T HE EMERGENCE OF OPEN ONLINE EDUCATION

SUPERVISOR UNIVERSITY OF GRONINGEN: PROF. DR. IR.J.M.L.(JO) VAN ENGELEN

SUPERVISOR CAPGEMINI CONSULTING:TIMO KOS MBA

An exploratory study on behalf of Capgemini Consulting

A UTHOR :

R ALF C HARDON

T HE EMERGENCE OF OPEN ONLINE EDUCATION

Impact on the business model of traditional

higher education

Abstract

Since the emergence less than a year ago of several open online education platforms in the United States, word has spread fast. Over a million people use the high quality courses of Ivy League universities. With every month new universities joining the movement, it has already reached Europe. What are the consequences for the business model of traditional education?

This study tries to lay a foundation for future research on changes of education by digital alternatives, by exploring its aspects and the vision of both students and the boards of executives of universities and polytechnics in The Netherlands. Factors of success of online education were determined by the use of existing literature, subdivided into a number of categories: attractiveness, market potential and business models. Those factors were then assessed through interviews with eight executives of just as many Dutch universities and polytechnics, as well as a questionnaire with 165 respondents.

Despite the number of online students exceeding a million and 1 out of every 3 highest ranked universities in the world being already online with at least one course, most executives in The Netherlands didn’t even know the basics of the concept.

Though the effect should not be underestimated, a rigorous change of the entire educational system is highly unlikely in the short term. However, some parts of education will soon be confronted with the consequences of this new competitor.

Part-time education will probably be a segment to lose a significant amount of students, since its students are looking for high quality, high flexibility and low costs.

Education for undergraduates just leaving secondary school will face changes too, though on a different level and a different scale. Looking at the reasons why a student chooses a certain university or university college, most important are perceived quality of both the study and the institution, followed by the city the institution is located, and the chance to find employment after successfully completing the study. The city being important in a student’s choice means that he or she looks to more than just the institution itself; the life besides studying. The fact that this is such an important issue for students, is reflected by our other findings in this study; while as much as 65% of the respondents is enthusiastic about following an online course, based on price as well as the chance to study at a prestigious American university. The fact that a real social life cannot yet be incorporated into online courses leads to no more than 23% of respondents considering an entire online study.

It’s clear that Dutch students are looking for high quality degrees, flexibility and

improved ways of education. Dutch universities and polytechnics should respond to

those needs by modernizing their course offering, perhaps incorporating parts of

other universities in their own curriculum, and understand that education might be

the next industry to be affected by the internet.

Introduction

All around the world universities and colleges have started with the development and implementation of digital learning technologies, of which the latest generation is known as open online education.

A number of Ivy League American universities have very recently started with large scale experiments with this concept. Though still in its early development phase, this new way of delivering education has reached hundreds of thousands of students worldwide, who are now able to enjoy high quality education for free or for highly reduced tuition and exam fees.

Due to the newness of the concept, little is known about the impact it might have on traditional education. Will it affect the business model that has been around for decades, even centuries? And if so, what will be the effect on universities, whose purpose, contrary to that of polytechnics, is not solely education but also scientific research?

Also, the effect on universities and polytechnics might be different for several kinds of markets; while in the United States tens of thousands of dollars are paid for one year of university education, in other countries it is already free. And how about those people already in possession of a degree, looking to improve their knowledge and skills?

For some, the lack of physical social interaction in online education will be a reason not to change their choice of education. For others, access to free, high quality education might impose a major change in their lives. Furthermore, western universities will be able to reach a large, formerly neglected, group of students who are the potential researchers of the future.

This study will explore the aspects of open online education that meets the

(latent) needs of students, its chances and its downfalls. These are used as a

basis to assess the chances of open online education affecting traditional

education. This study is meant to be a starting point for future research into

online education and its effects.

Research question

As briefly described in the introduction, the objective of this study is to lay a foundation for future research on changes of education by digital alternatives . Therefore, the research question is formulated as follows:

How will the existing business model of Dutch higher education institutes be affected by the recent developments in the area of open online education?

Answering this question will give insight in the possible changes universities and polytechnics might face in both the short and long term regarding their funding and costs. This question will be answered through several sub questions;

What is open online education?

What business models are generally used in traditional higher education in The Netherlands?

What are the differences and similarities between the traditional and digital offerings?

What are the consequences of those differences and similarities regarding the educational market?

Will, as a result of these developments, the business model as it is for higher education, change? And if so, how?

The business model of education is more than its pricing model; it includes specification of the offering and its costs.

This study will not explore in-depth the way traditional education should respond

to any changes imposed by open online education. Rather, its focus is on the

effects the latter has on the former. Future research should answer the question

what actions need to be taken if any effects exist.

Open online education

Several scientific articles have been published about digital innovation in higher education. Many of those papers describe the emergence of e-learning (as it is often called by authors) as supplements of traditional education (Raj, 2011) (Rossiter, 2007). E-learning however is a very broad concept, that stretches over several decades of development. There are far fewer articles that describe the concepts of more recent forms of online learning. The ones that do, are mostly about the roles of pedagogy (Friedman & Deek, 2003), technology (Ferratt, 2009) (Friedman & Deek, 2003), reduction of costs (Ilić & Jovanović, 2011), student satisfaction (Sun, Tsai, Finger, Chen, & Yeh, 2008) (Callaway & Alflayyeh, 2011) (Yen & Abdous, 2011), quality (Wang, Solan, & Ghods, 2010) and collaboration (Baer, 2000). (Singh, O'Donoghue, & Betts, 2002) wrote about the possible consequences of digital learning for traditional education, however focus is mainly on effects on management, and are based on examples of the late nineties, at what time, as said, the available distance learning methods differed greatly from the recent developments concerning open online learning as seen today. The aforementioned existing literature on digital education shows there is no clear picture of the impact of the latest developments in the field on the higher educational system as a whole. Therefore it is hard for higher educational institutes to estimate the need for strategic choices regarding their business model.

