Universities disrupted but not displaced

Business and government is finally treating Digital Disruption as seriously as the topic deserves. I have written previously about the Deloitte Digital Disruption report and highlighted the fact that that in Australia two thirds of the economy will experience a substantial impact in the short to medium term. Almost every economy around the world faces similar challenges.

Few readers of the report would be surprised to see that both retail and media are heavily impacted. A walk past any vacated bookshop or a glance at the rapidly emptying displays in the newsagent’s magazine stand are among the many obvious signs that these industries have been seriously disrupted.

There is a danger that other industries take the examples of retail and media too literally and assume their own experience will be the same. To illustrate why drawing parallels between industries is complex, I’ll use the example of education where many leaders are feeling uncomfortable, but their experience of digital disruption is likely to be very different.

Tertiary education is a sector where lecturers and administrators are watching the rise of MOOCs (Massive Open Online Courses) and wondering whether in the future their students will bother to even enrol in their institutions if they can access the world’s best teachers with a few mouse clicks.

One thing that traditional book sellers and newspapers have in common is that their interactions with their customers are transactional. The publisher sets a price that and the customer who wants the product pays that price. In the past, regulation has protected their markets and continues to provide some level of shelter in many countries today.

Education is different with many actors involved in every transaction ranging from students, parents and employers through to teachers, administrators and regulators. The regulators are complex and range from government to industry bodies. The buyers pay in a variety of forms including subsidies, loans, entry scores and their own preferences (directing government funding). The seller earns revenue in complex ways that go well beyond the individual transaction.

There is no doubt that the learning experience is changing with teachers increasingly delivering lectures through a variety of mediums and students leveraging a wider range of tools. However the real question is whether a small number of superstar lecturers will dominate through MOOCs and, if they do, will today’s university have any part to play in tomorrow’s student experience?

Assuming that tomorrow’s MOOC replaces today’s teacher makes the mistake of likening a university to a bookshop and the lectures to books. A university is in fact a network with all of the actors I described connected together through complex business rules. Economists might describe this as a “two-sided market”.

A two-sided market is a sophisticated relationship between buyer and seller. It is also called a two-sided network which probably more accurately defines the relationship. Their nature is to have a group of customers who have a many-to-many relationship with a group of providers (who may themselves also be customers). In the middle is the facilitating organisation, in this case a university, providing a “multi-sided platform”.

Other examples of two-sided markets, or organizations providing multi-sided platforms, are the major credit card companies, social networks and the better online retailers. In each case, these platforms provide a network benefit that amplifies as the number of participants increases.

The very nature of the advantage of scale for multi-sided platforms means that they tend to consolidate quickly. While there are periods of innovation when lots of new entrants join the market, the winners quickly emerge and are either acquired or begin to do the acquiring. This is a dangerous period for incumbents as they need to make the right bets to ensure their scale puts them in a position to be doing the acquiring rather than risk losing market share and potentially being acquired or eliminated.

Understanding the nature of the multi-sided platform that educational institutions provide removes the fear that MOOCs on their own will become the university of tomorrow. However, innovation means that there will be change and the smart provider will learn from the best of other platforms that are thriving.

Perhaps the next generation of students will experience a mixture of electronic and in-person teaching, industry introductions via Amazon-style recommendations and funding based on incremental performance which is tracked digitally. If today’s universities pick-up on these trends quickly, they will remain in the box seat to dominate educational services in the decades ahead.