Monday, April 25, 2011


For-Profits and Satellite Radio

For a few years in the mid-2000’s, I was a fan of satellite radio. I had a longish commute, and there was only so much NPR I could endure, especially during pledge drives. I loved the variety of music satellite offered -- I was a particular fan of “beyond jazz” on XM -- and was convinced that the business model made sense; although there may not be many fans-per-square-mile for any given genre of music, there are probably enough across the country to justify a station. It was the “long tail” applied to music, enabled by technology.

At some point, I read a piece online -- maybe at Slate? -- arguing that satellite radio was a ‘transitional’ technology. It would last, the piece argued, only until mobile internet access got to the point where people could reasonably stream audio in the car; once that happened, satellite would lose its reason to exist.

I was skeptical. How on earth could I get internet in the car? There was no way the cable would reach that far!

Since then, of course, wireless mobile internet has become commonplace. I can pick up Pandora on my phone and play it through the ‘aux’ input in my car radio without bothering with, say, a monthly fee. When XM misunderstood its own business model and did away with “beyond jazz” while keeping a couple dozen lite-hits stations, I was done. I don’t miss it.

I’m starting to wonder if the for-profits are the satellite radio of higher ed.

Like satellite radio, the for-profits started by attending to parts of the market that traditional colleges mostly ignored. They grew quickly by exploiting some of the inefficiencies of the competition. (The competition made that easy by mostly digging in its heels.) Most of traditional higher ed was so affronted by the upstarts that it failed to notice all the ways the for-profits actually resembled them.

For all the obvious differences -- the calendar, the terms of employment, the unapologetic focus on post-graduation employment -- the basic structure was remarkably similar. Students pay tuition, mostly using financial aid, for courses denominated in credit hours and taught over semesters. Some of the larger and more successful for-profits offer the same degrees with the same regional accreditations as their non-profit competitors; Phoenix and DeVry, for example, are both accredited by the Higher Learning Commission (North Central), which is the same body that accredits the University of Chicago and Northwestern. The for-profits generally accept transfer credit, and in some cases the acceptance is even reciprocated.

The family similarities were by design; they allowed easier access to federal financial aid money, and they made marketing to prospective students easier because the for-profits could offer a credential that the wider culture already recognized.

For a while, the for-profits did remarkably well. Their marketing left much of their competition in the dust, some of their programs were actually pretty good at what they claimed to do, and there was no shortage of qualified would-be faculty to hire. (I’ve long thought that the overproduction of Ph.D.’s and the resulting shortage of full-time faculty positions in traditional colleges was part of what made the for-profit boom possible. They could get qualified people on the cheap.) And the increasingly desperate economic straits of the nonprofits led to behaviors -- such as wholesale adjunctification -- that undermined any argument from the moral high ground.

The for-profits grew wildly when financial aid was easy to get and the lower-tier nonprofits were consigned to a more or less permanent austerity regime. The secret strength of the for-profits -- and I used to work at one, so I know whereof I write -- is that they charge more than the cost of the service they provide. That means that growth not only pays for itself, but it actually benefits the financial health of the organization. Most public colleges teach at a loss. In some cases, such as California, the losses become so great that the only way the colleges can survive is to turn students away. When those students are turned away, the for-profits stand at the ready, happy to accept them.

The Achilles heel of the for-profits, though, is that they only make sense when they’re growing. Public colleges derive their budgets from a combination of tuition/fees and public subsidy; when enrollment drops, they at least have the subsidy to cushion the blow. The for-profits exist entirely on tuition/fees; when those drop, there’s no cushion. There’s nothing to fall back on.

Worse, the for-profits never really solved the cost issue that bedevils traditional higher ed. They still charge by seat time and require a set number of credit hours for a degree.

The failure to address the underlying cost disease didn’t matter much when financial aid flowed like manna from heaven; just keep raising tuition and all is well. But when the financial aid spigot starts to sputter, the underlying inefficiencies of the service model stand exposed. That’s happening now.

I’m not sure what the for-profits are a transition to. Satellite radio bridged the gap to mobile internet, which offered a longer tail at a lower price. My guess -- and that’s all it is -- is that the next big thing will be a transition away from the “many paths to one goal” model. Right now, there are elevendy-million different combinations of majors and colleges that fall under the umbrella of a bachelor’s degree. I suspect the umbrella will be the next thing to go.

We’ve seen hints of this over the last decade or so. Terms like “Cisco certification” exist to signify alternative (or often supplemental) goals, as opposed to a bachelor’s degree. I suspect that customized certificate programs will start to flourish. Unlike bachelor’s degrees, they aren’t tied to a particular amount of seat time, or even to credit hours at all. The better-known ones are validated by some sort of exam; how you get the knowledge to pass the exam is up to you. It isn’t difficult to imagine the outcomes assessment movement greasing the skids for something like this to happen; if degrees are really just lists of outcomes, then certificates can be shorter lists of outcomes. As costs continue to escalate, it’s getting harder to explain why every single person needs 120 credits, many of which will be in courses they don’t care about.

When I gave up satellite radio, I didn’t go back to my local FM stations. I switched to Pandora and similar competitors. Having grown accustomed to listening to music that fit my idiosyncratic tastes and that didn’t have five minutes of commercials per song, I just couldn’t go back. Slacker, Pandora, and their ilk didn’t rebuke the advances of satellite; they saw them and raised them.

