Jul 10, 2005
A reader writes:
I just finished a PhD in elearning, and I'm looking for my next steps. Thankfully I have many options but I realize that elearning looks more like a non-profit, charity sector than a normal, economically-viable activity. So I'd like to ask you a question: Where do you see the money being made in elearning today?
Current Economics
There are three major sectors to the education economy as it currently exists:
- service provision
- educational content
- infrastructure
Service Provision
This is the actual delivery of educational services. It is typically divided into a grade school level (kindergarten to 12) and college level (colleges, universities, etc). There is in addition large investment in corporate learning, and a large informal (uncredentialed) learning sector.
For the most part, service delivery for schools and colleges exists as a public enterprise, though in some jurisdictions (especially the United States) there is a significant private sector involvement as well. Corporate learning is often delivered by the corporation, though many contract such services to external agencies. The informal sector is almost exclusively the domain of the private sector, with some significant exceptions in the form of libraries, museums and learning centres.
Revenue for the public service sector is derived from (in decreasing order of magnitude):
- direct public funding, eg., school budgets, grants to colleges and universities
- tuitions and other direct charges to users
- gifts and grants
- royalties and other earnings
Revenue for the corporate service sector is derived from:
- corporations
- tuitions and other direct charges to users
Revenue for informal learning is derived from:
- tuitions and other direct charges to users
- direct public funding, eg., library budgets, grants to museums
- gifts and grants
- royalties and other earnings
This revenue is typically dispersed internally through staff salaries. Contracting of educational services to external agencies is minimal (though not zero). Most dispersements are in the form of salaries to employed staff, with a remainder contributed toward content and infrastructure.
The service provision sector is heavily regulated. Even where there is private sector involvement, there is a (typically) rigorous accreditation process to be undertaken. Staff are in addition regulated; there is an expectation of certain credentials (teaching certificate at lower levels, Masters and PhD at higher levels).
Educational Content
This is the production and distribution of educational content, for example, textbooks, workbooks, supplies (such as lab kits), displays (such as wall maps), and the like. The bulk of such content is produced by private enterprise, often in accordance with guidelines and criteria specified by the purchasing institution.
Revenue for purchases of educational content is derived from (again, in decreasing order of magnitude):
- direct public funding, eg., school budgets, grants to colleges and universities, library budgets, grants to museums
- corporations (for corporate learning)
- direct purchases by users
- gifts and grants
The content provision sector is for the most part unregulated, with the exception of copyright regimes. The selection of material is usually made on a competitive basis, with purchase decisions being made in almost all cases (except informal learning) by the educational institution (or governing board) or the corporation.
Infrastructure
This is the production and, in some cases, maintenance of educational infrastructure. The major component here consists of educational buildings and associated expenses such as heat and cooling, power, fixtures, furniture and maintenance. It includes educational equipment, such as phys ed equipment, lab equipment, office supplies, and increasingly, computer hardware and software. Virtually all infrastructure is provided by private contractors, with some functions (especially maintenance) being handled in-house.
Revenue for infrastructure follows a by now familiar pattern:
- direct public funding, eg., school budgets, grants to colleges and universities, library budgets, grants to museums
- corporations (for corporate learning)
- gifts and grants
Summary
What shoudl be clear from this brief overview is that:
- there are numerous areas of economic activity in education
- that direct educational purchases form only a small part of that activity
- the bulk of educational expenses are borne not by the learner but by institutions - government and corporate
Impact of the Internet
The internet impacts this picture in a number of areas. It changes the nature of service provision, content, and infrastructure, creating new spending in some areas and decreasing spending in others. The expectation, typically, is that on a per-student basis, costs will decrease, however, it is also expected that because of increased efficiencies, the overall market will increase.
In general, the internet has the following impacts:
- digitization - many assets that existed as physical assets are now digital assets, with economies realized from that
- disintermediation - in many cases, intermediary management and administrative bodies are no longer required
- capacity - the productive capacities of individuals and groups is increased, reducing the need to contract specialized services
Service Provision
Although the major sectors of learning (public school, college, corporate, informal) are expected to remain as such for the forseeable future, many of the administrative structure associated with these sectors will change. In general, because of disintermediation and increased capacity, there is likely to be much greater self-management of learning. This will result in an increase in informal learning, and in traditional (public, college, corporate) learning acquiring many of the characteristics of informal learning.
It does not follow (and should not be seen to follow) that the funding for such services will change to any great degree; institutions (governments and corporations) will continue to foot the larger part of the bill. Users are currently contributing to the cost of learning pretty much at the limit of their economic capacity (arguably, beyond their capacity, with education being unaffordable to large segments of the population, especially in developing nations).
The shift from formal and structured learning organization will be gradual, as the locus of funding (in the institution) places a natural constraint against the devolution of decision-making capacity from the provider to the user. In general, for such transfers to occur, a case will need to be made as to the increased effectiveness and efficiencies of self-managed learning. It is likely that this case will be made on a sector-by-sector basis.