Forms of digital education

Open online education is the most recent form of distance learning, the latter being around for several decades. The first kind of distance learning was education by mail order, most if not all of the time offered by profit driven companies (NCOI, LOI, etcetera). Its focus was (and still is) solely on the student;

he or she decides when, where and how to use the offered standardized course, while the provider takes no part in the learning process. The student makes an appointment for an exam at the date of his choice, to be taken at one of the locations of the provider.

Until the late nineties, changes in distance learning were scarce. Apart from some digitalized versions of the aforementioned study methods, often referred to with terms as e-learning (the use of telecommunication technology to deliver information for education and training (Sun, Tsai, Finger, Chen, & Yeh, 2008)), it remained a solely student focused business, with little or no interference from the provider. In 2002, a project called OpenCourseWare, or OCW, was launched by MIT, soon joined by other Ivy League universities in the United States and others around the world. The consortium uses the following definition to describe OCW:

An OpenCourseWare is a free and open digital publication of high quality

college and university level educational materials. These materials are organized as courses, and often include course planning materials and evaluation tools as well as thematic content (Open Courseware Consortium). Two main characteristics distinguish OCW from its predecessor;

− it’s open and free to use for everyone in the world.

− The regular course book is extended by video lectures, assignments and online exams.

In contrast to mail order education, more attention is given to the supply side of the offered course. However, despite being offered by prominent universities, quality isn’t assured. Every lecturer is free to upload his or her courses to OCW without a quality check, leading to divergent quality levels.

The latest development in the field of online education and subject of this report, is the so called massive open online course, or MOOC. Just like OpenCourseWare, it consists of a collection of university level courses, freely accessible to anyone. There are however, some important differences between MOOC’s and OCW, which have led to our belief that MOOC’s will have a significant impact on higher education worldwide, including The Netherlands.

− Fixed timeline; though courses remain accessible after expiration, there is a clear start and end point for each course, with assignments to be handed in and exams made before certain deadlines.

− Feedback; to every exercise, assignment and exam, feedback is given either by computer, peers or (assistants of) professors. This enhances the learning quality; after all, one learns both from others, and through trial and error.

− Certification; the majority of people studying a certain topic or subject don’t do so because they’re just interested. Most of the time they are also looking for ways to use their knew knowledge throughout their professional life. For that reason, a proof of competence is often required. Though accreditation of the certificates issued by MOOC’s is still an issue, it is physical evidence of a course being completed successfully.

Those three forms of online education and traditional education are compared

and structured in table 1.

Traditional education

Distance learning OpenCourseWare Open online education (MOOC) Accessibility (High) tuition,

admission requirements

(High) tuition, open to everyone

Free and open for everyone

Free and open for everyone

Lessons Mainly offline Self-study, by (digital) textbooks

Weblectures Online courses (open)

Quality Verifiable through international rankings and accreditation

Verifiable through accreditation

No quality control Largely verifiable through ranking and accredita- tion of their off-line counterparts Interaction

with students

Face-to-face, sometimes through e-mail

No No Through online

learning platforms and social media Interaction

with teachers

Face-to-face, sometimes through e-mail

No No Through online

learning platforms and social media Exercises Offline, both

individual and group

Yes, static and with limited feedback

Yes, static and with limited feedback

Online, both interactive, crowd sourced and revised by teacher

Exams Physical Physical None Mainly online and

sometimes physical exams Verification Due to physical

exams, through ID card

Due to physical exams, through ID card

Inapplicable; no exams available

Online, hitherto quite impossible.

Physical exams, by ID-card Deadlines Very strict

planning, both within and between courses

No No Classes can be

taken at all times, but exams will only be graded during a certain period

Certificates Accredited Accredited No Not yet

accredited by original institution

Degree Accredited No No Not yet

Table 1 – Differences between several kinds of education

Platforms

MOOC’s are offered through online platforms, to assure homogeneity between courses. The number of platforms offering MOOC’s is increasing at a steady rate.

We briefly describe three of them, which are best known to the public:

Udacity – founded by Sebastian Thrun, former professor and computer scientist at Stanford University. He opened his first free online course for enrollment late 2011, without telling the board of directors of Stanford. But then again, he did not expect over tens of thousands of enrollments. At that point he had to tell the board, whose members were not at all happy. After all, normally students pay about $50,000 a year for a study at Stanford. His first course attracting 160,000 students, Thrun decided to leave Stanford and founded Udacity to be able to make more free online courses

Udacity is funded by venture capitalists and Thrun himself and money is earned through selling access to its database of top students to companies and recruiters.

Coursera – founded in April 2012 by Andrew Ng and Daphne Koller, both professors at Stanford University. Funded by venture capitalists, Coursera reached over a million students, partnered with 35 universities and colleges from 8 countries and offers over 200 courses in less than six months. Most of the universities are ranked in the top 100 of the ARWU (ARWU, 2012) (Coursera). Every participating school is responsible for their own expenses, whilst no money is made yet; although the contract between Coursera and its partners mentions some propositions for a business model, none of them is further elaborated on.

edX – a very recently launched joint venture between MIT and Harvard, which both contributed a $30 million investment. Soon after its launch they were joined by the University of Berkeley, which contributed further software development and additional courses instead of money. The platform will integrate MITx, an earlier platform of MIT. According to its founders, edX is a non-profit organization aiming to provide free worldwide education. It will also be used for research of learning methods. In order to cover some of its costs, a non-accredited certification of successful completion can be bought for a small fee.

