The Siege of Academe
For years, Silicon Valley has failed to breach the walls of higher education with disruptive technology. But the tide of battle is changing. A report from the front lines.
By Kevin Carey
It’s three o’clock in the afternoon on Easter, and I’m standing on a wooden deck in the Corona Heights neighborhood of San Francisco, looking out toward Nob Hill. A man is cooking large slabs of meat on a gas grill as two dozen people mingle with glasses of bourbon and bottles of beer in the cool, damp breeze blowing in off the ocean. All of these people are would-be movers and shakers in American higher education—the historic, world-leading system that constitutes one of this country’s greatest economic assets—but not one of them is an academic. They’re all tech entrepreneurs. Or, as the local vernacular has it, hackers.
Some of them are the kinds of hackers a college dean could love: folks who have come up with ingenious but polite ways to make campus life work better. Standing over there by the case of Jim Beam, for instance, are the founders of OneSchool, a mobile app that helps students navigate college by offering campus maps, course schedules, phone directories, and the like in one interface. The founders are all computer science majors who dropped out of Penn State last semester. I ask the skinniest and geekiest among them how he joined the company. He was first recruited last spring, he says, when his National Merit Scholarship profile mentioned that he likes to design iPhone apps in his spare time. He’s nineteen years old.
But many of the people here are engaged in business pursuits far more revolutionary in their intentions. That preppy-looking guy near the barbecue? He’s launching a company called Degreed, which aims to upend the traditional monopoly that colleges and universities hold over the minting of professional credentials; he wants to use publicly available data like academic rank and grade inflation to standardize the comparative value of different college degrees, then allow people to add information about what they’ve learned outside of college to their baseline degree “score.” It’s the kind of idea that could end up fizzling out before anyone’s really heard of it, or could, just maybe, have huge consequences for the market in credentials. And that woman standing by the tree? She’s the recent graduate of Columbia University who works for a company called Kno, which is aiming to upset the $8 billion textbook industry with cheaper, better, electronic textbooks delivered through tablet computers. And then there’s the guy standing to her right wearing a black fleece zip-up jacket: five days ago, he announced the creation of the Minerva Project, the “first new elite American university in over a century.”
Last August, Marc Andreessen, the man whose Netscape Web browser ignited the original dot-com boom and who is now one of Silicon Valley’s most influential venture capitalists, wrote a much-discussed op-ed in the Wall Street Journal. His argument was that “software is eating the world.” At a time of low start-up costs and broadly distributed Internet access that allows for massive economies of scale, software has reached a tipping point that will allow it to disrupt industry after industry, in a dynamic epitomized by the recent collapse of Borders under the giant foot of Amazon. And the next industries up for wholesale transformation by software, Andreessen wrote, are health care and education. That, at least, is where he’s aiming his venture money. And where Andreessen goes, others follow. According to the National Venture Capital Association, investment in education technology companies increased from less than $100 million in 2007 to nearly $400 million last year. For the huge generator of innovation, technology, and wealth that is Silicon Valley, higher education is a particularly fat target right now.
This hype has happened before, of course. Back in the 1990s, when Andreessen made his first millions, many people confidently predicted that the Internet would render brick-and-mortar universities obsolete. It hasn’t happened yet, in part because colleges are a lot more complicated than retail bookstores. Higher education is a publicly subsidized, heavily regulated, culturally entrenched sector that has stubbornly resisted digital rationalization. But the defenders of the ivy-covered walls have never been more nervous about the Internet threat. In June, a panicked board of directors at the University of Virginia fired (and, after widespread outcry, rehired) their president, in part because they worried she was too slow to move Thomas Jefferson’s university into the digital world.
The ongoing carnage in the newspaper industry provides an object lesson of what can happen when a long-established, information-focused industry’s business model is challenged by low-price competitors online. The disruptive power of information technology may be our best hope for curing the chronic college cost disease that is driving a growing number of students into ruinous debt or out of higher education altogether. It may also be an existential threat to institutions that have long played a crucial role in American life.