That said, we are beginning to see evidence of this shift, from charter schools and home schooling, the already established and increasing network of certification exams, to Prior Learning Assessment and Recognition (PLAR), to e-portfolios, to degree transfers, educational consortia, and other menu-based educational approaches.
In general, the environment will change as follows:
- the delivery of learning through direct teaching will gradually shift to learning support through mentoring and coaching
- the structure of learning will be disaggregated, with a less clear division of classes and grades
- learning will become more personalized, with some individuals specializing at an increasingly early age
- rather than being mandated and scheduled, service delivery will be on an ad-hoc and on demand basis
- rather than being sole-sources, service delivery will be obtained from a number of institutions at any given time
As I said, this change will occur gradually as a result of a slow transfer of decision-making capacity from institution to learner. This will be accomplished in two major ways (which will typically be viewed as being in conflict with each other):
- by increasing the purchasing capacity of learners, as for example through a voucher system or direct per-student payment to institutions
- by decreasing the cost of learner services to individuals, as for example through the funding of learning centres and educational support services
Typically, the purchasing capacity approach is favoured by proponents of increased private sector activity in the learning economy, while the decreasing cost approach is favoured by those advocating a public service approach to learning. In fact, either approach can support either public or private sector involvement; instead, the greater the involvement fo the private sector, the greater the need to a regulatory framework, since (presumably) funders will want to ensure that only educational expenses are supported through an educational grants or vouchers program.
That said, the structure of disbursements in such an environment is likely to remain unchanged. The bulk of expenses will be in the form of staff salaries, whether staff are employed by private or public education providers; it is exceptionally unlikely that a 'cottage industry' of individual educators will developed, except as contractors to major service providers (much in the way tutor contracts are handled today by, say, the University of Phoenix, or in the way guides are funded by About.com).
For independents and small producers, economic opportunities will exist in the following sectors (this list is suggestive, not exhaustive):
- online community and group facilitation
- community-based learner support
- community learning centre management
- online and personal mentoring and coaching, such as for example provided by Ensemble Collaboration
- niche applications and services, such as for example provided by LabMentors
Educational Content
This sector will feel the greatest impact from online learning. Because of digitization, disintermediation and increased capacity, it is likely that demand for commercial educational content will drop sharply. Already we have seen a great deal of educational content placed online, from public institutions (SchoolNet, the BBC, NYPL, MIT OpenCourseWare and thousands more). In addition, numerous educators are producing their own content. Finally, especially in the area of informal learning, learners are producing their own content.
This impact is exaggerated by factors working against commercial publishers. Though their costs decrease dramatically (since they need not purchase paper and plastic, and need not physically deliver resources), the nature of their product has changed into one that can be reproduced for fractions of a cent. Currently, a regulatory environment prohibits the reproduction of learning materials, however, it does not prevent these same economies from being available to people in the production and distribution of their own non-commercial material. Consequently, even if the commercial product remains untouched, it faces increasingly significant competition from the non-commercial sector. Probably the clearest example of this is Wikipedia, which has surpassed any commercial product, but products such as Google Maps and Google Earth, along with widely dispersed free content such as the Live 8 videos, show that this impact will be widespread.
One may easily envision the almost complete collapse of the educational content market in a very short time, even within a decade. Factors working against it happening sooner include substantial lobby support by commercial publishers, their membership on college and school boards, quality-assurance and quality-control concerns, existing (and increasingly broad) copyrights, existing royalty-holders within the educational system, lack of marketing and distribution for non-commercial content. None of these is sustainable on a long-term basis, therefore, as these factors wane, commercial educational publishing will wane as well.
The result will not be less educational content, but in all probability, more. As non-commercial content is more widely accepted, and as content creation tools become more widely available, cheaper (and liklely free), and easier to use, more people will contribute content on a volunteer basis or as part of their current employment.
There will be a short-term market for software tools designed to produce content, distribute content, to manage content and to display content (by short-term, I mean about 3-5 years). A good analogy is the market for MP3 creation tools; in the Windows environment, there existed a proliferation of tools available for recording and storing audio content; these tools marketed for $30 - $60. However, with the development of a free and open source audio content creation tool - specifically, Audacity - the market for these tools disappeared. In blogging, we see a similar phenomenon: early bloggers desiring a tool would purchase Userland or Typepad, however, the free Blogger service essentially closed that market; similarily, the thriving market for Movable Type was significantly impacted by the free WordPress alternative.
Therefore, the spending on learning content will drop significantly over the next decade, with allocations shifting from the purchase of commercial content on a restricted license, to the production of content in-house for free or effectively free distribution; this content will be viewed essentially as a public service (and may eventually qualify for tax credits) and, in commercial environments, as a loss-leader for greater value-added services. For example, IBM is investing heavily in the production of Linux and other free and open source applications, and has shifted its business model from hardware and software sales to services and consulting. Smaller markets will open up for other companies in more specific niches; Vancouver-based Bryght, for example, contributes to the open source Drupal online community application, and generates income through support and service.
