The Education Bubble

boy blowing bubbles (iStockPhoto image)

Sarah Lacy has written article on TechCrunch (link at the end of this post) covering her interview with Peter Thiel. It neatly gets to the heart of the problem with higher education. Although targeting the US. The UK certainly has the same problem, if not other countries too.

Here are some highlights but read the article for the full story:

“A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

Like any good bubble, this belief– while rooted in truth– gets pushed to unhealthy levels.

I didn’t go to university for two reasons. 1. I had no idea what I wanted to do (well I kind of did, but I’d blown my chances by being lazy through school and not getting the grades I should have), 2. Going to university meant giving up my horse since neither my parents or me could afford both (they couldn’t really afford either).  The thought of leaving university with any debt at all was enough to put me off going. As it turns out, career-wise everything turned out OK.  I took a partial degree in computer science through evening classes, whilst working full-time and confining horse riding to the weekends. After hitting degree-postered brick walls for a few years, I found myself working at Microsoft. Where people seemed to either have a Ph.D from Oxbridge or no degree like me. And at last I was able to flourish.

A higher education can certainly help ease your path into the world of work. But not at any cost, financially or emotionally. Determined and talented people will still succeed with or without the certificate. One road is just a little bumpier, harder and longer than the other.

…Or at least it used to be. With the rise of tuition fees, debts above £30,000 are going to become the norm for many new graduates. Regardless of university or degree. That’s a lot of baggage to carry into work and a bubble that needs bursting.

The full article on TechCrunch: Peter Thiel: We’re in a Bubble and It’s Not the Internet. It’s Higher Education.

Hidden Business Models

Two factors helped Google become the dominant search engine on the Internet in the early 00s:

  1. It provided better search results than any other search engine at the time
  2. It came up with a business model that helped fund the search engine without detracting from it

When the advertising world began to inhabit the Internet in the late 90s, we all suffered the sparkly annoying banner ads that literally popped up everywhere. Google avoided that route by placing only small text ads around the search results. When it came to figuring out what ads to place next to what results and in what order, well there had to be an algorithm for that… Auctioning keywords became a billion dollar revenue generator. And the model scaled beyond the search engine, as web sites began to include ads managed by Google for a slice of the keyword revenue.

Since then, as new technologies gain mainstream awareness if not adoption, the question always being asked is: What’s the business model? For many, the answer is advertising. It’s the wrong answer.

Facebook is rumoured to be finally in profit. Revenue is claimed to exceed $1 billion this year, up from $700 million-ish last year but the infrastructure to support a 500 million user social network costs a fair bit. The assumption has always been that Facebook needs to find an advertising method that works for social networks the way auctioning keywords works for search and web sites. In the meantime, another company has found a better way to make money from Facebook’s social network.

Zynga creates games for social networks. If you’ve got any friends on Facebook, at least some will have tried to recruit you to join their gang to start a Mafia war, or will be seeking chicken food for their farm in Farmville… simple games can be very addictive and people will pay small amounts of money at regular intervals to keep at the top of the game. Zynga has tapped into that ego/ addiction and is estimated to be earning revenues of $50 million per month with a potential profit margin of 30%.

Google started out as a search technology but the money is made by owning the advertising channel – be it next to search results or on web sites. Facebook started out as a social network but the money needs to be made by owning the transaction channel – Facebook should be an online bank.

…and it looks like that small point hasn’t gone unnoticed. Facebook is planning to introduce credits with a view to taking a 30% cut from applications that use its social network. Not as strong an approach as Google’s auction method, they seem to be looking more to Apple’s model (which takes a 30% cut from all sales on the App store). Time will tell.

Apple’s approach is niche, albeit a big market – they own the devices and developers can only sell apps for the devices through the single App store. With strong market share and a strong brand, Apple have a loyal and large customer base for developers to sell to. Facebook’s network is certainly large but is it loyal to Facebook? Enough to pay artificially high prices that a 30% tax on Facebook apps will create… I’m not so sure. A better approach would be the flexibility of an auction that enables application providers to determine how much of their profit margin they are prepared to lose for access to Facebook’s network. And that approach would scale beyond the Facebook web site, just as Google’s auction scaled beyond the search web site.


