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A Disruptive eLearning Business Model

Steve Schmida

We at SSG Advisors are currently incubating a new approach to the delivery of higher education services that leverages both new technology and disruptive business models. We presented this model at a recent eLearning Technology Salon and I am very grateful for all of the thoughtful and useful input received

The Salon was a great chance to get very practical advice from leading experts in the fields of both education and ICT4D. Here are key points I raised in my opening remarks and input received from participants:

Why we’re exploring eLearning solutions

  • Skyrocketing Demand for Higher Education. Demand for higher education is expected to rise from 48 million seats in 1990 to 159 million seats by 2025 in Asia and Africa.
  • Emergence of Affordable and Appropriate Technologies. Low-cost netbooks and Nettop PCs and the proliferation of broadband and 3G networks transform the economics of providing access to e-learning solutions.
  • Potential for Disruptive Business Models. Over the last several years, SSG has developed some innovative business models for delivering broadband sustainably in rural areas of developing countries, like SSG’s experience with the USAID Last Mile Initiative in Sri Lanka.

A disruptive business model for eLearning

Based on that experience, I put forward the idea of a disruptive business model for higher education delivery that had 3 characteristics:

  1. A key element of the business model is the idea of moving away from per credit hour tuition and towards a monthly subscription fee. Monthly subscription fee service with 24/7 instructor support available online. Using a subscription fee structure would benefit students by encouraging them to complete coursework as quickly as possible. The availability of instructor support at any time enables students to fit their studies around work, family and other commitments. From a business standpoint, a subscription revenue model also better reflects the cost structure of maintaining a platform that includes instructor support on a 24/7 basis.
  2. Both direct and shared access network for users. Here the idea is that better off students in urban/peri-urban areas would be able to access courses from home using a Netbook and a broadband connection. While that might be workable in Rural and lower-income students would have access through a network of franchised shared access centers.
  3. Focus on General Education requirements. One way to ensure that such a model does not compete directly with developing country HEIs would be to focus on general education requirement courses rather than creating a degree-conferring program. The idea is that this both reduces costs for the student, who can complete a significant portion of degree-related work before matriculating to a bricks and mortar university and it also expands the number of available university seats. This is the model of straighterline.com and it enables the company to partner with universities and expand their reach rather than directly compete with them.

We received some great feedback from the audience on both the underlying assumptions and the business model itself.

Look at that eLearning idea

The technology of eLearning

On the technology side, it was pointed out that caching or USB sticks may offer an additional cost-saving mechanism for delivery of content in rural areas where the cost of broadband access may still be prohibitive. This makes a lot of sense as it is very easy to upload lectures, text and even exercises on to a USB stick and then rely on broadband connections only for chats, email and discussion boards. Another important point raised was the use of 3G phones (perhaps uploaded off of DVDs) to offer the delivery of lectures so that students can watch lectures while traveling to/from work each day.

I think these are very important points. For this model to work, it needs to be low-cost, but also offer the prospect of a consistent experience. USB drives would allow a student to use an icafe or telecenter PC, but still have the same learning experience as someone using a dedicated netbook. Also, the advantage of having course materials available in a mobile environment (whether through downloads or off of DVDs) is a significant benefit for students who may prefer to listen to a course lecture while riding the bus to work.

Infrastructure for eLearning

We also discussed whether a franchised shared access center was necessary or worth the investment. It was pointed out that the use of USB sticks would allow for a standardized learning environment, irrespective of the machine or its location. In this case, it may be more cost effective to have a distributor-style (or authorized retailer) relationship with existing icafes and telecenters rather than build new franchises. This approach makes a lot of sense in peri-urban areas where there may be fully commercial icafes. In rural areas where no current icafes or telecenters exist (or are too expensive), it may make more sense to have a franchised operation to ensure that rural students can affordably access coursework and materials.

