Apr 25, 2014 BACK
Volume IV, #9
“Do you know what Peter Gregory is doing?... He’s offering $100k to people willing to skip or drop out of college to pursue their idea.”
“I don’t know what happened to that guy, but he REALLY hates college.”
- From new HBO series “Silicon Valley”
In “Silicon Valley” venture capitalist Peter Gregory hates college so much that the best strategy for getting him to hear the pitch for your startup is telling him you’ll re-enroll if he doesn’t listen.
The startups that the real Peter Gregory (AKA Peter Thiel) is backing in the real Silicon Valley are Software-as-a-Service (SaaS) companies. If you’re not intimate with SaaS, the exemplar is Salesforce.com. A decade ago, customer relationship management (CRM) required buying, customizing and implementing bulky enterprise software. It was a big ticket item for most companies and then every couple of years you’d need to upgrade to the new version. Salesforce.com changed all that. Companies could now “rent” CRM software per user per month. The software (and all the data input by customers) was hosted by Salesforce.com (and now in the cloud). Customers configured the software rather than hiring consultants to customize it to fit their business processes.
Since Salesforce paved the way, hundreds of SaaS startups have bloomed to serve enterprises in every industry at every link of the value chain. But SaaS is also causing incumbent technology providers to change direction. Adobe’s primary product used to be the Creative Suite design package, the standard for magazine design and other graphic arts professions. Despite surging global demand for digital graphic design, sales of the $2,600 product were flat. So Adobe launched a SaaS product: Creative Cloud, available for $75 for a single month, or an annual subscription of $50 per month. Three weeks ago Adobe announced more than 1.8M users had signed up for Creative Cloud, growth of more than 400k over the prior quarter. Adobe is no longer selling Creative Suite; customers must buy the Cloud.
SaaS companies are growing like topsy and sporting eye-watering multiples. Gartner projects the market for cloud-delivered software and infrastructure will reach $43B next year. But this growth isn’t being driven by the convenience of paying monthly for access to the same enterprise software you used to install on your servers. Instead, SaaS companies are creating real value for customers by unbundling enterprise software into component parts, each of which addresses a discrete customer need. So customers can pay for what they need and no more. One popular new Adobe SaaS product is a $10 per month package aimed at photographers that combines Adobe’s design software with an online community to sell photos. No more paying for bloated software, 95% of which is never used.
In many respects, colleges and universities are providing the educational equivalent of enterprise software. Current degree offerings are big ticket items: bulky, requiring several years to complete, and customers pay for the whole thing regardless of what they really need.
Like enterprise software companies, most colleges and universities will have to transition from selling degrees to “Education-as-a-Service” (EaaS). (While many education technology companies have adopted the School-as-a-Service (SaaS) nomenclature, none are actually schools. So I think the name is misplaced and use EaaS to avoid confusion.)
The transition to EaaS won’t happen overnight. Most large software companies continue to expect a large percentage of their sales to be enterprise for years to come. But it will happen. So what does EaaS mean and what can higher education institutions do to prepare? Let’s look at what higher education institutions can learn from market leader Salesforce.com.
|Lessons from Salesforce.com*||Implications for colleges and universities|
|Decide on your business model(s) before doing anything else.||Decide whom you’re serving, what value you’re trying to provide, and who’s paying the bill. Certainly not only traditional-age students (and their parents, and the federal government), but also the adult learners who constitute 43% of all higher education enrollments. And perhaps not only students, but also employers. Keep in mind most leading technology companies already support 5+ discrete business models.|
|Build the product from day 1 with a focus on customer experience and value.||Putting a course or degree program online is all well and good, but that’s the easy part. EaaS will be about taking advantage of the medium to rethink education. It can’t be the same for everyone. Every student has different needs (e.g., motivation, aptitude, preparation, career interest, time-to-job). Follow Adobe’s lead and unbundle the degree into component parts to better serve distinct customer profiles and you won’t just have a one-time purchase, you’ll have a customer for life.|
|Instill “customer for life” mindset in sales and support, starting with first sales call; sales needs to be focused on delivering value to the customer vs. generating as much revenue as possible upfront. Salesforce.com’s service and support organization is called “Customers for Life” (CFL).||As it was with Adobe, this is scary for colleges and universities. The payoff of EaaS is you really can have Customers for Life. Winning institutions will provide for the ongoing educational needs of its customers. The current distinction between students and alumni slowly will become an anachronism.|
|Product development must be agile. Salesforce.com issues approximately 500 product releases each year. Such continuous enhancing requires an operations organization (responsible for ensuring the service remains bulletproof) that is separate and distinct from product development.||Faculty will no longer develop a course and teach it the same way for a decade. EaaS will require that learning experiences be kept up-to-date, often with examples pulled or curated from the day’s headlines. Also, while colleges and universities are long on “product development” resources (i.e., faculty), they are short on operations. Traditional institutions going online have filled the operations gap through partnerships with service providers. Service providers are likely to play an even more prominent role as operations becomes more central to the core value proposition.|
|Customer service isn’t about answering technical queries; the product allows customers to provide self-service. Rather, customer service is about using Salesforce.com to improve the efficiency of the customer’s business.||For colleges and universities, customer service will mean helping students optimize the return on their tuition investment. This means better understanding how the institution’s offerings prepare students for the specific skills in demand by employers, and then helping students better connect with those employers by making the skills visible to employers (through “double-click” transcripts or digital portfolios) or via direct connection to employers.|
|Rethink governance and leadership structures to make better, faster decisions.||For software companies, the enormity of the challenge in moving to a SaaS model has been huge. For universities – many of which are struggling with the notion of digital delivery of existing programs – moving to EaaS will be even harder. Perhaps the biggest challenge for most higher education institutions is that current governance structures barely allow them to drive effectively. And when the vehicle heads towards the cliff, the steering mechanism will prove quite inadequate. Winning institutions will be those that streamline governance today for quicker, more effective decision making tomorrow.|
|* “Where the Cloud Meets Reality: Scaling to Succeed in New Business Models,” Accenture, 2012.|
Peter Gregory giving a “TED talk” in “Silicon Valley”:
Gregory: “Gates, Ellison, Jobs, Dell. All dropped out of college. Silicon Valley is the cradle of innovation because of dropouts. College has become a cruel, expensive joke on the poor and the middle class that benefits only the perpetrators of it: the bloated administrators.”
Heckler: “The true value of a college education is intangible.”
Gregory: “The true value of snake oil is intangible… Do not go back to college. Go work at Burger King. Go into the woods and forage for nuts and berries.”
Colleges and universities might be well-served to remember the adage: If you can’t beat ‘em, join ‘em. In this case, if you can’t convince the Peter Gregorys of the world that you are providing value – and there will be more and more of them in the coming years – become more like the SaaS companies he funds. It’s a long road from here to EaaS. But like Adobe, the winning institutions will be those that transition earlier rather than later. Even in Silicon Valley, every journey begins with a single step.
University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.