Call Me Back - with Dan Senor - Zoom University: Is Covid The Ultimate Higher Education Disruptor?

Episode Date: March 19, 2021

The price of college has been skyrocketing over the past few decades, escalating far higher and faster than the rate of inflation. According to one study, the cost of tuition at many schools is up by well over 1000% in less than a half century. For what? What about the product offering has actually changed? That’s a question that came into sharp focus as millions of students last March flocked to Zoom University...overnight.As recently as three years ago, one of my favorite business school professors, the late Clay Christensen, predicted half of all colleges in the US would close some time this decade...that their business models would be unsustainable and would be disrupted. And, then, of course, there was the pandemic. So, was Clay Christensen right? 

Once COVID happened, a lot of universities went out and said, hey, we're going to give you a discount. We'll take 10% off the price. And students started to scream and yell, like, Zoom University is not what I'm paying for. I'm not paying for what you think I'm paying for. I'm paying for Model United Nations. I'm paying for football games on Sunday. I'm paying for socialization. And it laid bare this kind of fundamental disconnect between what universities thought they were delivering on one hand and what consumers thought they were buying on the other. Welcome to Post-Corona, where we try to understand COVID-19's lasting impact on the economy, culture, and geopolitics. I'm Dan Senor. When we think about industries that immediately got hardest hit during the pandemic, the images that come to mind include restaurants, travel, theater, sports, and higher education. In the U.S. alone, post-secondary education is almost a three-quarter of a trillion dollar sector. The price of college has been skyrocketing over the past few decades, escalating far higher and far faster than the rate of inflation.

According to one study, the cost of tuition at many schools is up by well over a thousand percent in less than half a century. For what? What about the product offering has actually changed? That's a question that came into sharp focus as millions of students last March flocked to Zoom University. Overnight. As recently as three years ago, one of my favorite business school professors, the late Clay Christensen, predicted half of all colleges in the U.S. would close sometime this decade, that their business models would prove to be unsustainable and would be disrupted. And then, of course, there was the pandemic. To help us understand what the disruption and the coming transformation might look like, we sit down with my friend Daniel Pianco. Dan has a long venture investing career in the higher education and training sectors. Dan himself is a disruptor, and he's co-founder and managing director of the investment funds

University Ventures and now Achieve Partners. So was Clay Christensen right? Is the college economic model being turned upside down right now? Or due to COVID, is the trend accelerating even faster than Professor Christensen ever imagined? And if so, what comes next? This is Post-Corona. And I'm pleased to welcome my friend Dan Pianco to this conversation. Dan, good to be with you. Great to be with you, Dan. Welcome to post-corona. May it come very soon. Yeah, yeah. I was about to say, whenever I say that, people are like, we're not period that post-corona has been for the higher education industry.

Before we do that, when I knew we were tackling this topic or tackling part of this topic, you were a logical person in my world to have on. But I want our listeners to understand why. So I want to go back to the first, just briefly on your bio, when you first got into the investing world and when you got into the investing space in higher education, which I think you wrote the first investment memo for Bridgepoint University. Is that right? Yeah, it became, I was a summer intern to my current partner, Ryan Craig, and he was running education and training at Warburg Pincus. And where were you? You were at Stanford at the time? Stanford Business School, yeah. And I had been in education prior and an investment banker at Goldman Sachs. But I decided I didn't want to

help rich people get richer. I wanted to try to save the world and ended up here. But, yeah, Bridgepoint became probably the, we believe, the fastest growing university in history. It went from zero to 70,000 students in about five years and was a very successful investment for Warburg. And that's really what it was. And went public. It went public, yeah, and still publicly traded. And what does Bridgepoint do for folks who don't know? So it was one of the first kind of for-profit online colleges that focused on access.

So it tried to be a low-cost provider of online credentialing. And, you know, there was a lot that we got wrong in that process. We realized that, you know, at the time, there was such an explosion of demand for people to get a credential, you know, people in our neck of the woods, think that everybody went to college, you know, if you think about the people you speak to on a regular basis, probably everybody you know, went to college. And then if you take another... That is certainly true for every guest of the Post-Corona Podcast. And then you think about how many went to one of like 50 universities in the country, right? So how many people... I would narrow it. I would say probably 20.