The buyer demand for eLearning

While we assumed that there is a global demand for higher education, it became clear through the discussion that the proposed model may be more appropriate for Asia as opposed to Africa. Asian cultures tend to place a higher value on education so they may be more receptive to this model. Also, as a rule, most Asian countries have a higher teledensity and higher ICT skills base, so technology may be less of an impediment. Another key point is that in Africa there is a tradition of students being paid to attend university – obviously our model depends on a willingness for students and families to pay.

I think these are absolutely critical points and not ones we had considered when including Africa as part of our model. Our experience in this space is largely in South and Southeast Asia, so our assumptions are built on those markets. I do not think this model is viable in countries where there is no tradition (formal or informal) for paying for education services.

Accreditation and eLearning

Another key point in the discussion revolved around the importance of both regulatory and ‘market’ accreditation. In our model we propose addressing the regulatory accreditation issue through partnerships with national and US universities. With regard to the market accreditation, close relationships with key employers will be critical to success. If the employers feel that students who take courses through our proposed model are well-prepared for the workforce it will greatly increase our model’s legitimacy.

It was pointed out that in some professions, eg nursing, there may be a preference for a degree-conferring program with specialized coursework. Here, I think we would need to see what the level of demand actually is. Becoming a degree-conferring institution is a major investment of time and money, so there would have to be a very high level of demand to justify that investment. It would also put our model in direct competition with host country universities, which could create further complications in obtaining the necessary accreditation.

Concluding Thoughts:

The feedback from the Technology Salon has been invaluable as we seek to develop and refine this business model further. I think the input shows we may be on the right track, but we still have quite a ways to go before we have a business model that we can translate into a bankable business plan.

9 Responses to “A Disruptive eLearning Business Model”

  1. Thank you for comments, however they left me more confused. Is this model being proposed for entrepreneurs or for SGS. ICT projects have a comparatively high failure rate in relation to other sectors. One can argue that the industry is young, but i will not follow that route.

    Most ICT projects try to fit a square in a triangle. The introduction of e Learning in Developing Countries will bring vast benefits, but developing a model without isolating or a clear understanding of the challenges, on the ground, means that the real effect will be inconsequential.

    In your post, you mentioned that Students in Africa are paid to go University. I would like to know which countries in Africa, bestow such privileges. The reality (East Africa) is that some students win tuition free scholarships. The percentage is less than 5%. In Uganda, the biggest University is going to admit 17,000 students this year, less than 2,000 will not pay tuition fees. I can not refer to this, as paying them to study. In developed countries, students are able to access loans.

    You are right about the Tele density being higher in Asia. However a model can not succeed based on Tele density. They are more important ingredients to consider.

    You correctly mention increased demand for higher education. To satisfy this demand, the existing educational institutions need to consider expanding by introducing e Learning. I don't see a role for the Private sector in meeting this demand. One can argue that the profit oriented private institutions, are more efficiently run, but these are the same institutions that brought the world economy crashing to its knees. Many government institutions that were privatized in the late 1980s or early 1990s in developing countries are worse off or have since closed shop.

    The private sector has a complementary role, but this should be limited to partnering with Universities to ensure the students leave as high quality products, instead of making a buck off them. Google, Microsoft and IBM have done very well in these efforts.

    In conclusion, am sure your model is good, but its not clear, which makes it impossible to assess. You talk about instructor support, monthly support, USBs, icafes, demand for Courses, students paying for course works, etc.

  2. Cavin,

    Thanks for very much for your post. I very much appreciate the input and think you raise some valid points. Let me go through and try to clarify a few things:

    SSG is incubating this business model. Right now, we are trying to poke holes in it to see if there are any fatal flaws. Hence, our presentation to the Tech Salon. If, and these are HUGE ifs, we can pull together a sound business plan, management team and start-up funding, we’d like to spin this out this as a separate company. However, at this point, that is a long way off. At this stage, our real goal here is to gather input from as many stakeholders as possible, so I very much value your input.

