UV Letters

Aug 15, 2012 BACK

The Great Unbundling - Popping bundles, not bubbles

UV Letter - Volume II, #17

Over the past decade, sales of recorded music are down 50% and continue to fall each year. The reason isn’t online piracy. It’s that digital technology has forced a revolution in a business model that had relied on bundling the music consumers wanted (singles) with music they didn’t (the rest of the album – at least for most albums). In an industry unbundled by technology, consumers can purchase only the content that they want and bundled product is no longer viable.

We are seeing glimmers of the same thing in print and on television. Newspapers and magazines make their content available to RSS feeds. And thanks to DVRs and Internet video, we no longer watch channels or networks, but rather individual shows. Many viewers aren’t aware of what network their favorite shows air on.

Bundling has been even more important to higher education. Universities not only bundle a diverse set of courses into a degree program, they also bundle together entirely different value propositions:

Bundling has been the primary way universities have managed to avoid the cost/benefit analyses consumers make for virtually every other purchase decision. Just as it has for music, unbundling would dramatically reduce per student revenue in higher education. In microeconomic terms, bundling captures surplus for producers. Unbundling moves some of that producer surplus to consumers and may create new consumer surplus.

If colleges and universities are the next object of the Great Unbundling, many in higher education will see a dystopic future. For television networks, popular programs support new, innovative and struggling shows. For universities, we might see popular courses and programs thrive, while the rest are left to wither on the vine and institutions are less willing to take risks on new programs. In addition, in the world where the higher education consumer is king, it will be challenging to insist on gen ed. requirements, distributional requirements, and the precepts of a liberal arts education.

In considering whether this is likely, bundling in any industry is sustainable under three circumstances.

Economies of scale in production

Bundling can be supported where there are efficiencies from producing different products together rather than separately. There are two elements to efficiencies: the value of what is being produced, and the cost of doing so. Fundamental to the concept of a university is the notion that new knowledge is created when disciplines rub shoulders, or through serendipitous conversations on the quad – although the extent to which this translates into better learning outcomes for students surely varies by institution. Regardless, most colleges and universities would have a hard time arguing that the added value for students (as opposed to research) outweighs the administration, overhead and inefficiencies borne in the name of comprehensiveness. In higher education, there may well be diseconomies of scale in production.

Heterogeneous demands of consumers

Bundling is more easily sustained when consumers value different parts of the bundle differently. For example, television viewer A might value ESPN at $20 per month and the Food Network at $5 per month, while another viewer B might have exactly the opposite preferences. In an unbundled world, if the cable network charges more than $5 for either channel, one of the viewers will refuse to buy it. Only by bundling can sellers and buyers achieve an optimal result.

Students are undoubtedly heterogeneous in how they value different aspects of the higher education value proposition. But the college affordability crisis and an increasing focus on return on investment is leading to a dramatic narrowing of these differences – much more homogenity in preferences than heretofore. And for many students, time is as important as price. Bundled products like a 4-year degree program a great deal of time to consume, and time is a precious commodity for students.


Bundling tends to persist when consumers appreciate simplifying the purchase decision. This is why we don’t buy books by the chapter or newspapers by the article. While we think this continues to be true, it won’t be sufficient to propel continued bundling for all.

In the long run, bundling will only continue in higher education where the bundle creates clear value or ROI for students relative to unbundled alternatives. In our view, only elite institutions – where the degree has more value, the credentials greater credibility, and the return from the Admissions and Intangibles value propositions much more certain – will have sustained demand for the bundle in the long run. And while accreditors might attempt to fight unbundling for the other 95% of institutions, we don’t think they’ll be successful given the focus on affordability, government support of unbundling in other industries (e.g., cable), and greater federal scrutiny and pressure on accreditors.

So at some point in the not-too-distant future it will be official: a two-tier system of higher education. The bundled elite and unbundled, huddled masses. Although appalling, it may prove to be the best outcome for students. If many consumers no longer have the discretionary income to spend on cable – Time Warner and Comcast cable had 1.2 million customers unplug last year – they won’t have the funds (or willingness to assume debt) to buy the higher education bundle. They would prefer to spend less for a value proposition best tailored to their personal circumstances. Policy makers and higher education leaders must consider this future as they attempt to optimize across cost, economic benefit, and the crucial role universities play in establishing and maintaining an educated populace.


It is in this context that massive open online courses (MOOCs) must be viewed. Harvard, Stanford, MIT and other elite universities are embracing MOOCs through organizations like EdX and Coursera. Although they continue to receive more public attention than any higher education innovation in memory, MOOCs are best viewed as higher education’s version of TV networks offering individual shows (i.e., parts of the bundle) online for free. The massive irony is that the elite universities offering MOOCs are the institutions that won’t need to unbundle. As such, they are doing a disservice to the other 95% of colleges and universities for whom the question shouldn’t be whether they should also launch MOOCs, or even what their online strategy should be, but rather their post-unbundling mission and strategy.

