Business models, MOOCs and disruptive innovation

One of the most interesting presentation I heard at the recent EADTU Conference in Paris was Variable cost minimisation (VCM) business models in higher education by Yoram Kalman of the Open University Israel.  I confess that  initially I wasn’t hugely enthused by the title and, if I’m honest, I nearly sneaked out before the presentation began :}  I’m very glad I stayed though, as Yoram gave a highly enlightening and engaging talk covering business models, disruption and MOOCs.  There’s a lot of talk about business models and disruptive innovation in higher education at the moment so it was very helpful to hear a detailed analyses of what these terms actually mean.

Here are the notes I took of Yoram’s presentation, if I’ve misrepresented or misunderstood anything, my apologies!

Disrupting higher education

Free has been disrupting industries for a long time (e.g. music, journalism, travel). Is HE the next industry to be disrupted?

What is a business model?

It is possible to summarize an organisation’s unique attributes using a small number of components.  This model provides useful insight and allows comparison of similarities and differences. Business models are not only applicable to businesses – can be apply to any type of organisation.

The language of business models may be unfamiliar to higher education but can be roughly equated as follows:

Customer, finances, industry = student, resource, sector

Business model interdependence

Business models have three components that are interdependent:

  • Customer value proposition – how do we characterise our customers and what are their needs?
  • Infrastructure – resources and processes.
  • Financial

Business model analysis shows that you cannot change one component without impacting on the others.

Disruptive Innovation

Disruptive innovations are called disruptive because they disrupt the business model.  As a result of the disruption, the business model cannot sustain itself.  Disruptive innovation is not revolutionary; disruptive innovation disrupts the business model and kills the organisation.

Very few companies have managed to survive a big change in business model.  Apple is one of the few that have done it.  Smart phones and itunes really changed Apple’s business models.

Variable cost minimization

Disruptive innovation is often made possible due to the constant reduction of ICT costs, e.g. bandwidth, storage, processing.  Often the only variable costs that can be minimized are ICT costs.

Free business models

There are many free business models which are explored in detail by Chris Anderson in his book Free (

  • Free as a method to compete with paid competitor products
  • Free product creates monetizable activity
  • Freemium
  • Free as a tool to promote reputation, e.g. OER

At this point Yoram said that he always asked his students who Facebook’s customers are?  Facebook’s customers are the advertisers, the users are the product.

The customer value proposition of higher education

The dissemination of knowledge is a social role of universities, this is a key part of the  customer value proposition for society.

MOOC business models

There are a range of business models for MOOCs:

  • Government funding for developing & running MOOCs
  • Payment for complementary services
  • Certifiaction etc

The high drop out rates form MOOCs may actually be part of the business model for traditional universities where it is beneficial for online education to be perceived as a pale substitute for “real” education.  For further exploration of MOOC business models see Money Models for MOOCs by Chrysanthos Dellarocas, Marshall Van Alstyne (

Social implications of MOOCs

Despite the hype, it’s the privileged that benefit from MOOCs not the disadvantaged.

Worrying social implications:

  • There is no distinction between quality open distance learning (ODL) and variable cost minimisation (VCM) based ODL.  People now equate distance learning with MOOCs and this is worrying for ODL universities.
  • There is a delusion that VCM will decrease the costs of education for disadvantaged communities, this is not true as disadvantaged students need all the additional support provided by quality open and distance learning.
  • MOOC hype strengthens the naïve public perception that education = lectures + exams.
  • MOOCs can result in massive rates of failure and disempowerment, for many, the  experience of HE becomes a negative one.

cMOOCs do overcome some of these problems.

Disruptive innovation?

MOOCs are not disruptive to traditional universities, as they do not change the current business model.  The disruptor for traditional universities is what is happening to in the market place, the value of the degree and the changing requirements from industry and employers.