Since there is no formal definition of a MOOC, the definition use in this paper is:

a MOOC is a formally structured course offered by an acknowledged institution,

open and freely accessible to anyone with a computer, scalable to an indefinite

number of participants and supporting the interaction with both peer students

and teachers.

Proctored exams

Early September 2012, edX announced a partnership with Pearson VUE, following

the example of Udacity. Pearson offers the possibility to take a proctored exam

at a test center near the examinee, to assure the identity of the latter. This way,

users of edX and Udacity are able to increase the value of a certificate for a

relatively small fee. At the moment there are more than 5.000 test centers in over

175 countries (including dozens in The Netherlands), leading to a direct

competition to existing education institutes in the market for lifelong learning. It

should be noted that a certificate obtained at one of the Pearson test centers

still isn’t accredited by MIT, Harvard or similar, only by the online institution.

Business models in traditional higher education

The current higher educational system in the Netherlands consists of two kinds of institutions: higher vocational education or polytechnics and universities.

Whereas Polytechnics revolve on vocational studies, universities have a strong foundation of scientific research. The total number of students enrolled are approximately 415,000 and 240,000 in 40 Polytechnics and 12 universities respectively for the year of study 2010/2011, and this number increases every year (CBS). 7.4% of those students is from abroad (Rijksbegroting, 2011).

Most, if not all, of the studies offered by the higher educational institutes are given at physical locations such as lecture halls, combined with self-study, practicals and (group) assignments. In recent years, information and communication technologies made their way into those studies. However, the role of those technologies remained limited to offering supporting functions such as communication between students and lecturers by means of telephone and e-mail, distribution of timetables, publication of grades, et cetera. Apart from these minor changes, education is a very conservative business, at least in the Netherlands.

Education at universities is based on and intertwined with scientific research, which affects their overall business model. Governmental subsidies are needed since tuition fees paid by students are far from sufficient to cover educational expenses, let alone the costs of research. In recent years, government expenditure on education increased, although the expenses per student remained the same, due to an increasing number of students. (Ministry of Education, Culture and Science). Furthermore, the distribution of these costs between the government and the private sector (both students and companies) is changing to the detriment of the latter; the height of student grants has decreased dramatically, and will continue to do so (Strategic Agenda Higher Education). At the same time plans are being made to impose fines on taking too long to complete your study, meaning the relatively luxurious position of Dutch students is under pressure.

The Dutch government aims at a worldwide top-5 position regarding quality of education (declaration of policy, current government). The committee Veerman (Commissie Toekomstbestendig Hoger Onderwijs Stelsel, 2010) has already claimed that goal to be unachievable if no changes are made. This fact, in combination with the economic crisis that drives the government into budget cuts, might lead to a restructuring of the educational system.

Therefore, the committee gave several recommendations, which are adopted

by the Dutch government in their latest strategic agenda (Strategic Agenda

Higher Education). Below you will find a short overview of these advices.

Specialization

Through globalization, universities compete with an increasing number of both domestic and foreign institutions for international students. Furthermore, an increasing number of Dutch students aims to study (partially) abroad, so marketing is becoming more important in attracting those students. This can be done through specialization; a focal area on which a university excels, used to profile and distinguish itself from competitors. These focus points might improve the international ranking and drive success.

Quality

Besides specialization, the quality of Dutch higher education needs to be increased. Compared to universities throughout the European Union the quality level of Dutch lectures is low and curricula have to be more in line with market demand. Furthermore, intensification of study programs is needed to meet domestic and international requirements.

Motivation

Students are not motivated enough to graduate within the given timeframe, what might be due to the absence of financial stimuli. Since the major part of one’s study is paid for by government, students taking more time than needed result in higher costs. Therefore, falling behind schedule should have financial consequences for those students. Universities and polytechnics should also be assessed on their performance; the development of quality criteria and indicators will create the opportunity to introduce performance based funding.

Cooperation

Cooperation between polytechnics or universities is meant to meet required quality levels, since those levels are not always met in the current situation.

Flexibility

Differentiation in jobs and students is increasing rapidly. Therefore flexibility and adaption is required from education. Excellent students need to be challenged, others need more support. Every specific job needs specific skills. To deliver these functions, a different organization of the educational system is needed.

Furthermore, the number of students is expected to increase with approximately 30% to 800,000 students in 2020 (Ministerie van OC&W, 2010). It will be a challenge to facilitate education for all these students.

Besides the publicly funded universities and polytechnics, there are also private

schools that offer degrees. Some of those do not offer tutoring or lectures,

enabling them to charge fees equal to public schools. Private schools that do

offer tutoring and lectures are often far more expensive.

Methodology

In order to determine possible business models of online education and its effect on the ones of traditional education, both the supply and demand side of education is studied.

With regard to the suppliers; nine semi-structured interviews with executives of Dutch universities and polytechnics are used. Since it is quite hard to make an appointment with those executives due to their overflowing agendas and interviews with students are not considered a first priority, we only invited those who were acquainted in a personal or professional way with any of my colleagues at Capgemini. 16 invitations were send, of which six were not willing to do an interview due to lack of interest and one was not able to do so because of time constraints. The rest were interviewed between june and august 2012.

