Business Model Innovation in Education

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Publication date:

November 03, 2021

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As I write in my bestselling book, Rough Diamonds. Rethinking  How We Educate Future Generations ( https://geni.us/RoughDiamonds ),  the current business model of education is not sustainable. Education has become just too expensive for students and/or parents (in the case of private education) and for governments (in the case of public education). The net result is that education is not readily accessible and/or affordable for many who could – and undoubtedly would – benefit from it.

More worrisome is that with adaptive and lifelong learning becoming necessary to secure higher and faster returns on human potential, stretching the current model to accommodate those would make education prohibitively expensive. Clearly, there is an urgent need for novel business models in education.

The model we have become so wedded to has been around for quite a while. Indeed, we have seen very little if any innovation in business models in education. Technology is about to change all that. As we have seen in other industries, digital technologies enable and support radically new business models, and there is no reason to believe that they will not do the same in education.

Whenever I tell people that the current business model in education is not sustainable, everybody unequivocally agrees. But the voices fall silent when it comes to discussing what we could do or should experiment with. It is quite amazing to me how few of us can – or dare to – think outside of the box on this topic. 

Let me put forward a few ideas I have experimented with. My objective is to illustrate that we are far from being stuck with the current model, and that there are many avenues we can pursue to implement much-needed innovation.

When you read on, keep your defensive reflexes at bay or, at the very least, be aware of when they start blocking your ability to think and reflect. Creativity and innovation will not get far when thought processes succumb to defensive attitudes that only shore up the comforts of the past. The fact is that anything outside of the box will have its critics.

In proposing a few ideas, my objective is not to convince you to necessarily implement them. They are just illustrations of what is possible, and hopefully they inspire you to go further and do better. After all, the tree of creativity has many branches and I will just climb up a few to illustrate its potential.

1. Tiered audiences

What is quite fascinating about the online gaming industry is that some people pay to play (with some expert players increasingly being paid to play) while others pay to see others play. Accordingly, many games have two-tier audiences where one actively engages, while the other passively observes. Both see the same game being played, but do not necessarily learn the same things about the game, or learn about it to the same depth. 

Multi-tier audiences are something to explore in education. In fact, and without realizing it, we created a second tier by moving online as a result of the Covid pandemic. Sitting in a classroom together with the teacher and the other students is an experience that is quite different from being geographically dispersed from one another but meeting on a video platform. Both do not encourage or motivate the same level or depth of learning. Moving into blended models where some students are physically in the class while others are participating online, we are creating two audiences that share exactly the same content delivery but experience it differently and do so with different learning consequences.

The point is not that one is better than the other. Online education is undoubtedly part of the future, but in order for it to lead to effective learning, it has to move away from just online teaching; i.e., it has to use the online medium and platform for what it can deliver above and beyond what standard classroom teaching can. The latter, to be effective, requires teachers to tune into and constantly sense the pulse of their students’ learning frequencies. That is very difficult to achieve in online learning. As with the gaming audiences, the experience of those in the class and those at home tuning into the class is different and, as a consequence, learning experiences will be different.

In education, the traditional approach has been one with just one audience: the students who sit in the classroom. We could easily envision multiple audiences, even within a physical classroom setting. In the traditional model, all students have the same rights with respect to access to the teacher and one another. What if we had a secondary audience who was there but was not allowed to raise questions and/or get involved in the discussions? That audience would just passively observe, experience, and learn. A similar experience could be created live-streaming teaching. In fact, within the online/offline digital future, many ways to create tiered audiences leveraging the same content delivery could be envisioned.

To make a multi-tiered approach work, the key is to understand the differences in experience and the consequences these have for learning. One could set different learning objectives for each tier, differentiate the value proposition, and price accordingly. 

In the end, we grow the audience (and the revenue stream) for every content delivery by scaling its reach across multiple audiences. Instead of just one audience, we multiply the reach with each tier receiving a distinctive learning experience.

2. Learning-Earning Models

The Duolingo language app has somewhat of a learning-earning model built into its business model. If you use the app to learn Spanish, for example, and you reach an advanced level of competency, your learning exercises consists of translating CNN news stories for its Spanish channel (which CNN pays Duolingo for). This is a mechanism that can be exploited further and more broadly as we see more digital learning ecosystems emerge.

The principle here is that, as one progresses along ones learning journey, one reaches a level of competence at which one can meaningfully contribute to the learning ecosystem. Although Duolingo does not go that far, one could easily envision an algorithm assessing the monetary value of the contribution made, and the student being paid for that contribution and begin to earn his/her learning fees back. 