The Internet of Things

OK, I’m stealing the title from a subject that has a passing relationship with this post. The Internet of Things refers to the networked interconnection of everyday objects, made possible by relatively new technologies such as built-in sensors and wifi. One day my fridge will talk to the Internet without needing me as the conduit and it will all seem perfectly normal. Hecks, maybe even the car will get involved and go pick-up supplies whilst I’m at work.

In the meantime, there’s a simpler version emerging where the sensors are strictly human – peer-to-peer renting of ‘things’.

Clive Thompson has a great article in Wired describing an emerging market place made possible by the Internet. We all have lots of items in our homes that we use only occasionally. If somebody nearby needs a drill for one task, do they buy/rent from a shop or rent/borrow from a neighbour? If the neighbour can’t help, maybe they’ve got a ‘friend’ (<- you can see where this is going 😉  ) who can help. Yes, one service even enables you to share a car not with a stranger, but with a friend of a friend through Facebook Connect.

Read the article for all the details – Clive Thompson on Peer-to-Peer Renting – Wired, Sept 2010

APIs and Future Business Models

Fabulous presentation walking through the history of commerce in the 20th Century and why APIs and developers will increasingly be involved in the successful business models of the 21st Century

 The more information matters to your business, the more important APIs will become to leverage that information and improve services to your customers. Access to great development skills is rapidly becoming a competitive advantage…

Villages have voices

BBC News has a great article – Giving a voice to India’s villagers – about an experiment in rural India, using mobile phones to bring people news made by local villagers. People call a number to ‘upload’ a news item which is then sent out as a text message to all subscribers.

“No-one has given any information about the Mongra dam and the displacement it has caused in 14 villages. I want the voice of the poor to reach the people through my report.” – Bhan Sahu, Citizen Journalist for CGNet Swara

Mobile phones are pivotal to the service and, in the remotest parts of India, are more accessible than the TV or newspapers. They make it easy to capture conversations and also spark new debates as people gather round to receive the latest news. Mainstream media dedicates just 2% of space to rural villages. Social media can do better.

Institutions will always resist change

This is a follow on to the previous post: The Inevitable Collapse of Systems. Clay Shirky recently quoted (posted by Kevin Kelly but without a link, naughty Kevin!):

Institutions will try to preserve the problem to which they are the solution.

This is along the same lines as the great quote by Nicholas Machiavelli back in the 16th Century:

There is nothing more perilous to conduct, more uncertain in its success, than to take the lead in introducing a new order of things, because the innovator will have for enemies all who have done well under the old conditions, and only lukewarm defenders in those who may do well under the new.

The trouble with challenging institutions is the power they wield to help protect and maintain their position, and the fear, uncertainty and doubt (FUD) they will generate about anything new that threatens their comfortable existence. As being ably demonstrated by the music publishing industry. Those who profited from the old conditions would have everyone believe music creativity is dying because of new conditions created by the Internet (i.e. illegal downloads). Watching the recent music awards on TV (US and UK), there are no such signs. People were creating and performing music long before publishing industry came along and will continue to do so no matter what the financial rewards. It is not creativity that is dying, it is the ability to generate money that is being challenged. And here we are in the UK, facing a hastily written Digital Economy bill aimed at protecting an industry’s distorted revenue model.

It is not the fittest or the strongest of species that survive but the one most adaptable to change. – Darwin

When institutions are able to persuade governments to try and protect their status at any cost, they are using their strength to delay the need to adapt. And that presents a huge risk for everyone, because creating legislation or spending tax to prevent change shows all the signs of an economic system heading towards collapse.

It is not necessary to change. Survival is not mandatory. – W. Edwards Deming

Why do we need music albums? We don’t and we never did. They were invented by the music publishing industry because it is easier to make profits from selling albums than singles. That was possible under the old conditions. It isn’t so easy under the new. But with change brings opportunity. If you are selling albums, you only need to support a few performers and are only interested in the ones that generate easy album sales. Now that I buy mostly singles, I purchase from a far more diverse range of performers, often discovered from hearing or watching them online. Well done iTunes, Spotify and YouTube! No surprise that none were the invention of a music publishing company.