The reason to include those executives in this study is because they often have extensive knowledge about the educational system, with which they might have developed a vision about its strengths and weaknesses and the chances that external, new-to-the-market suppliers of education are able to attract their students. They can also give insight into possible business models for education, different from those already in place. The third way in which the interviewees might contribute to this study is their opinion on the way online education is going to develop.

The interviews are structured along five themes:

- Vision on online education and its effect on traditional education both on the short and long term;

- Positioning of their own offering compared to the American examples used in this study;

- The development expected regarding quality and certification;

- Potential business models of online education;

- Useful strategies for traditional education to cope with its new (potential) competitor.

Unfortunately, it was not possible to interview suppliers of open online education.

It would have increased the pluralistic approach of this study. However, at the time of this study, those online platforms started very recently and were based in the United States. As they were initiated by a very limited number of people with very busy agendas, even an interview by phone was impossible.

Questionnaires among Dutch students are used to provide insight into the

incentives of students to choose a particular university or polytechnic and how

the different functionalities of online education are valued, the overall

attractiveness of online education as it is, and how possible improvements will

affect this attractiveness. Since it is a very new concept, it is unlikely that many

students have heard of it. Therefore, a short introduction movie to one of the online education platforms, Coursera, is shown to give the respondent an idea of what it is about. It should be noted that it is a movie made by Coursera itself, so it might lead to a slightly positive bias. This is, however, unavoidable, since both time and money constraints of this study make it impossible to create a fully objective introduction to the concept ourselves. The questionnaire has been validated trough both the use of literature and a test panel, to make sure the right questions were being asked, and that they were properly formulated.

The questionnaire was taken with the use of Qualtrics, because of its functionalities and the availability of a license at the University of Groningen. The questionnaire was distributed through social media and was also featured on the Blackboard pages of both the University of Groningen and University of Delft.

Three €10 coupons for Dutch web shop Bol.com were given away to randomly selected respondents. Out of 181 questionnaires returned, 16 were marked as unsuitable because they were incomplete. Therefore 165 completed questionnaires were used in this study. Because the University of Delft is a technical university, there were relatively many technically educated respondents, which might bias the results.

Because of practical issues and to limit de scope of the study, current or future employers of students (businesses and government) are not taken into account.

The government, in their role as financier, is also not included as a subject of

study, though their role will be discussed during the aforementioned interviews

with executives.

Research model

Because this research explores possible changes of existing business models used in traditional education, the factors that influence such business models are determined by the use of literature, interviews with executives and advice of experts in the field. Those factors are structured and shown in figure 1. This model is also used to guide the research and is further elobarated on in the subsequent section.

Market share Didactic quality

Social life Courses offered

Content quality

Business model Price

Costs

Attractiveness

Attractiveness, price, costs Business model

Stewart and Zhao (2000) define a business model as a statement of how a firm will make money and sustain its profit stream over time. Price (revenues) and costs are the most important factors regarding a firm’s current profit. The attractiveness of its offering influences the firm’s ability to sustain that profit over time. Of course there are more factors influencing a business model other than those three, however these are considered most important and therefore placed within the scope of this study.

Attractiveness Market share

Although this new form of distance learning will, probably, mainly attract students that would otherwise not attend university (or a polytechnic) at all (non- consumers), part-time students and students pursuing their second master degree. The latter two are currently already target groups of regular universities, whereby the number of students attending regular universities will de facto decrease. (Baer, 2000)

Content quality Attractiveness

The quality and uniqueness of transferred knowledge is, together with its amount and channel of distribution, a measure of educational performance. That is because, as stated earlier, the content of transferred knowledge is one of the most important factors if the education’s primary function.

Didactic quality Attractiveness

Didactical quality is not only the way in which knowledge is transferred, but also the application in a certain context, which makes the knowledge truly useful. The relationship to attractiveness is shown by many studies; (assumed) quality of a university or college has a positive influence on the choice for those institutions by students. (McCann & Sheppard, 2002) (Kallio, 1995) (Canale & Dunlap, 1996)

Course offering Attractiveness

Since quality of education is very hard to measure, substituting measures are

often used to evaluate a university or other educational institution. One of those

is the number of course offerings; the more studies / courses are offered, the

higher the quality of the institution is rated (Armstrong, 2001). Also, a higher

number of courses offered will appeal to a larger number of students, who have

varied interests. (Kallio, 1995) (Canale & Dunlap, 1996)

Social life Attractiveness

(Capraro, Patrick, & Wilson, 2004) showed in a study among students that not only the characteristics of the university itself, but also the environment of that university will influence the choice of a student for a certain university or college.

That is, the anticipated social life which the environment will offer to the student.

This means that when an online university is some way or another capable of offering the facilities needed for students to have a similar social life in this new way of learning, the attractiveness of this institution will increase. And vice versa:

when a university is not capable of offering those things, students are likely to choose regular forms of education.

Price Attractiveness

Price is a particular aspect of higher education. Though one might assume that a decrease in price will lead to an increase of demand, that is not always the case.

Just like the amount of courses offered, price is a surrogate measure to value

education: in general people associate a high price with high quality (Armstrong,

2001). It should be noted that this concerns an American study, where prices

differ significantly between institutions. Due to the fact that prices are equal for

every Dutch university or college, and most costs are covered by government,

this connection between price and quality shall hardly exist in the Netherlands. It

should be noted that online learning connected to existing universities having a

reputation of high quality education, suffer far less from this bias. In that case,

price will have much less, if any, negative correlation with assumed quality.

Definitions and operationalisations

Traditional education

Definition Education in compliance with the conventional model in a campus setting, whether or not supported by IT systems, without offering it completely online.

