Ben Thompson writes an insightful post on the cost of software moving toward free, and it ties in with online education.
Ben says “over time the price of a product moves to its marginal cost, and if the marginal cost is zero, that means free is inevitable.”
Online education will move toward free. That’s good for students, but bad for universities (education needs to find a reasonable cost, but “reasonable” isn’t zero, either).
As we move to online information delivery, the pay model will go the same direction as music, books, and software. The additional cost of one more user in a digital setting is almost $0. The sunk costs of creating the knowledge, the video, and the website don’t matter to the user.
Back to Ben:
“This is one of the primary ways that software will be monetized going forward: hardware sold at a significant margin that is justified by the differentiation provided by software. …
On the flipside, though, tangible products, which by definition have marginal costs of greater than $0 – continue to be valued by customers. No one expects a free microwave, or car, or even a candy bar. Consumers understand that making, packaging, and shipping such products costs money, and there is no compunction to spending money for that proverbial latte that is more than an app.
This is critical to understand while thinking about consumer business models: consumers pay money for tangible goods; they don’t for virtual goods (in-app purchases for games is a glaring exception here).”
As higher education experiments with online delivery:
– Cost will plummit to zero.
– Unique experiences still matter.
And that’s the killer app. It’s the secret to success in the online age. To compete with online-only options (especially if and when those online options gain credibility and credentialing abilities), existing universities must provide the tangible good that creates value.