I’m here at this party and in the Bay Area for the next few days to observe the habits, folkways, and codes of the barbarians at the gate—to see how close they’ve come toward finding business models and technologies that could wreak such havoc on higher education. My guide, and my host at this party—he organized the event for my benefit—is a man named Michael Staton. With sandy-blond hair, blue eyes, and a sunburned complexion, Michael is thirty-one—old by start-up standards—and recently married. He’s the president and “chief evangelist” of Inigral, a company he created five years ago to build college-branded social networks for incoming undergraduates. But just as importantly for my purposes, he’s also one of those people who has a knack for connecting with others, a high-link node in a growing network of education technology entrepreneurs who have set their sights on the mammoth higher education industry.
One of the bedrooms in the house where we’re mingling and drinking was Inigral’s headquarters for the first eight months of its existence, back when the founders were “bootstrapping” the company, which is valleyspeak for growing the business on their own using credit cards, waitering tips, plasma donation proceeds, and other sources that don’t involve the investment dollars that can shoot a start-up toward fame and fortune at the price of diluting the founder’s ownership and control. The longer someone can manage to feed themselves with ramen noodles and keep things going via bootstrapping, the more of their company they’ll ultimately get to keep—unless someone else comes up with the same idea, takes the venture capital (VC) money earlier, and uses it to blow them to smithereens. The start-up culture is full of such tough decisions about money, timing, and power, which are, in their own way, just as complicated and risky as the task of building new businesses that will delight the world and disrupt a trillion-dollar market.
After the guests leave, Michael and I retire to the living room with one of his colleagues, Nick. The conversation comes around to how the money works. Nick explains that, nowadays, there is a basic philosophical divide among venture capitalists. One way of thinking goes like this: technology is a winner-takes-all world. For every Facebook, there are dozens of Friendsters lying in a pile of dead companies with silly made-up names. The difference between winning and losing everything often comes down to timing and execution. Everyone knew social networks would be huge. Mark Zuckerberg just did it better, so he won. Talent, meanwhile, is always scarce. So the VC guys try to identify the smartest people with the best teams in their quest to back the winner who takes all.
The second way of thinking—the one that Nick finds more plausible—is that the world is too complicated and chaotic to accurately predict which company will have the exact combination of talent, luck, and timing to be victorious. There’s no way to know who will come out of the scrum with the ball. Therefore, the smart strategy is to invest in the entire scrum—to bet on categories, not people. The recent surge of money into higher education startups reflects growing interest in the category. My goal is to find out what it’s like in the middle of the scrum.
It’s 10:30 a.m. on my first full day in the valley. I’m in San Mateo, twenty miles south of San Francisco, at the offices of Learn Capital, an education-focused venture capital firm. Having driven down from the city in Michael’s Honda CRV, he and I take the elevator to the second floor, where one of the firm’s partners, Nathaniel Whittemore, brings us into a glass-walled conference room. We walk by five people sitting around a table, some with headphones on, each staring intently at a thirteen inch MacBook Air. “Do they work for you?” I ask, nodding at the people outside the glass, assuming they’re junior investment analysts or somesuch.
“No,” he says. “They’re one of our investments. That’s OpenStudy.” By which he means: the entirety of the company known as OpenStudy—its personnel and infrastructure—was sitting around that table. Open- Study is a Web site that allows people to create online study groups, for free. “Tired of studying alone?” their site asks. “Connect with learners studying the same things you are.” OpenStudy says it has 100,000 students from 170 countries and 1,600 schools. Because all of the computing capacity, electronic memory, secure backup, and related telecommunication infrastructure necessary to do this can be bought as cheap commodities from a remote provider, the actual physical infrastructure needed to run an ed tech start-up like OpenStudy consists of, in its entirety, five lovely aluminum computers (nearly everyone I meet in Silicon Valley has a thirteen-inch Air), five ergonomically designed black chairs (they are always black), one table, and a wi-fi connection. I ask Nathaniel about how Learn Capital sees the world. Is the real money to be made, per Marc Andreessen, in eating the existing education industry? Or will it be in providing service to the industry, helping them do what they do better? In terms popularized by Harvard business professor Clayton Christensen, this is the difference between “disruptive” and “sustaining” innovation.
Nathaniel says that’s an “ideological” question. Learn Capital looks for two things, he says: “highly relevant niche plays,” which sound like a sustaining innovation, and winner-takes-all “platforms,” which sound like university eaters to me. In fact, if one word defines the dialogue of my trip to the valley, it is “platform.” Investors want to put their money in platforms, and start-ups want to build platforms, because right now, and for the foreseeable future, platforms rule the world.
