Earlier this year, Thomas Edison State College (TESC) in New Jersey partnered with Saylor to offer an online associate’s degree program in business administration. TESC’s Open Course Option allows students to obtain the degree in as little as a year for just $4,000. According to Marc Singer, vice provost of TESC’s Center for the Assessment of Learning, “we’ve made [Saylor’s] students aware that if they’ve completed . . . one of those courses in business that Saylor offers, it’s very likely they’re prepared to pass a college-level assessment we ourselves administer.”
The partnership is part of Saylor’s Credit Aligned Courses initiative, where students get free content but TESC and other schools charge for credit-bearing exams that can lead to a degree. There are other arrangements that achieve the same ends. Assessment can be subcontracted out to a privately-run in-person testing center. Or the content provider can oversee the whole process in-house by verifying users’ identities — and so we see Coursera’s Signature Track and Udacity’s recent announcement that it will start charging a fee for course certificates.
All of these situations represent freemium education. In the freemium model, a product is given away on the expectation that some customers will be willing to pay a premium for a version that has greater value-added. The marginal cost of adding more users for web-based content providers is essentially zero, so why not charge nothing for the basic product if doing so creates a massive customer base? The strategy has worked quite well for Dropbox and Evernote.
Alfred P. Sloan created the ladder of success for General Motors with Chevrolet, Oldsmobile, Buick, and Cadillac. Each brand was associated with a particular customer experience, was priced differently, and captured a distinct market segment. In contrast, universities have historically supplied only the Cadillac version of an education — the four-year bachelor’s degree. People who only wanted a Chevrolet were mostly shut out of the market, until now.
It is inevitable that producers that have monopolized a market with an artificially high barrier to entry will fall victim to freemium pricing. The gap between the four-year college experience that has a $100,000 price tag and the $99 certification from Coursera is not going to remain unfilled forever. A tiered pricing system that captures customers with varying degrees of price sensitivity is going to form. Just like coffee drinkers can go to Starbucks and select from a variety of products that range from the small basic coffee for $1.79 to a super-sized double latte for $5.00, people seeking an education are going to migrate to whatever gives them a choice in how much they have to spend.