses and information assets to students not currently served by higher education.
The first and primary recommendation is for our educational leadership to develop strategic frameworks for addressing the changing environment that is described. Any institution's ability to exploit new instructional opportunities effectively depends on establishing an institutional context for program development and institutional investments to "jump start" such development. While U.S. colleges and universities are prepared, for example, to create the data communications networks that will carry instructional content and information resources, is it appropriate (to their missions) for these institution to "seed" the development of best-in-class technology-enriched instructional offerings? Many of our institutions have achieved academic recognition and excellence by localizing the responsibilities for curriculum development and execution as deeply as possible. The development of truly enriched, technology-intensive course offerings -- worthy of the reputation of U.S. higher education -- will be costly and risky. The governance and organizational infrastructure for making such investment decisions is not well developed currently.
A strategic framework must also address the very sensitive issue of who owns the rights -- for distribution and sale purposes -- to institutions' instructional material and collections. In this area, the nature of the new technologies and the need for unprecedented investments will change or challenge the traditional model wherein faculty course notes belong exclusively to their authors. In the extreme case of fully franchised multimedia course productions, course notes may become more analogous to theatrical scripts and faculty roles may become analogous, variously, to those of script writer, producer, director, and/or "star." The evolving roles, created by the new potential to "export" course materials beyond the campus, suggest the need for new thinking about property rights, risk sharing, royalties, residuals, and other cost-sharing and compensation strategies. What might it mean, for example, in cultural, ethical, and/or legal terms, for one institution's faculty member to contract with another party to produce a multimedia course (including electronic office hours) for distribution -- for credit -- to other universities? Many of the possibilities created by new approaches for delivering instruction are not natural extensions of the traditional relationships between faculty, their home campuses, and their publishers.
The implementation of distance education within U.S. higher education should force us to re-think the issues surrounding the award of campus credit. The deployment of instruction beyond the borders of a campus should foster (or force) a national dialogue about the interchangeability of credits among participating institutions. If, for example, a student enrolled at one institution enrolls in an electronic course "produced" by another and completes successfully the exams and papers necessary for the award of course credit at the producing campus, can this student be awarded course credit at the "home" institution? If the answer is no, the speed of adoption of new delivery approaches is likely to be retarded, and instructional innovations are likely to occur first in private industry where increasing numbers of unusual providers will seek and receive degree-granting accreditation. If the answer is yes, many approaches to offering technology-enriched instruction have the potential to alter fundamentally the nature and meaning of our student bodies and faculties to each other and to our institutions.
A strategic framework should focus simultaneously on the issues of public policy, institutional priorities and identity, and business. Beginning with a product-market segmentation, as represented in the figure above, the nation's higher education leadership should address the issues of how technologically-enriched course offerings affect institutional image, access, quality, and cost as well as the question about whether or not (and how big!) a market exists for new instructional offerings. For example, the creation of courses under the auspices of many universities' schools of business and engineering may have significant revenue potential in the executive education and staff training markets. Clearly, the potential geographic market for such courses is global. (For example, one top-twenty graduate school of management is considering a corporate technology partnership to deliver the MBA curriculum via distance learning technologies to a major Third World nation.) In this market segment, the revenue potentials are high, while the negative public policy impacts are likely to be negligible. On the other hand, a decision to develop the best-in-class multimedia course on world civilization may have lower revenue potentials, but significant potential in the public policy arena. Such course programming -- and the associated investments -- could raise the standard of instruction in key areas, but also carries with it the risks of "homogenizing" course content and reducing instructional and intellectual diversity.
Whatever the institutional and public policy implications, it is clear that demand for remote instruction in a variety of post-secondary disciplines exists. The key questions for policy makers are:
The strategic planning exercise should also address the issue of technology risk. This discussion has been long on optimism surrounding the potential of new educational technologies, and short on an assessment of the risks of such technologies. Those who were involved in higher education's early euphoria over the transformational potential of educational television are especially mindful of the risks of overselling new technology. It is clear that the full potential for registering students electronically, receiving funds electronically, exchanging transcript information electronically, delivering enriching multimedia courses, transmitting test scores and grade reports electronically, and keeping electronic records of all registered students cannot be realized with today's technology. If an institution's strategy in this area embraces this kind of target environment, the development of the strategic framework should include an assessment of the underlying technology requirements of such an environment and a forecast of when needed technologies will be available commercially.
Finally, a strategic framework should address the institutional policy, operational and economic implications of forming new strategic partnerships. A discussion of strategy should include an assessment of the institution's capabilities across the media production value chain and should identify the kinds of partners that will be needed to maximize the opportunity and to minimize risks of early adoption. Grant opportunities for early test cases should be explored.
In sum, technology will, in the intermediate term, be the least important determinant of success in the new delivery of postsecondary instructional offerings. The determinant of market success in this arena will continue to be the quality of the intellectual content. While intellectual content will be king as this market evolves, short-term advantages will accrue to those who move first into this market, as there are many consumers who will sacrifice perceived quality in favor of course offerings that address their lifestyle needs (time and distance) more closely. This likelihood, in concert with the fact that elite institutions may view themselves as having more to lose in reputational terms than they have to gain, may allow the more visionary and less conservative institutions to dominate certain instructional niches. Collectively, the conservatism and consensual governance model characteristic of higher education may make it possible for the earliest adopters to come from private industry. The public policy ramifications of the private industry alternative are enormous.
United States higher education is the envy of the world. Our faculty, facilities, and holdings are sought after beyond the traditional reaches of our campuses. New information technologies will make it possible for this reach to extend well beyond the ivory tower. Significant demand for higher education -- on an any-time, any-place basis -- exists and will grow as the creative application of these technologies to teaching and learning matures. The application of new technologies to postsecondary education creates a significant likelihood that new players -- those without fixed investment in physical plant or a tenured professoriate -- will obtain accreditation and will compete with traditional colleges and universities in a number of markets. In particular, technology firms will likely attempt to leverage their networks and technology bases to produce highly-sophisticated courses at lower costs than colleges and universities that need to amortize "bricks and mortar" across their offerings. In many cases, instructional offerings from private firms will be produced, prepared, and delivered by our faculty -- who may be paid royalties on the size of the "gate." This possibility has the potential to change U.S. higher education in profound ways.
For these reasons, U.S. colleges and universities must overcome the natural conservatism of their faculties regarding this opportunity. The potential exists to produce new revenues through technology-enriched extension of our instructional programs. These new revenues can reinforce the traditional, campus-based instructional environments we have created with much success. The role of the college or university as a center of culture, a community of scholars, or a physical place is secure. The mission of the college and university is also secure. The global need and demand for higher learning is growing. Thoughtfully applied, new information technologies will make economically possible a new level of investment in collegiate instruction. Such investment can sustain our collective vigor and excellence -- if we can rise to the challenge.
Allen, D., Ebeling, H.W., and Scott, L. Perspectives on the Convergence of Communications, Information, Retailing, and Entertainment: Speeding Toward the Interactive Multimedia Age. Private report, Deloitte & Touche, 1995.
Davis, S., and Botkin, J. The Monster Under the Bed: How Business is Mastering the Opportunity of Knowledge for Profit. New York: Simon & Schuster, 1994.
Information Infrastructure Task Force, Intellectual Property and the National Information Infrastructure: Report of the Working Group on Intellectual Property Rights. Washington, DC: Government Printing Office, 1995
Porter, M. Competitive Strategy. New York: Macmillan, 1980.