20. So, you know, of the 4,500 universities, you know, everybody in your network, social network, business network, probably went to one of, yeah, 20 universities. But for the great, for everybody else, you know, only about 30% of Americans have a college degree. And so there's a sort of massive market. There are probably about 100 million people who have some college but no college degree. And so what Bridgepoint did and a number of schools at the same time was to say, hey, we've got to open up access. We've got to grow the number of people who are getting a college credential because everybody was requiring it, whether you're a teacher, a fireman, cop. Everybody was getting pay raises and increases by getting the college

credential. And that's what Bridgepoint and Grand Canyon, a bunch of other universities started around the same time did. And then at some point you started University Ventures. Yeah. So we realized that what we call version 1.0 of for-profit education didn't instill the best. And there have been a lot of articles about this, the first version 1.0 of for-profit higher education didn't work out so well for a lot of people. And so what my partner Ryan and I thought was there's a better way. There's a way to invest in education in a very socially conscious way that takes the best of traditional higher education and infuses it with entrepreneurship.

And that was what the reason for founding University Ventures was. And we've backed some of the really impressive entrepreneurs in the space. And it's been an exciting time. So we often cite that line by Vladimir Lenin that was attributed to Vladimir Lenin, where decades pass and nothing happens, and then months pass and decades happen. So it seems like in the last few months, decades, the equivalent of decades have happened, at least in the higher education market. It feels like everything. Yeah, it feels like everything we've been talking about for the last 10 years happened like overnight right during covid during covid yeah you basically have

you know for years we've been telling people hey it's you can you can deliver education online it may be different it may feel different um and and a lot of people said you're crazy you know my my uh a lot of family members who are in academia all went to, you know, those same 20 universities or teach at those 20 universities. And, you know, it's sort of the social pariah where I'd say, because I had been saying for a long time that, you know, there needs to be a change in how higher education is delivered. We need to do it more efficiently. We need to use new modalities. And everybody would, you know, the growth of higher education online had sort of capped. About 30% of Americans today take at least one course online and less than 10% fully online education. And we went from that reality to everybody in Zoom University in the space of like three weeks. You know, you visit a college campus.

I was on a college campus the other day. Wait, you were on a college campus the other day, and literally- Wait, you were on a college campus the other day? Yes. That's a- Okay. Another, but I went to a college campus, and you literally had the meals still out from what people were eating.

It was like everyone just left. You had all the stuff in everyone's dorms. They let people come in, And it was as if this whole ecosystem of on-campus life just vanished overnight. And the replacement was Zoom University. And that is when a lot of your listeners or friends, that is the college student who ended up in your basement on Zoom learning in about March and April of 2020. Okay. So I want to talk about some of these trends that you had been identifying. And in conversations with you, I've heard you reference these trends over the years, which I always thought were interesting intellectual exercises, thought-provoking, but to your point, we never were forced to actually reckon with them.

So in tackling this conversation, I want to break it into two parts, because it feels like there are two different segments of the market. First of all, the higher education market in the US is about a $600, $700 billion industry. Yeah. People don't think of it as an industry, but that's how much we spend, yeah. And that includes elite colleges. Right. So if you think about it, there are about 4,500 universities in the United States,

of which the average American can probably name 20, plus those that play college football or in the NCAA finals that are coming up. And so the conception, America's conception of higher education is generally between 50 and 100 universities. But it's clearly a much more diverse ecosystem than that. There are about the largest single segment of higher education, actually community college. There are 5 million Americans in community college. This is what Dr. Jill Biden is so focused on. And then, you know, there are about 5 million people in master's programs or postgraduate programs. But the

section of the higher education ecosystem that you think about as college is actually really, really small. It's generally considered as 5% or less of higher education. So let's talk about, let's break these two apart. So in the elite category, the 20 universities we were just talking about, which it's obviously probably more than 20, it seems like historically it's been offering a bundle of services. The bundle has included knowledge transfer, so just learning stuff. It's price for that experience at an elite institution is roughly, for a four-year degree, roughly $250,000, and rapidly escalating in price. In fact, as Marc Andreessen has pointed out, at the rate at which college education at elite institutions for a four-year degree is increasing. It is increasing at a faster rate than the rate of inflation. At some point, the not-too-distant future will blink, and it'll

be a million dollars for a four-year experience, four-year elite college experience. We've never had to unbundle those services and try to apply a value to each one of those items in the bundle, right? Like cable news, like a cable package. It's a bundle. You don't really know how much you're paying when you pay that monthly bill. You don't know what you're paying for Fox News versus ESPN versus the basket weaving channel versus... So elite college education is the same way. You're paying a big ticket. You don't really know what you're paying for. And then to your point, this past year, students couldn't do the socialization. They were off the campuses. And so they're getting some

knowledge transfer virtually, and they're getting a piece of paper at the end. And the market is saying, what is that worth? Yeah, I think what's most interesting is that what universities thought they were delivering and what consumers thought they were buying were just fundamentally different. So you described it almost like a consumer, right? Like this is the credential I'm getting. I might get a job out of it. I'm going to learn something. I'm going to have the social experience.

