Universities' New Freemium Strategy

Last night, I started a college class for the first time since I graduated in 2017. The weekend prior, I was accepted to Stanford. Well, not exactly. I was accepted to an experimental online class from Stanford called Code in Place which is based on the school's well-regarded CS106A Programming Methodology course.

After being rejected by Stanford twice, once for undergraduate coming out of my gap year in 2013 and a second time for their Deferred Enrollment MBA program in 2017, it was nice to finally get some good news back from the Silicon Valley school where Google was born and Steve Jobs spoke.

For the record, I consider myself very fortunate to have received both of those rejections because, without them, everything afterwards would have changed. I choose to appreciate everything about my past because I do not see much benefit in wondering how things could have gone differently or wishing for ways in which they could have.

Anyway, a combination of discovering this course from Stanford one day, a class from Yale the next day, and a number of classes from Harvard the day after that made me realize that the coming shift in higher education has already begun.

Before speculating upon what that shift may look like, it is important to acknowledge that one of two things is likely to happen, and they represent very different scenarios. The first scenario is easier to imagine but harder for me to believe which is that universities will open up again next fall as if it is business, or rather, education as usual. This seems unlikely to me, but with an accelerated path to an effective vaccine or the introduction of some other unforeseen factor, I am hesitant to count it out completely while it still remains within the realm of possibility from my perspective. The second scenario which I believe is much more likely is that we will not go back to education as usual in the fall. Instead, education will continue to be online as it has been for the last few weeks under the guise of a temporary solution to be relied on only during this thought to be relatively short-lived shelter-in-place period. This shift to online education is somewhat obvious and predictable if in fact circumstances remain several months from now so that live in-person classes in the physical world will no longer be feasible, practical, or responsible, and it is important to remember that if any institution is going to risk lives and people's health, liberal arts colleges are probably the least likely of them all to do so. What is not as obvious or easily predictable from my perspective is how the new digital format for classes will change countless other aspects of higher education and society at large.

Scott Galloway had an excellent monologue on this subject in the most recent episode of his eponymous podcast, The Prof G Show. (For those who read a previous post in which I tried to use the word eponymous but somewhat forced it, hopefully we can agree this usage was much cleaner and closer to correct.) In his monologue, Scott talks about how elite universities have become the ultimate luxury brands by rejecting over 90% of their prospective customers otherwise known as students unlike even the most luxurious brands in the world like Rolex or Louis Vuitton or Rolls Royce would ever consider doing. He talks about how the value-add of universities lies as much or more in the certification than in the education and how higher education is ripe for disruption based on what he calls a disruptability index which he defines as "a function of your ability to increase prices faster than inflation without having any underlying increase in productivity of the product." I liked that straight forward definition. Lastly, Scott talks about how schools will still want to make money and says that they will need to accept many more students in order to maintain revenues because their excessive prices, which have already garnered plenty of attention but which to date have been unrelenting due to continued demand, will now become much more egregiously apparent to even the wealthiest of parents who will have no choice but to ask why they are paying $50,000 a year for their child to join 3 or 4, 20- or 200- person Zoom classes per day, five or even only four or three days per week, taught by someone who seems less effective at online education than the people who teach the free Khan Academy videos. The college price tag that used to be justified by not only the certification but the overall experience and the access to resources and the dining hall and the dorms and the people to meet and the lifelong relationships to form, in addition to the hopefully premium version of an actual education which I am by no means discounting but simply pales in comparison to the monetary value that the word Wharton on a resume affords an individual to more easily earn over their lifetime compared to another individual with the word of a university that you or I and therefore most employers have never heard of or do not regard as good, let alone great or elite.

So, how will it happen that schools will begin to accept more students from whom they can generate lower revenues per student to equal the same or similar revenues as they are accustomed to? I believe we are seeing the beginning of it now, and if that is any indication of the speed and magnitude of the change, it looks poised to be large and fast.

I never previously had the opportunity to be a student at an Ivy League school. Already I now have the opportunity to become a student at all of them, for free. I think what we are seeing now is a land grab, or in more literal terms, a student grab. I believe the top schools are foreseeing the coming disruption of themselves and others and have come to the same conclusion that they need to expand their student base. Based on what I have seen thus far, it seems to me that they are beginning to test and implement a tried and true strategy that has been successful for so many tech and media companies before them, and that is, the freemium strategy.

Elite universities are now giving away their most basic offerings for free to get as many students on board as they possibly can so that the base is as large as possible for them to upsell once they figure out how exactly they want to do that based on what they believe will be the best way to monetize their student base which will soon be degrees of magnitude larger than ever before for schools like Harvard, Yale, Stanford, and hopefully my alma mater too. I say hopefully because by default the schools that do not grow will shrink, not only in students but in relevance and prominence and therefore in the benefits that graduates will experience by having their schools' names on their resumes.

Premium products will be varying and virtually limitless and the prices for the very best of them I imagine will be very steep. For example, one may be able to take an intro to macroeconomics class from Harvard for free but the advanced classes as one works his or her way up the chain of prerequisites to the land of advanced electives will cost money, likely more and more of it as the student advances further. Alternatively, I suppose all of those classes could remain free and the approach to charging for premium offerings could be focused more on gaining access to smaller classes or ones with more small group Zoom meetings or ones with better professors with better reviews. Perhaps professors will be paid more like restaurant workers in that they are given a nominal wage in exchange for their work and the opportunity to earn large tips from generous diners for their excellent service, or in this case, ad-hoc income from wealthier students for their one-on-one tutoring sessions or access to office hours. Unlike most restaurant workers, some professors could make an absolute killing this way.

I am not sure exactly how all of this will take shape but I am reasonably confident that if higher education is heading in a digital direction, as it appears to be, then the freemium model will be widely employed. As a result, many more people worldwide will have access to the best schools in the world, which is a good thing, but people will still have to pay potentially steep prices for things like certification which unfortunately are unreasonably valued by top employers making their seemingly unreasonable prices unfortunately reasonable. I'm taking the Code in Place class from Stanford for the next five weeks and I expect to gain the valuable new skill of basic programming for free which is awesome and amazing, but was not surprised when I read in no uncertain terms before applying that I would not be getting any sort of university credit or certification for completing the class. Of course, that would be far too valuable to give away for free. Schools will give away the product but not the certification, because that is the biggest part of what people have been paying for all long. One question I am curious to see answered is what happens when I and the 10,000 other students taking this Code in Place Stanford class with me put it on their resumes anyway? What happens if employers start caring less about where you learned and more about what you know? I suppose as with most things these days, we will just have to do our best to guess, or otherwise wait to find out.

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