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In October 2012 my George Mason colleague Tyler Cowen and I launched MRUniversity (short for Marginal Revolution University, named after our blog), with a full-length academic course on development economics. Today we have many thousands of registered students from all over the world, and are launching new courses. Inspired by Salman Khan and the YouTube tutorials he offers through his Khan Academy, we wanted to see what two individuals who enjoy teaching could accomplish without major financial backing.
Our experience has shown us many advantages of online lectures: They allow the best professors to teach many more students. They offer large time savings, since students can repeat sections of the lecture without slowing down other students or consuming instruction time. They offer lower fixed costs, since students no longer need to drive to and from campus. Lectures can be shorter, and consumed at any time, which means online universities are effectively open 24 hours a day.
A number of online course providers now exist, including Coursera, Udacity, and the Harvard-MIT project edX. These “massively open online courses,” or MOOCs, have sought and received millions of dollars of venture capital and/or university funding.
The biggest hurdle for MOOCs is credentialing, which usually requires a business model and a partnership with a name-brand institution. The challenges here are not technical but bureaucratic. We have, however, seen universities move into this space at a pace unheard of for such normally slow-moving institutions. Antioch University, for example, is offering credit for some Coursera offerings and San Jose State University has recently partnered with Udacity to offer online mathematics classes for credit. Most worryingly for the traditionals, the San Jose online price will be less than half the price of an on-campus course.
It’s not just the MOOCs that are competing with traditional universities. Online lectures are behind the astonishing rise of for-profit universities. Enrollment at the for-profits was less than 500,000 students nationwide in 2000, but that number doubled to 1 million by 2005, and doubled again to 2 million by 2010. Why? The for-profits pioneered online education, a product that appealed to non-traditional students who could not afford or did not want the five-year “edu-vacation” produced by more traditional universities.
The education establishment tends to dismiss the MOOCs and the for-profits as low-quality. There are legitimate complaints about for-profits, mostly stemming from the fact that the final customer is often not the student but the federal government, which supplies the bulk of loan money that students spend there. But it’s inarguable that the sector has demonstrated a strong demand for online education. Low-quality entrants that disrupt established industries often improve their offerings over time. MP3s didn’t sound as good as CDs, and audiophiles objected. But compressed digital sound is improving, and has already overtaken physical CDs in income generated for the recording industry.
Traditional universities should not assume that the quality of education at the MOOCs or the for-profits is or will remain low. In a 2011 interview with The Next Web, business guru Clayton Christensen, author of The Innovator’s Dilemma, reports that the University of Phoenix invests $200 million annually on research to improve the quality of teaching. “That’s $200 million every year just on making their teaching better,” Christensen says. “Do you know how much money Harvard spends every year to make its teaching better? Zero.”
Take those figures with a grain of salt, but the lesson about quality improvement is sound. When each teacher teaches only tens or hundreds of students, no teacher will invest millions of dollars in improving education. But when a single online course can reach tens or hundreds of thousands of students, it pays to invest in quality.
The real competitors to traditional universities may end up being neither the MOOCs nor the for-profits but entirely new educational startups. Online education replaces labor with capital, in the form of software. Online pioneer Marc Andreessen has argued that software is eating the world—if so, education is the appetizer. As software replaces labor we will see greater possibilities for productivity improvements in education. Incentives to invest in such improvements will expand with the size of the market.
What will a future “course” look like? One model is a super-textbook: lectures, exercises, quizzes, and grading all available on a tablet. The textbook’s artificial intelligence routines could guide students to lectures and exercises designed specifically to address that student’s deficits, and could call on human intelligence—tutors—on an as-needed basis. (“Click here to connect with a tutor; $5 for the first five minutes and 50 cents a minute thereafter.”) A textbook of this kind would draw on content experts but also actors, animators, graphic designers, and experts in pedagogy.
Universities are not the natural producers of educational software. Instead think of video games. The process of developing the mega-hit video game Halo 3 provides a useful model: The development team at Bungie Studios analyzed 3,000 hours of Halo play by 600 gamers in order to suss out everything from preferences for weaponry to places where players are most likely to get killed. Then they did the same with their competitors. Wired sums it up this way: “It might seem like an awfully clinical approach to creating an epic space-war adventure. But Bungie’s designers aren’t just making a game: They’re trying to divine the golden mean of fun.”
A game like Halo must be difficult enough so that players feel challenged but not so difficult that they give up in frustration. Educators want a course with exactly the same characteristics. Game developers invest millions of dollars in producing and testing high-quality video games because the size of the market justifies such investment. Online technologies are bringing the same economics to the world of education. In the new world of online education, we will finally have courses that are as well designed and as awesome as video games.
Alex Tabarrok is a professor of economics at George Mason University and the co-founder with Tyler Cowen of MRUniversity.com. He writes regularly at the blog MarginalRevolution.com.