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Posted: November 21, 2012

Creative destruction

Something blows up -- something else takes over

Todd Ordal

I was 20 minutes early for an appointment in Los Angeles the other day and spotted the ubiquitous green siren of Starbucks, so I dropped in to top off my caffeine high. As I exited my Ford Crown Victoria rental car with my sunglasses on, looking like an undercover cop—who the heck else drives a Crown Victoria?—I looked at my parking neighbor, a 30-something-year-old guy in a slightly smaller version of another gross-looking American car.

With his laptop propped on the steering wheel, he was obviously accessing the free network at Starbucks. He gave me a knowing smile. I’ve seen this before; in fact, I’ve done this before. The hilarious thing is that occupants in the other two nearby cars in the jammed parking lot were doing the same thing! Even though they weren’t drinking Starbucks coffee, they were using the Starbucks network for free and taking up parking spaces. The unintended consequence of providing free Internet access, which we now expect everywhere!

While changing expectations—often driven by technology—can make our lives easier, they can also completely change or even destroy markets. The music industry was ripped apart post-Napster when we decided music should be free or at least cheap and that we should be able to buy it from the couch in our underwear. Tower Records’ loss was Apple’s gain, and the consumers won big!

Technological change has rocked publishing as well. The ills that befell newspapers and trade publishers are now affecting academic publishers. The number of students who expect content to be free or low-cost and ubiquitous is rising. Undergraduate students get by in some cases by using Wikipedia and other web sources rather than textbooks. Used books and rental books are eating into new textbook sales. Yes, you can now rent textbooks. (Ironically, e-books in the education space have not yet taken hold to the degree you might expect.)

However, higher education academic publishing (that is, journals and books) is held in place by some unusual glue. Tenure requires professors to publish or perish, and they must publish in peer-reviewed journals to get the most notoriety. (If you can find a young untenured professor and buy her a beer to two, you might hear complaints about it, but once in the club, the story often changes.)

A move toward “open access” pressures this system, but as long as tenure exists, it’s unlikely to unseat the other variety. Weirdly, university libraries purchase these expensive journals, but often no one reads them. An inefficient and artificial market.

Professors decide which textbooks they want their students to buy. Understandable, but it creates another unusual market. In fact, the price of textbooks has increased at twice the rate of inflation. Typically, products that have that kind of pricing elasticity are brilliantly innovative, such as Apple products, or have a captive market.

I find academic publishing a fascinating example of business that is enhanced by “artificial” conditions. Think about how tenure and buying decisions (that is, professor picks, students or parents pay) potentially hold back free market principles and dissemination of information.

With the last of our four children just finishing college (and off the payroll!), I’ve had a keen interest in the process and price of textbooks and higher education for some time. The fact that there are now free resources for learning college-level subjects (albeit without credit), as well as abundant options for disseminating information in less expensive ways, ought to bring some radical change to the educational publishing model.

I don’t expect university parking lots to soon be full of people like my parking mates at Starbucks looking for free information, but with so many moving parts, something’s going to blow up and something new will take its place. Creative destruction at work again!

Todd Ordal is President of Applied Strategy LLC. Todd helps CEOs achieve better financial results, become more effective leaders and sleep easier at night. He speaks, writes, consults and advises on issues of strategy and leadership. Todd is a former CEO and has led teams as large as 7,000. Follow Todd on Twitter here. You can also find Todd at http://www.appliedstrategy.info,  303-527-0417 or todd@appliedstrategy.info

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