BLOG STARTUPS, VENTURE AND THE TECH BUSINESS

January 12 2012
by John Backus

Re-Inventing Education for the 21st Century

The Internet is staring down the College Cartel. And the Internet will win. College costs cannot continue to rise at three times the rate of inflation, as they have for the last thirty-five years.

My friend Jack Biddle, co-founder of VC firm Novak Biddle, and an early pioneer in online education companies (Blackboard, 2Tor, Fidelis and others) puts it this way:

“Since WW II, GDP has grown at 3% per year but health care and education have and continue to grow at 7%. They are now on a path to reach 50% of GDP. For that to continue, it means that EVERYTHING else that people consume has to shrink by 4% per year. That is simply not going to happen. Herb Stein’s law says that that which is unsustainable, shall stop, and this is unsustainable.”

The Internet has brought efficiency and cost-reduction to so many industries over the last fifteen years: retailing, financial services, advertising, music, news, movies, books, and gaming. The $1 Trillion Education market is next.

Education hasn’t changed much since the days of Plato and the first Academy which he founded in 387 BC in Athens – where the wise teacher filled the brains of his students with his wisdom and knowledge. With 16 million students at 2,400 US Colleges today, that same “wise teacher” paradigm is used in hundreds of thousands of college classrooms and lecture halls each and every day.

Yet the world has changed. Today, across the Internet, more knowledge exists online about any given topic than does in the mind of any one professor at any one school. With access to the Internet, students collectively are wiser than their professors. Companies like Koofers, which helps students prepare for tests in virtual study halls, whether on the same campus taking the same course, or at completely different schools but taking the same course type (Introduction to Economics) are harnessing this collective wisdom.

Salman Khan, who started posting YouTube videos for his family, to help them better understand math being taught in school, is turning education upside down. The Khan Academy suggests that learning should be done online, and classroom time reserved for teachers to help students better understand material they have learned, but perhaps not yet mastered.

2Tor is helping brand-name universities extend their programs online, to reach students around the world. Those online students graduate with the same degrees as their counterparts who attend brick and mortar classes.

The revolution is upon us.

I see four rich veins for entrepreneurs to mine in the higher education space. A lot of wealth will be created here in the next twenty years.

First and foremost is international. The rise of the middle class in India and China alone is creating a college-eligible audience larger than the 16 million college students in the US today. Validating the credentials of these students, helping to match them with US Colleges, preparing them for college from a language or culture standpoint, and educating many of them online represents an industry perhaps as large as the entire US education market today. A new $1 Trillion market.

Second is brand extension by the top US Universities. For most, admission into college is not hard. Only 2% of US Universities are ultra-selective, accepting fewer than 25% of their applicants. These 53 out of 2,041 Universities have brands that are recognized worldwide. It might be more difficult to expand branded undergraduate offerings online, because of the breadth of the curriculum and the socialization needs of the students at that age. But brand expansion, online, for graduate programs can be a very big business. 2Tor is attacking this space dead on.

Third is what I call an “On-Campus Virtual College.” I believe that students go to college for three primary reasons. First is the social experience of college. Making friends for life, having fun, going to parties, and learning how to live and act independently from your parents. Second is to get an education and a degree that is valuable to employers in their field of choice. Third is to find a job upon graduation. Academics only comes to play in the second instance. The other two are much more pragmatic. And nothing says that the three functions can’t be split.

I foresee a day where students will go off to a campus with classrooms, teaching assistants, dorms, sports teams and cafeterias – but with no professors. Students will go to class together and watch a lecture from the best teaching professors in the world. Teaching assistants or adjunct professors will guide the students through the material. But they will learn, online, from the best teachers, unlike today, where at many schools, professors teach because they have to – and conduct research because they want to. By separating the cost of the social experience + the career planning and placement from the cost of teaching, we can fundamentally change the cost of education. This is an ideal setting for the 84% of students who attend schools that accept 50% or more of their applicants.

Fourth is transfer students. A little known secret is that 1 in 3 students transfer at some point during their college life. They graduate from a different college than they enrolled in right out of high school. This process is inefficient today and will benefit from innovations entrepreneurs will pursue. Innovations I foresee include taking the top 10% of community college students, honors candidates, putting them in an online program from a 4-year school, and preparing them to transfer to one of many 4-year schools after learning online for two years. Another idea: Creating a transfer marketplace for college students looking to upgrade the brand name on their diploma. After all, employers care about the school from which you graduated – not the one you initially went to out of high school. Top colleges would love more applicants, with a year or two of college under their belts, with a record of academic achievement from second tier schools. Helping to make that market is a big opportunity.

At New Atlantic Ventures, we are big believers in how the Internet will transform higher education. We have backed two companies in this space so far (Koofers and Wiggio,) are about to close an investment in a third company, and are looking for more!

Follow me on Twitter @jcbackus

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