The idea itself isn’t new. Wal-Mart builds platforms—actual, physical platforms, made of concrete, with walls around them and a roof overhead. Then it connects those platforms to several gigantic networks of transportation, telecommunications, and commerce, thus connecting tens of thousands of companies that manufacture things to hundreds of millions of people who want to buy things. Because Wal-Mart owns the platforms on which those transactions take place, it makes money with every sale. Because Wal-Mart is unusually good at figuring out where to put platforms and how to manage those gigantic networks, it is currently the world’s largest private employer.
Making a lot of money on the Internet tends to involve building platforms for electronic commerce. The great thing about it is that you don’t have to build thousands of different platforms that are physically located near your customers. You only have to build one. EBay? A platform for auctions and person-to-person sales. Amazon? First a platform for books and now for a great many other things. Craigslist is a platform for buying and selling things that are inherently local, like concert tickets, apartment rentals, used stereo equipment, and prostitutes. Netflix is a platform for buying and selling movie rentals, iTunes for music, the iPhone for apps. The platform builders are kings of the virtual universe. And, of course, Facebook: the social platform. With a key difference. The first generation of platforms involved taking small pieces of larger transactions. Wal-Mart had $447 billion in revenues last year, but in a way that overstates the size of the company, because it also had over $400 billion in expenditures, most of which went to buying things from manufacturers and reselling them to customers.
When a customer rings out of Wal-Mart with a bill of $100, most of that money doesn’t go to Wal-Mart shareholders. It goes to a combination of Wal-Mart’s suppliers and the millions of people who work as employees in Wal-Mart stores.
Facebook is different. Its pays nothing for the untold terabytes of valuable information exchanged on its platform. The users generate it themselves. It doesn’t pay for the telecommunications infrastructure needed to exchange information—that’s between users and giant telecoms like Verizon, Comcast, and AT&T. The only cost to Facebook is software development and data storage, which becomes ever cheaper as Moore’s law and its storage equivalents march on. And because it only has to build one platform, not thousands, it only has to employ a few thousand employees, not, like Wal-Mart, more than two million. In May, Facebook launched the largest tech IPO of all time.
So the VC guys and the start-ups look at K-12 and higher education, which between them cost over $1 trillion per year in America, and much more around the world. They see businesses that are organized around communication between people and the exchange of information, two things that are increasingly happening over the Internet. Right now, nearly all of that communication and exchange happens on physical platforms—schools and colleges—that were built a long time ago. A huge amount of money is tied up in labor and business arrangements that depend on things staying that way. How likely are they to stay that way, in the long term? Sure, there are a ton of regulatory protections and political complications tied up in the fact that most education is funded by the taxpayer. As always, the timing would be difficult, and there is as much risk in being too early as too late.
Still, $1 trillion, just sitting there. And how much does it cost for a firm like Learn Capital to invest in a few people sitting around a table with their MacBook Airs? That’s a cheap lottery ticket with a huge potential jackpot waiting for whomever backs the winning education platform.
After chatting with Nathaniel for a while, I eventually yield the floor to a young guy named Parker, an aspiring entrepreneur who graduated from Amherst last May, who’s come to pitch an idea for a start-up in hopes of scoring seed money. In November he had an idea for a new company he calls eHighLighter, which sells a smartphone app that lets you take a picture of a book page and convert it to a document on which you can then highlight text, categorize it, save it, and otherwise organize it in useful ways. He put some bootstrapping money together and used it to hire six computer programmers in Bangalore to design the “user interface” and “user experience” (UI and UX) for the company.
He gives a short, practiced explanation of what the app does, then pulls out his white iPhone—everyone here has not only an iPhone 4S but a white iPhone 4S— and shows Nathaniel some screen captures of the product. The pitch takes about five minutes. Nathaniel nods, listens, and says, nicely but decisively, “I’m not sure I buy it.” He sees eHighLighter as an intermediate technology, a bridge to the eventual transition from paper to electronic books. What then? Parker is ready for this and cites statistics about the slow rate at which libraries are scanning in physical books, and they have a friendly back-and-forth about this, with Nathaniel offering useful advice about going after specific market segments—PhD candidates who live in archives, for example. But his initial judgment remains unchanged.
