The Role of Bundling in Education

The Role of Bundling in Education

In business model theory, there are bundles of services and goods, or there are discrete services and goods. In fact, Jim Barksdale, former CEO of Netscape, once famously said, “There are only two real business models - bundling and unbundling.” What do we mean by bundling and unbundling? Bundling is the process of taking numerous services or goods and grouping them together with complementary services or goods. A simple example is going to McDonalds. When you order your hamburger, the server apocryphally asks you, “Would you like fries with that?” Serving hamburgers and French fries and a Coke together creates a bundle of goods. This bundle delivers more value to the customer than if they were required to buy the hamburger at the hamburger store, buy the French fries at the French fry store, and bring their own Coke from home or locate a nearby vending machine.

Bundling creates value for the customer through saving time. We often call this convenience. Perhaps unsurprisingly 7-11, Lawson’s, and Family Mart are often referred to as Convenience Stores. They bundle goods likely to be purchased at a similar time: a snack, a drink, toilet paper for the house, toothpaste, and other hygienic products. We see bundling as a business model on a daily basis and thus it is easy to visualize. But what about unbundling?

Unbundling is taking goods and services that were previously sold together and re-packaging them to be sold separately. Theoretically this creates specialization and customization of the experience for the end customer. A contemporary example of this is a cable service provider company. In the United States in the 1990s, internet access spread widely. As did cable television. Larger players in the industry ‘bundled’ telephone service, internet service, and cable service together. Cox, Time Warner, and others were key players in this movement.

More recently, we see many Americans flashing the hashtag #cut the cord online - in essence saying they prefer unbundled services! Customers are happy to get their basic cable from a cable service provider, their movies from Netflix, their internet from a speciality ISP (Internet Service Provider), and cancel their landlines altogether in favor of a mobile contract.

This unbundling provides customization for each user and thus is a new business model. In some cases, this customization will reduce the cost for the consumer. Perhaps they forego cable altogether and only watch TV on YouTube and Netflix. In some cases, this customization will increase the cost for the consumer. Perhaps they want super high-speed internet that their original ISP was unable to provide. Either way, the unbundling provides a certain group of customers greater utility and thus they may opt in for this unbundling model. Of course, this may create new business models - for some ‘once bundled now unbundled’ service providers (Time Warner), for some providers of one unbundled service (Netflix or satellite internet providers), and even for some companies who are unrelated to the cable industry (perhaps yoga studios become more popular as customers watch less cable?).

In Practice - The Education Industry

Historically, Education has thrived on bundles. A university like a Harvard or Yale made good by bundling three major categories of services together: Skills, Signaling, and Social. (a16z). Skills refers to core learning and development. This is learning Chinese, computer science, and organic chemistry. To become an accountant, one must know the fundamentals of double-entry bookkeeping, for example. Once you learn these skills, your value in the labor markets increases.

Signaling refers to the economic reality that once you are able to prove you are accomplished in a field, or as a person, your labour market value also increases. In the example of Harvard and Yale - the signaling comes from the low admissions rate. If you got into Harvard or Yale and graduated, you must be someone special! In the accountant example, there are external bodies such as the CPA that certify you as a Certified Professional Accountant. This is Signaling in the accounting field. As would having experience working at PwC or Deloitte.

Social refers to friendship, a feeling of social belonging, and personal emotional development. In college, this can take the form of individual friendships, reading groups, fraternities or sororities, parties, or other social outlets. The notion of ‘finding yourself’ during your college years, ‘exploring the world,’ ‘engaging in cross-culture dialogues,’ and other tropes from college brochures typically fall under this category.

A university will typically bundle these three features together, claiming, “Learn the skills you need to become the next great engineer.” (Skills) “Tap into an amazing and exclusive alumni network.” (Signaling) and “Mature into an independent decision-maker and the person you were meant to be.” (Social). These marketing techniques are pretty clear indicators that these are among the top three selling points of universities.

But now, the traditional university is changing. I know there has been much discussion about the disruption of the university and we haven’t really seen a reduction in the amount of applications to Harvard yet. But! We have seen a reduction in the amount of applications to Harvard Business School. No one can know for sure if this is the start of a trend or just a blip on the radar. But we are starting to see slow erosion of capital that some universities and graduate programs have in the marketplace. Let’s unpack each of these benefits of university one by one.