Open online education

Definition Formally structured courses offered by an acknowledged institution, open and freely accessible to anyone with a computer, scalable to an indefinite number of participants and supporting the interaction with both peer students and teachers.

These definitions provide a clear distinction between the two kinds of education considered in this study. Those differences are extensively discussed in an earlier section, and provide clear boundaries to online education institutes; only those that offer clearly distinct open online courses, including lectures, exercises, deadlines and exams qualify for being called open online education.

Content quality

Content quality is about the quality of what you learn in education and since education is all about learning, its performance and overall attractiveness is to a large extent determined by content quality. It is however a variable that is very hard to measure. Although the Guidelines of Quality Assurance in the European Higher Education Area (ENQA, 2009) focusses on more than just content, it is certainly an indicator of its quality. Also the course evaluation by students, often used by universities and polytechnics to assess individual courses and teachers, can serve as an indicator of content quality. A third indicator, at least in case of universities, is the Academic Ranking of World Universities (ARWU, 2012). Because this ranking reviews the quality of the scientific research, on which university-level education is based.

Definition The educational level, relevancy and exhaustiveness of the content offered. And in addition in case of universities, the academic setting and embeddedness of scientific research.

Didactic quality

In practice, the educational quality of an institution is often measured by things like the number of courses offered, location, brand familiarity, height of tuition fee, et cetera. Although these variables don’t really measure quality, they are a measure of the attractiveness of the institution. The only measurable definition of educational quality that is used in scientific literature is the

‘Standards and Guidelines for Quality Assurance in the European

Higher Education Area’ or its counterparts in other regions.

Definition Degree to which the educational institution meets the Standards and Guidelines for Quality Assurance in the European Higher Education Area (ENQA, 2009)

Sources Since the first online universities started very recently, they are not yet compared to the ENQA. However, opinions of experts in the field (among whom are some of the executives to be interviewed) can give an indication of the current quality and its expected development.

Attractiveness

Since every students differs in the things he or she considers to be important, the attractiveness of a university is different for each student. By comparing the by students individually valued characteristics of education and the characteristics of a particular university the attractiveness of that university can be determined.

Quantitative research into the characteristics that students value most can be used to make an estimation of the degree to which each university meets the requirements of the average student.

Definition The definition used in this study is based on the one introduced by Vroom (1966): the similarities between the characteristics of a study program in its broadest sense and the characteristics that are most valued by students

Operationalization The expected degree to which a university is able to provide the by students most valued characteristics of education. (Schneider, 1987)

Sources Students

Data gathering Questionnaires

Social life

(Capraro, Patrick, & Wilson, 2004) demonstrated that not only the university and the education it offers, but also the anticipated social life of the city it’s based serves as a motivator for students to choose a certain university. Since the term ‘social’ in social life implies there is interaction between people, the number of potential situations of interaction in a city is a valid representation of the anticipated social life by students.

Definition Encompasses all activities that one undertakes in the presence of others. (Capraro, Patrick, & Wilson, 2004)

Operationalization The number of available situations that have potential to provide enjoyment or entertainment with others. (Capraro, Patrick, &

Wilson, 2004)

Sources Students

Data gathering Questionnaires

Market share

Definition The number of customers a particular company or group of companies have, compared to the total amount of customers in that market.

Business model

Regardless whether an organization is for- or non-profit, every new product or service offering will have to be profitable, or at least not a loss. That is what makes a business legitimate. Of course it is possible open online education was introduced from an altruistic point of view, meant to make high quality education available to every human being on the planet. However, even that is the case, sponsorships or other forms of income have to be generated to be able to continue with this kind of education on the long term.

Definition A simplified description or reflection of a firm’s strategy describing the overall value creation and capturing logic of a firm (Hacklin &

Wallnöfer, 2012)

Operationalization The presence of a business model that is viable on the long term, and which meets the requirements of an online university (see below)

Sources Since this concerns a newly developed concept, it is only possible

to make an estimation of the way a viable business model is

possible. Information hereabout can be looked for at the

Executive Board of universities and colleges, experts in the field of

education and business within Capgemini, and of course

common sense.

Results

Education is about knowledge; both learning and using knowledge in a particular context. In case of universities, it is also about the academic discussion and scientific research. So to assess the quality of education, you need to look at more than just the content.

Content quality

From the interviews, it became clear that the quality of the offered courses is hard to assess. The current providers of open online education are, though related to existing high-ranked universities, not generally acknowledged educational institutes. Since they do not offer any accredited certificates, they are not lawfully obliged to be monitored by the European Association for Quality Assurance in Higher Education (ENQA) or it its equivalents elsewhere in the world.

The fact that most, if not all of the offered courses are claimed to be exact copies (with regard to content) of the courses offered at the traditional, prominent universities gives some indication of content quality.

However, ‘free’ often raises suspicion with regard to quality (which was a frequently heard argument during the interviews). So unless some independent authority will assess its quality, open online education platforms might be considered as inferior to traditional education, either by students, corporations, investors or educational institutes. At the same time, the research among students indicates quality to be an important factor in their choice of university or college. However, the results of the questionnaire show that though quality is important to students, it is for a large part assessed through reputation and not international rankings or other official measures.

So, when the academic setting of universities is left out of the equation, success of open online education will not be inhibited by the quality of content. However it is the academic discussion that is essential to university-level education and so far, according to the interviewees, open online education has not yet been able to simulate that on the internet.

