Blackwood Tree

Two big trends are about to intersect and the result will give the higher education space a shake reminiscent of what has happened in the music industry.

Trend 1: Around the world governments are reducing the amount they subsidize university education and the amount students have to pay is going through the roof. Whether this is good or bad is irrelevant, it is happening and I think it is likely the trend will continue.

Apart from pissing off lots of young people, it is also highlighting the inefficiencies in the current model of tertiary education and opening the opportunity for radically re-segmenting the market as new and existing universities leverage technology for low cost, high quality education.

Trend 2:  by 2014 around 20% of all college students in the US will be in online only courses. Take what Stanford are doing for example: they are taking their introduction to Artificial Intelligence class and giving it away for free online - not just the videos which is old hat but the class itself. You watch the lectures, take the quizzes, sit the exams and get a grade - you even have to buy the textbook. Checkout this intro

I think there a couple of things worth noticing

1. registrations for this class are currently over 57,000 - this is nearly 300 times more than normally take the class in person
2. checkout how low tech that video was, despite being Stanford this is clearly a bunch of academics having a crack at something that interests them. 
3. the cost of delivering to 100x or even 1000x more people is marginal since so much of the process can be automated.
4. 2 more computer science classes will be put online

Now, you don’t get Stanford credit or have to take any entrance exams and it’s completely free apart from the textbook which goes for $60 USD online and one of the professors is a co-author - but he’s giving all royalties to charity, classy.

Quarterly tuition at Stanford is $13,500 for 4 or 5 courses which includes accommodation and a whole lot of other stuff and this course usually has 200 students in it - even if a whopping 20% of total tuition went to cover the costs of delivering this course you are looking at 675k in tuition fees. 

If only half of the students who sign up pay for the text book you are looking at revenue just under 2 million on textbook fees alone - for a course that gives you 0 credit. That’s interesting - how many of those students do you think would be willing to pay $100 or so if the course counted towards a real degree.

Now I know lots of the benefit from big name schools comes from exclusivity and if they started giving degrees to everyone this would diminish and that there is limited opportunities for individual interaction online and a whole host of other challenges to overcome.

None of that matters though, people are smart and will figure that stuff out - the fundamental economics of online education are just too significant and it takes just one big name university to move fast and you will see massive disruption.

Flash forward a couple of years from now - you want to study computer science and have 2 options.

1. Go to your local university (e.g. Victoria or wherever) for something like $5k NZD / year
2. Take the online Stanford (or wherever) degree for for maybe 2k USD / year

Goodbye local computer science courses around the world, your lunch just got eaten.