And academic institutions think of themselves as academic institutions, right? The sports is an ancillary service in a lot of respects. And so I think what COVID laid bare was this massive disconnect. So once COVID happened, a lot of universities went out and said, hey, we're going to give you a discount. We'll take 10% off the price, right? And students started to scream and yell, like, you know, Zoom University is not what I'm paying for. I'm not paying for what you think I'm paying for. I'm paying for all that other stuff. I'm paying for the lazy river. I'm paying for the fraternity parties.

I'm paying for Model United Nations. I'm paying for football games on Sunday. I'm paying for the fun. You know, I'm paying for socialization. And it laid bare this kind of fundamental disconnect between what universities thought they were delivering on one hand and what consumers thought they were buying on the other. And then you get the third party here, which is government, which had a totally different conception of why they're funding higher education. And they think they're funding higher education for economic benefits to the whole society. And so these are the three payers or participants in the marketplace, and they all have very fundamentally different visions of what they're trying to do.

Just so we understand why the cost of education, of elite higher education has gotten so expensive. Supply is limited. There isn't that much of elite brand college experiences available. And it's interesting why. It would be interesting to understand why it's so limited. It's constrained. And yet the government keeps subsidizing demand through government supported research for these institutions, through taxpayer funded tuition. So there's like tons of money being pumped into the demand side and supply is limited. So I kind of understand structurally why prices keep going up, but why are we allowing that to

happen? So first of all, the irony, the great irony is generally the elite universities are cheaper than the non-elite universities. Really? Yeah. So, well, as in terms of what people pay. So non-elite universities actually charge roughly the same. Many of them charge roughly the same as the elite universities. And the elite universities have massive endowments and the capacity to offset costs. And so really what you have is price discovery. So if you're poor, an elite university will make your education free or even frequently pay you to go there. If you're rich, they'll slap $50,000 on the ticket.

And, you know, if you really want to get in, it'll cost you about $10 million. So, you know, the actual price of college is what people don't realize is college admissions officers bear more resemblance to a used car salesman than they do to what you envision. And what I mean by that is if you call up a college and say, hey, the one next door gave me a better deal, but I really want to go to your college, can you match the financial aid package? Frequently, they'll do that. And so for elite universities that are trying to attract, you know, find and attract people from, you know, different backgrounds. They're willing to severely discount the price and again, perhaps even pay you. Whereas if you're an international student with money, they want to charge you as much as possible

and not just charge you as much as possible, but also ask your parents to donate money or the alumni to donate money to support you. And most foreign students are paying full freight? Almost all. Yeah. And one of the great other shifts that COVID impacted elite and frankly, all education institutions was the removal of international students from the equation. And that will probably have the biggest financial impact on higher education in the near term. And only accredited universities can get government funding? Yes, but almost every, you know, again, there are 4,500 Title IV participating institutions in the United States. So effectively any, you know, community college, liberal arts school, school down the street, Jesuit college

all has access to Title IV. But who decides, who determines accreditation? So the government recognizes certain accrediting bodies. So, for example, Harvard is— But those bodies are comprised of other universities. Of other universities, right. And so the economic phrase we were talking about was actually Baumol's hypothesis, which is that you're going to always increase the price of certain goods like education. And that is very much true. A lot of what's held up the pricing has been the government federal funding program, the Title IV program.

This is a student loan program that, you know, for better or for worse, during the health care reforms under the Obama administration, was effectively federalized. So almost all student loans in this country now are federally granted. And the structures of how that funding works are driving a lot of the price increases. Now, I should say that consumers of education are actually really to blame for this. They've been funded by the government, but you know what the most biggest determinant of whether you pick a college? A lot of it is like the weather on the day you visit. I mean, there are all these— Seriously?

Seriously. The weather, sunny day. If you go visit a college on a sunny day, you're much more likely to go there. The first college to call you back is a huge determinant on which program you take. The dorms so the the universities are it's like an arms race for the best dorms you know lsu lazy river so you go to the dorm in lsu and there's a big lsu late you know you know what a lazy river is like yeah yeah and and that's what people want so in order to attack attract sports programs then? Sports programs, all that kind of extra stuff.