Didactic quality

Didactic quality is even harder to assess than content; a lot of discussion has been going on both inside and outside the world of academia about learning methods. Which are effective? Which are counterproductive? These questions were also often raised by the interviewees of this study.

They all agree on the idea that one learns from others and through trial and

error. Especially concerning the former, there are doubts it will be as effective

online as it is in the traditional setting of education. Knowledge has to be applied

in some context in order to be useful. That context is easier to create in a physical location where students can work together on assignments, instead of individual, standardized digital tasks.

This shift of extensive face-to-face social interaction towards limited digitalized interaction has some major implications:

• Due to the asynchronous nature of e-mail and forums, a question from a student won’t be answered immediately.

• Because there is no face-to-face contact, and an average online class attracts some hundred thousands of students from all over the world, users might perceive classes as very impersonal.

• That same amount of students leads to the incapability of online education to facilitate an academic debate.

• The number of students that is willing and capable to answer questions (so called peer learning) is much larger.

• Traditional ‘student life’ or ‘campus life’ is not part of online education, unless users start creating subgroups with the same geographical location, out of their own initiative.

• In case of ‘peer-grading’ –where students check each other’s tests–

participants might be overly critic or incorrect towards peers, to improve their self-image.

Despite adversaries arguing that from a pedagogical perspective online education is inferior to its traditional counterpart, research found that online, digital learning methods are just as effective as classical ones (William, Matthew, Kelly, & Thomas, 2012). That means that if you consider a student as input for the transformation process that takes place within a polytechnic, either online or not, the output remains unchanged; the same student, hopefully somewhat smarter, and with more and improved capabilities. Only the transformation itself changes.

Once again, that is not the case for universities, where the academic debate is not yet brought to an online setting. As several interviewees suggested, open online education might be able to offer some courses on a university bachelor level because these are already massive with regard to the number of students on campus and therefore lack an academic setting.

Of course this is all just based on one study, therefore a lot more research has to

be done before the effect of digital learning methods becomes clear. The

interviewees also assume the effect is different between subjects; physics might

be easier to digitalize than for example business studies.

Attractiveness

As shown in the conceptual model, the relationship between general performance and attractiveness of education is influenced by a lot of other factors. Three of which considered most influential and therefore included in this study.

Courses offered

As described in the theoretical framework, the numbers of courses offered is related to the assumed quality. In addition, a wider range of offered courses will attract more students since their preferences will vary a lot. This study showed that students consider the range of courses moderately important in their choice of institution. So in order to achieve and maintain a good position in the education market, universities joining open online education platforms should offer a substantive amount of courses.

Social life

By far the most often mentioned objection to open online education by the interviewees, is the absence of physical social interaction. Not just because social interaction leads to better learning and a higher didactic quality. Though life during one’s study is not marked as very important for the choice for a specific university of polytechnic, according to the interviewed directors, the presence of such a student life is highly valued. That might be a very good explanation to why a large group of respondents is eager to sign up for a single course on an online education platform, but not an entire study. After all, an online study reduces the contact with other students to a digital form, rather than face-to-face (although in practice, there are examples where online students meet up with others ‘in real life’, who happen to live in their neighborhood, in order to discuss study related topics).

These findings are perfectly explainable by the idea that studying is more than courses and exams; as Scott Page, University of Michigan professor at open education platform Coursera put it: “It’s not just teaching what we do. We help people transition from 18 to 22”. There is still no way to bring such experiences to a computer screen.

Price

The fact that high quality courses are being offered free of charge, was received

as quite disturbing by most of the interviewees. Even though they have doubts

about the didactic quality, they think it will cause a significant change in at least

parts of traditional education. Especially when Dutch government continues

increasing the price of both part-time and fulltime education, the price gap will

widen. In addition, students indicate that price is hardly an issue when choosing

between regular universities, probably due to the Dutch educational system

which prevents price differences. However, regarding their interests in open online education, the fact that it is free is identified as the major argument for choosing such courses.

This leads to a tricky situation for traditional education; since price based competition is virtually non-existent, universities may suffer from a false sense of security on that point. Not realizing students are susceptible to prize differences, might result in reacting to late on free new alternatives.

Market

To which population of students has open online education already the potential to serve a substantial part? There are still several flaws, but some people, whether or not already a student, find the quality of the current online offering sufficient to use, considering the large number of users registered.

Market share

According to the results of the questionnaire, the most important factors that matter concerning the choice between online and traditional education are perceived quality of both the study and the institution, followed by the city the institution is located, and the chance to find employment after successfully completing the study. Since these factors can also be found in online education, one might argue that its potential market share in The Netherlands is very large.

There is however the aforementioned matter of social life, in particular important to students between the age of 18 and 22. For that reason, all of the interviewed board members deem a fast shift of those students from traditional to online education highly unlikely.

But when students got their bachelor or master degree, it could be interesting to continue studying over the internet at every university you want in the world to expand your knowledge as a valuable supplement to the degree. Also the refreshment of one’s existing knowledge during and throughout working life is a positive aspect. Especially since part-time education at regular universities is rapidly becoming more expensive due to Dutch government dropping its subsidies.

Those ‘lifelong learners’ are traditionally looking for ways of education they can enjoy in evenings or weekends, at their own time and at their own pace. This assumption is supported by the results of the questionnaire, which found that interest in taking classes online increased with the number of years one is already studying.

Besides master students and those who look to educate themselves during their

working life, there is a third market segment that appeals to high quality open

online education: international students. This group of students can be divided

into two segments; those we live in developed countries, who pursue the best education available, wherever in the world that is. But since top universities, as every other, have a very limited capacity to educate students, a lot of those students will have to do with their second or even third choice. That capability constraint is lifted with online education, thus those international students are able to change their choices. The second group of international students are those living in the third world and unable to enjoy any kind of education at all.

