An interesting discussion on rising education costs

You can read the entire article here.

It would make a lot of sense to cut military spending and use that money to solve the whole problem, wouldn’t it? Why the hell shouldn’t every kid have the opportunity to go to college? College is expensive because it’s great! We’re a rich society. But I don’t see any big infusion of public money coming down the pipe. Can things go on as they are? Or must the whole higher education paradigm shift – maybe even collapse? If so, what’s the least bad way that can happen?

My thoughts on the topic:

 A few decades back, we changed the routing of funding for education and new costs emerged as a consequence. This began as necessary state level budget cuts, but was eventually touted as bringing choice to students. At any rate, as senior administrators I listen to periodically joke: ‘we used to be state funded, then we became state assisted, in a year or two we’ll be fortunate to be state located.’

With budget cuts, we now receive the same contribution per student that we did in the 1990′s, with costs courtesy of 2012. The difference has to come from somewhere.

But it’s so much more than just a great recession, rising health care costs, technology investments or general inflation. A part of the explosion in student (perceived) cost is nothing more than shifting from subsidy to direct billing.

However, when we made this transition, our mission changed (whether we realized it or not). We now have a dual mandate – the development of knowledge AND the recruitment of students.

We now have to build our system around attracting and retaining students, and with that a whole new slew of expenses emerge.

You NEED new facilities (not just to use new technology), but to make your University attractive to students choosing where to spend their dollars. You NEED better entertainment and a high quality athletic program to attract students and retain alumni commitment. These needs then NEED new administrators to administrate the new needs. All of this then leads to a NEED for new administrators to beat the bushes for new money to pay for the salaries of those we need to manage the things we now need.

It’s all quite rational in a thoroughly irrational sort of way.

Atop this, of course, we have a woefully inadequate financing system for the bottom up pay model we now use as others have noted.

Simply reversing the funding spigot would not, I suspect, solve this problem at this point. We have institutionalized administrative bloat – and that’s not turf protecting, greedy middle management. Quite the contrary, those new administrators are NEEDS in the system we have re-engineered. It’s a somewhat logical system response to our sourcing needs for our primary dollars (student tuition and fees). I doubt we can simply put the lid back on this box.

Making sense of nonsense: A review of copyright and digital reproduction

I was just directed to James Grimmelmann's remarkable dissection of digital cable reproduction as a function of copyright compliance.  In "Why Johnny can't stream," you get a very detailed breakdown of the technical hurdles required to create and maintain the cable industry.

These same hurdles are now simultaneously blocking more logical technologies while creating strange legal alternatives that make little technical sense.  I highly urge reading this entire entry.

In the Digital Publishing industry, not all publishers are equal

In my entrepreneurship class last term, I delivered a small lecture topic on self-publishing as a small business model.  Along with Kickstarter and some other domains, digital publishing (be it apps or books) is an area I find very exciting. Small businesses (literally single-individual shops) can pop up, reach a market and achieve profitability in ways we never dreamed of a decade ago.

So, I found today's Digitopoly post an interesting read.  There are some interesting (and legal) things afoot in price-fixing and price-setting in digital publications.  In particular, DoJ is currently investigating allegations of price fixing by Apple.  In that story, Amazon is largely the good guy, trying to create an innovative new market platform.

The Digitopoly article references, this post by Andrew Hyde, which breaks down his experiences with the publishers distribution/royalty costs for publication.  Apparently, while Amazon has been the most friendly distribution house for digital readership, it's not necessarily the best outlet for authors.

Bear in mind, the Andrew Hyde link is focused entirely on costs.  It costs him more, as an author, to reach Amazon customers.  BUT, Amazon is the overwhelming distribution channel choice for his readers.  So, it costs him more... but he sells more.  Remember, business models are a trade off between margin and volume.  As I see it, if you want margin - avoid Amazon... but if you want volume, Amazon is far and away the superior choice (using his sample of one, of course).

What do you think?

Another Kickstarter project

The Elevation Dock for the iPhone is already fully funded - and it's a pretty impressive project.

They asked for $75,000.  They received in excess of $1.4mm.  It looks to be a great product - now that I'm using an iPhone, it's a product I look forward to finding in stores!

Crowdsourcing and Crowdfunding - the business structure of tomorrow?

Alright, so I have recently bashed the JOBS act for it's frightful reduction in transparency allowances.  But, it's rare for a law in Washington to be all bad and JOBS certainly has its nicer elements.  One of those positive elements is the new freedom given to crowd sourcing.  Basically, a small firm can raise up to $1mm in capital with minimal documentation or due diligence.

Wait a minute, you are probably thinking, doesn't he have a problem with the transparency elements of JOBS, but just praised a different piece of transparency reduction in JOBS?

Yep, I just did.

There is a world of difference between two engineers sitting in a garage with an idea (the good part of JOBS) and a firm getting ready to have its stock publicly traded on an exchange (the bad part of JOBS).  The former is really where discontinuous innovation emerges, the latter is a company joining the ranks of "big business."  If you can't afford to behave like a big business, you aren't ready to go public.  That means you need audits, you need disclosure and you need accountability.  But that was the point of my last post.

