Old School Network Effects
Harvard and other elite schools depend on network effects. Can they survive when networks get too big and too open?
Harvard, and higher education in general, has long benefited from network effects. Exploiting this has been a critical strategy for Harvard and other institutions to maintain their value and prestige in the public eye. However, the digital transformation of education and online learning platforms may threaten a critical part of their operating model.
Higher education creates and captures value in a variety of ways. The knowledge creation from research institutions has created considerable value in every field: STEM, social sciences, and liberal arts. And institutions like Harvard also produce skilled and educated workers who can contribute to society as physicians, lawyers, civil engineers, public administrators, authors, and artists. Harvard captures value through monetizing its research (attracting additional public and private grants, patenting research) and through the tuition fees (and subsequent donations) that come from its students and alumni.
Harvard’s “user base” of students and alumni exhibits classic network effects. The value of the Harvard network grows with each additional user. When there are more alumni, there are more potential connections who can provide an alumna with direct benefits: her next client or job opportunity, mentorship or piece of advice. The benefits are indirect as well. More alums in more places increases the likelihood that there will be success stories that further spread and strengthen the Harvard brand. This increase in prestige increases the value of the Harvard network for every other member.
An important consideration for higher ed networks is that growing the user base isn’t simply a scale game. Traditionally, at least, it’s not about throwing the doors wide open and saying, “come on in! The more the merrier!” The value associated with the network is also driven by the perception of selectivity. Universities and colleges must have low admission rates in order to maintain the value of their networks. They must either admit a small number of students each year (and slowly grow the alumni pool) or attract a remarkably high number of applicants. Harvard is quite adept at the latter. Among its peer group, Harvard maintains very low admissions rates, and produces some of the largest classes of MBAs, lawyers, and undergrads each year. These grads are sent out into the world thereby spreading the Harvard brand and strengthening the value of the network.
The outstanding question is if higher education institutions will be able to maintain this system with the growth of online learning platforms like Coursera and edX. While MOOCs (Massive Open Online Courses) are not longer particularly novel today, they continue to put pressure on schools to open their classrooms to a broader, online community, and do it for free. This threatens the exclusivity that is at the core of many universities’ operating model. Suddenly the network of people who have taken a Harvard class could become very large. This massive increase in users could dilute the current value in the eyes of alumni. HBS has tried to split the difference by creating HBX, a classroom of the future that works to complement HBS offerings (users still have to apply and pay, and material offered doesn’t overlap with the MBA curriculum) and opening the doors just a bit to the online public. Will this tactic relieve the pressure? Or is it the first crack of many that will fragment that network that Harvard and other institutions are known for?
Great topic! Another way the value of the network these schools provide is at threat is that many very successful people who come up with ideas that their current environments cannot support go ahead and drop out. There are even some high net worth individuals out there who are willing to give great sums of money to college entrepreneurs to drop out and pursue their venture. Then there is this new breed of people who have figured the real life education they need is not the course material at any university yet and they turn to other solutions such as the MOOCs or other sources that cover more topics than any university possibly can. When push comes to shove, I believe the current value of the old school network becomes a “nice to have”, and now there are new models of universities that are disrupting the space (i.e. Minerva Project that is co-founded by a Harvard professor http://about.minervaproject.com/) and cut to the chase by promising their students nothing more than a truly valuable education. We shall see in the coming years whether the universities as we know them will be able to disrupt themselves and see what more they can offer to keep up with the requirements of our age.
I would argue that the key risk of throwing the doors open that is on the minds of elite school administrators, alumni and students is not just changing the perception of selectivity – there is also a risk of reducing the average ‘quality’ of a member of the network which may impact the quality of the education experience and the quality of future alumni interactions.
I think that much of the value created by some platforms comes from controlling access to the platform to parties that create rather than destroy value for others. In many ways elite schools end up playing a similar role to that of sites like BeautifulPeople.com. Even platforms that are trying to build large numbers of collaborators (eg Amazon Marketplace or Uber) have to vet these to prece t compromising the experience of everyone else.
Really interesting! I think you’re spot on with the tension between the promise of online learning to provide broader access to education for more individuals, and the perception of exclusivity that elite institutions like Harvard generate. This will be a major issue for HBS to confront as more and more students graduate from the new HBX CORe program and put “Harvard Business School” on their LinkedIn profiles (although technically they are not allowed to do this). Should we think of the HBX community as separate from the HBS or Harvard communities? If we don’t, what impact will this have on the current ‘installed base’ of users who may be concerned about brand dilution? And will HBX continue to be able to charge a high price for its online offering in the face of this changing perception?
I’m really interested to see not how this plays out for Harvard, but plays out for schools outside of the ultra elite. My belief is that “Harvard will always be Harvard” (hence why I’m a paid up member of the club). I think there will always be a high demand for the “club” who actually attended these ultra elite institutions for 2-4 years, as the lifetime social and monetary ROI is clear.
However, what will happen to the low to mid-tier players? Will people shun the uncertain network effects offered at a high price (the value prop of some MBA programs), and instead go for the online option – a low cost option without a network? If this happens, will the value of Harvard (and her peers) actually go up? If people who have gone to a physical college become rarer, maybe the value of that person goes up (even more of a unicorn) and the network becomes even stronger.
I find the elite school programs interesting in that they have this highly selective program for undergrad and full-time business school, but do wonder how the Executive Education programs factor into the brand and perception. The acceptance rate for HBS Exec Ed is ~80% vs the full-time program of ~12%. If the network effects are about selectivity and putting out only the best and brightest but the same HBS alum designation is on all long term degrees, I wonder to what extent that factors into the the appeal. Sure, it broadens the alumni network and creates an even greater contact database to reach out to and sure, it allows HBS to monetize more of its unique core curriculum, but at what cost? And what is the tipping point between monetization for a P&L while still maintaining a brand and international appeal?