As spectators, students as spectators. I mean, as fans, not to participate in the program, but just to be part of a fan base. Although one of the best ways to attract students is to give them a varsity letter, right? So another piece to this is everyone wants to be an athlete, right? Everyone wants to have played sports in college. So add a sports program, right? Why do you think there's a sailing program? Why do you think there's a water polo program? Why do you think, you know, you, you, you know, why does

Amherst have a, have a baseball team? You know, I mean, yes, it's nice to have, and, but it's really for those, you know, 15, 20 students who really care about baseball. You know, I'm not sure even the Amherst baseball team attracts, you know, a lot of fans. You know, the number of sports teams in college that actually attract a reasonable number of fans is extremely limited. So this whole, all these extra things are what's driving up the cost. The cost of education actually remained relatively constant. And what about, I've heard some people argue that from an employer recruitment standpoint, recruiting students out of colleges when they graduate, because companies no longer do or say that they don't do personality tests anymore, they don't do IQ

tests, or they don't require IQ tests, and for a variety of reasons, I guess it became somewhat controversial, that they rely on the university to do, the elite universities, to do all that, to do the equivalent of like, if you can, if they've kind of vetted you, and if you can make it through the program, that's its own personality test, that's its own IQ test, the SAT is its own, one could argue, a version of an IQ test, that basically companies are delegating to universities these tests and practices that have become too politically incorrect. So again, unmasking emperor has no clothes in higher education admissions, right? What you're really actually outsourcing that decision-making process to is effectively wealth and embedded advantages that certain students have. So most, about 30% of students go to, at these elite schools, go to probably about 300 prep schools,

right? So something like 30 people from Harvard, Westlake go to Harvard every year. You know, Lawrenceville sends like 45 to Princeton. I mean, these numbers are insane. And so what's really happened in higher education admissions is they've effectively outsourced who gets in to sports coaches, who got their kids into elite preparatory schools, and who won the lucky sperm club of being born to someone who went to one of those schools before? And programs like affirmative action or, you know, finding that great gem of talent is not really what the admissions officers are doing. That's the vision. You know, I think that one of the best pitches I ever got was someone who said, I'm going to create Cerebro for higher education. Do you know the X-Men? You ever watch the X-Men? It's when Dr. X puts on the thing on his head and he sees all the mutants everywhere. And the vision that most employers have is like the Harvard admissions committee

is like Cerebro finding the top people in the world. That's a myth. Okay. The number of Cerebrofound talent out there is extremely low. They recruit from, you know, a very limited number of schools. And, and I think that employers are increasingly realizing that, right? Because, um, the people who are getting into those schools, um, aren't necessarily the most talented people out there. And so, you know, one of my places that I went out of college was Goldman Sachs. And Goldman Sachs used to recruit from a very limited number of schools. They very publicly, about five years ago, seven years ago, said something to the effect of, the people who went to Harvard don't become partners here. And they realized their whole recruiting mechanism was wrong. That people would go and recruit their friends from the places where they went,

the same finals club, the same this, all that. And those weren't actually people who were really successful. In my analyst class, the two most successful people within the context of Goldman Sachs, right, one went to University of Virginia and one went to Georgetown. These are great schools still in that top 50, 100, but not in that top 10 or 20. So the Ivy League schools, I happen to have gone to Columbia. And I, you know, and so, you know, you think about sort of the force ranking of schools and people perceive those kids to be not as smart or not as good. But those were actually the guy, the one girl, one guy, who became the most successful within the Goldman

context in our analyst class. And so what Goldman started to do is they said, we're not going to let people know in the first round where people went to school. We're going to disaggregate where you went to school from the recruiting process. And what they found is, and broadened, substantially broadened the number of schools they go to in the sense that the first interview is a video or whatever. And they found that their recruiting has gone up substantially. McKinsey has very publicly said, we're going to stop recruiting the way we've been recruiting and we're going to give people a game. We're going to try to encourage

alternate pathways in because the Harvard admissions committee isn't doing it anymore for us. Okay, so now you have all these innovations taking place and new companies being started or new companies taking off in this COVID environment? Obviously, we talked, you know, Coursera is going public. First of all,

what is Coursera accomplished that MOOCs didn't? That's my first question, actually. So what Coursera did, Coursera was the first ed tech company in a long time to make the front page in the New York Times. Because they partnered with all these elite universities and basically we're going to put all these videos of famous professors online and isn't it great you can take artificial intelligence from Stanford and you can… And it turns out that they got 77 million people to start watching these videos, but they weren't actually like college students.

They were people who were just interested from around the world in these topics. And then if you look at their S1, what's really interesting is where they're making all their money is actually short courses. And short courses are very tactical things like how to learn to use Excel. That's an easy one for Coursera. Short courses meaning the curriculum is short or the individual classes are short? Both. It's a very skills-oriented program that tends to be very short form in duration. So learn to code in Python or something that's like a very discrete knowledge base. And so if you look at their S1, almost all their revenue comes from these short courses and not from the Harvards of the world with their renowned degree program. So this is kind of the fundamental difference between the elite and the focus on the elite.