Crowd sourcing technically applies to a wide range of activities.  It includes open source initiatives like those behind Linux and Apache web servers.  It also applies the innovation research awards like the Ansari X Prize which eventually culminated in SpaceX and the recent Netflix award.  Crowd source projects, like iStockPhoto have caused significant revenue discontinuities for professional photography.  While some might quibble that these projects weren't truly crowd developed, they do represent a very different form of organizing than that common to modern industry.

The more recent innovation, the one the JOBS act positively influences, is the emergence of crowdfunding.  Made popular by Kickstarter, crowdfunding is in some ways a high tech manifestation of the very low-tech world of microlending.

In the crowd funding format - specifically the Kickstarter variant, people start with an idea and ask for money.  This is a cash infusion, but without an equity or debt stake.  Rather, the project managers make promises of what will happen at specific funding levels.  People (literally anyone) consider the pitch from the project manager and decide if they want to chip in.  Kickstarter uses an "all or nothing" funding model.  Either the project raises its 100% goal (it can go over) or its not funded.  Project managers basically promise perks the their sponsors, but the sponsors do NOT become owners or in any way receive financial returns on their contribution.

As an example, consider Muneca Mexicana Handcrafted Food.  The project started with a $1250 funding goal to help kickstart a small foodmaker/caterer.  At the time of this posting, Minerva Orduno has actually exceeded her funding goal by quite a bit.  She has $2710 raised with 19 more days to go.

[NOTE - I am NOT advocating for/against contributions to Muneca Mexicana - this is merely an example of a Kickstarter project]
What has she promised to funders?

Those pledging $10 receive a 4oz jar of handcrafted caramel
Those pledging $20 receive the above and a 16 oz jar of Chorizo seasoning
Those pledging $30 receive both of the above and an 8oz har of Mole Poblanao sauce.

It goes on with different perks up to $250.

Her project proposal notes that investments beyond the current $1250 goal will go towards a catering license, insurance and potentially her own physical location.  Given where the project currently sits, Minerva will certainly be able to expand her inventory and potentially move towards her higher end goals.

Don't make the mistake of assuming Kickstarter is only geared towards restaurants and food.  There are currently 71 technology projects seeking financing with other categories of projects out there.  Several kickstarter projects have exceeded $1mm startup funding and last year Kickstarter projects accounted for roughly 10% of angel capital investment.  This helps grow small business startups and small business is really where the jobs are.

Seminar in Strategic Management: The Vegas Strip Steak Patent

Seminar in Strategic Management: The Vegas Strip Steak Patent

Can you patent a cut of steak?  OSU is trying to.

Is the Facebook IPO the new normal?

Earlier this year, congress passed and President Obama signed into law, the JOBS act.  I found the act chilling in terms of the externalities it adds to markets under the auspices of making it easier for tech firms to go public. Students enrolled in either my entrepreneurship or strategy seminars heard a number of lectures (near rants) on the problems with this bill.  I"m surprised I didn't blog about it, but I was in the midst of the posts about gas prices and things got sidetracked.  Now, with the Facebook IPO fiasco upon us, I find myself wondering if we are seeing the new harbinger for tech IPO's.

What the JOBS bill did, was:
1.  Reduce or eliminate audit requirements for tech firms seeking to IPO
2.  Remove penalties for executives who distort their financials in public presentations, provided that the prospectus contains more accurate information

The bill was wildly popular in congress, easily passing both houses during a congressional period renowned for partisanship.  However, int he business press, it was far from popular.

Now we are looking at the Facebook IPO and the JOBS act should be at the front of the discussion.  While there are problems with NASDAQ's handling of the IPO, the larger concerns lie in the allegations of information distortion.  It is alleged that Facebook pedaled two sets of financial information.  One overly optimistic set of numbers to small investors and another, more conservative (and accurate) set of numbers to large banks.  Those with superior information were able to take advantage of initial price movements to obtain profits not justified by the 'true' financial shape of the firm.

Congress is now investigating the distortion, but given the JOBS act, I wonder if the investigation is really just political theater.  Facebook's IPO is exactly what is expected under the JOBS act.  Indeed, investor information is likely to get worse under the JOBS act.  Indeed, it appears that the anti-disclosure requirements may be counterproductive to an active tech IPO market, with several upcoming IPO's delayed or halted.

For markets to operate efficiently, we require equal access to accurate information.  We can not have efficiency where one party has an advantage in information quality.  The cost of this transparency is disclosure, auditing and governance law.  Removing this transparent layer adds too many questions to the veracity of IPO information.  The smart money either will (a) get it's information early or (b) sit out.  In the long-run, this leads to an under-developed IPO market, which hurts (not helps) tech companies.

The sad thing is, this is a predictable outcome from JOBS.  And, it's likely to get worse, not better.