standards - a commercial perspective? terry hilsberg nexted limited 16 december 2001
TRANSCRIPT
Standards - a commercial perspective?
Terry HilsbergNextEd Limited
16 December 2001
Background to NextEd
Terry Hilsberg Trained as computer scientist and micro-economist Worked Australian Government <1987
Economic/industrial and education/training policy and CIO
Venture capitalist <1993 Japan, China, USA, Philippines
Married a Chinese national Private investing <1998
Telecoms and internet in China West Inquiry contribution1998
Appendix 11 Discussion paper Founded NextEd 1999 Visited many Chinese universities over last 6 months
NextEd Limited Hong Kong based online education solutions &
infrastructure provider Founded late 1998 Offices in Australia, HK, Malaysia, PRC, UK &
US Investors: Fidelity Ventures, GE Equity,Whitney
& Co, South China Morning Post Holdings 36 Higher Education course supplier
customers, 15 down stream distributors Two large consortia – GUA and ACRRM
My family choice Top level Chinese Uni
US$1K p.a Good networking, social positioning
Top Level Australian Uni US$10K p.a
Ivy League USA >US$20K p.a Good networking
Outline HE is an industry, where china has
comparative advantage Role of standards in a commercial
setting Forces in the HE industry Standards and the Digitisation of
the industry Impact for China
Higher Education is an Industry
Higher Education is an industry
Not just a social mission • An industry which is a major
international growth industry
China is starting to think so….
"21st Century is the era of knowledge economy and the revolution of IT is changing people's life. As the centre of knowledge economy, modern education is integrating modern IT and traditional educational methods and breaking the barriers of time and space by making use of distance educational delivery modes. Education is an industry. Distance education is the most industrialized of educational forms. The partnership between universities and commercial companies is the must-be way for distance education development.“
Pre-amble to agreement between top level Chinese universities and commercial partners
USA HE Industry
State owned sector punching below it's weight
• Craft industry like nature of USA public HE system, which arises from factors such as lack of clarity as to who owns IP, remuneration policies etc.
• Stuck with islands of digitization which are not linked into robust supply and customer chain extranets
• Out of state tuition policies which render most US State Unis uncompetitive in world market
Fixed marginal costs
Due to these factors, mid sector of industry is
Not scaleable, Not replicable to multiple sites, or Not able to generate significant
free cash flow
Competitors
Domestically and increasingly internationally can compete on
price quality Generate significant free cash flow,
which can be re-invested which compounds the problem
Sources of competition
Loss of market growth is the major problem
Import or domestic competition Not so significant Only in specialized areas such as IT
Export competition Very real USA state universities missing in action in
Asia
Commercial role of standards
Role of standards Commercial/industry structure Pedagological Ideological
Standards – A toolTechnical standards are a reflection of broader
forces at work in the higher education industry Retail Consumer
Reduction of consumer un-certainty Grow the market
Industry organization Disaggregate value chain Create many sub-markets Drive down costs and prices Allow spatial division of labor
Interest Groups Interest groups Academics T and L specialists Commercial solution sellers Partners of academic institutions
Standards – Reflection of Major international forces in industry Value chain contestability
Due to the technology Leading to deflationary forces
Souring of inputs from across space And increased international tradability
of industry Import and export competition
Consumer orientation Owning the customer relationship is key From order taking to marketing
Market share in Asia?
Market size Market
Asian H.E - Last 10yrs CAGR 5-25%p.a (according to segment)
Income elasticity of demand 1.5 >US$50B p.a H.E sector US$6B p.a D.E US$2B p.a Corp training
D.E giants Most of the world giants in D.E are in Asia E.g CCTVRU
Education access still poor Participation rates in post secondary education
are low E.g. PRC has only same rough number of university
students as Australia Demand outstrips supply
E.g. In many provinces in China less than 10% of qualified intake can obtain undergraduate education
People are willing to pay Well meaning bureaucrats still in control in
some countries, dampening demand
China – Demand for Offshore Education
0
1000
2000
3000
4000
5000
6000
7000
2000 2010 2020
75% of Intl.Price50% of Intlprice25% of Intl.Price
000’
Students
Source: IDP Education Australia 1999 model of Chinese market demand
Course price vs. volume- Asia
US$1K – 1KUS$0.5K – 10K
<US$0.1K – 100K
•Price elasticity of demand is high•Income elasticity of demand is high
Example of dilemma:Volume vs price vs market positioning
?
The Growth of Giants Real price of H.E in Asia increasing at 2-5%
p.a Suggests the “Honda” strategy
Some giants emerging concentrating upon: Ownership of Student – via distribution Infrastructure Scaleable production Lesser extent, content
Example NIIT – US$250M p.a/US$70M p.a profit
c.f say UHK SPACE US$90M p.a neg. profits
Some will be Chinese (Indian)………….