    The basic elements of the business model are: a student-centric 24/7 learning platform, where students can take accredited general education courses. Students would pay a monthly subscription, but would be allowed to take as many courses as s/he would like. This element of the model is based on similar start-up firms, such as straighterline.com. 24/7 instructor support would be available for all courses and provided by qualified and trained instructors. The appeal of such a model is that it does not tie the student to the whims of the university instruction schedule. A student can take lessons at night (or early in the morning) and continue to work or support their family.

    To ensure access, we are proposing some form shared access model. Originally, we had been thinking about a branded franchise-based model, where local entrepreneurs or community groups could run the center both as a learning center and an icafe. The point here is to enable students in outlying communities to be able to access the platform and take courses without having to relocate to a major urban center to start their university studies (or having to purchase a PC and an Internet account). Based on the input we received from the Tech Salon, however, we are reviewing the franchise component and may move to an ‘authorized reseller’ version where existing icafes could serve as learning centers provided they met key quality requirements.

    At this early conceptual stage, this company is not envisioned as a degree-conferring institution. Rather, it would focus on general education requirements, so that students could complete most of their first two years of a university degree. This both prevents potential competition with universities and, from a business standpoint, enables the company to focus on a smaller number of courses where demand is the highest – allowing a greater focus on instructional quality.

    Your point on university fees is well-taken. Prior to the Tech Salaon, I was not aware that students were paid in Africa either, but this was pointed by participants out at the Tech Salon – hence the inclusion in my comments. I welcome Tech Salon participants to cite the countries where this is indeed the case.

    I absolutely agree with your point about student loans and that is where we may be putting forward a real advance. Our hope is that we can price the monthly subscription at such a level that it would be far more affordable than a traditional university and that even rural families in developing countries could afford the fees. It may still be out of reach of the poorest of the poor, but our hope would be to reach a much wider demographic than is currently being served. That is really the point – to offer a quality educational opportunity that is both affordable and accessible to disadvantaged youth.

    I take your points on East Africa. Indeed, a key element of feedback to date has been that this model may be more appropriate for Asia at the present time than Africa. That said, I do think Africa is on the cusp of some very significant changes that are being driven by IT (http://www.economist.com/business-finance/display… that will make this type of model more appropriate for Africa at some point in the not too distant future.

    Where I will respectfully disagree is on the role of the private sector. You paint a mighty broad brush by dismissing the entire private sector as the chief cause of the global economic crisis. The private sector is huge and includes lots of small businesses that serve globally as the catalyst for economic growth and job creation. Frankly, higher education globally needs both public and private sector (both for profit and not-for-profit) investment – this is not an either or proposition. For-profit, non-profit and state-owned models all exist in higher education in OECD countries, I don’t see why developing countries should be any different.

  3. Thank you Steve for the Clarification. Your post can now be understood. The Private Sector has a role to play, but in the education sector, they have to partner with Public institutions. The private sector does not perform well, in the provision of certain services (usually basic). This is a long debate, i will not engage in.

    My concern with the model, you are proposing, is that you have not investigated the barriers to e learning.
    Another point of concern is how you expect students to pay for courses without certification. Partnering with Educational certificate awarding institutions would be more practical. To award certificates, the testing centers would require authentication technology to avoid fraud.

    There is a lot of potential for this model, but in the current format , its a rough diamond.

    For your information. They are some private companies doing something similar in West and East Africa.
    and the link you provided is broken.

  4. Cavin, Steve left on an extra parenthesis so here's the URL: http://www.facebook.com/home.php?filter=h#!/group

    Steve, my observation of the approach SSG Advisors is taking is that it's a top-down approach assuming a knowledge of the educational environment and needs of the prospective student population and that approach leads to conclusions which I don't believe the situation in much of the developing world reflects.

    First I would suggest that you examine your unvoiced assumption about the centrality of government-funded education institutions to the process of education in the developing world. To provide a perspective that departs from that commonly-held view I recommend reading some of the work of Dr. James Tooley – http://en.wikipedia.org/wiki/James_Tooley – the Wikipedia entry being as good a starting point as any.