Illegal music downloads are wrong. But focusing on piracy and trying to claim it is damaging creativity when what it is really damaging is abnormal wealth that was only possible under the old conditions is FUD that diverts attention away from the industry’s resistance to change.

[Update: 08 Apr 10] Too funny to not include as an update. Just days after rushing through the Digital Economy Bill without proper debate, the two main political parties are both accused of copyright infringement for not asking permission before using images from a TV series as part of their election posters: Labour and Conservative parties accused of copyright infringement


Related blog posts

Blogging mistakes help improve policy

A mini-furore erupted on Twitter this week, when a Twitter developer tweeted about “some nifty site features” in development on the internal version of Twitter that could impact third party solutions. GigaOM has a good post documenting it all, and the title says it all – Twitter Staffer Stops Blogging After Backlash

The interesting part and reason for this post:

So did the Twitter incident cause Payne to stop blogging? He says in his final blog post that while he intended the personal blog to be a place where he could talk about ideas, his posts had started to “spark whole conversations that I never intended to start in the first place…”

It’s an issue that many organisations worry about when embarking on a social media strategy – what if an employee gives out information they shouldn’t? How do you control the message? And the simple answer is you can’t. How you react is another matter entirely.

Back when I worked at Microsoft, a great mentor told me about a case study he had researched as part of his management studies. A Japanese manufacturer, through human error, experienced a serious problem in their production line. Serious enough to damage both the stock price and reputation of the brand (as well as cost a small fortune in lost inventory and wasted resources). The person at fault offered his resignation. In many organisations he would have been fired before having the chance to volunteer. His resignation was refused. The CEO was asked why (when interviewed for the case study). His response went along the lines:

What would I gain from firing him? The problem still needed fixing and he was a good employee, who would have gone to one of my competitors. I didn’t fire him, I promoted him and put him in charge of not only fixing the problem but improving the process… (spotting the mistake sooner would have cost less)

Pity politics doesn’t work this way…

If you’re a good person (I do believe that applies to the majority) and you screw up, you learn a hard lesson very fast but it is not one you will quickly forget. And having learned the lesson through bitter experience, you have a vested interest in seeing the problem fixed and helping others avoid falling down the same rabbit hole. It’s simply adding another mistake to the pile if that experience is ignored or lost out the door.

There’s an old ‘techie’ quote about hard disk failures and the importance of back-ups: there are those who have lost their data and those who have yet to… Organisations wanting to embrace social media but worrying about the ‘what if…?’ need to do two things:

  1. Implement a policy and training programme, even if it’s just lunch briefings, to ensure everyone understands their responsibilities when discussing company information in any pubic forum, social or otherwise.
  2. Have a procedure for how to handle the inevitable mistakes. Step 1: Identify the type of mistake – is it a disgruntled employee deliberately trying to cause damage or (far more likely) human error. Do not treat them as the same thing.

Related posts:

Private Public Sector Clouds

Data Center Knowledge has an excellent summary of the different contenders bidding to win cloud-computing projects within the public sector. Whilst US focused, some of the main players will almost certainly be adopting a similar approach with their service offerings to government agencies in other countries around the world.

It’s interesting to see the different types of international company bidding to run national government and military networks, for example:

  • Systems integrators such as HP and CSC
  • Software/hardware vendors such as IBM and Microsoft
  • Online service providers such as Google and Amazon

Microsoft and Google are both building dedicated government cloud platforms separate to their commercial data center offerings. IBM and HP seem to be building on a client-by-client basis, building private cloud platforms to service the Department of Defense and U.S. Airforce. Others like Amazon and CSC are partnering with niche government specialists to build out their services.

Cloud computing has found a logical fit within education, with the need to annually provision accounts for large numbers of users who are temporary for the duration of their education at a given college or university. I suspect the drive to move longer-term adult and social care services into the cloud, along with the more sensitive concerns surrounding military content and applications, will be a bumpier journey.