By Rusty Hartley, Principal Analyst
I recently read an article about yet another social entrepreneur entering into the realm of higher education through the guise of offering something for free. While social entrepreneurship has noble aspirations and most people have nothing against those who create positive social impact, there is a need to cast an introspective light on the underlying foundations of capitalism and how it relates to social entrepreneurship and higher education.
Online Classifieds and Social Networking
Let’s start with old favorites Craigslist and Wikipedia. Both were founded by entrepreneurs and both offer free services to the public. Wikipedia is a registered nonprofit and survives based on contributions from individuals, companies and philanthropic organizations. Craigslist is registered as a for-profit (despite its “.org” website) and funds its operations from a related revenue stream. For practical purposes, Craigslist and Wikipedia have been offering the same services since their inceptions and are good examples of the value that social entrepreneurism creates, even though they themselves might not be profitable.
Now let’s peel back the onion a bit. Ever heard of eBay? Ebay has certainly heard of Craiglist and was so interested that in 2004 it bought a 25% minority ownership stake, enough to assert its interest, learn about online classified advertising, and more importantly, prevent others from owning it. While its minority ownership status ensures that Craigslist’s founders still make decisions, Ebay, as a public company, needs to make a return on its investment. While the value Ebay has recognized from its investment is debatable (it has not only sued Craigslist, but it now operates its own classified advertising subsidiaries with business models strangely similar to Craigslist…), its intent was clearly to monetize it to the hilt. But Craigslist lives on – it is still a great place to sell your used surfboard or 15 year-old leather recliner.
What about social networking champions Linked In and Facebook? While not considered social entrepreneurships, similar to Craigslist and Wikipedia, both firms started out offering free services to targeted demographics. Their immense popularity is taking them through a “cycle of monetization” whereby they were sold to investors or went public, and realized they needed to change their business models to actually make money. While they still offer free services, they are now fettered with targeted advertising, unwanted emails and user privacy concerns. Both firms have changed, but the larger questions are whether this change is for better or worse, and who has profited or lost as a result?
With Regard to MOOCs
Unfortunately for MOOCs, and despite all the social entrepreneurship heroics they hold claim to, they are headed down the Facebook road. While oftentimes preferring academic freedom over good business sense, schools are smart enough to understand the challenges MOOCs pose to their academic models (business models?) and have raced to get involved in a similar manner as Ebay did with Craigslist.
Udacity and Coursera are both for-profit firms that are partnered with well-known schools and primarily owned by venture capitalists. The difference is that venture capital money has been involved right out of the gate – educational technology is big business, and VCs smell an opportunity. Despite all the lofty ambitions of the well-intentioned social entrepreneurs who founded these firms, the game changed the minute they signed on the dotted line. Investments made by venture capitalists must provide a decent return to investors or they will take their money elsewhere. This is what we learn in Capitalism 101, and this will never change.
As many are aware, the MOOC business model of today will be different tomorrow. The hopes are that MOOCs, schools and venture capitalists can find a way to make these firms profitable and of great social benefit without cannibalizing themselves in the process. This remains to be seen. Venture capitalists exist not to hit singles; they exist to hit home runs – and do so less than 10% of the time. The odds are not in our favor. It is scary to think that such respectable and historic institutions of higher education are subjecting themselves to this kind of risk – but there may be little alternative.
Reality Can Bite
The concept of social entrepreneurship has about as much warmth as a puppy – very loveable but a lot of work and sometimes even painful. Creating positive social impact is hard to do but can be extremely rewarding. Universities have a real opportunity to make an even greater impact on society than they currently do through MOOCs, but they need to temper these worthwhile ambitions with a reality check in recognizing the economic necessity of making money. For further discussion and debate, please consider:
- In addition to praising social entrepreneurism and the “do what you love and the money will follow” mentality – it should be equally emphasized that good feelings alone do not pay the rent (or fund the retirement account)
- Regardless of lofty intentions, once an organization accepts a majority ownership stake from a public company or the financial community, the focus of that organization will move away from social entrepreneurship and towards making money for its owners
- For-profit vendors who sell products and services to the educational community exist for the sole benefit of their shareholders – but it is in their best interests to treat their “customers as kings” (i.e., schools and students – whom they often refer to as “partners”)