If you think about Coursera, the reason you know Coursera is because they got the elite institutions to go ahead and put their stuff online. But what's driving the value creation, the innovation is actually making short courses, these kind of highly skilled oriented courses, available to large numbers of people at scale. Okay, so let's talk about the non-elite market. First of all, a little more specificity on what the service being provided by the non-elite market is, I guess, my first question. And then secondly, how has that space been really affected by these last 10, 12 months? So when we talk about non-elite, we're talking about a huge other, the other 4,450 universities. So even that is very large.

But the primary difference is that 90% of people who go to higher education go to higher education to get a job. It's all that education stuff, all that socialization stuff. Right. It's not about personal growth. It's not about finding yourself. It's not about building a network. It's a one-way ticket to a job. So the value proposition is sold.

It's a one-way ticket to the middle class, right, for a lot of people. Got it. And for the elites, just to people and you know for for the elites just to make this quick point for the elites going to harvard means your kids gotten into that elite and it will go for another generation right for people who go to the you know not not the ohio state but you know the the the community college or the the state university system in like, you know, uh, Toledo, um, is, is a, should be a job factory, or at least that's what consumers want it to be. Uh, they want it to be, and, and policymakers too. Uh, and so the, the big difference between

the elites and sort of everybody else is this, the job imperative that suddenly overtakes everything else, at least for the students and the funding sources. So with that in mind, I've seen a statistic that 50% of, this is pre-COVID, 50% of people who graduate from one of those schools are unemployed or underemployed immediately after graduation. So how's that going? That's not even the worst statistic. So of the 100 people who start one of these schools, about 50 graduate. And of those 50 graduate, only about half get a job that utilize that degree. So higher education outside of the elites has about a 25% success rate. And so this is the classic barista at Starbucks

at the, you know, they graduated, um, who has a college degree, but it's even worse for the, you know, 50% who, who didn't even get to a degree because they took out a lot of debt, right? College is expensive, took a lot of time and they't even get to a degree because they took out a lot of debt, right? College is expensive, took a lot of time, and they didn't get to a degree. So we don't need to talk about both of those, but I think it's important contextually to understand just how poor that other segment of higher education is doing relative to the goal at hand and the job at hand, and the job at hand is the employment imperative hand is to get is the employment imperative and this was all a pre-covid problem but just just to put a very you know a fine point on it something if you if you want to go into some kind of sales professional sales job out of college you these days need sales force platform training or a comparable And there's something like, pre-COVID, there's something like 300,000 open Salesforce jobs in the US alone. And there'll be millions,

I presume, in the next few years. And people are graduating college having trained in sales in some form, and they're not even trained in something as basic that every company in sales needs you to be proficient in. If you ask the 4,500 presidents of college presidents in the United States, how many of you train on salesforce.com? At this point, I think they're one or two. And that's CRM in general. Yeah. So the gap that what you're describing is this chasm between education and employment. What COVID has done is made this problem even worse, right? Because that first job out of college is really hard for people to get. Think about how you got your first job, right? Someone came on

college and recruited you, or you knew somebody. The best way to get a job is to know somebody or to show up at the college recruiting fair day. If you don't have access to those opportunities, you're not getting a job. So unemployment for people who are recent college graduates is through the roof, right? And people who don't have college, some college, but not a degree, it's even worse. And so what you're seeing is a massive dislocation for the 22-year-old, you know, who went to, even who went to a good school or conceived of as a good school, who can't get that good first job. And this problem was preceded COVID. Now, here's the irony. We have 7 million unfilled jobs in this country. So theoretically, these colleges, if they were training on the platforms that businesses want,

they should be jobs factories. Because pre-COVID, we had 7 million unfilled jobs. And post-COVID, we still have 7 million unfilled jobs. That's what people don't understand. Everyone's focused on the restaurant worker that went away, right? And that's horrible. And the hotel workers and people who are seriously misplaced by the economy. The jobs that are available, this is what COVID is accelerating, is technology.

