Note: this is a repost of the original article, which you can find here.

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A key benefit of a university education is its impact on employment outcomes. Yet workplace changes and increasing costs have impacted the ability of universities to prepare students for a successful career.

In the past, EdTech businesses have attempted to democratise access to higher education and enable students to bridge skills gaps. These have had limited success with online penetration only a fraction of other industries.

However, with innovations in EdTech and closer collaboration with industry employers, this is changing.

This is an area I am passionate about. As an immigrant to Australia, I still recall seeing education as a passport to a better life and how transformative the high quality, affordable content from EdTech platforms was early in my career.

This article will discuss why university education is becoming an increasingly risky investment and how EdTech businesses can address this. The second article will discuss EntryLevel and its impactful mission.

Index

1)   How important is a university education? (link here)

2)   EdTech and higher education (link here)

3)   Innovation in EdTech (link here)

How Important is a University Education?

Many of us who are fortunate enough to have gone through higher education underestimate what an aspiration it can be for those facing more challenging circumstances.

EdTech pioneer and Udacity founder of Sebastian Thrun famously shared how he had a student in Afghanistan dodge mortar shells to sneak into an airbase for the free wi-fi needed to hand in an assignment for Sebastian’s ‘Introduction to Artificial Intelligence’ online course.

As an immigrant to Australia, I still recall seeing education as a passport to a better life and how transformative the high quality, affordable content from platforms like Coursera was, early in my career.

We could look at our university education as a combination of skills training and social networking. Besides developing important life skills like critical thinking, a key benefit is a university education's positive impact on employment outcomes.

In 2018, Universities Australia found that the median income for a sub-Bachelor degree holder was 34% lower, and Bachelor degree holders were less likely to be unemployed during an economic downturn. Similar outcomes were also found in the US.

However, this has come at an increasing cost. In the US, college costs have increased by nearly 9x the increase in wages over the past 4 decades.

Additionally, the skills needed for employment are rapidly changing. A Credit Suisse report estimates that 60% of future jobs do not yet exist.

This makes it difficult for universities to keep up and for students to decide which degrees will match the jobs they want to be doing. Chegg Head of Strategic Partnerships Megan O’Conner described how 43% of graduating students end up in a first job that doesn’t require a degree in the US.

At the same time, there is a growing skills gap. 80% of enterprises in the Global 2000 admit to having a skills gap and list lack of talent as their primary business risk.

COVID and the resultant acceleration in digital transformation will only make this skills gap more acute.

Technology has the potential to address the growing costs and skills gap faced by the education industry. 2020 saw more than a doubling of VC EdTech investments of $16.1 billion compared to $7 billion the year before.

This provides a strong tailwind for e-learning EdTech businesses.

Segment Key Points

• The primary benefit of higher education is the positive impacts on employment outcomes.
• Universities have struggled to keep up with changing employment requirements and, along with rising costs, make technology adoption increasingly necessary.
• COVID has accelerated digital transformation and provided a tailwind for e-learning EdTech businesses.

EdTech and Higher Education

Given the issues discussed, why do university degrees still have such an impact on employment outcomes? What are potential employers looking for when they evaluate your degree credentials?

Employers look to university degrees to provide valuable ‘signals’ on potential candidates. They typically ‘unbundle’ the candidate’s degree credential into the following components:

1. Domain Expertise: Showing some knowledge on the subject
2. General Horsepower/IQ: Displayed by university entrance hurdles, grades etc. For example, ‘must be smart to get into Harvard’.
3. Conscientiousness: Initiative and discipline to work within a system and team. A candidate would typically need this to complete a 4-year degree.

There is a long history of technology attempts to emulate these signals and replicate the traditional university experience.

In the 1920s, the widespread adoption of home radio sets led several universities, including Columbia and Harvard, to offer radio courses or Massive Open Air Courses. This was viewed as revolutionary at the time, and it was thought it would democratise higher education.

However, these courses suffered from poor student engagement, low completion rates and poor acceptance of their certifications.

The internet enabled the launch of Massive Open Online Courses, first made popular by Stanford University’s Introduction to Artificial Intelligence, launched by Sebastian Thrun and Peter Norvig in 2011.

Initially, a prestigious course offered at Stanford University, this course went viral, with enrolment reaching 160,000 students across the world.