Similarly, the sudden vulnerability of the for-profits doesn’t suggest to me that we’re on the verge of a social democratic renaissance. It suggests that something even more disruptive is readying to be born. It’s one thing to say “we can offer a more convenient bachelor’s degree in an employable field, and you can get financial aid for it.” It’s quite another to say “we can offer an alternative to a bachelor’s degree, and you can afford it.”

Admittedly, this is a big topic. And it’s hard to make predictions, especially about the future. Wise and worldly readers, what do you think?

You hit it with the "students don't understand why they have to pay a high price for many of the 120 credit hours they don't care about."

When I was selecting my undergraduate major, I was looking amongst math, engineering, and computer science. To me, they all required the same basic skillset/fundamental way of thinking.

What I found was that math is always an Arts and Sciences discipline, and engineering is engineering. (Ok, "duh" on the later.) But the fundamental difference in majors was that as a liberal arts discipline, one would take 30 credit hours of math classes and 90 credit hours of the arts and sciences bit. I found it crazy that non-major electives represent a majority of the requirements.

With engineering, one generally took over 100 credit hours of engineering requirements and just one semester of electives.

So, what I think is going to happen with higher ed is that there will be a break from the 120 credit-hour requirement. It's almost inevitable with current trends. But what will get interesting is what happens in the labor market. These "lite" degrees will probably be considered less valuable than a traditional BA/BS, and deservedly so. It's hard enough for college grads today to get a good paying job -- will these "lite" degrees pay even less? Will we see the same arguments that a traditional degree is better than a "lite" degree, much like we see BS/BA as being better than an HS degree today (even though the differences are less pronounced than they used to be)? If we get stuck in that argument, have we even made any progress by breaking away from the traditional model, or have we just created a different set of problems?
The for-profits are just a symptom of our transition to a plutocratic society; they will exist until Federal student aid for working class and middle class students is destroyed in the name of providing our Galtian overlords a tax cut.
Just as an example - I am an accountant - a bachelor's degree and one credential (CPA, CA, CMA) used to be sufficient.

Right now, there are so many other credentials for every single conceivable specialty - such as CFE (Certified Fraud Examiner), CFA (Chartered Financial Analyst), CAMLS (Certified Anti Money Laundering Specialist), CIA (Certified Internal Auditor). Each of the these specialties costs about $1000 - $2000 to complete and it is questionable whether they add value. Their growth and proliferation is purely employer driven. You will also find that the organizations that support these credentials are usually for-profits.
My college already does a lot of that, but what it doesn't do is MARKET those options much outside of a narrow "improve yourself" audience that has been working for some time at local businesses.

I agree there is demand for this because I have advised students who are looking specifically for a way to get an along-the-way degree (such as a certificate or AS) that will help them improve earnings while going for more. Three examples that come to mind are basic accounting skills, CAD training, and M$ certification.

It is also interesting how many are unaware of the difference in cost between a BS-RN and AS-RN degree and the options to upgrade from one to the other.
The problem with certifications, at least in the software and IT industries, is that they don't have a positive correlation with competence, i.e. the percentage of non-certified people who are competent is higher than the percentage of certified people who are competent.
I really like the satellite radio model. The other cultural experience that is experiencing this kind of deep shift is cinema. We all grew up with going to the movies, but our children haven't. To them, a movie is something you catch at your leisure, at home, in your trackpants, not at the scheduling pleasure of the local theatre. It doesn't come freighted with electives (trailers, commercials etc). You don't have to all show up at the same time. And you can say you've watched it once you've you watched most of it, even if it's a work in progress actually to see the final scene. Our kids watch movies in bits, pause, rewind, finish off later. But at the movie theatre, they can get quite antsy. Why does it take so long?

This is a big problem for cinema owners who have fixed overheads. But like us, they're having to think about different lengths and formats and marketing strategies, because the one-size-fits-all seat time model isn't guaranteed a future there either.

Down here in the deep south, students who have to pad their degrees with electives are often attracted to options in the humanities because these are a bit cheaper in unit terms. This has the less than fantastic effect of making them both agitated about the validity of the additional seat time debt, and suspicious of the real value of the humanities if we're cheaper to get. So it doesn't seem to me the best way to introduce people to the big intangibles that liberal arts studies can address.

I've often thought that these vocationally driven younger learners would really get more advantage from us if they could come back and finish the story later, when life has given them more to think about.
I'm interested to know why for-profits can charge "more than the cost of the service the provide," when non-profits can't. It's clear why public institutions don't; the state subsidy is part of their "business model," for better or worse. But how many non-profit private IHEs make back their operating costs on tuition alone? Are the ones who don't undercharging? Overspending?
Certifications also appear desirable to employers, who see them as a shortcut in the hiring process. When you're facing hundreds of applications for a position, winnowing the list so you're only looking at the best candidates is a lot of work. From Tired's response: if you're looking to hire an internal auditor, posting a CIA certification as a requirement does three things: it shows the applicant has a certain level of training in the field; it shows the applicant has enough interest/dedication to achieve the certification (even if they don't like the field, they have the work ethic to compensate); and it cuts the applicant pool by a significant amount.

The first downside is pointed out by Anonymous - in reality, current certifications are primarily an indication that the holder could pass a test, not an indicator of competence in the field.

An additional downside is that you lose the ability to pick on other criteria. Collegiality, overall work ethic, related competencies, ability to learn, and other useful skills/traits can't be brought into full consideration when the potential applicant never applied due to a lack of certification.
how is it non profit can charge??
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