The next generation of online education could be great for students—and catastrophic for universities.
Whether this transformation is a good or a bad thing is something of a moot point—it’s coming, and sooner than you think.
I met Burck Smith in his office on L Street in downtown Washington, D.C., in the spring of 2008. Thirty-nine years old, with degrees from Williams and Harvard, Smith looks remarkably like what you’d expect an Ivy League alum named “Burck Smith” to look like: Michael-Lewis-minus-ten-years handsome, open-collar shirts and sport coats, the relaxed confidence of privilege. He talked like someone who’d seen the future and was determined to be there when it arrived.
Smith was full of optimism about StraighterLine, which he planned to debut in September of that year. It would be the realization of an idea he’d been dreaming about since he was a graduate student at Harvard’s John F. Kennedy School of Government in the late 1990s. In 1999, after finishing his master’s degree, Smith wrote a “looking back from the future” article, set in a hypothetical 2015. By that time, the higher education landscape would look “dramatically different than it did at the turn of the millennium,” he predicted.
Technological change was the spark that ignited the wildfire of change. Like a hole in a dike, cheap and instantaneous Internet-based content delivery and communication nibbled away at barriers to institutional competition… . Suddenly, a student seeking an introductory statistics course could choose from hundreds of online courses from anywhere in the world… . Feeling the effects of low-cost competition, site-based education providers started cutting course costs and prices to attract students.
That same year, Smith took the first steps toward achieving this vision, launching an Internet startup company called Smarthinking, which he cofounded with Christopher Gergen, the son of well-known Washington insider David Gergen. Smarthinking provided on-demand, one-on-one tutoring in a range of introductory college courses, twenty-four hours a day, seven days a week. The tutors, people with bachelor’s and master’s degrees in their fields, communicated with students via computer, using an onscreen, interactive “whiteboard.” Math students typed in questions, graphed equations, and interacted with their tutors in real time from their own PCs. Writing tutors gave feedback on essays within twenty-four hours.
Smarthinking survived the dot-com crash because, unlike most of their entrepreneurial peers, Smith and Gergen had actually come up with a working business model. Their clients were colleges and universities which, looking to cut costs, outsourced tutoring in the same way companies farm out IT work, back-office support, and customer service to call centers overseas. Smith and Gergen knew that tutoring could take advantage of the same powerful economies of scale that made call centers profitable. It would be cost prohibitive for a single college to provide on-demand 24/7 tutoring for a few sections of, say, organic chemistry—the college would have to hire teams of full-time workers to work in eight-hour shifts, and much of their time would be idle. Smarthinking pooled the demand from hundreds of colleges and tens of thousands of students while hiring credentialed tutors in places like India and the Philippines. As long as “on demand” was defined as a high likelihood of being served within a few minutes, economies of scale and cheap foreign labor could be combined to drive per-student service costs to unheard-of lows.
As a result, colleges could buy multihour blocks of 24/7 tutoring in subjects like biology and calculus from Smarthinking for much less than it would have cost them to provide that service on their own. By 2008, the company had 386 clients, ranging from big research universities to community colleges and the U.S. Army. Major publishers like Pearson and Houghton Mifflin packaged hours of Smarthinking tutoring with college textbooks and instructional software.
But Smarthinking still fell short of Smith’s ambitions. He had built a particularly efficient cog in the mammoth, long-established higher education machine—but he hadn’t yet transformed it.
To be sure, much had changed in higher education. Technology had indeed altered how people went to college—that much Smith had gotten right back in 1999. Broadband access had become ubiquitous, and textbook companies had converted their standard introductory course content into inexpensive, Web-friendly form. While college students in 1999 were still making the transition to a Web-dominated world, 2008’s undergraduates had never known anything else. Both traditional colleges and for-profit companies like Kaplan and the University of Phoenix were diving headfirst into the online market, and students—especially people with day jobs like Barbara Solvig—were signing up in record numbers. Over four million college students—one-fifth of the total nationwide—took at least one online course last year.
But the other shoe had yet to drop. Even as the cost of educating students fell, tuition rose at nearly three times the rate of inflation. Web-based courses weren’t providing the promised price competition—in fact, many traditional universities were charging extra for online classes, tacking a “technology fee” onto their standard (and rising) rates. Rather than trying to overturn the status quo, big, publicly traded companies like Phoenix were profiting from it by cutting costs, charging rates similar to those at traditional universities, and pocketing the difference.
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