Skills may be the first component of the university to become completely unbundled. We are already seeing online courses, bootcamps, and personal tutors who serve as replacements for university education and courses. The content of a Calculus class in university can be learned online, by oneself, or with a tutor. The quality of the learning will be variable in all cases - in the university the variability will depend on the professor, the curriculum, the individual student, the other students, the type of assessments, the materials used, and more variables than we can count. Fundamentally, however, they are replaceable. The ease of replicability depends on the number of other experts in the domain, how they are incentivized to share information, and how that information is spread. Coding bootcamps are a great illustration of this - one can learn Java for free online from hundreds of websites.

General Assembly is a great example of unbundling the skills from the rest of the university. Other examples of unbundling would be Duolingo to learn languages, financial modeling walk through videos, and even college counseling services (which remove the college counseling feature of a school and place it outside). There can be free or paid versions of all of the unbundled products just listed.

So why then, do people fork over thousands of dollars to go to General Assembly for a month or two? The most common answer we hear is Signaling.

Signaling might be the most difficult element of the education bundle to change. Exclusivity of schools and programs, resulting in increased brand value, often contributes to this. Imagine if a student went from Columbia to Goldman Sachs and then to Harvard Business School. Most people would probably think this person was quite capable! She probably is! Perhaps this person would even be viewed as a more suitable candidate for accounting job than someone who went from University of Iowa to a local accounting firm in their hometown and then to Illinois University for Business School. The skills of the student are really not reflected in any of the information of where they went to school, yet the value of a candidate is perceived to increase according to the brand name of the institution. The brand name recalls the trust and reputation of the institution and creates a ‘safer’ decision for the hiring manager. After all, “No one ever got fired for hiring IBM,” as the saying used to go. The same is true with applicants - if two applicants, one from Harvard and one from Podunk University apply for the same job, not only is there a bias before the interview, but even after the interview, if the two candidates are similar, the hiring manager is taking less of a risk when hiring the student from Harvard. So they go with that choice.

Unbundling Signaling from education is a challenge. There are some methods of doing so, such as professional awards (e.g. Forbes 30 Under 30), but overall for students or younger professionals it is a challenge to divorce from the schools they have attended. Specializing in certain skills can inherently act as a Signaling tool - winning a debate championship, for example, could signal that the student has achieved a level of relative mastery in research skills and communication skills. Winning a violin competition, for example, could signal that the student is incredibly dedicated and hardworking. Of course, either condition could signal many attributes - these examples are merely top of mind.

Social elements of the educational experience are the easiest to unbundle as they, for the most part, are naturally occurring elements of human life. Families, friend groups, and social circles around a mutual topic of interest can all substitute for the social experience a student may seek in university. The Social element may be difficult to replicate exactly like a university would offer, but the substitution or unbundling of this Social element is quite straightforward. Some students even explicitly don’t look for the Social element within their educational experiences, which is likely unique from Skills and Signaling.

Though Discipline is not often cited as a value from educational programs, I think it is a fourth variable in this equation. When we think of Discipline within an educational structure, we essentially answer the question, “Who can keep this individual focused on increasing their productivity?” Parents often don’t have time nor expertise enough to fulfill this need, so they send their children to work with professionals who do. Earlier, we posed the question, “Why do people pay thousands of dollars to go to bootcamps?” The first answer is Signaling and brand - most people can then point to a bootcamp to serve as a more trustworthy indicator of what they learned than to simply say learned it themselves. “I taught myself Python,” is not quite as reliable as “I aced the General Assembly curriculum on becoming a Python programmer.”

I feel the even more likely reason students register for these bootcamps is that they know they don’t have the discipline to learn the skills themselves. You can certainly save thousands of dollars by electing to teach yourself at home all of these programming skills - videos and guides are available online, chatrooms and Github can help you answer questions, and although you don’t have a social experience of other newbies slogging through this with you for the first time, you can still spend time with friends and loved ones to get your social kicks. So, why then, do people enroll in these programs? Outsourced discipline. This, too, is why parents are so happy to send their children away to boarding school and university (and some, even graduate school). The thought from parents is that they know their students aren’t wasting their time. Even if the student isn’t using the time to the most efficient scale in the world, the minimum required threshold of efficiency is still higher than if the child was left to her/his own devices.

We now even see a rise in unbundled Discipline Tools: is an example of one - pay monthly for a coach to help you achieve your goals, whatever they may be. Apps that restrict your access to certain websites or limit social media usage.

So, what is happening to the Education Industry? The same as with any industry - going through waves of bundling and unbundling. Though, due to the history of the industry and how deeply-rooted the universities and traditional schools are in the ecosystem, unbundling will play a greater role than bundling. As consumers become more sophisticated and need a variety of services, they are more able to select different service providers for different jobs to be done.

Just the initial thoughts for now.