Note also that the model incentivizes students to move along their learning journeys quickly. 

3. Pay-For-Success Models

At one point late in my academic career, I toyed with the idea of building a school that would identify, nurture, and accelerate the development of entrepreneurial talent. The challenge immediately was how much to charge for such talent development. Entrepreneurial talent usually has lots of energy and time but no money. Hence, charging tuition might not be feasible, although one could argue that the ability to secure the tuition money might be a good indicator of the applicant having some of what it takes to become a successful entrepreneur.

We decided to explore a novel business model because we felt that the credibility of the new school would be enhanced if it actually practiced what it was going to preach. So we set out to find a new business model.

As part of my academic interests, I was familiar with social impact bonds, and I had written on their potential use in corporate social responsibility. The pay-for-success mechanism underlying these bonds looked to me like fertile ground to explore. The attractiveness of the mechanism lies in its ability to bring accountability into the business model, and to open up education to risk capital without jeopardizing its independence.

Since I was considering to build the school in Dubai, I looked carefully at what social impact such a school could achieve in that geography. My thinking was that if the social impact – measured in monetary terms – was substantial, one of the local sovereign wealth funds might well be interested in underwriting a bond to fund the program.

Starting with an annual intake and assuming that a small percentage of them would start successful businesses, I mapped out all the impact vectors I could think of and assessed, where possible, what the monetary value of that impact could be based on available data. I looked at incremental tax contributions, employment generation, increased demand for services, etc.; i.e., any value that successful start-ups could create, directly and indirectly. This mapping exercise was quite a revealing study in the social impact of an educational program.

Depending on the time horizon and the definition of success adopted, the potential impact fluctuated around about 1% of the UAE’s GDP. As this is not an insignificant amount, I felt assured that a sovereign wealth fund would be willing to shell out a premium if the school succeeded in delivering that impact.

The details of the pay-for-success business model for education are described in my Rough Diamonds book. With companies becoming more and more concerned about the image they create with their community engagements, I discuss how underwriting a social impact bond could be a risk-free PR option for them. The mechanism is quite simple and straightforward but there are a few caveats in implementing it. Still, it holds promise and, more importantly, it gets us thinking about possible business models for education in an entirely different way from what we are used to.

4. Changing the Learning Unit

The unit of learning has typically been an individual student but it could also be a pod (ie, a small group of students selected in a specific way), with incentives associated with the delivery to stimulate learning and co-learning within the pod. Let me illustrate this in the context of experiential learning.

I have always been a big fan of experiential learning, especially gamefied learning. A lot of my teaching over the years involved business simulation games. I even developed some myself, including eTales. eTales is a two-tier game with some teams running retail operations and the others running manufacturing operations. The manufacturers can sell through the retailers (who run their own chain stores) or directly online. Hence, the game has horizontal as well as vertical competition. In an executive education context, corporate executives would form teams and each team would run either a retail or a manufacturer operation. 

Because of its complexity, we found that executives took quite a bit of time negotiating with one another (i.e., manufacturers negotiating with the retailers) and making decisions. To speed up the process, we decided at one point to let each executive bring in his/her back-up team. These teams were not be physically present but the participating executives could engage with them online and outsource/delegate tasks. In other words, the back-up teams became direct reports to them, which enabled us to mimic their respective corporate environments, and stretch the learning deeper into their organizations. It also enabled us to create additional learning opportunities (e.g., how to communicate effectively, etc.) and, as such, enhance the value proposition of the experiential learning program. This enabled us to differentiate our offer in the corporate education market and, more importantly, charge a premium for it.

Accordingly, the learning unit shifted from just the executive in the class to pods that included the colleagues they worked with in their respective organizations. Playing a competitive game together, one could envision co-learning to be achieved at many different levels.

And there are no doubt other ways to stimulate co-learning once the attention shifts from individual to pod, all with potentially rewarding revenue streams.

As these ideas illustrate, there are many avenues we can and should pursue in the search for novel business models. The key is to step away from the model we have, think freely, and experiment. The importance of experimentation as a learning vehicle cannot be underestimated.

From a strategic perspective, we should also remember that, as we have seen in other industries, ushering in a novel business model is often a way to change the rules of the game and reshuffle the cards. Hence, there are rewards well beyond the revenue streams that can be generated by a new model.

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