Parker doesn’t seem particularly crestfallen. It’s his first pitch; there will probably be more, and the prospect of hitting a home run never seems that far off around here. Less than a year out of Amherst with nothing but a few iPhone screen captures and Parker can walk into a room full of money and get the money’s attention. Youcan’t ask for more than that.
As we’re wrapping up the meeting, suddenly everyone starts fiddling with their white iPhones at once. “Facebook just bought Instagram for $1 billion,” Michael says. This is, in many ways, local news. Lots of people here know the Instagram guys, have run into them at parties, or have otherwise overlapped circles in the small valley world. So it’s slightly vertiginous to wake up the next morning and see the story of how the creators of an iPhone photo-sharing app struck it rich above the fold on the free copy of USA Today the hotel leaves in front of my door. Instagram comes up in nearly every meeting I attend for the next three days.
Back in San Francisco, we meet Ben Nelson, founder and president of the richly funded but still entirely theoretical Minerva Project. Michael and I meet him at an Asian restaurant in the hip SoMa (South of Market Street) district of San Francisco. Nelson is wearing another black fleece zip-up jacket. He’s half a generation older than most of the start-up people I talk to—meaning late thirties—and spent more than five years as the CEO of the photosharing company Snapfish. Minerva made news in the valley the week before by getting $25 million in start-up funding from Benchmark Capital, the single biggest seed investment the firm, whose past investments include eBay, Twitter, and Instagram, had ever made. Since nobody gives away all or even most of their equity in exchange for initial seed funding, $25 million implies a substantially larger total valuation. Since these negotiations are essentially speculative and tend to involve round numbers (see: Instagram, $1 billion), $100 million is not a bad guess.
Minerva sprang from Nelson’s observation that higher education was increasingly a realm of mismatched supply and demand. Recent decades have been generally peaceful and prosperous on planet Earth. There are a lot more people with the desire and ability to pay for higher education than there used to be. Elite American schools are the unchallenged market leaders, which is why applications to Harvard have increased by double digits annually for years, with growing demand from China and other fast-developing economies.
In response to this surge in demand for its product, Harvard has done the following: absolutely nothing. It hasn’t expanded the size of its freshman class by a single student in the last twenty years. With a few exceptions, this is true for all elite American schools. They don’t have to get bigger, they don’t want to get bigger, and, anchored as they are to immovable physical places, they can’t get bigger in any meaningful or not absurdly expensive way. Yale, one of the exceptions, is currently in the process of expanding its undergraduate enrollment by 15 percent, or about 800 students. This involves building two new “colleges,” the rectangular gothic buildings in which Yale undergraduates live and study, at a cost of more than $600 million—or twenty-four times what Minerva got in seed money, an amount that was repeatedly described to me as shockingly large.
Minerva is designed to soak up this growing excess demand. Nelson plans to signal elite status through a combination of rigorous admissions standards and a nail-tough academic curriculum. While the courses will be conducted primarily online, students will live together in shared housing units in cities around the world. They’ll start in their home country and then rotate to different cities in later years, finishing with a capstone project in their chosen major. Nelson figures this can be done for less than half of what Ivies charge students, and that if Minerva ends up with a student body of 10,000 undergraduates it will be a financial success.
In many ways the plausibility of Minerva comes down to a pure numbers game. The world is very big, and the number of students served by elite American schools is very small. They turn down nine out of ten potential customers now, and the number of global aspirants is only starting to grow. Nelson expects that 90 percent of Minerva students won’t be American. Even with the inevitable discount applied to newness and online-ness, even with a high bar to get admitted and a second high bar to graduate, at some point the sheer weight of numbers solves everything. Ten thousand is a small amount in a world of seven billion people.
Indeed, scale is the oxygen feeding the combustible mix of money, ambition, and technology-driven transformation in the valley. Low margins, uncertain business models, limited marketing budgets—all of these limitations and more can be overcome by scale. And the rapid growth of mobile telecommunications technology means that the number of people in the world who are potential customers is quickly moving toward the number of people in the world.
