Hindsight

Scott Galloway predicts a handful of elite cyborg universities will soon monopolize higher education.

By James D. Walsh

In 2017, Scott Galloway anticipated Amazon’s $13.7 billion purchase of Whole Foods a month before it was announced. Last year, he called WeWork on its “seriously loco” $47 billion valuation a month before the company’s IPO imploded. Now, Galloway, a Silicon Valley runaway who teaches marketing at NYU Stern School of Business, believes the pandemic has greased the wheels for big tech’s entrée into higher education. The post-pandemic future, he says,  will entail partnerships between the largest tech companies in the world and elite universities. MIT@Google. iStanford. HarvardxFacebook. According to Galloway, these partnerships will allow universities to expand enrollment dramatically by offering hybrid online-offline degrees, the affordability and value of which will seismically alter the landscape of higher education. Galloway, who also founded his own virtual classroom start-up, predicts hundreds, if not thousands, of brick-and-mortar universities will go out of business and those that remain will have student bodies composed primarily of the children of the one percent.

At the same time, more people than ever will have access to a solid education, albeit one that is delivered mostly over the internet. The partnerships he envisions will make life easier for hundreds of millions of people while sapping humanity of a face-to face system of learning that has evolved over centuries. Of course, it will also make a handful of people very, very rich. It may not be long before Galloway’s predictions are put to the test.

Colleges and universities are scrambling to figure out what to do next year if students can’t come back to campus. Half the schools have pushed back their May 1 deadlines for accepting seats. What do you expect to happen over the next month?

There’s a recognition that education — the value, the price, the product — has fundamentally shifted. The value of education has been substantially degraded. There’s the education certification and then there’s the experience part of college. The experience part of it is down to zero, and the education part has been dramatically reduced. You get a degree that, over time, will be reduced in value as we realize it’s not the same to be a graduate of a liberal-arts college if you never went to campus. You can see already how students and their parents are responding.

At universities, we’re having constant meetings, and we’ve all adopted this narrative of “This is unprecedented, and we’re in this together,” which is Latin for “We’re not lowering our prices, bitches.” Universities are still in a period of consensual hallucination with each saying, “We’re going to maintain these prices for what has become, overnight, a dramatically less compelling product offering.”

In fact, the coronavirus is forcing people to take a hard look at that $51,000 tuition they’re spending. Even wealthy people just can’t swallow the jagged pill of tuition if it doesn’t involve getting to send their kids away for four years. It’s like, “Wait, my kid’s going to be home most of the year? Staring at a computer screen?” There’s this horrific awakening being delivered via Zoom of just how substandard and overpriced education is at every level. I can’t tell you the number of people who have asked me, “Should my kid consider taking a gap year?”

What do you tell them?

I tell them it’s a great year to take a gap year. I think most 18-year-olds are not prepared for college. A combination of helicopter parenting and social media have stunted and arrested the development of America’s youth. University administrators have unwittingly become mental-health counselors. I think a lot of young people, especially boys, could use another year of seasoning experience, work experience, or some sort of service. A lot of these kids just aren’t ready for the competition and the kind of intense environment that is college.

When will there be a reckoning? It has to come before classes begin this fall.

Over the next six weeks, when we realize that the deposits and registrations for the fall are down 10 to 30 percent. The better universities are fine in the short term because they just fill spots from the waiting lists. The kid who’s going to Boston College will get into MIT. But if that snakes down the supply chain, and you start getting to universities that don’t have waiting lists, those are the ones that get hit.

How many schools will collapse between now and next year?

It will be like department stores in 2018. Everyone will recognize they’re going out of business, but it will take longer than people think. There will be a lot of zombie universities. Alumni will step in to help. They’ll cut costs to figure out how to stay alive, but they’ll effectively be the walking dead. I don’t think you’re going to see massive shutdowns, but there’s going to be a strain on tier-two colleges.