Other courses followed, which led to 2012 being called the ‘Year of the MOOC’ by The New York Times. Well known MOOC companies like Udacity (founded by Sebastian Thrun) and Coursera had their origins from here.

While MOOCs made access to high quality education affordable and accessible, they again failed to have the desired impact.

Like its open air radio predecessor, MOOCs had low completion rates of 3-6%.

It wasn’t enough to simply host content online. Personalisation and engagement (e.g. live or personal feedback) are important aspects of education.

Additionally, MOOCs needed to transition to a sustainable business model. The lack of disposable income by students or entry level workers meant that many of the courses were offered on a free or freemium basis which challenged profitability.

As a result, the penetration of EdTech and digital expenditure was under 5% of global education spend compared to 10-20% online penetration in most other industries.

The following section will discuss innovations aimed at addressing these challenges.

Segment Key Points

• Despite its issues, employers still look to a candidate’s university experience to provide signals on the learner’s ability to be successful in the role.
• For years, e-learning EdTech businesses failed to provide a credible alternative and have struggled with student engagement and profitability.
• As a result, the online penetration of EdTech is under 5% compared to the 10-20% seen in other industries. This is an opportunity for innovative EdTech businesses.

Innovation in EdTech

As the previous section discussed, e-learning EdTech businesses face the following challenges:

The EdTech industry has been innovating to address these challenges and ultimately improve learner outcomes.

Credential Signalling: Under pressure from governments and students, universities have begun to work more closely with corporate industry leaders and employers. This involves identifying competencies that incorporate the skills learners would be using when entering the workforce.

In competency based programs, learners can progress once they’ve demonstrated mastery of a skill. This potentially allows the learner to progress at a faster pace which reduces the time and cost of getting industry-relevant credentials.

While universities have been slow to adopt this model, e-learning EdTech businesses have been more progressive in adopting aspects of this model.

Specifically, businesses such as Udacity construct their programs by starting with an employable job resume and working backwards to build the course curriculum.

A key part of their courses is requiring learners to demonstrate job readiness by undertaking project assignments such as building an Andriod app for its Android developer course.

To this point, Mike Silagadze, founder of Top Hat, described work sampling, or assignments that mimic a sample of the tasks that candidates would be doing on the job, as one of the most predictive indicators of success.

These individualised projects add credibility to the course credential by providing the ‘Domain Expertise’ and ‘Conscientiousness’ signals that were previously discussed.  

Completion Rates: To increase student engagement rates and accountability, startups like Maven and ScholarSite have launched cohort based courses.

Maven co-founder Wes Kao describes cohort based courses as online courses where learners advance through the material together in ‘cohorts’. These courses facilitate:

• A sense of community: Courses are conducted live, which allows for interaction between learners and the instructor. This builds a sense of community which improves engagement and accountability.
• Active Learning: Learners are made to use the skills they learn, including live case studies and projects. They also receive and give live feedback.
• Accountability: Cohorts have a defined start and end date, which creates a sense of accountability for learners to absorb the material and participate intelligently with fellow learners in the cohort.

Some of these courses have achieved completion rates comparable to the over 80% rates achieved in traditional classroom environments. For example, Alt MBA (also co-founded by Wes Kao) achieved a 96% completion rate.

However, the limited size of cohorts and amounts paid to expert instructors can make these courses expensive, which brings us to the next point – affordability.

Affordability: The cohort based courses mentioned above can cost US$750-5,000 compared to MOOC courses of $10-50.

Given the price sensitivity of learners, EdTech businesses like Coursera and Udacity have had to make shifts towards getting corporations or potential employers to pay for these courses instead. For example, Udacity has 2/3 of its revenue from corporate or institutional payers.

All these innovations will play a part in the over 15% pa growth the e-learning market is expected to experience to 2025.

In summary, the following framework can be used to evaluate e-learning EdTech businesses:

Note from the above framework:

• The tradeoff between affordability and the other 2 factors.
• EdTech businesses need to serve both the customer and the course instructor and/or educational institution.

Part 2 of this article will discuss how EntryLevel strikes a unique balance between these factors and the impact it hopes to achieve.

Segment Key Points

• Education providers are increasingly collaborating with potential employers to design more relevant courses.
• Innovations such as cohort based learning and projects on real life problems increase completion rates and employment outcomes.
• However, there is a tradeoff between affordability and quality factors such as completion rates and credential credibility. Part 2 of this article will discuss EntryLevel’s unique balance between these factors.

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