Pricing eLearning and the Value of the Online Option

As I was trying to make a dent in the unread count in my Google Reader this weekend, I read a few blog reviews and watched a few highlight videos from the much ballyhooed D10 Conference last month. Of special interest to me was Wall Street Journal’s tech columnist Walt Mossberg’s interview with Stanford President John Hennessy and online learning celebrity Sal Khan.

About 11:30 into the interview (see it below), during a conversation about the skyrocketing cost of education, Khan made a provocative comment about what a particular university he’s familiar with is charging for their online program – roughly the same amount as the school charges for the full brick-and-mortar experience. I tweeted the resulting question:

If #highered schools price #eLearning at/near the brick/mortar price, are they saying their residential program has zero value? #Edchat
@MikeGwaltney
Mike Gwaltney

Hamish Macleod, Joint Programme Director of the highly-regarded Masters in eLearning program at the University of Edinburgh responded:

@ #highered #eLearning #Edchat Perhaps *equal* value? Why should online be cheaper? Every mode has infrastructure costs.
@hamacleod
Hamish Macleod

Khan’s rhetorical question resonated with me, because the argument often offered for the dramatic increase in tuition in the U.S. is for the on-campus experience: luxury boarding, quality meals, world-class fitness centers, cutting-edge lab facilities, etc. So if you don’t get any of that when you take the online program, why do you pay the same price? Seems like a fair question, right?

Enter the word: value. Depending on how you define it, the value of something can be fairly subjective. A one-of-a-kind vintage Beatles t-shirt from the 1960s might be worth a couple hundred bucks to me, despite its cost of production. So I can see that the value of a Stanford degree earned online, for example, might be worth much more than the cost of production. And here, I’m assuming the cost of production for online learning is much less than the cost of the residential experience. Push back on that if I’m wrong.

To Hamish’s point, eLearning certainly has its own costs. And I’m an eLearning advocate who really values the online option – to be honest, often in my experience the quality of online can surpass the brick-and-mortar. But should I have to pay more for it than the residential experience? Aren’t the residential prices completely bloated and unreasonable?

Am I missing something?

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Comments
  1. Hamish Macleod    

    As you say, the problem here lies in the interaction of cost and value; as one can see manifest in recent IPOs.  The game is to manipulate the perception of value in order to influence cost.  But stepping away from that particular game, how *would* one peg the cost of an online educational offering?  Cost is a signifier.  And what is one trying to signify here?  It is clear that online distance learning (ODL) has a reputation and “image” problem.  One must be careful not to imply that ODL is some one thing (and clearly the MOOC phenomenon might prove to be a game changer), but if one is offering an ODL programme which is intended to be of equivalent academic rigour to those things that we think that we understand from our campus-based experiences, one had better not price it lower.  What would that signify?

    But the position becomes rapidly more complicated, in that there is often a need to cross-subsidise one aspect of the enterprise from another.  If one saw ODL as relevant to the international development agenda, for example, one might want to ask more of those who can afford to pay, in order to be able to offer scholarships for those less able to pay.  And on, into economic arguments of market value and the like, which have got little to do with the value to the learner of the experience that they are buying into.

    What of the teacher caught in the middle of all of this?  The one thing that one doesn’t want to be heard saying – to the student or to the administrator – about ODL is “You can have this cheap”.

    1. Mike Gwaltney    

      Hamish,

      Thank you for comment. I’m humbled that you’ve taken the time to respond.

      I think you’ve really nailed it with your initial observation, and that’s something I should have been more clear about in my post – not all online learning is the same, certainly. I know that at the Online School for Girls we make that point consistently to people who seek to compare us with K-12 or FVS and the like. And MOOCs seem to be a whole different animal from what I’m certain the MSc in eLearning at Edinburgh is, or even from what my OSG courses are. It’s easy, because of media-hype I suppose, to conflate all ODL with MOOCs and prices of nearly zero.

      Your last point is the one that keeps me up at night lately, Hamish. Have you read Clayton Christensen’s “Disrupting Class”? I’d love your take on it. I wonder if we’re on the slow march to dramatically reduced prices and a completely different role and salary structure for teachers. Like you, I don’t want anyone to hear me saying students should be getting this for less, but I’m wondering how long it will be until outside competitive forces say it only too well. Again, I don’t know what’s going to happen, it’s just a concern I have about the future.

      Cheers,

      Mike

  2. David Korfhage    

    If price were a function of cost then yes, you would expect to pay more for a residential program.  But of course price is obviously about much more than cost.  Similarly, if all you care about is the education itself, that is, the knowledge imparted, then you would be correct–online learning should be priced cheaper.  But if the value comes from, say, the opportunities that come from having a degree from a high prestige institution, then the value is the same, whether bricks and mortar are involved or not.  I might learn the same thing at Harvard that I would learn at the University of Arkansas, but having a Harvard degree will likely open doors that a degree from Arkansas won’t.  So it depends on what people are paying for.  If value = learning + “college experience” then yes, online learning should be cheaper, because you’re getting less value.  But if value = having degree from big name institution, then the price would be the same.  I expect that, in practice, value is a mix of those, so that online learning from prestigious institutions would be marked up more than you would expect, based on cost alone, but ultimately still less than the full residential experience.