There will be a dip, the mother of all V’s, among the top-50 universities, where the revenues are hit in the short run and then technology will expand their enrollments and they will come back stronger. In ten years, it’s feasible to think that MIT doesn’t welcome 1,000 freshmen to campus; it welcomes 10,000. What that means is the top-20 universities globally are going to become even stronger. What it also means is that universities Nos. 20 to 50 are fine. But Nos. 50 to 1,000 go out of business or become a shadow of themselves. I don’t want to say that education is going to be reinvented, but it’s going to be dramatically different.

How?

Ultimately, universities are going to partner with companies to help them expand. I think that partnership will look something like MIT and Google partnering. Microsoft and Berkeley. Big-tech companies are about to enter education and health care in a big way, not because they want to but because they have to.

Let’s look at Apple. It does something like $250 billion a year in revenue. Apple has to convince its stockholders that its stock price will double in five years, otherwise its stockholders will go buy Salesforce or Zoom or some other stock. Apple doesn’t need to double revenue to double its stock price, but it needs to increase it by 60 or 80 percent. That means, in the next five years, Apple probably needs to increase its revenue base by $150 billion. To do this, you have to go big-game hunting. You can’t feed a city raising squirrels. Those big-tech companies have to turn their eyes to new prey, the list of which gets pretty short pretty fast if you look at how big these industries need to be in that weight class. Things like automobiles. They’ll be in the brains of automobiles, but they don’t want to be in the business of manufacturing automobiles because it’s a shitty, low-margin business. The rest of the list is government, defense, education, and health care. People ask if big tech wants to get into education and health care, and I say no, they have to get into education and health care. They have no choice.

The strongest brand in the world is not Apple or Mercedes-Benz or Coca-Cola. The strongest brands are MIT, Oxford, and Stanford. Academics and administrators at the top universities have decided over the last 30 years that we’re no longer public servants; we’re luxury goods. We get a lot of ego gratification every time our deans stand up in front of the faculty and say, “This year, we didn’t reject 85 percent of applicants; we rejected 87 percent!,” and there’s a huge round of applause. That is tantamount to the head of a homeless shelter bragging about turning away nine of ten people who showed up last night. We as academics and administrators have lost the script. It’s not true of everyone. The chancellor at Berkeley is working hard to expand seats. I think the University of California and the University of Texas both see that it’s important that those seats expand as the population grows.

But the ultimate vehicle for a luxury item is to massively and almost artificially constrain supply. Birkin bags are $12,000 because they create the illusion of scarcity. I’ll have 170 kids in my brand-strategy class in the fall. We charge them $7,000 per student. That’s $1.2 million that we get for 12 nights of me in a classroom. $100,000 a night. The gross margins on that offering are somewhere between 92 and 96 points. There is no other product in the world that’s been able to sustain 90-plus points of margin for this long at this high of a price point. Ferrari can’t do it. Hermès can’t do it. Apple can’t do it. Apple’s gross margins are 38 points. Hermès and luxury goods are somewhere between 50 and 60 points. There has never been a luxury item that’s been able to garner the type of gross margins as university education.

What drives those margins?

Not education. It’s credentialing. The most value-added part of a university is not the professors; it’s the admissions department. They have done a fantastic job creating the most thorough and arduous job-interview process in modern history, between the testing, the anxiety, the review of your life up until that point, the references you need. If I’m applying for a job at New York Magazine, I’d give you a list of references and you’d call them. You don’t ask the references to write a two-page letter. Universities now do background checks to see if you’ve ever had a DUI or been accused of a crime. They look at your social media to see if you’re abusing alcohol or if you’ve made racist or bigoted statements. We’re screening people like crazy.

When you go to Penn, you know that your classmates are solid citizens who are qualified and have good EQ [emotional quotient]. There is an opportunity for new companies to figure out testing and research methods to certify people around certain skills or EQ. So far, no one has really come up with the ability to certify to the same extent that universities do. To a certain extent, Google, Apple, Amazon, and Facebook are also in the business of certification. If you get a job at Google, there’s a certain belief that the HR department has vetted you enough to certify that you have very strong skills. There will be opportunities in certification that aren’t universities.

