Opportunities in Higher Education Technology

October 14, 2018

What’s Wrong

If your intuition tells you something is wrong with the current higher education system, you’d best to believe it. A brief overview:

  • In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172. 1
  • In 1988, the average tuition for a private nonprofit four-year institution was $15,160, in 2017 dollars. For the 2017-2018 school year, it’s $34,740, a 129 percent increase. 2
  • According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions. 3
  • An analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase. 3
  • The 6-year graduation rate for first-time, full-time undergraduate students who began seeking a bachelor’s degree at a 4-year degree-granting institution in fall 2009 was 59 percent. 4
  • At 38 colleges in America, including five in the Ivy League – Dartmouth, Princeton, Yale, Penn and Brown – more students came from the top 1 percent of the income scale than from the entire bottom 60 percent. 5
  • Those who start out behind tend to stay behind. Our research found four in 10 college graduates are underemployed in their first job. Two-thirds of these graduates will still be underemployed five years later. Of those workers underemployed at five years, three-quarters will still be underemployed at the 10-year mark. 6
  • In a report based on the Collegiate Learning Assessment (a standardized test that gauges students’ critical thinking, analytic reasoning and writing skills) after two years in college, 45% of students showed no significant gains in learning and after four years, 36% showed little change. 7

I could list literally dozens of these statistics, but the bottom line is that there are problems and people are frustrated. And as any entrepreneur knows, that means innovation opportunities. Yet despite this opportunity, higher education is a pretty hairy business to get into.

Difficulties of EdTech in Higher Education

Slow-moving

In B2C, buying cycles are quick. A customer considers buying a cup of coffee from Starbucks daily; their customers have the opportunity to purchase their products up to a couple hundred times a year for their entire lives. Even in a consumer product that has a longer life, like buying a car, consumers will at least buy the product multiples times in their life. On the B2B side, companies will switch to a better solution if it solves a problem or completes a task for less money. Even where there are multi-year contracts involved, businesses will switch to a different product if it’s truly better.

Traditional higher education is unique because your customer buys the product once in their life and the product takes 4-6+ years to consume. Universities are highly bureaucratic and not known for innovation. They rarely make decisions out of the semester / school year time frame. This makes breaking into higher ed (and growing your customer base) slow-moving.

Taught on Individual Level

The direct education experience is really, really hard to scale. Learning happens best on a local level with one-on-one instruction. Apprenticeships and tutors have earned a place in the system, but it’s a lot easier to scale technology than people.

Customers Don’t Know What They Want

Educating yourself is often the antithesis to eating a donut or checking Instagram: it doesn’t always feel good in the moment, but you know it’s good for you in the long run. Learning and self-development takes a long time. It isn’t done by giving students everything they want; it’s done by challenging their childhood beliefs and expanding their horizons. Interactions with these professors, mentors, and peers mature students and help them understand their desires.

Societal Norms

It seems that outside of the weather and careers, “Where did you go to school?” is the most common small talk topic. People are very loyal to their alma maters – I almost feel obligated to follow college football because of how much it’s talked about at work. Graduates have fond, romantic memories of experiencing independence, stuffing themselves with dorm food, on-campus clubs, fraternity parties, meeting their best friends, late-night dorm antics, and whatever else college offered.

Many of the solutions challenge this status-quo. Unbundling the higher ed experience may mean cutting things like college athletics or fancy residence halls / cafeterias, or moving the time spent in school from years to months. Not to mention that most major universities have the stamped approval of broader society from centuries of existence.

With all that said, it’s an incredibly rewarding business to see students grow and mature. Where are the opportunities in this space?

Immersive / Last-Mile Programs

Outlook: Strong

Although the first coding boot camps didn’t pop up until 2012, there are already 95 programs up and running. Course Report shows that the market is sized at ~$260 million for coding boot camps, graduating almost 23,000 students in 2017. Until more software developers are trained and find their way into the market, opening and scaling an effective boot camp can be a profitable business.

Because immersive programs are often taught in person, once a company scales to a new location, there is limited threat to be disrupted by an online alternative. Instead of trying to use technology to teach (see below on MOOCs), immersive programs have a proven model that already takes into account that students learn very well with instructors nearby to answer questions. We’ve seen from the likes of General Assembly, Hack Reactor and others that effective boot camps can scale through multiple cities. The price is justified by employment, so as long as the boot camp effectively places students into good work environments, there is no slowing down.

There is also opportunity for immersive programs in digital skills outside of software development. There are far fewer full-time programs dedicated to teaching digital skills in marketing, sales, accounting, finance, and design than in coding. Universities aren’t teaching Salesforce, Google AdWords and Marketo but those are the tools students need to get jobs.

Businesses will find success both as providing best-in-class boot camps or simply as a way to learn a useful skill. Once supply reaches demand in these labor markets, it won’t just be about attending a boot camp, but rather which one. The key factor is employment connections – the biggest promise companies are selling is a job at the end of the experience. There is no secret how to measure the outcome: job or no job. High average salaries will determine which programs become elite. Similar to colleges, the long-term view of boot camps is that the skills learned can be equally as valuable as the signal that you went through the particular boot camp.

