>> So we've been talking about disruption. I'd like to go back to the beginning and our base model and point out a couple of thoughts that might not be, might not have been as obvious when we were first discussing disruption and sustaining innovations. One thing that I'd like to do before you go into this next case which will be the University of Phoenix, is to give you a short very simple example of disruption and it's not that the company is completely losing today. But it's to help you think about the forces of disruption and I think by using this small example to help us understand the University of Phoenix case which we will do in much greater depth. So, think about for example, a product that is known as Microsoft Word. Or Excel, or even PowerPoint. Those are all products that exist, and have existed in the marketplace for the last 30 or 40 years. As personal computers exploded and penetrated the market in the late 1970s and early 1980s, word processing technology was developed. And it was very important, it really displaced the typewriter which no longer exists and allowed us to draft documents or other types of content and edit them and produce them. It created a whole industry of desktop publishing. And it's really been a powerful force at allowing individuals to express themselves and businesses to communicate and many other parts of our society. Reason I want to bring up this small example, is to help you understand sustaining innovation a little bit better before we get to the University of Phoenix example. Think about a technology like a Microsoft Word when it first came out or other process word processing programs. I used Microsoft Word because it's the most popular. Most of the improvements that have been made to Microsoft Word over the last 20 years, had been very heavily focused on the best customers for that product. Who are the best customers of Microsoft Word? Is it people who don't pay for Microsoft Word? I'm smiling a little bit. Is it people who get it for a very inexpensive price? Or is it people who pay a lot of money for it? It's obviously people who pay a lot of money for it. And who are those people? Well, think of businesses and business customers for Microsoft. They licensed their technology to a large number of businesses and those businesses often have very specialized needs for a word processing offering such as Microsoft Word. For example, they use a very complex things like mail merge and even macros which is a way to program in Word. There are just all types of additional benefits or features that exist in the product that the vast majority of us don't even know exist or don't know how to use and really have no need for. And so all of those improvements are focused on this high upper band of this red range of customer needs. It's just the tiniest percentage of customers, and so they keep making these improvements hoping that they can please these customers keep their business. What it's done, is it's overcomplicated the experience and it's made it more difficult for the average user who is only going to use a small percentage of the features. Perhaps some font needs or some basic formatting. And so it's made it harder for us to use the product it's become overly complex and there over shooting our needs. We're over served the product is probably more expensive than it needs to be. And so disruption in this sense would come from other products that are not good enough. Think of a product like Google Docs and there are others. There's one called Zoho. There are other desktop based or software you install based word processors that sort are free. They have all types of disadvantages. They're not as compatible, they have much fewer. In terms of options, in term of features but they offer other things that are seen as huge advantages such as cloud sharing, collaboration and I realize that Word is adding that too. But it's a classic example of being overshot by one product offering and another product really hitting something that's very important to you. Live collaboration, live editing together with someone. Being able to see versions in the cloud and so when Google Docs first came out in the 2000s, those were very new offerings and even though it wasn't good enough it clearly brought in new customers. The same thing that we just described very briefly there, that I hope is familiar to most of you. Has existed in the higher education industry or sector all around the world in different ways. Let me try to give you a little bit of background on the United States higher education market, if you will. And use an example of a private or for profit company called, the University of Phoenix as a potential disruptor to the traditional higher education market in the United States. Most young people and I'm talking about people from 18 to 22. Who choose and are able and can afford to go to college in the United States, tend to go to schools of a wide variety whether it be a public institution where the tuition is subsidized by the government. Or a private institution where they may have some other type of financial support, or maybe they have the means to do so. There are community colleges in the United States which are two years schools that focus often on technical skills. They're all types of schools. Most of these schools have different niches or segments of the higher education market. But most of them are focused on, or historically have been focused on traditional college students which is this market of 18 to 22 year olds. I'm going to focus for a minute or two on the public, larger state we say in English institutions. We're talking about government supported institutions such as the one that I work at the University of New Mexico, if you want to look one up. These larger public institutions have varying missions depending on the state in the United States. But all of them, again have this subsidy and exist to help improve society, provide learning opportunities and improve the citizenry and the employment prospects of individuals. Again, usually young people. There's a lot of competition between states for students, and there's a lot of competition to improve reputation of institutions in order to recruit students. Universities do a lot of things. They're engaged in research, they have athletics, they have all types of offerings for these students. And over the last three or four decades tuition is increased at a very rapid rate. It's become much more expensive for students to attend these public institutions. And some of you may be surprised to hear that these public institutions are competing for students in some really amazing ways. Some of them build extensive gymnasiums with things like climbing walls for indoor rock climbing. They build luxury dormitories. They spend a lot of money to try to improve the athletics program, they have a lot of social activities for students. And all of this effort is really, if you think about it, aimed at providing sustaining improvements. To the best or highest paying, or most important customer which is the 18 to 22 year old student who plans to live on campus. In other words, be a residential resident on campus student who goes to school full time and probably doesn't spend as much time working. Their living away from home, the University might make a sustaining improvement like adding better restaurants for the student to eat at. Again, it might do a better job of providing exercise or entertainment opportunities. It might just have all types of efforts at improving activities. We have in the United States, sororities and fraternities which are social entities or organizations. And all these, again are focused on this traditional student, and so over the last 34 years. You could argue that the larger, major public institutions of higher education in the United States are focused on making these sustaining improvements. Focused very intently on the highest end, most important customer. In the next part we'll see, how disruption may be occurring very slowly but may be occurring in the higher education market in the United States and how it might affect the rest of the world.