It's health care. You couldn't find a nurse. You can't find a Salesforce administrator. If you want Python programmers, the price has gone up. Why? Partially because H1B visas went away. Everyone went home. And you can't find the same type of talent. And so we have this situation where there are a lot of jobs out there. People want jobs. And we

don't have the ability. Higher education wasn't those set up to get people a job. Higher education was set up to transfer knowledge, to provide research. And that's the job to be done that most people perceive of in higher education. And what's changed in society is we've gone from the top 1% going to college, right? Up until about 1920, if you didn't know Greek and Latin, you didn't go to college, into something that everybody has to do to be part of the modern economy. And that may not be the right answer for everybody. It would be foolish to say we shouldn't invest in higher education because we clearly need it for economic competitiveness. But what is clearly true is that that investment in education

has to be more closely tied to employment. So it seems that the one institution that would understand the skills that are necessary for these jobs, that could fill this void that you're describing are the companies, the big hiring enterprises, a Google University, a Walmart work certificate. I mean, you could start a Walmart training certificate. You can start to imagine these companies that employ a lot of people know exactly what they need, building their own education and training institutions. Why isn't that happening? Because JP Morgan and Google don't want 3,000 18-year-olds running around their campus who don't know what they're doing. And so what you have happening is that Google's answer to this is to put up a bunch of stuff on there they're

creating google you or whatever they're calling it google cert and um those programs they're making available to everybody at free or no cost or free or very little cost um one of the great mooc providers was uh it is udacity andacity. And Sebastian Thrun, this amazing... Yeah, why don't you tell the story of Udacity? Yes. So Udacity, founded by one of the great AI, Google engineers, automated car... Who's now... Sebastian's now building flying cars.

Now building flying cars. He said, I'm going to hire people who do the best in my MOOC. Those were the most popular MOOCs. So everyone took this MOOC, you know, thousands of people from around the world, and he hired the top person. Google doesn't, you know, so you, this is, I think, kind of one of the most interesting that COVID has kind of accelerated is, you know, the traditional hiring paths are breaking down. And what Google doesn't want to hire the unwashed masses and bring in a bunch of 18-year-olds into their campus, but what they do want to do is identify,

they want Cerebro to go out, have 40,000 people take a MOOC, and then pick the best one. And so what that kind of mind shift is, well, then why are we recruiting on Stanford's campus? Remember, Stanford's admissions committee is just hiring who is a good sailor at the prep school at Pally High. They're not going out like Cerebro style to find that really smart, driven person who didn't come from a good background and their dream is to go work at Google. But most people who work at Google still have Stanford degrees.

Now, think about other companies. Google is just one company. Thousands of people apply to Google. There are a thousand companies, though, in the Fortune 1000. How hard is it for Geico to attract Python developers or ai programmers no one's heard of geico how hard is it for a hospital group to say i need healthcare

it professional you know you know what a healthcare it professional gets paid in the united states right now tell me 150 200 000 yeah you know what a biology major makes when they graduate? What, $30,000? $30,000. So one of our portfolio companies, Optimum Healthcare IT, works with the University of North Florida. And by the way, going to get a biology degree, it really is effectively now just pre-med, right? It's a path to— Right. They don't learn a skill, right?

This is the fundamental problem. They're not learning a skill. But they have all the building blocks, right? They is the fundamental problem. They're not learning a skill, but they have all the building blocks, right? They probably had some statistics. They took some stats. So we have a program. Optum Healthcare IT is one of the top implementation firms for Epic and other electronic medical record systems,

basically a healthcare IT implementation firm. We recruit a lot of recent biology graduates whose alternative is making $30,000 a year. We hire them from day one. We run them through a training program at University of North Florida, which is in Jacksonville where the company is based. We guarantee them a job. When they graduate, we pay them $50,000 or whatever the right number is. And then over the course of two years, we train them.

We get them certified on various systems. And at the end of two years, we encourage their end customer to hire them. We encourage, you know, if they work for Mass General, they go work for Mass General. You know, this is a clear pathway from a academic degree to a real job that has a real career outcome that pays six figures. And we find these opportunities all over the place.

The lack of Salesforce administrators, cybersecurity professionals, right? All these jobs, you can open the New York Times and just see all the job openings that there are. But they're not in these old line economies. And what's driving this is a digital skills gap. It used to be that if you want a job in sales, you entered a training

program with some large insurance company or whatever. They taught you how to sell things. You went to work and you worked up your ladder. All those training programs are gone. Now, employers are saying, if you want to come work here, you have to have done that job before. You have to know Salesforce in order to get a job in sales. And then that's why you talked about the recent college grad problem, right? That's why that 45% of the graduates are still underemployed, because they haven't learned those skills, and they haven't found a company that's willing to train them. If we were to look at Germany, what would be screaming out to us as a model is the German apprenticeship program, right? Where German corporate community is completely synced

up with the university community, and they really are training people for the jobs that companies are trying to fill. A, am I right about that? And B, why aren't we doing more of that? So I think if you went to the German economy, that would be true for more old economy skills and less new economy skills. So they are struggling with some of the same issues, but they have developed over literally hundreds of years a system where they provided not just funding, but the encouragement and a bunch of other support structures and geared their universities around their employers. It's very hard to do that in the United States because we have this gap. American universities don't want employers in, it's corporatism, it's all that. And that is true. And there is a place for pure knowledge discovery and building. But the result of that is we don't have these pathways developed. And if you look at where we're spending the most time from an investment perspective,