Chinese (Indian) Competitive Advantage Basis of advantage
Strong international brands in selected communities e.g. 60M O/S Chinese
Low production costs Advanced technology Advanced courseware All of which comes together in Network Education
Colleges
Trends 5 of 10 top Chinese universities have HK rep offices 3 of top 10 have launched international courses
Global Players Take Off Apollo, Strayer, DeVry, Sylvan, NIIT etc.
Revenue CAGR 20-40% typical EBITDA 8-25% of revenue range
Better performers consistently deliver 20% Free cash flow/Revenue Cash to invest
Price/Earnings imbalance – major issue 20-40 USA 8-15 Asia
Why are the USA public universities missing in action? Out of state tuition policies Lack of scalable, replicable
inventory Unwillingness to disaggregate
value chain
Disruptive technology = value chain contestability
The Internet and data base Escalator
Stages of technology development Administrative Digitisation
e.g. college management systems Content Digitisation
e.g. authoring tools Learning content management
e.g. LMS Knowledge management
e.g. knowledge and content management systems Learner relationship management
e.g. HE adaptation of eCRM technology
Vertical DisaggregationLayer Examples of Players
Student eyeball and demand aggregators
Student Advantage.com; Zapme.com; collegestudent.com; collegeclub.com; grade-it.com; collegepro.net; versity.com; studentu.com; monster.com; myinternet.com
Course aggregatorsPortals
Headlight.com; Click2 learn.com; Learn.com; University Access; smartplanet.com; newpromise.com; free-ed.net; wgu.com
Front end service providers
Zenzibar.com, Campus Pipeline.com; embark.com; fastweb.com; eStudent.com
Platform service providers
eCollege; Embanet; Convene; Eduprise; NextEd; UOL; online.edu
T and L Software providers
ULT, Blackboard; Prometheus; Lotus; WBT
Student Learning services
Smarthinking.com; tutornet.com
Course providers Onlinelearning.net; Pensare; Morningside ventures; Skillsoft.com, Digitalthink; ZDU; prosofttraining.com
Course hosting platforms
Click2learn.com, Blackboard.com
Back end Software providers
SCT, Datatel, Peoplesoft
Shifts in value chain ownership
Disaggregation leads to contestability of the value chain
Platform provision 10-30% < Content 10-30% < Student support 20-40% Marketing and sales 10-40% >MIT Initiative may be misguided
Leading to intense deflationary pressures
Production factor mobility……..
Deflationary pressuresDeflation results from Cost deflation Digitisation of transactions Disaggregation of value chain
Contestability by nimble players International division of labor in course production and
delivery Course production - Vietnam, India and China Learning support - India Technology e.g. LMS – India and China
Price deflation Competition from low cost high prestige brands
e.g. international arms of top Chinese universities
Example – Four year tuitionQuality IT Education
from top ranked universities
Huazhong University of Science and technology
<US$1K p.a University of Melbourne
<US$10K p.a MIT
>US$20K p.a
High quality China University On-line Undergraduate prices
Top ranked Dong Nan University
US$1K p.a Medium ranked rich
province Fujian Normal US$750
p.a Medium ranked poor
province China Normal US$300
p.a
Example – courseware production
Production of a course roughly equivalent to a university subject with complex multi media objects
Vietnam suppliers ? 100% New Delhi supplier 200% Shanghai supplier 300% Hong Kong supplier 400% Australian supplier 400%
Example – University Software
The Labor Cost Pyramid
High cost Western labor
Lower cost labor
Student labor
Rules based knowledge
Codified IP
Influence of standardsStandards promote: Disaggregation of production
process via interoperability of transactions, content and stages or production
Deflation by promoting disaggregation, spatial division of labour
Thus international competition
Market - Crossing the Chasm ?
Crossing the chasm
Principle:
New technology will always first be successfully adopted in markets where it has overwhelming competitive advantage
Clayton ChristiansenGeoffrey Moore
Students, their parents and educators often live in
different worlds…
What is the product bundle?
Child care Particularly a function of f2f undergraduate education. Not a function well supported by “virtual delivery”.
Social life Particularly a function of undergraduate f2f education. Some elements can be replicated in virtual communities.
Influence network A high portion of the consumer value of much post graduate education. Can be well supported by virtual delivery, particularly where international communities are valued. Add some f2f to maximise.
Jobs – Credentials/Immigration
The major proportion of consumer value in most high volume course based undergraduate and post graduate education. Delivery mode neutral
Convenience of access
A high proportion of the consumer value of ,much post graduate education. Highly valued by consumers interested in virtual delivery – time and space shift
Education Objectively “No significant difference” – however punters perceive there is a difference, which is also promoted by vested interests
What is valued?
Provider – Student working nicely in niche markets e.g Theology education driven by access
Provider – Corporate students works in some areas e.g multiple outlet TNCs driven by savings in staff time and travel
Provider – Distributor – Student all education is local taking off, by far the largest market clicks and mortar sales and delivery
What works in Asia?
