Online Education

I found this article discussing online education's potential in today's higher education system after talking about the topic with a friend. He was considering taking a job with an online university who offered to pay for his graduate degree if he received it from that university.
Web-based education is becoming a popular option for students. It seems like I can't watch a game on TV without seeing advertisements for ten different online schools. While they may be increasing in popularity, I believe employers prefer to see a candidate with a degree from a school like SUU or BYU rather than from the University of Phoenix or Broadview University. The author of this article defines these offerings, made for a variety commitment and ability levels as "Massive Open Online Courses" (MOOCs).

However, universities such as ASU and even Harvard are implementing online classes to aid incoming freshmen as well as to expand their student body. The difference between online universities and ASU/Harvard is the course organization. "Small Private Online Courses" (SPOCs) are designed for elite students and require them to complete a heavy load of homework. By increasing course quality using online systems, these schools can cut costs without diluting quality.

The costs associated with running an institution of higher education are massive due to the construction and maintenance of buildings, failed matriculation, and payroll. By using the internet as a classroom, universities can mitigate these costs. ASU has increased the number of students graduating in four years from one-third to one-half with hopes of continuing this incline.

After looking closer at the job offer, my friend realized that the school was privately accredited and decided to get his degree from an AACSB accredited institution. ASU and other schools are combining the reputation of an accredited institution with the convenience and cost-efficiency of online programs to offer students less expensive alternatives to in-class instruction.


Dave Tufte said...

Sebastian: 100/100

This is kind of light on ManEc, don't you think? Here's some things you could have pointed out.

1) The offer to your friend is like many jobs which offer you a lower wage/salary because part of the compensation is in the form of access to the product they sell at a discount. So this is like servers who get restaurant meals, or airline staff that can fly for free in open seats.

This is a form of transfer pricing, covered in Chapter 11. There are some special cases, but generally you shouldn't charge anything lower than the marginal cost for a transfer made within a company.

This is where it gets interesting. Competition ultimately pushes price down to ... marginal cost. And this firm is giving away their degrees to employees. What does that say about their marginal cost? What does that say about the ultimate price for their product? What does that say about the viability of the online university or the value of its degrees? A little economics should make you very suspicious of this sort of offer.

2) Advertising tends to be positively correlated with future revenues but not future profits. Just because you see advertising doesn't mean they're a viable concern.

3) Why do they advertise during games, rather than other venues? Where they advertise tells you something about what their potential customers are doing instead of going to school. In this case, it's watching TV. Harvard, say, doesn't advertise there because their target market isn't home watching the game.

4) I agree that colleges have a lot of trouble with brick and mortar costs. It isn't very often that those brick and mortar costs are linked back to education. A university education is a bundle good (again, Chapter 11): for example, at SUU you can get an MBA as long as you fund a little bit of the football team too. Online education definitely has a future as long as it keeps focused on unbundling the bundles that students don't want.

5) When I look around at university administrations (and I'm not just picking on SUU here) I see a lot of failure to recognize opportunity costs, and excessive focus on dollar costs in budgets. This is what happens when you listen to accountants too much, and not enough to economists (that's not a slam at accountants - business schools have both fields mixed in to all their classes).

So I wonder with online education if a lot of this is a shift from readily observable dollar costs to less readily observable (but just as critical) opportunity costs. For example, if the alumni giving connection is built from brick and mortar experiences, then schools going online are saving money today, but will have weaker cash flows in the future.

Eddie said...

I think a distinction should be made between the University of Phoenix "online universities" and "universities that offer courses online" like Harvard, ASU and SUU. Sometimes they are confused to be the same thing when they are completely different.

There are for sure various types of students in the market for a college degree. Some of them want the more traditional college experience that is usually associated with moving away from home to live at a university, studying there and everything else associated with that experience. Some, for whatever reason do not value the "experience" part as much, and are more interested in the education/degree/classes side of things. The choices a prospective student has in the marketplace is much more robust because we are starting to see more "unbundling of the bundles". Assuming the poor reputation that some "online universities" carry for whatever reason (poor or no accreditation standards, bucking traditional norms etc), I wonder how potentially harmful the stigma of "online universities" can be for students who finally enter the job market.

Dave Tufte said...

Eddie: 47/50 (When you write "The choices a prospective student has in the marketplace is ...", you need to make the noun choices agree with the verb is/are. The best way to check this is to drop out the intervening clause and see if the phrase "The choices is ... " sounds right to you)

I certainly think Eddie is right about the unbundling that online classes allow.

But I don't know that I'd put the big dividing line between Harvard, ASU and SUU and online schools, or between the face-to-face and online offerings of schools like Harvard, ASU, and SUU. I have trouble seeing how it isn't the latter.

The analogy that always keeps coming to mind for me is that brick and mortar schools are McDonald's, online schools are pizza places. Then is the appropriate response of McDonald's to market share loss to start offering pizza? Over the years McDonald's has repeatedly tried that, and failed.