    His research has unveiled an entire educational subculture that exists in the developing world parallel to the government-funded system. Sometimes at odds with and even in competition with the government system this private market for elementary education exists because of the shortcomings of the government system which the poorest of the poor have taken it upon themselves to remedy with their extraordinarily tiny resources.

    The reason I recommend coming to understand this phenomenon is that a private market for education represents a much purer expression of a desire for education then does a government-funded institution. A private school must provide value in accordance with the price, must make the value of its offerings known and must keep the value of its offerings competitive with both government-funded entities and competitive schools. I believe the implied relationship between student and school carries through to higher education and that, just as at the primary education level, government funding of higher education distorts the relationship between the education institution and the student/parent.

    Funding for government education results from the political process which means that whatever the educational value of a particular school, it can never escape the influence of the political system. Good schools may be shut down if political expedience demands and bad schools may endure. Teachers, as government employees, enjoy tenure unrelated to their skills and the education budget in aggregate is a function of shifting political alliances.

    Poor people, having learned that if they expect their children to be educated must see to the accomplishment of the task themselves using their modest resources. What's resulted are schools boiled down to their essence. Facilities are a secondary consideration as is the certification of teachers and parents learn to make due with proxies for ascertaining whether their children are receiving an education commensurate with the asking price. If those proxy methods of determining educational efficacy draw a tolerant smile from wealthy onlookers is immaterial to those parents because their options are few so they learn to substitute the evidence of their own eyes for per student budget figures more commonly viewed as a proxy for educational quality.

    What all this has to do with e-learning in higher education is that the sorts of budgets available as part of the political process allows for conveniently avoiding the distillation process that the private market demands. Without distilling education down to its essence, as is done of necessity in the private schools of the poor, education becomes just one consideration among several some of which are erosive of the education process.

    My suggestions is that in order for higher education to take advantage of technology those private schools that cater to the poor be involved. What sort of education would be the next step following that provided by these modest schools? What tuition levels, measures of value, education techniques and technologies are appropriate to populations which can't afford the sorts of vast sums deemed unremarkable to the pursuit of a higher education degree?

  5. Well that was certainly embarrassing. The correct URL is – http://www.economist.com/business-finance/display… – and it does work.

  6. That link highlights, the initiatives some countries have undertaken to access high speed broadband through under sea marine cables. This project had a lot of promise, with NEPAD (New Partnership for African Development) at the fore front. However, Kenya has decided to opt out of this initiative and acquire its own cable, thereby missing out on potential savings that result from economies of scale.

    Most e Learning initiatives focus on deploying the technology online. North Korea has its own Internet comprised of a national backbone of inter connected units.

    The important aspect is to foresee any dangers, before jumping into them head on. Developing a model for Asia, and then Africa is not only useless, but impractical. Every nation in Asia, is at different levels of economic development, posing different challenges. What would work in China, might not work in Bangladesh.

    A practical approach is to identify the potential barriers, and provide a model that would address the challenges of e Learning on the ground.

  7. Allen,

    Thanks very much for the comments and the links to Tooley's work.

    While I am sympathetic to your assertions regarding the role of private education, I don't think we can ignore government-funded higher education. Indeed, it is my view that our proposed business model (which is a private model) not try to confront government higher education institutions, but rather cooperate with them. My logic here is fairly simple: the key barrier to entry into this space is accreditation. In many countries, if we take a confrontational stance with publicly-funded HEI's, I think we are likely to have a great deal of difficulty obtaining accreditation. If, on the other hand, we work in partnership with those same universities and offer them a way to reach a far greater number of students we can work under their accreditation.

  8. Wonderful, that’s just what I was searching for! Your post just saved me alot of looking around

    I’ll make sure to put this in good use!

  9. actually liked what you wrote actually. it really isn’t that simple to find great stuff to read (you know READ! and not just browsing through it like a zombie before moving on), so cheers mate for not wasting my time on the god forsaken internet. :p


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