Transcript NextEd Limited

Standards - a commercial
perspective?
Terry Hilsberg
NextEd Limited
16 December 2001
Background to NextEd
Terry Hilsberg
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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
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Appendix 11 Discussion paper
Founded NextEd 1999
Visited many Chinese universities over last 6 months
NextEd Limited
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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
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Top level Chinese Uni
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Top Level Australian Uni
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US$1K p.a
Good networking, social positioning
US$10K p.a
Ivy League USA
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>US$20K p.a
Good networking
Outline
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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
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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
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Not so significant
Only in specialized areas such as IT
Export competition
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Very real
USA state universities missing in action in Asia
Commercial role of standards
Role of standards
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Commercial/industry structure
Pedagological
Ideological
Standards – A tool
Technical standards are a reflection of broader forces at
work in the higher education industry
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Retail Consumer
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Reduction of consumer un-certainty
Grow the market
Industry organization
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Disaggregate value chain
Create many sub-markets
Drive down costs and prices
Allow spatial division of labor
Interest Groups
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Interest groups
Academics
T and L specialists
Commercial solution sellers
Partners of academic institutions
Standards – Reflection of Major
international forces in industry
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Value chain contestability
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Leading to deflationary forces
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Souring of inputs from across space
And increased international tradability of
industry
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Due to the technology
Import and export competition
Consumer orientation
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Owning the customer relationship is key
From order taking to marketing
Market share in Asia?
Market size
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Market
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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
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Most of the world giants in D.E are in Asia
E.g CCTVRU
Education access still poor
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Participation rates in post secondary education are
low
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Demand outstrips supply
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E.g. PRC has only same rough number of university students
as Australia
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
7000
6000
000’
Students
5000
75% of Intl.
Price
50% of Intl
price
25% of Intl.
Price
4000
3000
2000
1000
0
Source: IDP Education Australia
1999 model of Chinese market
demand
2000
2010
2020
Course price vs. volume- Asia
Example of dilemma:
Volume vs price vs market positioning
US$1K – 1K
US$0.5K – 10K
<US$0.1K – 100K
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•Price elasticity of
demand is high
•Income elasticity of
demand is high
The Growth of Giants
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Real price of H.E in Asia increasing at 2-5%
p.a
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Some giants emerging concentrating upon:
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Suggests the “Honda” strategy
Ownership of Student – via distribution
Infrastructure
Scaleable production
Lesser extent, content
Example NIIT – US$250M p.a/US$70M p.a
profit
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c.f say UHK SPACE US$90M p.a neg. profits
Some will be Chinese (Indian)………….
Chinese (Indian) Competitive
Advantage
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Basis of advantage
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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
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5 of 10 top Chinese universities have HK rep offices
3 of top 10 have launched international courses
Global Players Take Off
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Apollo, Strayer, DeVry, Sylvan, NIIT etc.
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Better performers consistently deliver 20%
Free cash flow/Revenue
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Revenue CAGR 20-40% typical
EBITDA 8-25% of revenue range
Cash to invest
Price/Earnings imbalance – major issue
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20-40 USA
8-15 Asia
Why are the USA public
universities missing in action?
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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
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Administrative Digitisation
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Content Digitisation
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e.g. LMS
Knowledge management
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e.g. authoring tools
Learning content management
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e.g. college management systems
e.g. knowledge and content management systems
Learner relationship management
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e.g. HE adaptation of eCRM technology
Vertical Disaggregation
Layer
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 aggregators
Portals
Headlight.com; Click2 learn.com; Learn.com; University Access; smartplanet.com; newpromise.com; freeed.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 pressures
Deflation results from
Cost deflation
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Digitisation of transactions
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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
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Competition from low cost high prestige brands
 e.g. international arms of top Chinese universities
Example – Four year tuition
Quality IT Education from
top ranked universities
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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
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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
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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 standards
Standards 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 Christiansen
Geoffrey 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?
