In an article in the Nov. 2014 Harvard Business Review, the question was asked what Alibaba, AirBnB and Uber have in common. The answer provided by authors Barry Libert, Jerry Wind and Megan Beck was that they were all “network orchestrators,” a new trend in business that is breaking up old paradigms, experiencing accelerated growth, generating enormous profits, and attracting major investment.
The authors studied the last 40 years of financial data from the S&P 500 and divided the companies into four groups:
• Asset Builders – companies that build physical assets such as Ford, Walmart and FedEx.
• Service Providers – companies providing services to customers such as United Health care, Accenture or JP Morgan.
* Technology Creators – companies that develop and sell intellectual property such as Microsoft, Apple, or Oracle.
• Network Orchestrators -- companies that create a network of peers in which participants interact and share in value creation such as Alibaba, Airbnb and Uber.
In comparing these four categories of companies, the article found that Network Orchestrators receive valuations two to four times higher, on average, than the other categories and outperform the other categories in terms of annual growth rate and profit margin. Yet fewer than 5% of all the companies in the S&P 500 were network orchestrators, mainly because the mentality that pervades business is to own assets and sell goods.
Network orchestrators, however, rely on knowledge and relationships rather than assets and property. They emphasize synergies between individuals and organizations and thus engage in “non management” and “non ownership” between peers, each of whom may own assets and properties but the focus is on synergies between partners rather than owning everything in the chain of exchange.
Airbnb, for example, has significantly disrupted the hotel industry by understanding that every home is a potential “hotel.” While traditional hotel chains have focused on owning properties and developing fixed assets, Airbnb does not own anything. It simply puts owners of homes in touch with potential customers. The focus is on the relationship, not the asset. It now operates in 192 countries, has nearly 2 million home owners in the network and has serviced over 60 million people staying in those homes. Its valuation is north of $40 Billion.
Similarly, Uber has disrupted the taxi industry by understanding that every car is a potential “taxi.” While traditional taxi companies have focused on owning taxis, Uber has simply enabled customers to get directly in touch with car owners to take them where they want to go. Uber is now worldwide with a valuation north of $70 Billion. Both Airbnb and Uber have been challenged by traditional interests and governmental restrictions but they have established the model and are succeeding beyond the wildest dreams of their founders and initial investors.
These companies have significantly disrupted their industries by radically democratizing and globalizing synergies between vendors and customers. This has allowed them to scale globally without fixed assets. They have thus been immensely profitable.
The situation in the educational domain is positively archaic. Many institutions have been around for centuries, some for over a millennium. Oxford, Cambridge, Harvard, the Sorbonne all exemplify the storied history and mystic of traditional educational institutions. All own property and assets. In almost all cases, existing educational institutions were founded in an age when education was framed by the needs of the industrial revolution for pliant workers equipped with minimal verbal and analytic skills. All are accredited by conservative bureaucracies resistant to change, all are nationally rooted and identified, and all are seriously challenged with the impact of technology on education. The educational equivalent to hotels and taxis are thus all the individual educational institutions competing against one another for students in crowded and increasingly expensive and complex markets.
The beginnings of the Network Orchestration model was developed by Laureate Education, which since 1999 has been building a global network of universities through acquisitions. Laureate has either complete or majority equity ownership in a network of 88 brick and mortar universities and colleges worldwide. Laureate has been very successful with this model and is headed into an IPO. While it has been creating synergies between its assets, its challenge is that it is encumbered with very significant real estate and operational costs in dozens of countries. Considering the fragility of the global economic system, such enormous capital costs are risky, requiring enormous time and attention to maintain. What is needed is a Laureate 2.0, the creation of a truly global network of synergies without ownership.
This is the challenge that the university of which I am president has taken up. Prior to 2012, we were like all the other schools -- locally rooted in California and licensed by the State agency as a graduate school. We competed for limited students from a specific base in San Francisco. We were bound by local restrictions and could not innovate without express permission of the state agencies.
In 2012, we transitioned from a nonprofit graduate school into a for profit education and technology platform company with a vision of establishing a global common exchange with educational networks and innovative learning companies worldwide. Instead of competing, Ubiquity began strategically collaborating and creating mutual profitability with dozens of partners globally.
The university began building a global network of partnerships with brick and mortar schools, so in that sense Ubiquity is like Laureate, but Ubiquity is doing so through synergies, not ownership. This means that Ubiquity gets all the benefits of the network as well as the revenues, but none of the local real estate and operational costs. To date, Ubiquity has agreements with educational networks with hundreds of schools and tens of thousands of students worldwide. Our partners secure students for Ubiquity and provide their own marketing and recruitment. Many want to use our technology platform for their own courses.
Ubiquity is also developing collaborative synergies with innovative companies on the cutting edge of learning technology. Our goal is to develop a global multi-jurisdictional common exchange between educational institutions and innovative learning companies to bring high quality affordable learning to young people and life long learners worldwide. Our business model is as an integrated learning platform and alliance for educational establishments and innovative learning companies. This is a significant advance over Laureate -- No ownership, all synergies, thus making Ubiquity very adaptive, scalable, and, potentially, immensely profitable.
There are certainly challenges to the network orchestrator model in education just as AirBnB and Uber have faced challenges in their domains. But the model is sound and the forces of globalization are making network orchestration inevitable.
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Forbes ran a cover story in November 2013 with the headline, “No field operates more inefficiently than education. And a new breed of disruptors are finally going to fix it.” They predicted that disruptive education will be the next $1 trillion opportunity, on a par with the dot.com boom of the 1990s. Education through network orchestration is the most disruptive trend in education today and the key to an enormous opportunity.