In the regulated monopolies of cable television, the consumer has little choice and gets the full bundle.  In the emerging landscape of higher education, the consumer has many choices.  From the piece-by-piece approach of DIY-U, to traditional institutions adding MOOC’s to hybrid models such as Minerva, conventional business models that depend on old-fashioned bundling are under threat.

Buying college used to be like buying cable – to get the degree you wanted, you had to buy courses, schedules and features you didn’t want.  Higher education bundling requires additional payments without direct personal benefit, just like paying for 500 TV channels when all you want are local stations, ESPN and Comedy Central.  Cable is still bundled, but the unbundling of higher education is gaining momentum.

Objective measurement of the costs and benefits of higher education will drive part of the unbundling process.  The rapidly evolving array of on-line options is enabling unbundling and fostering further pedagogical innovation and experimentation.  Employers are looking for talent beyond degrees, and accrediting organizations are not keeping up.  Many of the current full bundles will look like bad investments of time and money.

Bundling and Cross Subsidies

Bundling is an essential part of the business models of traditional higher education.  Inside the black box of each institution’s financial operations lie a series of what business officers call “cross-subsidies.”  The profits derived from large introductory classes subsidize small upper-class courses and research.  Student activities fees — justified on the basis of paying for the debt service on the “new Rec Center” — frequently provide indirect subsidies to intercollegiate athletics.

Cross-subsidies are well known to higher education business officers and fiercely negotiated and protected by those who benefit.  Seldom are these internal budgetary practices publicly acknowledged.  As long as there are enough customers willing to buy into the full bundle, there is no problem.  However, the traditional “bundle buyers” now have a widening range of lower cost options.

Those who would have bought the full bundle now have the ability and financial incentive to make choices that undermine most academic business models.  Introductory courses – and the profits they generate — are moving rapidly to online formats.  As more students make non-bundle choices the justification of the traditional campus will be less clear.

More accurate and transparent measures of the cost and value of higher education are being developed.  As this happens, it will become difficult to keep the restrictive purchase agreements that offer the traditional “all or nothing” proposition of higher education.  In this emerging market, the benefits of the campus bundle must matter, or these campuses will not be sustainable.

Bundling and Authenticity

Selling the full bundle is still the norm for most institutions.  It is considered the standard of authenticity — the real deal.  This may still be true, but for a declining fraction of students attending traditional 4-year institutions.

Of the nearly 24 million enrolled in American higher education less than 15% are buying into the full bundle, and those numbers are decreasing.  This decrease is a function of many conditions – better employment prospects in an improving economy and declining numbers of high school graduates in some regions.  These general trends in declining traditional enrollments will be accelerated by digital transformation.

Students who opt for community colleges and non-traditional options do so for a variety of reasons – economic, convenience and practicality.  Those who choose the traditional four-year model buy into a form of branding and non-academic student life values.  Institutions without much brand value are already hard-pressed to compete and it won’t be getting any easier.

Digital transformation will not alone be responsible for any institutions decline, any more than Wal-Mart was solely responsible for the demise of small town retail and American textile manufacturing.  At the same time, it is fair to say that digital transformation will allow the unbundling of each institution’s products, just as the small town square ceased to be the only place to buy clothes and hardware.

Rebundling

I wonder about the future of institutions and campuses once the economic value of introductory classes is extracted from the business model equation in its migration to digital domains.  I believe the transformation now underway will change the nature of the campus just as it changes course content and delivery method.

Institutions that continue to rely on the traditional bundle may find far fewer customers.  Those that engage in creative “re-bundling” will be offering a hybrid balance of online and face-to-face academic experience that provides measurable value to students.  These institutions will thrive.  They will need and be able to afford a campus that is a contributing part of the new range of choices that can be chosen and designed by each student.  That will be a different campus – part of a different bundle.

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