Minerva isn’t the only project in this city—or in this neighborhood, even—playing this numbers game. One company I visited had start-up costs so low that it never even had the need for venture funding; in valley parlance, it was “100 percent bootstrapped.” Quizlet, as the company is called, was started in 2007 by a Bay Area high school student named Andrew Sutherland. The first product was flash cards. If you were learning the names of animals in French, for example (the sophomore-year high school assignment that motivated Sutherland to create Quizlet), you’d create a digital flash card by entering “penguin” on one side and “manchot” on the other. By the time Sutherland was a college junior, the site had three million monthly users. Now the company is a typical San Francisco start-up with black chairs and MacBook Airs. It makes enough money to rent space and pay salaries by running small ads on the site and by selling a premium version for $15. The ads and subscriptions aren’t expensive, but they don’t have to be when you’ve got millions of users and host everything in the Cloud.
To drive home the point of just how cheap it is to be Quizlet, one of its executives asks me how much money the United States spends per year to educate a single student in K-12 education. About $15,000, I say. That’s more than what it costs us per month to host the entire site, serving millions, the executive responds. Quizlet has no sales force, a very small marketing department, and more than seven million monthly unique visitors. (There are about fifty million public school students in the United States.) Quizlet, in its busiest months, during the school year, is among the top 500 most visited sites on the entire Internet. Now they’ve expanded beyond flash cards. You can create study groups, convert your content into multiplayer games, and search for cards and games that other people have created. We think we can get to 40 million users, then 100 million, says the executive. The question that drives the company, he says, is this: How can we create amazing learning tools for one billion people? This is the way most of the people in the valley talk.
Other companies are starting by exploiting inefficiencies in the existing higher education system and using the money to bankroll more disruptive ideas. After visiting the Quizlet headquarters in San Francisco, Michael and I hopped onto Highway 101 and drove south toward Palo Alto. We stopped at the well-appointed headquarters of Chegg, which is basically the Netflix of textbooks; students rent their textbooks online and then mail them back when they’re done. Chegg has tens of thousands of student-customers and lots of cash, but it knows that sending textbooks back and forth in the mail is not the business of the future. So it has begun expanding into other services, like, for instance, one that creates a marketplace for students to share their class notes with each other. Another company that I visited that afternoon, called Course Hero, conducts a similar business.
Both companies have been on the receiving end of cease-and-desist letters from colleges and universities claiming that student notes of a lecture remain the intellectual property of the lecturer and thus can’t be resold for money. But this just highlights the radical changes in power over information wrought by information technology. When colleges were originally built, there were only two ways to get scholarly information: read a book or talk to a smart person. So it made sense to concentrate the books and smart people in distinct places, and colleges benefited enormously from the combination of a growing demand for expert information and the high barriers to entry for building libraries and assembling learned faculty. The college business model depends on holding that position, so they don’t take kindly to upstart companies facilitating new ways of sharing their once-scarce information.
And the one thing that sticks with me more than anything else is that the onslaught is shaping up to be relentless.
Perhaps the biggest sign that this assault on the university is of an unprecedented scale is that some of the biggest incumbents have finally started making moves to defend themselves. In Palo Alto one evening, Michael and I walk to a bar and meet a woman who is helping Stanford build out its online higher education infrastructure. For the previous five months, Stanford had been on one end of a fascinating game of higher education technology one-upsmanship. Throughout the fall 2011 semester, a group of well-known Stanford professors had been running an unorthodox experiment by letting over 100,000 students around the world take their courses, online, for free. Those who did well got a certificate from the professor saying so. Then, in December, MIT announced the creation of MITx, a new nonprofit organization, branded by the university, which would also offer so-called “massively open online courses,” or MOOCs, and would also give certificates to those who earned them—a new kind of academic currency.
In January, some of the Stanford professors broke off from the university and formed a new for-profit company called Udacity, designed to offer the same MOOCs, sans Stanford. In March, some of the other Stanford professors formed another company, Coursera, to offer courses from Princeton, Stanford, Michigan, and Penn, also online, also for free. In May, a few weeks after I returned from the trip, Harvard got into the game by joining the MIT side and founding a larger initiative called edX. Harvard had displayed virtually no interest in online education up to that point. The edX move smacked of an industry leader finding itself in the unfamiliar position of being left behind. In July, the University of Virginia, fresh off its technology-panic leadership crisis, jumped on the Coursera bandwagon along with Duke, Cal Tech, Johns Hopkins, Rice, the University of Edinburgh, and a half-dozen other well-known universities. A week later, UC-Berkeley joined edX. In less than a year, online higher education has gone from the province of downmarket for-profit colleges to being embraced by the most famous universities in the world.
