Earlier this year, I tried my luck at a TEDxSFED Speaker Search. TEDx is the well-reputed TED's local brand, and SFED is the education-specific group dedicated to bringing innovative ideas to education.
My colleague, Rafael Corrales, and I were discussing education markets, comparative advantage and scalable business models when it became apparent that disruption in the education industry from "freemium" models is imminent.
Freemium means free to premium. It's a business model that arose largely with web-based companies, and was articulated by Fred Wilson in 2006. With freemium, a company starts with a product. They distribute that product for free to those willing to give it a try, usually in a market where people are paying for a similar good. Through word of mouth and typically web-based marketing tactics, the company picks up more users. The intent is to create a product with a lot of value that spreads to a large audience.
Then the company can begin to sell related premium services. Though 95 percent of a business' clientele might continue using the free product, 5 percent may elect premium services. As a result, the freemium model can shrink an inefficient market hugely. Whereas all of these people would have been paying for similar services elsewhere, they are now getting what they need for free. Then, only if the product is outstanding, users will upgrade to paid services.
Historically speaking, the education market has been slow to "get" market trends. The freemium model works so well because it focuses on ground-up adoption, targeting a large amount of people before making any sales to a smaller percentage of them. In the education world, the analogy would be: adopt a multitude of teachers and students (the majority of people in the space), then sell up to districts and administrators. But, education is traditionally very top-down. With a federalized system, we see a trickle down of funding from a very small percentage of the industry. Policy and money go through the U.S. Department of Education, state departments, superintendents, district boards, unions, schools and finally to students. This has created an exceptionally bloated market, saturated with legacy market providers, and sets up barriers to entry that make it difficult for smaller vendors to penetrate.
With the education market so large and inefficient, disruption from freemium models is imminent. At this point, we are seeing some more innovative companies emerging, despite the bureaucratic structure of education. Albeit, this is happening with a five-year lag behind other markets like entertainment and communication. Just think of Pandora, Skype, Yammer, Survey Monkey and Flickr!
A notable example of market trends is Blackboard's recent move to shift its strategy with a freemium option. After about 20 years of being a leader in the education technology space, and drawing in almost $500 million last year, Blackboard released a free suite, CourseSites, that demonstrates a move toward the more typically "startup" mentality. The feasibility of such a move is demonstrated by Mailchimp's move to freemium after eight years. In the education space, I'm interested to see if the big guys can compete with innovative startups.
So, ultimately, what does "freemium" hold for the future of education?
When innovative companies begin to enter bloated, inefficient markets, we will see more products that better meet the needs of users. First of all, costs will drop for schools and educators since more and more competitors will offer free products. As I mentioned, companies with free products depend on the utility of their product to generate loyalty and convert non-paying users to paying customers. This means better products!
Secondly, a freemium landscape opens the door for smaller companies to enter a market that is traditionally very difficult to penetrate. No longer will schools and districts be bound by contracts with expensive vendors, but instead, they will be able to allocate their resources toward the best products out there. Thus, the endgame here is a less bloated market with more nimble and innovative companies that can deliver better products to schools for lower costs.
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Public Education Should Be Viewed as a Business by Ron Kurtus ...
By and large, that's exactly what education reform has become. Look no further than Obama's education secretary, Arne Duncan, for proof!
Wall Street has a huge stake in "education reform" through the charter school experiment. It's actually quite disturbing because the charter school experiment tends to be for more expensive than traditional public schools (but major companies and Hedge Funds get HUGE tax breaks for building charter schools). Additionally, privatized public schools, under the charter system, are not held accountable to civil rights legislation that prohibits ethnic segregation.
The worst part is that it tends to intensify the two-tiered education system. If your children live in a nice neighborhood, they get the nice charter school. If they live in a bad neighborhood, they get sent to military school.
Why is a business model appropriate to education? Competition is by and large an illusion. Despite the press, we are not in educational competition with any country, Finland, South Korea, China, India, or anywhere else. It is actually possible for every country to have the best educational system for their people, and that would be a good thing. It is as absurd as saying we are in a healthcare competition with those countries.
The competition is largely a creation of the market within the U.S.. Companies realize that there is substantial money to be made, and they want a cut of that money. So, they compete against one another, and they draw the schools and the students into their conflict.
There are very efficient U.S. government agencies. Nothing is ever 100% efficient 100% of the time. What needs to happen is a redefinition of what it means to be a well-educated American. Once we have that definition, we need to align every educational system, from the Department of Education down to individual school boards through to individual schools, towards delivering on that definition. We need to do it as a country.
Premium, freemium, schemium. Most not necessary. We work with kids, don't forget that.
This sounds like a bunch of bull to me.
Or are you talking about the actual delivery of education. If so, I suspect you're wildly overconfident about the ability of an alternative, free model to outperform and supplant the current one.