We’ve seen with companies like MissionU the trouble of immersive programs marketing themselves as a college replacement. Immersive programs need to think carefully about their marketing and consider an agnostic approach to replacing college. Higher ed is a very developed industry and things haven’t changed for a reason. On the other side, Minerva Schools (my company crush) has marketed itself as a re-imagined university instead of as replacing the system. It’s success (so far) illuminates an idea for rethinking the traditional model without jumping too far off the road.

Pure-play Online (MOOCs)

Outlook: Weak

Of all the research I’ve done about higher ed tech, I’m most reluctant about this space. We’ve seen high-profile growth stories in Corsera, Udemy and edX, but there are some big hurdles to jump over here for long-term success:

  1. Connection to employers. If people are going back to school to make a career change, they want to get a job at the end of the experience (shocker, I know). Right now these online courses don’t count for college credit, and don’t have employers waiting to hire students after they complete the classes. The biggest issue (which could explain the dismal 5% completion rate) is that completing MOOCs doesn’t do much for job prospects. What do the credentials and certificates mean if they aren’t valued in the labor market?
  2. Learning and development is hard without in-person interaction. It’s great that everyone can attend lectures from top professors in the world, but once you get past they hype of hearing an MIT professor lecture, you realize why everyone can’t go to MIT. It’s not only the professor that makes MIT an amazing place to attend school. It’s the rigor. It’s collaborating with elite peers. It’s the student-professor interactions. It’s the perception from the everyday American of someone at MIT.  I could write an entire post on why there must be elite universities and why they can’t be accessible for the masses, but the bottom line is the experience and prestige of a top school doesn’t scale (even if it can be marketed as such).
  3. How to accurately assess students? Grading too harshly means not enough students will get through the program, but grading to loosely will dilute the value. There isn’t a standard in grading. (Not to mention the issues arising from no in-person proctoring.)

A Forbes article articulates the issues with the MOOC business models in another way:

“Gated Executive MOOCs. Verified certificates. Licensed content. The MOOC provider as LMS. MOOC as loss leader for for-fee programs. The quest for a sustainable business model remains one of MOOCs’ biggest challenges.”

In relation to traditional higher education, it’s extremely difficult to replicate the student-teacher interaction online. Especially if parties are doing things on their own time. While it’s always a possibility that I’ll be proven wrong, I’m pretty bearish about MOOCs.

Layers on top of the University System

Outlook: Hesitant

While university enrollment is down in the past few years, it is still an extremely prominent path for high school grads. And as mentioned above, there are a lot of factors keeping the university system in place. Instead of enticing students to abandon the system, why not build programs on top of it?

I can imagine companies innovating with programs that fill nights, weekends or breaks in students academic lives. Studies have shown that college students don’t spend all that much time on education anyways. There would certainly be demand for a part-time program that prepared students for getting jobs. Working at a company that provided a service like this showed me how many students get to junior or senior year without thinking about their employment and are subsequently willing to spend some cash to gain the skills necessary for a job after graduation.

As an example, companies could market to liberal arts students: take a nights-and-weekends program for a few weeks to learn content marketing (capitalizing on their writing skills) and get an in-demand job after graduation combining writing and tech. Layering programs like this on the current system is a great way to let the non-profits do their job of educating and maturing students while still giving students the skills they need.

The difficulty here lies in in pricing. Immersive programs can charge five figures for a boot camp that guarantees an employment outcome (generating reasonable margins after the cost of teachers). However, that kind of price isn’t going to sell to students already paying thousands a year for traditional four-year university. Again, this circles back to how the business model is designed. Maximizing instructors’ time is key to keeping costs down, and paired with an online or homework-type piece could be a solution. (In another example, at Adventis we’ve found that college students who took our class – who love to hone their skill set and earn a few bucks – work great as assistants and tutors in our boot camps).

To me, this business model class is less “down with the man” than some immersive programs are, but still help students prepare for a digital world. There are problems, but I’m cautiously optimistic.

Credential Aggregators

Outlook: Strong

With all these education options, it’s hard for students to choose which is best. It’s also hard for employers to hire. The final step for all of students in these programs is to get a job – but it’s not so easy to evaluate candidates with starkly different backgrounds. From Deloitte:

“One student may have specialized in data science at a prestigious four-year university, while another may present an online certificate in data science and a robust portfolio of work; yet another may have completed a 12-week immersive course in data science and have five years of work experience in statistical analysis. Which is best for the job?”

I would love to see more innovation in this space. Perhaps a startup partnering with universities to help students articulate their skills and learn more about opportunities (you know, the things career services claims to offer). We’ve seen some of this on the candidate side with services like About.me. We need it on the employer side with services to help hiring managers understand how to compare candidates.

Apprenticeship models get around this issue by placing candidates directly in the job before they are hired full-time. For everyone else, this issue needs to be addressed. Career services on campuses is notoriously known for not having the network or employer knowledge to place students effectively. On-campus career fairs have mixed outcomes.

In my personal experience, I’ve found the best way to get a job is explicitly showing the employer that you’ve done the job before. If you want to build websites, show employers all the websites you’ve built. This is clear in some industries but more abstract in others. How can you prove you’d be a good salesperson if you’re applying to be an entry-level sales rep? Does knowing the tools give enough credibility?

Services like these have better unit economics and scaling capacity compared to their direct education counterparts mentioned above. Their business models more resemble an advertising or free-to-paid model than a university. There is some serious home-run potential in this space and I’m excited to follow the development of this industry.

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