On Innovation and Commodification

I had a wonderful time at the Moodle Moot two weeks ago. Conferences for different LMSs tend to have very similar presentation types (how to migrate, tricks for making the grade book usable, great Web 2.0 tools that integrate with the platform, ways to improve training and help, etc.), but the crowds are different. Moodle Moots tend to be heavy with people who are very pedagogically focused and sophisticated. (They also, apparently, attract a high percentage of iPad owners.) Anyway, it was fun.

One of the best parts of the experience was getting to spend time with David Wiley (who, in addition to being a pioneer and major driver of OER propagation, is also one of the truly great human beings in the field of educational technology). David and I had dinner the last night of the conference and got to talking about how textbook publishers are moving in the direction of developing platforms that go well beyond the book in terms of what they deliver to students, e.g., Cengage’s MindTap, Pearson’s MyLabs, etc. He asked me whether I think open source and open content could build something similar. I replied that the infrastructure being built around Khan Academy is a step in that direction. David mused that it must be frustrating for textbook publishers to face not only competition from other publishers but also the open content movement constantly working to undermine their business model. I didn’t give him a very good answer that night. This blog post is my attempt to formulate a better one.

I have written before that there are two things that matter in the future of textbooks: cheaper and better. These are really imperfect proxies for educational access and educational quality, but they work well enough for my present purpose. The important thing to understand is that the mechanism of a free and properly functioning market ties these two goals together. Companies are profit-maximizing species. They survive by making money, and they will tend to evolve in whatever ways enable them to continue making money. Commodification forces evolution by taking away the existing source of sustenance.1 If you are building Toyotas and you find yourself competing against Hyundai, you need to deliver something different to justify the higher price you want to charge. It might be hybrid technology. It might be new safety features. It might be better reliability. It might be better customer service. Whatever it is, it has to be something that customers believe is valuable enough to make a Toyota better than any generic, cheaper car. The same thing is true if you are a pharmaceutical company competing against generics, a proprietary LMS company competing against open source, or a traditional textbook company competing against OERs. Cheaper drives better.

There are a few critical caveats here. First, in a free market, “better” means whatever people will buy at a good price for the company, which is not necessarily the same as serving our deeper values. It can be the same, but whether it is or it isn’t comes down to whether the purchasers (a) are buying based on those deeper values (e.g., whether a product actually helps improve education) and (b) are savvy consumers. Second, innovation is not the only way that companies can respond to the pressures of commodification, and some other responses are less healthy for those of us who are dependent on their products. I have used an evolutionary analogy so far, but I often refer to companies as profit-making machines. They are amoral in the same sense that your lawn mower is amoral. They do what they are designed to do. The morality of the people in the company can have an effect, but the structure of the machine itself (e.g., the requirement to deliver steady quarterly earnings to the stock market) can be overwhelmingly powerful in determining the behavior of the company regardless of the people in it. And third, there is a delicate balance regarding the pace of commodification that is both critical to achieving innovation and highly specific to particular products and markets. If commodification happens too fast, then companies will simply not get into the business to begin with because there will be no way for them to make money. If it happens too slowly, then there will be no pressure for them to improve their products and services.

The education markets are particularly fragile in relation to these caveats. To begin with, educational purchasing decisions are mediated in all kinds of weird ways. The students buy the textbooks, but the teachers pick them out. The students and teachers use the LMS, but the institution as a whole buys it (often heavily driven by the IT department). Also, the general lack of money coupled with Byzantine purchasing practices makes it difficult to sell to educational institutions profitably in some respects but easier for companies to game the system in unhealthy ways in other respects.

This is why we must vigilantly attend to the balances needed to create a healthy ecosystem in educational products and services. It is why I was so adamantly opposed to Blackboard’s assertion of its patent, and it is also why I have always insisted that Blackboard should be given a fresh start in the market once they ceased to assert that patent. Intellectual property law was intended by the Founders to strike a utilitarian balance between ensuring that individuals and companies have financial motive to innovate and ensuring that that they have financial motive to continue innovating. Due to the particular circumstances of the educational technology market, I believe that the patent assertion tipped the balance in favor of leaving insufficient pressure to continue innovating. There were other reasons one might have objected to the ‘138 patent, but for me, what it did to the market was far and away the most important. Now that the patent issue has gone away, competition in the educational technology market is heating up fast. Blackboard’s incentives are the same as those of any of its competitors. I believe that Blackboard is becoming a better company in response to those competitive pressures. Their customer service has improved measurably. They are paying increased attention to usability and implementation quality. They have been more aggressive in adopting open standards. We should all want this. We should want Blackboard to do well by serving its customers well, just as we should want Sakai, Moodle, Desire2Learn, and Instructure to all do well. Each of these entrants has the capacity to innovate, and each has the capacity to commodify. I certainly don’t want to suggest that only companies innovate or that open source only commodifies. But better and cheaper are the two main tools that any entrant has for competing in a healthy and fair market.

I was attracted to the textbook industry because the change from physical to digital distribution is bringing the potential for commodification that pressures textbook companies to innovate faster. I am not alone in this. I know many colleagues, both at Cengage and at its competitors, who are energized by the changes in the market. We are challenged to do our best. Will particular textbook companies respond in anti-competitive ways, attempting to block commodification rather than rising above it? Probably some will sometimes. Companies are amoral. They do what they are designed to do. But I am not aware of any content industry that has succeeded in blocking this kind of commodification, and education is particularly well suited for non-corporate production of content via distributed networks. Education should not, does not have to, and—I believe—will not tolerate anti-competitive behavior in the long run. In order for textbook companies to survive, they will have to do something new.

Nobody has a right to make profits. Capitalism has no intrinsic social value. It just turns out that markets offer one very powerful mechanism for driving innovation that benefits human beings. Commodification is an intrinsic part of that mechanism. Far from destroying all proprietary textbook companies, I believe that the pressure from OERs and open source will make the ones that survive fitter and more dynamic, which I am optimistic will translate into better and cheaper education.