How, not if, prices will permanently fall

NYU professor Scott Galloway has gone bazooka: “Margins on education are unreasonably high”. However; don´t worry. The methods described in this post are spreading, price levels will fall. They will even drop sharply. On permanent basis. But it´s not because of Covid or digital tech. It´s because of smart people, people like Galloway, understanding disruption.

Tuition has risen in the US. Education is not as affordable as it ones was.

Here is one thing: the price tag of a master’s program. Here is another one: the figure on the last line of the internal cost calculation made on such program. The difference between these two numbers: the margin.

A third thing: make margins as high as you ever can.

A misunderstood business advice, or correct?

Well good then, perhaps, that universities of today now sell Master’s programs to a high margin. It’s also a margin that actually has grown over the years, even skyrocketed.

But exactly just this has now made the NYU marketing-professor Scott Galloway go bazooka. And he does have a point. It is really mindblowing how prices for university education have been able to rise as much as they have in recent decades, while prices for other types of products have fallen at the same time.

The world of university education has simply managed to go in the opposite direction than the rest of the world for a pretty long time.

How to square that circle?

Galloway himself believes that these high margins exist due to the Ivy League universities succeededing in creating a monopoly-situation, which they have exploited hard. Then it has spread down-stream to less prestigous universities.

The high margin also explain why Galloway expects that the ed-industry now also will see big tech entering. Their valuations are high, shareholder expect a lot for the future. What else for them to do when Moore’s law cut margins on their existing business? Signs of them preparing for it, already there.

Fake Diploma on Google, 3 million hits.

But Galloway also believes that the business community greatly appreciates the scanning of competence the universities are engaged in – indirectly supporting the maintenance of the situation.

Could he be right?

Well, it´s correct that a university degree is very important when applying for job at a big corporation of today. It´s also correct that young people, and parents, are willing to do a lot nowadays to get hold of a university degree.

Surprise: the business of fake diploma and cheating have grown quite a lot recently. Also bribing your way in seem to happen from time to time.

Has actually the diploma, as such, become the core product of today’s universities?

The more people that apply for a job the more costly the screening-process becomes.
If we stop travelling airport-business-schools – aka: bookstores we visit before boarding – will get a big blow … but it might not effect prices on education.

Superficially, one would then think that digital technology is now lowering the cost and therefor prices will start to drop. Neither teachers nor students need to travel for instance, and classrooms not needed.

It is also true: a digital version of a physical course, at least right now, is often a little lower. MOOCs for instance run their business on lower prices than universities.

There is really something to the idea that digitalization cut down on the overall cost.

But does it affect prizes?

Actually, travelling is not included in a calculation of the production cost for an education. And cost for premisses are just a tiny proportion of the total cost for a course. So possible pricechanges is not about these things.

One could then think that the cost that remains to cut down on is linked to the individual teacher, salary. But it’s not really about that, either. Instead, the so-called overhead-cost of a university is worth noting.

If overhead is financed by internal cost put on the ones that invoices end-customers … no pressure on head quarter to increase productivity on overhead.

Most universities today apply an internal calculation methodology to an individual teacher which means that teachers ”cost” becomes far more than double their salary. This is how a university finances its administration, also called overhead.

Money to everything from the dean, to sales-people and student support, like for instance registration and reporting to authorities, must come from somewhere, right?

In the consultancy business consultants themselves ironically call the equivalent phenomenon ”consultancy taxes”. It’s a constant debate internally within these firms how big, or small, that “tax” should be. The top of the organization fighting the bottom of the organization; one way to see it. Another way to see it; the bottom of the organization fighting the top of it.

With the dream job you can afford to pay student debts. But if you don´t get it, a growing concern, you get problems. However; that is then, not now.

But then there are also that universities are currently making good money…big profit.

According Galloway they can do so simply because they have such a strong market position that customers are nevertheless prepared to pay the ever-increasing tuition fee.

What do we not do to end up first in line for the future dream job?

Galloway have actually gone further and describes the whole situation as a ”cartell” combined with a “fetishization of the college degree by US corporations”. That´s harsh words.

But …

Let´s play here with the idea that a course could be given by a teacher but without the employer involved. What would the calculation for that particular course look like? Not at all particularly high cost overall actually, very low administration/overhead.

A teacher selling their own education could do it at well below half the price that existed when the teacher was employed somewhere.

Still be able to raise the personal income significantly

This is also exactly how it looks with players such as Udemy, Kajabi, Hotmart and Thinkific – of which the first recently was listed in the US and the latter just followed in Canada. About 10 years ago, these actors did not even exist. They have grown, fast, and now received high valuations. They are platforms for individuals selling courses by themselves. Their prices are pretty low. These platforms also takes a cut from the teacher, but a lower one compared to the overhead cost, or profit, of a university.

But a teacher can also take matters into their own hands and do as for example Seth Godin, sell knowledge directly by themselves on their very own platform, here his so called Alt MBA.

Or, a teacher can do as Scott Galloway himself, gather some acquaintances and start their very own training company, here his pretty newly founded company Section4. Could Galloway starting this business be a sign of him living his own message? Phenomenon like these seem to be growing quite well.

This video is about the second business Galloway thinks is ripe for disruption due to unreasonably high margins: Health Care. Galloway has a point also there.

However; that people with strong brands have a tendency to act like this during digital times, is actually not unusual, nor even surprising. It has happened before. It is for instance a development fully comparable to what best-selling musicians did when the music industry started to disrupt.

-> How musicians acted when the music industry disrupted.

Also note: I have here not even touched on the economies of scale that can be found when doing a course digitally. A single course can take in a thousand students, share the course-cost among all of them, and thereby gain market position by going for lower prices – still get a pretty good profit.

-> Scale economy in the e-learning space

Where will this end?

Galloway claims that education is among “the” industries of today that are ripe for disruption

Could he be right?

Well, nobody really knows the future, so we all have to make up our own mind on what we believe in will happen next. But it seems at least that Scott Galloway is right when he claimes that the margins in the world of education will not last much longer.

-> What happens when disruption starts, and how to manouver it.

Now; I am very well aware of the fact that the most important thing that Gallow himself claims to be happening next is big tech joining forces with the top-schools in US and then…kill the rest. And I am not claiming he will be wrong about big tech entering. But isn´t it at the same time interesting to observe that the solution Galloway himself seem to head for right now is not related to big tech – at least not yet.

It´s worth putting the eye-balls on the mere idea of us seeing far more changes than just one new solution on the horizon.

Summing up:

Uniquely knowledgeable and smart people, sometimes called teachers, sometimes called founders of startups, sometimes called big tech, sometimes even galled “Galloway”, will gain more and more in position the longer the digital development continues … but not all of them will act in the same way.

However, jointly… they will put a big pressure of lowering the prices for education.

Share perhaps this post with someone that is interested in a future of education with a bit lower prices than there is today.

And eventhough we will not see only one new solution evolving before the final structure for the future of education becomes crystalized…prices will fall.

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