What works On the job skills
training Generic skill
training Centre based
undergraduate and post-graduate HE
Niche market based HE
What does not work Mass market total
“over the internet” electronic delivery for accredited HE
Particularly for UG education
Early adoption is in market niches where electronic delivery has overwhelming competitive advantage
Geographical manifestation“Must have” factors are geographically concentrated Smaller, geographically concentrated, rich
economies in difficult position Small size and concentration of activity, strongly entrenched public
sector practices, lack of growth
China - most compelling as “must have” factors mainly present
Strong growth, numerous multiple outlet organizations, compelling economics, less entrenched resistance, good infrastructure
Australia Geographic dispersion, good infrastructure
Some in the middle Weak infrastructure
Changes in the Marketing Mix
Changes in the marketing mix
A revolution in thinking Product – product customisation Access - CRM Price – price disaggregation Distribution Marcoms
Learning Centers Work
Why does clicks and mortar work? Brands are important:
Consumer buying behaviour Delivery places are important
Nature of the product Not just selling skill, or knowledge
acquisition Meeting many other demands
Systems now allow global scale for local delivery Global supply, local consumption
Consumer behaviour All markets are local Qualified lead generation
60-70% via WOM or referral Purchase
>$US5K decision – can often take 5 visits to a “place”
Delivery F2F component to deliver non-education
components
Multiple centre roll outs Multi-centre IT training
NIIT, APTECH, Software Solutions, Informatics, STI
Multi-centre ESL/ELT ACL, WSI
Multi-centre under-graduate Academic programs Chinese Top 20, STI, Informatics, VAD, RMIT
Multi-centre post graduate Academic programs STI, KES, VAD
Example – STI 120 centres in RP, China 80,000 students
20% p.a compound growth >40,000 in 4 Year undergraduate programs
Training/UG IT Post graduate start up via buy in from GUA
Franchising framework Strong central integration Via VSAT links, central SIS and increasing electronic
delivery
Example – Mid ranked Chinese University
12,000 EFTSU Y2000 first e-learning student intake 4000
students Y2001 intake 8,000 students 3 times oversubscribed US$750 p.a full time tuition > 60 learning centers
The University as a Local node in a Global Extranet
Islands of automation to full digitisation
Stage 1 - Islands of automation Digitisation of analogue processes e.g publishing,
student information, learner management, finances etc.
Stage 2 – Some lateral links SIS talks to Finance to Resources
Stage 3 – Paper over the consumer interface Add integrated consumer touch points - CRM and
personalisation
Stage 4 – Integration with suppliers and distributors
The Global University Extranet
Global Education Extranet
LearningManagement
System
StudentInformation
System
CustomerRelationshi
pManagemen
tSystem
KnowledgeManagement
System
ServerNetwork
NextEd DeliverySystem
Students
Professional Association
s
English Language Trainers
Higher Education
Commercial Trainers
Corporates
Testing & Assessment
Job Recruitme
nt Companie
s
Cen
ter
LA
N
Cen
ter
LA
N
Center LANCenter LANCenter LANCenter LAN
Beijing 1 Server
Cisco Router
Beijing 2 Server Beijing n ServerShanghai 2 Server
Shanghai n Server
Virtual Private NetworkBeijing
Shanghai 1 Server
Cisco Router
Virtual Private NetworkShanghai
Internet
Cisco Router
Cisco RouterCisco RouterCisco Router
Cisco RouterCisco Router
Shanghai ISPBeijing ISP
Backup tape
Local nodes in global networks
Technology enables a scaleable multi site business system:
Replicability of sites Standard “franchising” package with
underlying systems Scalability at individual sites
Guide on the side for process using electronic resources
Consistent quality Able to be centrally monitored
Relative weight of consumer applications Leaner relationship management
system Publishing Student information system Underlying delivery networkToo much influence of content
related activity in standards work
NextEd and Content Standards
What are our customers and ourselves doing? GUA – university interoperability ACRRM – university interoperability USQ – GOOD RMIT – DLS Athabasca – eCRM
What are we doing Dramatic improvements in
productivity of our internal production
Print to HTML Word to XML to print and HTML
China in the Standards Game
Strengths of China going into the game Large scale of network education
providing a base Compelling need for network
education Disaggregation of production will
allow China to play at those stages of the production chain where it has comparative advantage
Weaknesses A lot of Network College
implementations are still at the “tinkering” stage – not robust
Some universities cannot decide whether they wish to jump the industrial divide
Conclusion
Lessons from the past ? Must “own” the student
Do not let the downstream partner squeeze until 4+0 becomes 0+4 with no equity
0+4 with equity, desirable Real prices increase over time International competition is inevitable Mid-level state owned universities
hobbled by lack of free cash flow
Summary HE is an industry, where China has
comparative advantage Standards in a commercial setting
are a reflection of underlying industry structure forces
Major forces in the industry = increased tradability
China well placed to be a leader
Hmm.. As families
Where should we educate our children?
As institutions Do you wish to be internationally
competitive and add directly to GDP? As a nation
Does …….. want an internationally competitive H.E industry?