So why would MIT and Harvard, with their insane margins and enormous endowments, want to threaten that by partnering with big tech?

You’re right. They have the cash flow. MIT, Amherst, Dartmouth — they all have the money to not sacrifice any standards. At the same time, their trustees aren’t going to want them running inefficient businesses, where they have to dip into their endowment every year. Endowments are supposed to be for big, bold projects that result in additional cash appreciation. Most of those universities aren’t going to have trustees who say, “Okay, here’s $2 million a year for emergency operating expenses.” They’re not going to do that. They’re going to decide they need to run a real business.

In the case of MIT, Harvard, Stanford, and Cal, people will say they’re sacrificing their standards to enroll more students. The reality is these schools can double or triple their enrollments without sacrificing anything in terms of their brands. Right now, their admissions officers are choosing between Magic Johnson and LeBron James. Every superstar in high school — and there are a lot — wants to go to these universities. We’re going to see schools slicing and dicing programming and product management, and they will have a new weapon: remote learning. The best universities are going to be able to expand enrollment dramatically, which will result in chaos for the tier-two and tier-three school. Nobody’s going to enroll in Pepperdine if they get into UCLA.

Unless Pepperdine lets them on campus. Because isn’t the online college experience just inherently inferior? Part of the experience is getting out of the house and into a semi-safe environment, and you won’t get that. What you’re describing actually redefines what college is.

I think we’re saying the same thing. If UCLA were to say it’s only offering online learning or you could go to Pepperdine and overlook the Pacific Ocean in Malibu and go to parties, you’d go to Pepperdine. What I’m saying is UCLA and Pepperdine will both have a mix, some sort of hybrid distance learning, and UCLA will have expanded its enrollment. UCLA could meet you in one of its parking-lot garages, and you would enroll in UCLA because 50 percent of this investment is in one thing: certification. The cruel truth of what pretends to be a meritocracy but is a caste system is that your degree largely indicates or signals your lifetime earnings. When kids get out of business school, they say, “I have an offer from Amazon and I have an offer to go to work for a regional bank, and I’d much rather go to work at a regional bank.” I just tell them, “Stop wasting my time. You’re going to work for Amazon.” Because when you go to work for Amazon out of business school, your career launches at a much greater angle. Going to UCLA versus Pepperdine starts you at a 10 to 30 percent higher salary coming out of school, which, over the course of your lifetime, when you add in salary increases, just creates a different life.

Can you walk me through what that kind of online curriculum might look like?

Well, I was a graduate-student instructor in micro- and macroeconomics in business school for Christina Romer, who went on to be part of the Obama Cabinet. And she taught one big class a week, 400 kids in a big class. And then there were two classes taught by the GSI, so we had smaller classes of 20 to 30 kids. She was the big star and then there were two classes done in person. I think she’d probably teach the class people come to campus for and then we’d break up and do online courses.

Putting all of learning on Zoom is very difficult to pull off, as people are discovering right now. I used to be unique at Stern in that I did one or two sessions every year online. Now, everyone’s learning what tools, technologies, and tricks work. You need to be more animated online. You need to force the students to turn on their cameras; you need to see their faces more; you need to hold them accountable. You have to adopt these MTV-like tricks to keep people awake and engaged. I think we’re going to get better at Zoom. There’s going to be a better variety of tools — Zoom, Slack, a combination of online and offline learning. Zoom times ten.

I just can’t imagine what the enrollments would be if Apple partnered with a school to offer programs in design and creativity. I can’t imagine what the enrollments would be if the University of Washington partnered with Microsoft around technology or engineering. These would be huge enrollments. The tech company would be responsible for scale and the online group part. The university would be responsible for the accreditation.

You think MIT and Google will be able to put out an online curriculum that will be worth paying tens of thousands of dollars or hundreds of thousands of dollars?