Fear is a powerful motivator, and the source of that fear becomes clearest to me on the evening that Michael and I take a drive to the Presidio, a gorgeous, forested area of San Francisco near the Golden Gate Bridge that was once a military base. We park along the sidewalk and walk a short distance under streetlights, dodging sprinklers that are watering thick, green grass. We’re visiting Founders Fund, a major VC firm led by Peter Thiel. Thiel has been a major figure in the valley for years, having gotten phenomenally rich founding PayPal before making an early investment in Facebook now worth several billion dollars. But he was largely unknown in the rest of America until last summer, when he created the “Thiel fellowship.” The idea was to prove a point, which is that higher education is basically bullshit, and probably a bubble of some kind or another, and that it was ridiculous for the smartest students to waste four years and $250,000 for a bad education when they could be doing something useful, like founding start-ups in the valley and making money instead.
The fellowship program pays twenty people under the age of twenty to leave college and spend their time creating their own business, or something else; it’s up to them. It was a genius PR move, and the timing could not have been better, because it started rolling out just as a group of fed-up people decided to occupy Wall Street. The population of anticapitalist and generally leftily outraged people with enough time on their hands to live in tents in a public park day and night turned out to be highly correlated with the population of well-educated recent graduates of expensive colleges and universities who, owing to the recent economic catastrophe caused by various greedy and reckless Wall Street financiers, couldn’t get a job that paid enough money to pay back the kind of loans you need to take out to float a $250,000 tuition bill. They were pissed off and began dominating the public discourse, and so people were primed to hear a famous and interesting valley rich guy say that the whole thing is a corrupt enterprise doomed to collapse in a spectacular, real-estate-market-circa-2008 fashion. The media lapped it up, and soon enough Thiel was featured in long New York and New Yorker profiles.
It’s past 8:30 when we get into the Founders Fund offices. The space is beautifully appointed (the massive flows of money in and out of the valley have clearly spawned a lucrative ancillary industry in interior design), and the waiting area features a round table, in the middle of which is a model rocket roughly two feet tall. We sit down with Scott Nolan, who works for Thiel, in the boardroom nearby.
Nolan explains how Thiel (and, thus, Founders Fund) sees the world. A lot of their vision is in a manifesto (that’s what they call it) on their Web site titled “What Happened to the Future? We Wanted Flying Cars, Instead We Got 140 Characters.” Its point is that human progress has been disappointing in recent decades (no flying cars like we were promised), and venture capital is partly to blame. Investors have chased after clever short-term innovations and looked for quick profit, which is not only bad for the world but bad for most investors—since 1999, according to the manifesto, venture capital has lost money on average. Only the top 20 percent are any good. Thiel thinks that the smart money goes with the best people pursuing transformational ideas. He’s not someone who believes in hedging your bets through broad category investment. He wants to find the next Facebook.
Nolan restates Thiel’s thesis like this: Most of the money and talent and energy have focused on things that Thiel describes as “1 to N”—in other words, taking an existing thing and making it better or distributing it to more people. Thiel (and, thus, Founders Fund) is interested in “0 to 1”—creating something amazing that genuinely didn’t exist before. There is a rough parallel in this to genuinely disrupting education as opposed to simply expanding it to new people or getting rich fixing or exploiting one of its many manifest inefficiencies or absurdities.
I grow curious about how someone who’s not very old—I’d guess late twenties or early thirties—ends up helping Peter Thiel invest money. So I ask, and Nolan’s story proceeds from undergraduate and graduate degrees in aerospace engineering at Cornell to a job working for another formidably smart and unconventionally minded guy, Elon Musk, who founded PayPal along with Peter Thiel. Musk used his vast PayPal fortune to start three different companies, including Tesla motors, which makes high-performance electric roadsters that are currently owned by the likes of Matt Damon; a solar energy company; and SpaceX, which recently made its first flight to the International Space Station and that aims to reduce the cost of carrying stuff into space to roughly one-tenth that of NASA’s shuttle. The scale model of this rocket is what you see in the waiting room of Founders Fund.
