Business model

Traditional business models?

Christensen, Aaron and Clark concluded that the economic failure of numerous online programs is caused by wrong business models. More often than not we were using traditional business models that are not suitable for up-to-date technology-supported collaboration and education. Therefore, they suggested, we should develop a business model that turns relative weaknesses of online collaboration and education (compared to the incumbent) into strengths (Christensen, Aaron, Clark, 2001).

New business model – the model of success

Today, 9 years later,  it is obvious that all new super-successful Internet enterprises such as  Google, Wikipedia or Facebook became huge hits because of  a new business model called Freemium.

Fremium in literature

One of the first descriptions of Freemium in higher education dates from 2005 when Herwig Rollett et al. discussed “business models for resource sharing between larger institutions of higher education, where revenue streams will typically result not so much from an application service provider offering but instead from particular value-added services” (How to Provide One Stop Shop eLearning? A Real World Business Model, 2005).

Freemium is a hybrid business model that combines a free offering with a premium, paid offering (free + premium = freemium). In addition to premium services, revenue may come from a variety of sources: primary advertising, donations and user-generated value.

For example, G-mail, Google applications, Facebook (Yahoo, Flickr . . . ) are free services. However, if you want more space for your Google documents, more visible Facebook page for your company or you want to advertise using Google, Facebook or Yahoo, those are premium services and you’ll have to pay for them.

User-generated value.  Value created by users is the key component of Freemium’s success (Piller, 2008). Users are the engine that create “viral marketing.” Users are the main content creators (TeacherTube, Wikipedia, Facebook . . . ), and search engines, such as Google and Yahoo,  categorize and rank Web  pages mainly based on data received by tracking users’ activities.

Freemium in education is another success story. If you go to the Web site of the Massachusetts Institute of Technology (ranked as the 5th best university in the U.S.), you will be able to reach almost 1,900 courses online – for free. However, if you want to talk with faculty or get a degree,  those  premium services require payment.  Similar setups can be found on the Web sites of Harvard or Yale (ranked top two in the world).

OpenCourseWare. MIT, Harvard, Yale and many other universities are providing free course content online as OpenCourseWare.

OpenCourseWare consists of educational materials created by universities and shared freely with the world via the Internet.

Fremium in academic community

Freemium is deeply rooted in the academic community. For example, academics regularly publish results of their researches in scientific magazines -- for free. Despite the fact that they share the most valuable part of their work for free, their premium services such as  teaching, consultancy, and support received by donations and grants can generate significant revenue.

History. The OpenCourseWare idea was initiated in 1999 when the University of Tübingen in Germany published videos of lectures online.  OpenCourseWare became globally important when MIT launched it in October 2002.

OpenCourseWare providers experience these benefits:

  • Brand recognition will be improved.
  • Donations. Because open courseware is for the benefit of society, it attract donors. The vast majority of OpenCourseWare is funded  by donations.
  • Program improvement. Site statistics can show how many users are from a specific country/region/town/university, and whether they are just browsing or using the material for schooling.  All of this data can be extremely beneficial for planning globally recognized educational programs.
  • Savings. After courses are published, administration costs are lower. Because all content is freely available, there is no need for special users’ accounts, licenses . . .   Furthermore, administrative problems such as not being able to access content from a previous year does not affect premium students. An Open Courseware Consortium PowerPoint presentation (Opencourseware Consortium, 2008) summarizes that advantage with this sentence: Benefit learners without impacting your schedule.
  • Network. Open courseware will attract numerous experts willing to collaborate.
  • Participate in something bigger than your university. The consortium PowerPoint presentation stresses these key advantages: Showcase excellent work to a vast group. Make your work a pillar for others to build on and leave an academic legacy for others long after your time.

Case Studies