we are building intermediaries in these skill gap areas. Our big thing is there should be a series of companies that literally walk you from college grad to $100,000 a year job. And you can do that by buying old line, you know, not old line, but traditional services businesses and adding education and training and creating these apprenticeship programs. And so when you look at why all these politicians fly over to Germany, eat schnitzel and riesling, and talk about how great the apprenticeship program is, they're seeing 200 years of history. When they come back to America, they realize, hey, you know, Google doesn't actually need this.

JP Morgan doesn't want it. Geico doesn't really want these kids running around. What's happened is we want fully formed, like Athena out of Zeus' head, professionals who aren't going to create risk for us, who aren't going to have any friction when they start. And so that's the future. In your view, what is the difference between education and training? Is education all about jobs, or is there a distinction? So I think that's one of the biggest problems we have kind of intellectually between the two. And I think they're actually much more closely linked than the people who ask that question think. Nobody in the 21st century thinks that someone who is, um, knows how to use a computer program also doesn't need to know civics also doesn't need to know how to do presentation skills

also doesn't need to have the whole package. And so when we run our apprenticeship programs, we teach people how to, you know, we, we, we encourage people to come in a shirt and tie every day. We encourage people to show up at 9 a.m. You know, these are soft skills. We also encourage, we do presentation work, how people work together in teams. There is a real difference between what I'll call like the effectively the three R's, right? Reading, writing, arithmetic. Like it is the state's responsibility to get people to a base level of skill. And we should spend whatever it takes to get every American up to that base level of skill. Once you get there, the question is, how do you then allocate resources in such a way that the remainder of their education isn't a waste?

Jeff Colvin has that terrific book, Humans Are Underrated. He basically argues at the pace at which technology is advancing none of us will actually be able to keep up with all the training in the world and these soft skills that you're describing are going to become more important and ultimately the most differentiating and so for all our obsession with getting our kids to be you know turning into like coding monsters we actually we're better off making sure they're well-adapted, highly functional, emotionally intelligent human beings. And, you know, with that piece moved out of the university experience over the past year, I just wonder, you know, are we going to return to a world in which there's a big premium put back on that?

Or are we actually going to, I mean, just asking you to look into crystal ball, are we going to gradually learn to live without it in terms of how we educate young people? So I think COVID has taught us what's right and what's wrong about that. The answer is not everyone's going to go to school on Zoom, and we're going to completely abandon the university system and structure. Universities, besides the Catholic Church, universities are our oldest continuously functioning set of institutions in the world. The first modern university is generally credited with, found in 1088. And if you go back to the Muslim world, back to, I think, the 8th century.

And there's a reason why, you know, through plagues, through principalities, through, you know, governments falling universities have remained. The function of a university is part of what separates us from other beings on this planet. And I strongly believe that universities will be here for 30, 50, a hundred, a thousand years to come. What they do and who they educate is going to change. The modern university didn't really develop until the 1900s, early 20th century. I mentioned that you needed to know Latin and Greek. For a thousand years, you needed to know Latin and Greek, and then that all changed.

We're going to see a similar change. But there's been no innovators since then, though. So when's the last modern research institution that's been accredited what was stanford like the last one just think of your alma mater no uh mit really um but um which is when when was that but i think i think if you 1920 if you go back the the robber barons are the group that innovated the university the the the people who built the railroads right leland stanford the people who built the railroads, the people who built the steel mills, the technologists of the late 19th, early 20th century

were the people who built the modern research institution. I am fascinated by what, as a Silicon Valley, you know, Jeff Bezos and Elon Musk are in a solid space, some other mega billionaire from the modern tech industry is going to solve space, some other mega billionaire from the modern tech

industry is going to figure out a way to totally revolutionize higher education. And maybe even be a Bitcoin billionaire, right? I mean, what does it mean to put all of this on the chain? What does it mean for the credential? Right now, your credential is a piece of paper. That's such an antiquated notion. The skills you have learned are on a transcript. How antiquated is it

that you still, if you want to tell somebody what you learned in college, you hand them a piece of paper. So the range of innovative options here is so large that it almost becomes difficult to see the future.