I ask Scott which job is harder: rocket scientist or venture capitalist? He smiles and says it depends. What exactly did he do for SpaceX? I ask. “Do you really want to know?” he replies. Sure—it’s been a long day, my head is swimming, and people keep comparing start-up investment to “building a rocket and lighting the fuse.”
So he walks over to the whiteboard that makes up the entire wall of the conference room and deftly sketches out the inner workings of a rocket engine, showing what happens when thousands of gallons of rocket fuel are sprayed into a chamber of fire, thus igniting and creating fantastic amount of force, the eddies and whorls of which need to be predicted and calculated in minute, down-to-the-millisecond detail, so that the force can be directed down through the closed chamber in which the initial combustion occurs and out the bottom of the rocket in the form of enough thrust to take something the size and weight of, say, a telecommunications satellite, up and away from the gravitational bonds of our planet. Any flaws in design or misunderstanding of the precise nature of the whorls and eddies result in what Scott calls a RUD—a “rapid unscheduled disassembly,” meaning the rocket blows up.
This is, in and of itself, a design challenge daunting enough to keep an engineering geek in bliss. And there’s more. The whole point of SpaceX is to make space flight both reliable and cheap. You can get to cheap with cheaper materials—but cheaper might mean weaker and less reliable and thus more likely to cause a RUD. So the real holy grail is a more efficient use of fuel to create thrust. The amount of thrust needed to liberate X amount of weight from the Earth’s gravity well is a brute math problem. It’s inescapable. And, crucially, as Scott explains it, when the rocket is sitting on the launching pad, most of the weight is fuel.
Most of the weight is fuel.
That stays with me, even after we finally leave Founders Fund, dodging the sprinklers again, and I catch a taxi a few blocks from the gates of the Presidio and head back to SoMa and my hotel. Because when most of the weight is fuel, Scott explains, a reduction in the amount of fuel you need to create thrust increases the payload weight you can move from Earth into orbit along a logarithmic scale. It’s not a linear, one-to-one thing. The less fuel you need, the less fuel you need. It’s exponential.
This, I realize, is pretty much what’s happening to the basic math undergirding the Silicon Valley economy and, with it, the likelihood of higher education encountering some kind of dramatic disruption at the hands of a Musk-like figure. As access to the Internet grows and the cost of everything technological moves toward zero, the amount of money needed to start a company that can grow to scale and just possibly change the world—that can go from 0 to 1—drops along the same kind of exponential scale. When does that cost become functionally indistinguishable from nothing? In the admittedly much less complicated business of photo sharing, it got there nine hours before I arrived at Founders Fund. That’s Instagram, the billion-dollar company that consisted of nothing more than a handful of ramen eaters (on the day it was purchased, Instagram had fewer than twenty employees) armed with ergonomic black chairs, wi-fi, and MacBook Airs.
During a meeting on Sand Hill Road, the fabled home of Silicon Valley venture capitalism, one investor told me that the basic model of firms like his making huge startup bets was ripe for disruption. A new breed of venture firms has taken to investing small amounts in start-ups, in the range of $25,000 to $50,000. These firms recognize that the cost of starting a new company is far less than it used to be, which means that investors can spread their money around to more entrepreneurs and ideas. And the entrepreneurs themselves can “fail faster,” a crucial idea in an ecosystem driven by experimentation and groping around for the new new thing.
Instead of shooting for the moon by building a beautiful, expensive product and hoping like hell that the whole world comes to your door, the idea now is to build the “minimal viable product,” get it to the market quickly, watch what happens, and iterate like crazy. Because the Cloud is so cheap, it doesn’t take much in the way of money to do this. Because the scale of the entire world is so large, the potential to get big is vast. If that doesn’t work, everyone can move on to the next thing with relatively little time and money wasted.
In the future, anyone with an idea will be able to build a rocket, aim it at the gigantic trillion-dollar market of education, and light the fuse.
Who will hit the target? I have no idea. It might be someone like Eren Bali, who is in his late twenties and grew up in a rural village in Turkey, near the Iraqi border. A math prodigy, Bali had nowhere to go but the Internet to feed his hunger for information. With free materials he managed to cobble together online, he learned enough to enter and win several international math competitions. That led him to start a Web site and, perhaps inevitably, fall under the gravitational pull o Silicon Valley. His company, Udemy, is on the second floor of a building in SoMa, in an open space occupied by multiple start-ups at once.