Yeah, because they’ll have some sort of hybrid model that will involve some in-person work. MIT’s certification — and that education that it’ll be able to string together using its faculty and its brand and the technology of a place like Google — will still be worth that kind of money. The reality is an MIT degree is still worth a quarter of a million dollars in tuition. But is Boston College worth a quarter of a million? I don’t know.

Oh God. Don’t ask my parents that question. That’s where I went.

Okay, you tell me then.

It’s hard to justify that kind of money.

BC is a good school; it’s not a great school.

Fair. It’s in that second tier. You talk about tech swooping in to rescue schools in a way you would expect states to do. Isn’t another solution to adequately fund public institutions?

That’s the unfortunate part. When the government isn’t able to bail out America, billionaires step in. But it always comes at a price. Those people become largely untouchable, and they can’t be removed from office. Right now, we’re in a situation where it’s no longer NASA putting us on Mars or the CDC testing us for antibodies. It’s Elon Musk and Jeff Bezos. Basically, thanks to billionaires, you’re going to pay the lowest tax rates. We’ve defunded government and made these people wealthier than most governments. They’re not elected and they get to decide who gets a COVID test, and they get to decide who gets to benefit from the technology that might emerge from putting a man on Mars. I think Jeff Bezos is going to offer the COVID-19 test as part of Prime membership. I think that’s where we’re headed. So you’re right. It’s kind of scary to think that the University of California used to be relying on the generosity of California taxpayers and the vision of the regents of UC. And it might end up that they rely upon the generosity of Satya Nadella or Tim Cook.

What’s going to happen to campuses?

I worry they’ll still exist, but they’ll be just filled with rich people. A four-year liberal-arts-campus experience is going to become something that’s largely relegated and positioned to the children of rich people.

I want to be clear: There is some social good to this. You’re going to have a lot of good education, dispersed to millions and tens of millions of people who otherwise wouldn’t have access to computer science or Yale’s class on happiness. When I got into UCLA, about one in three, or 40 percent of students, got in. Now it’s something like one in seven. More kids are going to get into great schools. But just like any other space big tech enters, there’s going to be a reduction in humanity. Just as we’re on Instagram and we’re more socially connected, we’re definitely more isolated and more lonely.

I personally worry about how a little shit like me will experience what I did at UCLA. I tested my limits freshman year. I drank too much and threw up too often. I joined crew and pushed myself harder physically than I ever imagined possible. I fell in love for the first time. I gained resilience when I had my heart broken. I met people from different economic backgrounds who gave me a sense of empathy. All of those things would have happened, but unfortunately they wouldn’t have happened in such a gentle and joyous and safe environment had I not been on campus.

All of those things will still happen to our young people. The question is, for middle-class kids, will they happen in such a safe and joyous place? Is there something about the campus environment that exposes young people — who are more creative, greater risk-takers, and more fearless — to the world and our problems and gives them the opportunity to craft better solutions? Will big tech’s entry into education reduce our humanity or create a net gain in stakeholder value?

Will other experiences fill those gaps in humanity? What’s going to replace that campus experience?

There’s an opportunity for something like an AmeriCorps, a Peace Corps, or the Latter-Day Saints mission. Think about mandatory conscription in Israel or Switzerland. It feels like there’s an incredible moment in time for an opportunity to have some sort of Corona Corps, whether we enlist an army of 18-year-olds for tracing or for some sort of social service. Give them the opportunity to serve in the agency of the greatness of others because, if we’re trying to make lemonade out of lemons here, the opportunity might be to mature a generation of people who, when standing next to each other, aren’t focused on their differences.

I think a lot of the progress we made in the ’50s and ’60s, in terms of legislation and bipartisan efforts, was a function of the fact that many of our elected leaders had served in uniform and they felt a sense of America first. Their progressive or their conservative values took a back seat to do what they felt was right for America. It feels like a really wonderful opportunity to create a generation that develops greater cooperation, a comity of man, appreciation for what it means to be an American through some sort of social service.