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Provider – Student
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Provider – Corporate students
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working nicely in niche markets e.g Theology education
driven by access
works in some areas e.g multiple outlet TNCs
driven by savings in staff time and travel
Provider – Distributor – Student
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all education is local
taking off, by far the largest market
clicks and mortar sales and delivery
What works in Asia?
Early adoption is in market niches where electronic
delivery has overwhelming competitive advantage
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What works
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On the job skills
training
Generic skill training
Centre based
undergraduate and
post-graduate HE
Niche market based
HE
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What does not work
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Mass market total
“over the internet”
electronic delivery
for accredited HE
Particularly for UG
education
Geographical manifestation
“Must have” factors are geographically concentrated
 Smaller, geographically concentrated, rich economies
in difficult position
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China - most compelling as “must have” factors
mainly present
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Strong growth, numerous multiple outlet organizations, compelling
economics, less entrenched resistance, good infrastructure
Australia
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Small size and concentration of activity, strongly entrenched public sector
practices, lack of growth
Geographic dispersion, good infrastructure
Some in the middle
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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?
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Brands are important:
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Delivery places are important
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Consumer buying behaviour
Nature of the product
Not just selling skill, or knowledge acquisition
Meeting many other demands
Systems now allow global scale for local
delivery
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Global supply, local consumption
Consumer behaviour
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All markets are local
Qualified lead generation
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Purchase
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60-70% via WOM or referral
>$US5K decision – can often take 5 visits to a
“place”
Delivery
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F2F component to deliver non-education
components
Multiple centre roll outs
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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
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120 centres in RP, China
80,000 students
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Training/UG IT
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20% p.a compound growth
>40,000 in 4 Year undergraduate programs
Post graduate start up via buy in from GUA
Franchising framework
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Strong central integration
Via VSAT links, central SIS and increasing electronic delivery
Example – Mid ranked Chinese University
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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
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Digitisation of analogue processes e.g publishing, student
information, learner management, finances etc.
Stage 2 – Some lateral links
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SIS talks to Finance to Resources
Stage 3 – Paper over the consumer interface
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Add integrated consumer touch points - CRM and personalisation
Stage 4 – Integration with suppliers and
distributors
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The Global University Extranet
Global Education Extranet
Students
Higher
Education
Learning
Management
System
Commercial
Trainers
Customer
Relationship
Management
System
Professional
Associations
Student
Information
System
NextEd
Delivery
System
Knowledge
Management
System
English
Language
Trainers
Server
Network
Corporates
Testing &
Assessment
Job
Recruitment
Companies
Virtual Private Network
Beijing
Virtual Private Network
Shanghai
Center LAN
Beijing 1 Server
Cisco Router
Beijing ISP
Cisco Router
Shanghai ISP
Cisco Router
Shanghai 1 Server
Center LAN
Internet
Backup tape
Cisco Router
Cisco Router
Cisco Router
Cisco Router
Beijing 2 Server
Center LAN
Beijing n Server
Center LAN
Cisco Router
Shanghai 2 Server
Center LAN
Shanghai n Server
Center LAN
Local nodes in global networks
Technology enables a scaleable multi site
business system:
 Replicability of sites
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Scalability at individual sites
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Standard “franchising” package with underlying
systems
Guide on the side for process using electronic
resources
Consistent quality
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Able to be centrally monitored
Relative weight of consumer
applications
Leaner relationship management
system
 Publishing
 Student information system
 Underlying delivery network
Too much influence of content
related activity in standards work
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NextEd and Content Standards
What are our customers and
ourselves doing?
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GUA – university interoperability
ACRRM – university interoperability
USQ – GOOD
RMIT – DLS
Athabasca – eCRM
What are we doing
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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
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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
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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 ?
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Must “own” the student
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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
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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..
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As families
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As institutions
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Where should we educate our children?
Do you wish to be internationally
competitive and add directly to GDP?
As a nation
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Does …….. want an internationally
competitive H.E industry?