Udemy is a classic platform design. Anyone can log on to the site and, using tools provided by the company, design an online course. If designers choose to sell their courses to students, Udemy keeps 30 percent of the revenues. Or, people can give the course away for free. Like Facebook or Instagram, the goal is to create a fun, elegant user experience, let other people create all of the content, and stand in the middle of information and financial exchange. The site is currently hosting hundreds of courses, including some designed by professors at Dartmouth, Vassar, Colgate, and Duke. But most of the designers don’t have PhDs. They’re just experts, and, as Bali notes, there are hundreds of thousands of experts all over the world. Most of them have never had a chance to offer higher education or reach a global audience of people who might need them—until now.
Perhaps Udemy’s democratic nature will give it a leg up in the coming war to build the dominant higher education platform. Maybe the three titans of Harvard, Berkeley, and MIT will propel edX to victory, or maybe the user experience expertise and facility with the economics of Silicon Valley will help Udacity carry the day. Coursera’s marriage of world-class brands with valley know-how seems like a formidable combination. Pearson, the British textbook giant, is working to build a platform of its own. There is a great deal of money and power at stake now. We may not know who and we may not know when, but someone is going to write the software that eats higher education.
It will probably take a little while to digest. Cars and automobiles almost entirely killed the long-distance passenger train industry, for example, but railroads today carry more freight than ever, and it would be almost impossible to build automobiles if railroads did not exist to transport the raw materials. Similarly, TV did not replace radio, but merely diluted its influence. Older models often adapt and endure in significant if less important forms. As the platform wars commence and huge online courses grow in prominence, most of the first adopters won’t be American students forgoing the opportunity to drink beer on weekends at State U. Instead, they’ll be students like Bali, among the hundreds of millions of people around the world with the talent and desire to learn but no State U to attend. The initial MOOC statistics bear this out—according to Udacity’s founder, Sebastian Thrun, more people from Lithuania signed up for his Stanford class than attend Stanford itself.
Instead of trying to directly challenge American colleges—a daunting proposition, given the political power and public subsidies they possess—the new breed of tech start-ups will likely start by working in the unregulated private sector, where they’ll build what amounts to a parallel higher education universe. A few weeks after returning from the West Coast, I watched Eren Bali spend two hours in a Washington, D.C.-area conference room listening to government officials, regulators, and representatives of for-profit higher education corporations discuss the morass of accreditation rules and federal regulations that make it hard for entrepreneurs to compete directly with traditional schools. Finally, Bali raised his hand and politely said, in effect, I don’t understand why any of this matters. I can go online right now and get everything I need to learn—courses, textbooks, videos, other students to study with—for free. And if I need to know what someone else has learned, I can look at their Linked-In profile or their blog to find out.
At a certain point, probably before this decade is out, that parallel universe will reach a point of sophistication and credibility where the degrees—or whatever new word is invented to mean “evidence of your skills and knowledge”—it grants are taken seriously by employers. The online learning environments will be good enough, and access to broadband Internet wide enough, that you won’t need to be a math prodigy like Eren Bali to learn, get a credential, and attract the attention of global employers. Companies like OpenStudy, Kno, Quizlet, Chegg, Inigral, and Degreed will provide all manner of supportive services—study groups, e-books, flash cards, course notes, college-focused social networking, and many other fabulous, as-yet-un-invented things. Bali isn’t just the model of the new ed tech entrepreneur—he’s the new global student, too, finally able to transcend the happenstance of where he was born.
That’s when American colleges and universities will really start to feel the pain. Political pressure will continue to grow for credits earned in low-cost MOOCs to be transferable to traditional colleges, cutting into the profit margins that colleges have traditionally enjoyed in providing large, lecture-based college courses. At the same time, people with huge student loan burdens from overpriced institutions will be undercut in the labor market by foreign-born workers willing to work for less because they incurred no debt in getting valuable credentials in the parallel higher education universe. Colleges with strong brand names and other sources of revenue (e.g., government-sponsored research or acculturating the children of the ruling class) will emerge stronger than ever. Everyone else will scramble to survive as vestigial players.
At least, that’s what people are dreaming of in the valley. If history is any guide, some of them are going to be right.