    1. Mike Gwaltney    

      Hi David. Thanks for commenting here on my blog.

      I follow your line of reasoning here, and largely agree, I think. Your last sentence, that the most prestigious institutions will discount their online degrees somewhat, but remain rather expensive on the whole makes sense, when I consider value. We are willing to pay for more prestigious things, that’s clear. And most of us would agree then, that cost of delivery/production is only one piece of price.

      Recently, I returned to “Disrupting Class” by Clayton Christensen, et.al. Have you read it? (Recommended!) It has me thinking about all these price/cost/value questions and online learning. The authors track the result of technological innovation throughout history and make clear that it inevitably causes products to be more affordable. In the education context, I’m really curious how this phenomenon will play out given there is such consternation over the cost of education, and given that our society seems unwilling to fund public education at the level it requires.

      So here’s a follow-up question. When the price of something is so substantial that few people can afford it, but all people want (need?) it, won’t some competitor come along to offer a product that is nearly as good and price it substantially lower? And over time, won’t the ensuing competition both improve the product and drive what all people are willing to pay for those like it? i.e. have a disruptive effect on the more expensive/prestigious product? I’m sure you can see where I’m going with this. How will this change the conversation about value of residential college degrees? prestigious online degrees? Isn’t online learning the innovation disrupting higher education, and for you and me, independent schooling?

      I don’t know that I have the answer for all of these questions, but they keep me up at night lately.

      Best,

      Mike

      1. David Korfhage    

        I haven’t read Christensen’s book, but it’s in my shopping cart at Amazon (really!). As you may remember, he’s been on my mind lately, too.

        As for your discussion of value and cost, I think you’re correct that overall the pressure from technology will be to lower costs, even if it means lowering the quality of education somewhat, at least in the near term. That is the logic of Christensen’s argument, as I understand it, and as I wrote in my post over on EdSocialMedia.

        But I also think that education is not like other goods. Everyone, in theory, can have an iPad, because there is no limit to how many can be produced–at least, we haven’t hit the limit yet. Education is different. Because it is in part used to allocate societal rewards–those with better education get better jobs, more money, etc.–it is an inherently competitive good. The economist Robert Frank calls this the issue of “relative consumption” and he’s applied it to the question of college costs here. Just because everyone “wants it” (as you say) doesn’t mean everyone can get it–with “it” being “the rewards that come with prestige education.” In fact, by definition, everyone can’t get it, since the whole point of a prestige education is to differentiate yourself. Therefore, since there is a strictly limited supply of prestige degrees, people will bid up the price of those degrees. If something else beats Harvard in quality (which will lead to more prestige) then they will get bid up instead. The point is that someone will always be the best, and people will be willing to pay for it. When you ask, “won’t some competitor come along to offer a product that is nearly as good and price it substantially lower?” my answer would be that, in the sort of winner take all society that we seem to be turning into, “nearly as good” doesn’t cut it. You’re either in the 1%, or you’re left behind with everyone else.

        It’s possible we’ll develop a kind of two-tier education market: an upper, “luxury” tier for those who are willing and able to pay for higher quality education, whether face-to-face or online, and a second, cheaper market (say, MOOCs) for those who can’t afford the prestige of a higher degree or the luxury of “discovering themselves” through education, and who just want credentialing (which is, frankly, all that many people want from college). It’s quite possible that “luxury online” may drive out “luxury face-to-face” in terms of cost, if it can build up sufficient prestige (e.g., become as effective at job placement, network creation, etc.). And eventually, if the “cheaper” form of education comes close enough to the luxury good that they are, for all practical purposes, the same, the “luxury” tier will disappear. I think that’s not really a question of online vs. face-to-face, though. I imagine what you do is similar, in its way, to what I do in a face-to-face class (a term I don’t like, because isn’t Skyping face to face, too?), whereas Sebastian Thrun’s 160,000 person MOOC is very different.

        And, like you, I’m wondering where all this will leave teachers. I’m still thinking that through.

        1. Mike Gwaltney    

          Good stuff, David. I’m grateful for this conversation.

          Perhaps you’re right that education is different from, say, washing machines, which everyone wanted but few could afford, but now so many people have. I’d like to stew on that for awhile though, before I completely concede the point.

          I think you’re right about the tiered model of higher ed that is no doubt coming. Of course, we have something of a tiered model already, but perhaps it will become even more defined – I’m thinking of the disappearance of state colleges, already under pressure, and the emergence of tiers of online options. I spent most of my undergrad years working 30-40 hours a week and trying to make the timing of my studies at Cal State fit my busy schedule, and for students like this, the goal of certification may be, as you say, primary.

          I spend most of my day teaching in a brick-and-mortar environment, at a prestigious independent school here in the Pacific Northwest (my teaching load for the Online School for Girls is significant, but still just a small part of all my professional work), and I’m somewhat dismayed by the obliviousness my colleagues have to this issue. I don’t think the tsunami is coming for independent schools as quickly as it is for higher ed, but it serves us not at all to stick our heads in the sand. I’m sure you agree.

          Mike

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Mike Gwaltney