From an altruistic point of view, being able to provide these people with high quality education is a very positive development. It has no effect however on the current business models of traditional education.

Looking at the mainstream students at traditional Dutch universities and polytechnics, two out of three possible initial market segments for online education are not among them; only master students form a reasonable sized group at those institutes. This means that the initial target group of open online education is relatively small, and for a large part forms a new market. If these new initiatives are able to satisfy these groups, and sustain their advantages over traditional education mentioned in the previous section, they might expand their target group to bachelor students on the long term. Still, as long as there is not sufficient academic setting simulated online, open online courses won’t replace university level education. At most, it can be a supplement.

Certification

Most, if not all students attend university or a polytechnic to be educated;

indeed, that’s the primary function of an educational institution. However, where the output from the institution’s point of view is an educated student, from the student’s point of view that is different: for most students, education has hardly any value without proof of competence. That is what discerns one candidate from another in job application procedures. Thus, for a student, the output of a university is an accredited degree. And that is exactly what current open online education providers do not offer. Note that unaccredited certificates might still hold an additional value to regular degrees. To employers, it might demonstrate eagerness to learn and unique knowledge. However, if not combined with some accredited degree, most employers are likely to consider it to be insufficient. As stated earlier, employers are not within the scope of this study. It is therefore highly recommended that in future research the position of this stakeholder towards unaccredited education in general and open online education in particular is studied.

There are three reasons why open online education does not offer accredited

certificates or degrees: first, offering such certificates to those who pass the final

exam, will lead to an inflation of the value of the degree obtained on-campus.

Second, there are still no ways of assuring ones identity when making an online test. As long as an institution can’t be sure that it is the registered student that takes the test, and not a relative or friend, certificates won’t be accredited. And, as a result, no acknowledged institute will turn a collection of those certificates into a degree. Third, lack of an academic setting within open online education makes it yet unsuitable for official degrees.

The lack of accreditation makes these courses appealing to those looking to expand their knowledge out of sheer interest, but not to most of the undergraduates wanting to obtain a degree generally recognized at the labor market.

This accreditation issue might be solved by the aforementioned collaboration between two major online education platforms and Pearson VUE, offering thousands of physical testing locations all around the world.

Business model

Excellent functionalities and a large potential market doesn’t mean there will be success. In order to make a profit, or at least prevent long term losses, you have to have a viable business model. So far, all incentives in the field of open online education failed to make a substantial amount of money, despite millions of users. They are following an approach popular among Silicon Valley start-ups:

Build fast and worry about money later. – scale now, monetize later (Young, 2012). Most of those involved are convinced that if you attract this number of people, money will always follow. But how is that going to happen without giving up its main advantage over traditional education: price?

Most board members of universities and polytechnics interviewed, as well as the founders of existing online educational platforms themselves, have suggested a number of ways to make money without losing its main advantage over traditional education. For the main part this is due to the vast amount of online students; the millionth student has already been subscribed. At the same time the marginal costs per student are practically zero, which makes it possible for low prices to cover all expenses. Interviewees were asked for ways to make money with online education, with their own creativity being the only limit. This resulted in many ideas, of which the ones most often noted and most realistic will be elaborated on in this section.

Broker of study results

This option is already been put into use by the founder of online education

platform Udacity, Sebastian Thrun. If one class is able to attract over a hundred

thousand students –even when only ten percent successfully completes it- the

results of those students (including drop-outs) forms a large database of

knowledge on how students learn, and more important, the personal information of the top students. Corporations are willing to pay a lot of money for the contact information of those who were, out of hundred thousands, the best.

This model has the advantage that education remains free, while students may be extra motivated to perform, because top results increases the chance on a job with some of the most desired firms out there.

Exam fee

As discussed earlier, the reason why most students attend university or a polytechnic is because they’re in pursue of a proof of success. Therefore they might be willing to pay a small fee for an accredited certificate or degree. This assumption is supported in this study. Online education platform edX has started adopting this model by opening up the course -including exams- for everyone and charging only a small fee to those who successfully completed that exam.

The certificates however remain unaccredited by established universities. For students, there is no risk in taking the course because only the final exam requires a fee.

Advertisement

Nowadays advertisements are an often used and highly successful way of making money for internet based enterprises. Though not yet considered by the already launched online education platforms nor by one of the executives interviewed, students do not oppose advertisements on course websites.

Showing them before and between videos is less an option according to the questionnaire results.

Part of existing curriculum

Universities might use the open online courses in some of their existing curricula. If certification and accreditation issues are solved, students might convert an online certificate into official study credits. Thus earning themselves dispensation from some parts of the offline curriculum. Especially for those students in the traditional age range of 18-22, it is considered an excellent option; two out of three respondents are highly positive about such an arrangement, where three out of four won’t consider obtaining an entire degree online. Main reasons for their positivity are flexibility of planning, prestige of the providing university and content quality. Most of the students are also willing to pay a small fee for a local exam.

Research method

A perspective adopted by edX is the use of online study results for research on

learning methods. They do not seek to profit from their platform, but instead

approach it in a scientific way.

Altruistic perspective

The second reason for edX for launching their platform was altruistic of nature, the goal being the provision of free, high quality education to everyone in the world. Other universities might have that same intention.

Clearly, there is more than one way to make money from, or at least cover the expenses of, open online education, which can also be adopted by existing suppliers of traditional education. That does not mean the traditional business model will be changed; new models will have to be beneficial to students and (future) employers of those students before it will implemented on a large scale.