MOOCs are a sideshow – a distraction to the primary long-term challenge facing non-elite universities. Smart TV networks aren’t simply wondering which shows (i.e., which components of the bundle) to make available for free and which technology companies to partner with to do so, because in doing so their attention continues to be focused on the creation of the bundle. The sage on the stage model will die in the next decade after thousands of years as the dominant knowledge distribution system. Smart universities are thinking about their “product” in the context of viable unbundled business models. This means that they’re not launching a new course or program because of how it strengthens the bundle, but rather because the product will support itself in an unbundled model.

The difference may seem small, but requires revolutionary thinking. Some non-elite universities have begun thinking about the degrees and credentials they offer and are moving to increase not only the number but also the form and type. Others may be thinking about models that will help students rebundle and certify credentials they might earn in an unbundled world. There are many opportunities for universities to thrive after the Great Unbundling. But only those that begin viewing themselves as more than one-dimensional deliverers of a traditional bundled product will get there.

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.


Dwight Cramer 2014-02-20 10:46
Interesting to read this after 18 months. On the whole, it still stands up, and the broad argument is nothing if not stronger, although I'm not so sure the comments about MOOCs are still on point. There has been a great deal of evolution in that space--way beyond sage on stage at one level, and... Read more with the development of coherent programs/course sequences and credential recognition at a second. I think the MOOCs may be a form of defensive marketing and moat building by the elite universities, very much in their own (and the public interest) and at the expense of the remainder of the higher education community.
Professor William K.S. Wang 2013-05-28 10:41
I have published three articles on the unbundling of higher education (the first in 1975; most are available through an internet search): "The Unbundling of Higher Education," 1975 Duke Law Journal 53. "The Dismantling of Higher Education," published in two parts in 29 Improving College and... Read more University Teaching 55 (1981) and 29 Improving College and University Teaching 115 (1981) "The Restructuring of Legal Education Along Functional Lines,” 17 Journal of Contemporary Legal Issues 331 (2008)(discusses legal education, but applies to higher education generally); abstract below THE RESTRUCTURING OF LEGAL EDUCATION, by William K.S. Wang ABSTRACT Currently, law schools tie together five quite distinct services in one package, offered to a limited number of students. These five functions are: (1) impartation of knowledge, (2)counseling/placement, (3) credentialing (awarding grades and degrees), (4) coercion, and (5) club membership. Students do not have the opportunity to pay for just the services they want, or to buy each of the five services from different providers. This article proposes an “unbundled” system in which the five services presently performed by law schools would be rendered by many different kinds of organizations, each specializing in only one function or an aspect of one function. Unbundling of legal education along functional lines would substantially increase student options and dramatically increase competition and innovation by service providers. This offers the hope of making available more individualized and better instruction and giving students remarkable freedom of choice as to courses, schedules, work-pace, instructional media, place of residence, and site of learning. Most importantly, this improved education would be available on an “open admissions” basis at much lower cost to many more individuals throughout the nation, or even the world. In order to explain how to restructure the existing law school system, this article will discuss the five educational services presently performed by law schools, the disadvantages of tying these services together, a hypothetical unbundled world of legal education, the advantages of the unbundled system, answers to some possible objections to the system, and some recent developments in the use of technology and distance learning in law schools. The main theme of this article is the advantage of unbundling. A more modest sub-theme is the benefit of use of technology and distance learning.
Louis Soares 2013-01-05 10:48
In a society driven by information and knowledge formation, living, working and learning are not separate endeavors but integrated. An unbundled offering in higher education must be matched by the creation of highly self-aware consumer/learners so that content as well as "horizontal skills"... Read more will be developed holistically. One of the areas that is under discussedin the unbundling discussion is that the current way of offering higher education evolved (over the centuries)--most recently mediated by society's demand for a small class of industrial managers and a large class of semi-skilled workers. This created the assembly line model and bundled approach which worked for a while. Dell and Cisco became so successful because they became user centered integrators in an unbundled market. Someone needs to do this at scale if society is to recognize the benefits of unbundled higher education.
Ryan Craig 2012-08-18 19:34
Thanks for adding this. Clearly this is an aspect of bundling that is much more important to education than to cable networks. This is the intangible value proposition that we labeled knowledge (but is probably better referred to as the benefits of becoming educated) that is, as you note, very... Read more hard to measure. At the same time, we believe that whatever "unbundled" credentials replace the current large bundles offered by non-elite institutions will have some element of interaction/accumulation built into them, although likely not with the same amplitude.
Josh Jarrett 2012-08-17 13:39
I think you missed a fourth way bundling can be sustainable: interaction or accumulation effects across the components. I.e., there are interaction and accumulation effects across chapters in a book that make the whole valuable in ways that individual chapters or collections of random chapter... Read more are not. What does this mean for degrees? Either you need perfect standardization across courses - not ideal unless you think all book chapters should be the same or you need some way to assess and value these "horizontal competencies" across courses, as Paul Friedman calls them. Given so many of these - meta-cognition, critical thinking, communication, teamwork - are hard to measure, I'm worried that we will lose the some of this value before we even appreciate that it's gone. Do the direct learning outcomes of 40 courses equal a BA or are there cumulative learning outcomes as well? What say you, gents?

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