But I firmly believe that what Zoom U has taught us is that those interactions, those personal interactions are actually the core of what universities are. And I'm a big believer we're gonna go back to that. Before we wrap, you recently, a few months ago, in the middle of COVID, wrote an op-ed for the Wall Street Journal

in which you talked about how one of your first investment banking clients as a young guy, as a young, I guess, when you were at Goldman Sachs, was helping Joe Ricketts take his company public and what that experience taught you about where education is going and education, affordability, and pricing, higher education, affordability, and pricing are going. Can you talk a little bit about how that experience a million years ago influenced your thinking today? Yeah. So Joe Ricketts was a guy, you know, I had grown up in New York and had all the snobby affectations that that resulted from and believed everybody who wasn't from New York or LA or San Francisco was clearly a rube. And that was sort of

bopped into me through my education and my upbringing. And one of my first clients was Joe Ricketts, who was based in Omaha, Nebraska. And he was the most innovative guy I've met in a long time. And so he kind of set what I, and he barely remembers me. He called me after the article came out. He's like, I know you don't remember me, but you had a huge influence on my life. Because this was a guy who, from Omaha, realized that the phone and the fax machine was going to revolutionize how people traded stocks. And stock trading, even your listeners probably don't remember this, it cost $200 to make a trade.

Every time you picked up, you know, now trading is free, right? Robinhood, GameStop, you know, trading is free. But at the time when Joe got started, he was the first person to take things by fax. He said, I'll charge you $19.99 or whatever it was. And then when the internet came along, he said, hey, this internet is even better than the fax machine.'m going to charge you 9.99 and i remember being on the road show on the back of a limo in you know frankfurt or something and i said to him because joe kept on telling talking about how he was going to um you know keep reducing the cost

i was like joe at 9.99 you're barely making. How are you going to get even cheaper? He's like, one day, I'm going to pay you to trade with me. And I thought he was Looney Tunes. Today, Robinhood is effectively paying you to trade with them. And the reason why was because what the product was changed. The product that Joe Ricketts, that Merrill Lynch, and Goldman Sachs were selling was a stock trade. The product that Joe Ricketts and Robinhood now sell is order flow. Google, they make money. It's free to the user, right? But it's selling your advertising information.

What's the equivalent for college? Well, the clear equivalent for college is, well, the employers are willing to pay a lot of money to headhunters, recruiters to find them talent. What if colleges were free and made their money by supplying healthcare IT professionals to my company. What if college were free so long as they provided a Salesforce.com administrator to Benioff? And you flip that on its head and suddenly you think, well, that $50,000 a year price tag that we talked about earlier and how the colleges said, hey, we're going to give you a 10% discount. Well, and everyone kind of went nuts and said, that's not enough. Well, I think what you're going to see is a radical rethinking of pricing. You're already seeing this.

The fastest growing universities in the United States right now are universities you've probably never heard of. Western Governors University, Southern New Hampshire University, Arizona State University, which you've probably heard of because they have a good football team. But what they're all doing is they're offering very low cost online good degree programs at, say, $9,000 a year. And you know what they're based on competencies you don't get right now when you go to college you know the carnegie unit if i sit in class if i sit in class for an hour and a half two days a week for 15 weeks i get three credits right no at western governors university you get credit when you learn a set of skills and and so this this is what's revolution the the western governor is probably over 100 000 students right now so you look at what um the diet you know

what traditional education is doing and the big campuses and what the elite see as education or even the community colleges out there. And then you see a Western Governors University at $8,000, totally competency-based, growing at 20,000 students a year, and you see the future. You mentioned the Baumol effect earlier, or the Baumol cost disease, and it applies to education. It also applies to healthcare. It applies to housing. I mean, you think about housing, healthcare, and education, those are three areas that, and we can think of others that really define quality of life for big swaths of American life. And you're in the thick of one of those three, and it's a big one, and it's really upending our world,

or how we think about the world of education. So I'm grateful for your time in helping to educate me and educate our listeners. And I feel like we just scratched the surface, Dan, so I'm gonna have to have you back, not only because there's more topics here to dive into, but also because I wanna see if any of these predictions you have made about the transformation that we are going through are really going to come to pass on the other end. A hundred percent. And I think if there's

one thing COVID did, is it accelerated these trends in a way that it's going to be hard to walk back from. And so I'm really excited to see what happens for the next 20 years. And I'm glad you're doing this podcast focusing on what the next steps are in a post-COVID world. Thanks for being with us. That's our show for today. If you want to keep up with Dan Pianco, you can follow him on Twitter. He's at Daniel Pianco. That's like piano, but with

a K. You can also go to the Wall Street Journal website to track down some of his old op-eds, including the one I cited from last year. If you have questions or ideas for future podcasts, tweet at me, at Dan Senor. Today's episode is produced by Ilan Benatar. Until next time, I'm your host dan senor