Those results are put together in the subsequent table to provide you with a clear and structured overview:

Quality Content Due to the overlap with between online and offline education regarding content, quality of the online offering will not inhibit its success. It is the lack of an online academic setting however, that might lead to inferior overall quality.

Didactic Experts disagree whether online learning is as effective as offline learning. Some studies suggest there is no difference, while others point out that one learns from others, which is far more easer offline than it is online.

Attractiveness Courses offered Due to the diversity of students and their interests, in order to attract a significant amount of students to their online education offering, universities and polytechnics should offer a wide variety of subjects.

Social life The results of the questionnaire showed that students are more than willing to join a single course online, but are hardly interested in an entire study online. The interviewees explain these results by the lack of physical social interaction or social life. Social life is a very important aspect of one’s study.

Price The interviewees generally agree that a high quality,

free alternative to traditional education poses a

significant risk. Because of the lack of price

competition on the Dutch educational market,

existing universities and polytechnics might not be

aware that students are susceptible to price

differences.

Market Market share Due to the lack of an academic setting, online education won’t replace the traditional form for most of the students at the age of 18 – 22. Because for them, studying at a university is more than just learning. Market segments with a large potential are

‘lifelong learners’, master students and the poor, living in the third world.

Certification There are three reasons why no accredited certifications are offered; inflation of on-campus degrees, identity fraud and lack of academic setting. There are ways to remove those barriers, but it will take time to implement these and until then, accreditation won’t be offered.

Business model Broker of results Corporations are willing to pay a lot of money for the contact information of those who are, out of hundred thousands, the best. Online education platforms can sell this information easily.

Exam fee Charging a small fee for the final exam, generates a reasonable profit, while for students, the costs are relatively low compared to an on-campus exam.

Because students take interim exams, they can assess their ability to complete the final exam before paying.

Advertisements Showing advertisements is a proven method of creating revenue from a website. However, it might be considered annoying by users. The questionnaire results point out that students don’t mind ads.

Part of existing curriculum

When certification issues are solved, universities might adopt online courses into their existing curricula. A majority of respondents of the questionnaire is highly positive about this option.

Research method

Instead of generating money with online education platforms, the large amount of data generated by its students can also be used by research universities to gain insight into learning methods.

Altruistic perspective

Offering free online education solely for the purpose

of granting everyone, everywhere, unlimited access

to educational resources.

Conclusion

Open online education, as it is described in this paper, brings some interesting functionalities to education, which may lead to a new way of looking at traditional education.

- Freely accessible courses, not limited by the number of students, geographic locations or enroll requirements.

- The quality (the main performance attribute of education) being almost equal with regard to content

- A large number of users (over a million already). This indicates to some extent the satisfaction of users with its performance.

As became clear from the interviews, several potential markets are clearly discernable and should be studied individually in future research. Regular bachelor students, master students, life-long learners (already gained a degree), international exchange students and those from countries in the third world.

Every target group has different needs and expectations, leading to different impacts on traditional education business models. Though no definite conclusions can be drawn from the results of the questionnaire, it seems that every target group has an interest in online education to at least some extent. It meets some of the changing needs of students in this digital age.

However, at least three important features of education are still missing, which were frequently mentioned by the interviewees;

Social life is, at least to the largest group of students, those between 18 and 22 years of age, an essential aspect of studying at a university or polytechnic.

Second, the academic setting cannot be implemented in an online setting, at least not yet. This makes it quite impossible to completely digitalize an academic curriculum. Third, certification. Until the problem of online cheating is resolved, it is unlikely that accredited certification will be issued, unless local exam centers are used.

This doesn’t mean higher education for initial students won’t change. The questionnaire showed there is an increasing interest among students for online education to be incorporated into existing curricula, for more flexibility and reshaping education. Universities should answer to this call, in order to satisfy its users. Those users might also become more critical towards the quality of the education they pay a lot of money for.

It is unlikely that, in the short term, the business model of traditional education will

be affected much by its new online competitor; there are simply too much

functionalities missing in the offering of the latter. With regard to target groups

other than the main group of students at the age of 18-22, for example lifelong learners, it’s more likely that online education is preferred above traditional education. That is due to both the flexibility and low costs of the former. Stating that this effect will expand towards regular students on the long run, would be too much speculation.

Open online education might not be just another information technology hype.

It has the potential to add to or replace certain parts of traditional education, to some target groups more than others. Therefore additional research would be desirable and traditional education should not look the other way.

Current issues and recommendations for future research

Since this is an exploratory study, no solid conclusion can be drawn with regard to the exact development of open online education. This research started with a focus on disruptive innovation, but along the way it became clear the subject is too unexplored and therefore a more open approach is chosen.

The initial conceptual model was deleted en replaced by a more general research model. Corresponding definitions and operationalizations were also adapted to both this change in model as well as new insights.

Recommendations for future research include extending the questionnaire with to more respondents from different populations, with regard to study disciplines as well as age, geography, etcetera.

This research is carried out in a limited amount of time, with limited resources.

Therefore a strict choice was made which factors were taken into account relating to a student’s choice which education method to use. The limited time is also the reason why I only managed to interview 8 members of university and polytechnic board members; their agendas are stuffed to the brim, so to get the opportunity to get an hour of their time, especially as a student, was quite hard.

The second reason the number of interviewees was limited to 8, was because

some executives were not interested in the subject, which slightly biases the

study. It would have been best if the reason for not being interested was

somehow made clear.