Specific markets, either publicly-funded, corporate-funded or (less frequently) purchaser-funded will exist in the following areas related to educational content (this list is suggestive, not exhaustive):
- content classification and indexing, especially with regard to quality evaluation, appropriateness ratings, and the like
- content linkages - that is, the association of one piece of content with another, previously unrelated, piece of content
- filtering and streaming services - what Robin Good calls the NewsMaster - such as for example provided by Shift Central and RocketInfo
- content production community facilitation and support (eg., the role played by the principals of Firefox development)
- content production tool installation, maintenance and support
- marketing and other advertising functions
- content production, usually on a contract basis, on behalf of a public institution
Infrastructure
The provision of educational infrastructure is not only labour intensive, it is resource intensive. The price of resources is increasing, and as a consequence the major impact of online learning will be to push educational infrastructure into systems of organization that are more resource-efficient.
For example, though to all appearances the educational construction boom continues unabated - new schools, libraries, residences and the like appear almost daily - this boom is likely to ease as the cost of materials increases, and for significantly, as operation costs (heating, lighting, etc) and transportation costs increase. Indeed, in the construction industry in general, we should expect to see as much emphasis placed on renovation as on new construction; with the end of the housing boom and with transportation costs making suburbs unsustainable, city centres and existing, underutilized physical infrastructure will attain greater importance.
Because of the greater need for information and communications technologies, the market for hardware is likely to remain stable and even to increase. The production of computer hardware is not only labour intensive, it is also energy intensive. The world-wide market for computer components has also resulted in significant transportation costs. The labour differential will decrease over time (Friedman's 'flat world'), and transportation costs will increase, so consequently, it is expected that local production of hardware components will rebound, especially in regions with an existing resource base and with abundaqnt sustainable energy, such as hydroelectric.
Software, as numerous commentators have already observed, is rapidly becoming a commodity, and at a pace even more accelerated than content, is rapidly becoming people can produce for themselves. There is no inherent constraint on the continued expansion of open source, though factors similar to those related to content - substantial lobby support by commercial publishers, their membership on college and school boards, quality-assurance and quality-control concerns, existing (and increasingly broad) copyrights, existing royalty-holders within the educational system, lack of marketing and distribution for non-commercial software - will ensure that the expansion of open source software is gradual. As noted above, there will be short windows for commercial applications, but since in most markets these applications will not be protected by software patents this window will be a short one (in the United States, patent protection will not protect the market, and the development of free and open source software, along with its economic advantages, will move offshore).
In general, therefore, with some few exceptions, the economics of infrastructure will shift from the production of new materials and services, to the support and improvement of existing or free materials and services, with the exception of computer hardware, which will shift to more local markets. In particular, the following economic opportunities will exist in infrastructure (this list is suggestive, not exhaustive):
- physical infrastructure conversion for community-based activities and services
- provision of community-based activities and services, support for locally managed activities and services
- new software, for short periods of time
- installation, maintenance and support of free and open source software
- hardware manufacture, especially in regions with abundant energy
- wireless and other bandwidth applications for less developed regions (towers, routers, etc.)
- hardware recycling and repurposing for., eg., embedded computing applications)
Summary
As can be seen from the discussion above, the educational economy is shifting from what might be styled as a 'production' mode to what might be styled as a 'service' mode. In some cases, new production (such as buildings and other infrastructure) is neither efficient nor desired; in other cases (such as content and software), digital technologies are allowing production to be undertaken by the consumers themslves.
Although the locus of decision making is likely to shift from the institutional to the individual, there is no scenario that suggests any great change in the funding of educational resources, save perhaps the liklihood that both individuals and institutions will expect to spend (far) less for a given educational opportunity. No great increase in consumer capacity to spend on educational services and products can be projected, and while corporate and government support for learning will continue, because of the benefits to the corporation or society, this support is soft and will depend on continued economic health, something that can be counted on to vary.
Faced with the choice between providing the same type of education to a smaller number of people or adapting to more cost-effective educational organization, corporations and governments will opt for the latter, especially as it is demonstrated that these alternatives are effective (you will notice a lot of this latter research taking place in the field now). Consequently, economic opportunities will exist, not in the production of new goods that will not be purchased, but rather in the support and servicing of increasingly self-managed educational activity.
This does not mean educational ruin for the educational industry; quite the contrary. As the sector shifts as described, the per-person cost of learning decreases dramatically. This greatly expands the market. In the public sector, it involves being able to provide more specialized and higher education for a greater number of people. Moreover, it enables more governments, especially those in the developing world, to provide educational opportunities. In the corporate sector, it extends the range of corporate education from the Fortune 500 sector to the much large small and medium enterprise (SME) sector. Indeed, governments wishing to expand economic opportunity will begin to provide at little or no cost a wide range of learning opportunities for the SME sector; this process is beginning already in many jurisdictions.
