Next: An Internet Revolution in Higher Education

(Editor's note: This Viewpoint was adapted from Trade-Off: Why Some Things Catch On, and Others Don't, published by Broadway Business and available on Sept. 15.)

Scott McNealy, former CEO of Sun Microsystems (JAVA), met me for breakfast at an unassuming little restaurant in a strip mall tucked into the woods a few minutes' drive from his house. We discussed one of his recent passions: applying technology's open-source model to education. Sun was an early proponent of open source, giving the concept a huge boost when it opened up its Java software. And McNealy funded and helped promote a project called Curriki to create open-source textbooks that will ultimately be free, via the Internet.

Over an omelet and fruit, McNealy made it clear that possibilities in open-source education go far beyond textbooks. Before long, he claimed, the whole bloated, expensive, lecture-based higher education system will face the first challenge to its very existence: open-source, online higher education that costs a fraction of four years at Harvard—but is good enough for employers who want a college graduate. "Universities will be forced to decide what they are. You know, are they going to be football teams with libraries attached?" McNealy asked. "That's what a lot of them are now."

The idea of some kind of open-source, online, low-cost revolution in education has become a lit fuse, sparking and crackling its way toward an explosion. Here and there, in places ranging from Silicon Valley to Indonesia, a few bold universities and entrepreneurs are taking pokes at the concept. Start-ups such as StraighterLine and Knewton are offering online courses for college credit for hundreds of dollars, compared with thousands of dollars at most universities. Peer2Peer University is gathering buzz as an online, self-organizing, social networking approach to higher education.

Coming to schools: The Fidelity Swap"The economics of traditional schooling are so out of whack that there is an opening for new players," says Fred Fransen, executive director of the Center for Excellence in Higher Education, which helps donors more effectively give money to universities. From that perch, Fransen sees the typical university business model as prone to attack.

The vulnerability sensed by McNealy, Fransen, and others has a lot to do with a concept I've been writing about the past few years—the fidelity swap. In our everyday lives we constantly make trade-offs between fidelity and convenience. Fidelity is the total experience of something. At a rock concert, for instance, it's not just the quality of the sound—which often isn't as good as listening to music on a good stereo—but everything else, too, such as the show's ambience and the bragging rights that come with having seen the band live. Convenience is how easy or hard it is to get what you want. That includes whether it's readily available, whether it's easy to do or use, and how much it costs. If something is less expensive, it's naturally more convenient because it's easier for more people to get it.

As it turns out, the most successful products and services tend to be either high in fidelity or high in convenience—one or the other, but not both. In fact, products attempting to be both typically end up with a confused brand. Imagine McDonald's (MCD) trying its hand at gourmet meals.

Anything that offers merely so-so fidelity and so-so convenience falls into a no man's land of consumer apathy that I call the fidelity belly. That's where music CDs, newspapers, and desktop PCs based on Microsoft's (MSFT) Windows find themselves today.

College is a high-fidelity experience. If you want a respected undergraduate degree, there is one way to get it: You have to get accepted to an accredited college, pay tuition so great that your degree will be one of the most expensive things you ever buy, and uproot your life to move—all so you can engage in a rich, all-encompassing experience for four years.

Where is that "good-enough" degree?Basically, all four-year, professional-grade colleges and universities sit at the high-fidelity end of education. At the top are Harvard and other elite schools. Public universities are usually a little more convenient (they cost less and let in more applicants) but offer less fidelity (conferring a lower status). Still, every option in the bucket of four-year, professional-grade higher education lands high up on the fidelity axis.

But if most higher education is high fidelity, is there nothing at the high-convenience end? Currently there exists no higher-education version of MP3 music files—no way to get a "good-enough" BA or master's degree that's accepted by professional managers, yet obtain it in a way that's cheap, easy, and convenient. This is a terrible imbalance.

That's like putting up a giant neon sign announcing: Monster Opportunity Inside. And digital technology, as we've seen over and over in the past decade, is a means to that end. Just as the Internet has helped blow down the doors of the music industry, newspapers, and the travel-agent business, it will eventually do the same to higher education.

In researching the fidelity-swap concept, I've been struck by the fact that almost every time I explored a market segment, there was an obvious set of opposites holding down the high-fidelity and high-convenience positions. Some company or group of competitors vie for the top end of fidelity, while another company or group of competitors vie for the outer edge of convenience. Every other player scatters across the fidelity/convenience spectrum.

Accreditation guards the universitiesOnce in a while, a market gets completely out of balance. Forces conspire to prevent either a high-fidelity or high-convenience player from emerging. All the offerings crowd around one end or the other. Eventually, someone nails a disruptive approach. Customers and competitors rush in and the marketplace wonders why that great idea didn't come sooner.

The higher education market is a lot like that. For centuries the university model dominated because nothing else worked. No technology existed that might deliver an interactive, engaging educational experience without gathering students and teachers in the same physical space. In the past century, a powerful social bias set in: Only accredited universities were allowed to grant degrees, and most professional jobs required an accredited degree. Even though technologies emerged that might foster new models of higher education, the neat accreditation ecosystem locked out innovative competitors.

These days broadband Internet, video games, social networks, and other developments could combine to create an online, inexpensive, super-convenient model for higher education. You wouldn't get the sights and sounds of a campus, personal contact with professors, or beer-soaked frat parties, but you'd end up with the knowledge you need and the degree to prove it. The University of Phoenix which is accredited by the Higher Learning Commission, is partway there, though it's a hybrid of online and campus learning. Other organizations, entrepreneurs, and governments are trying to develop super-convenient universities—often in places outside the U.S., including Hong Kong, Indonesia, and Canada.

The Harvards of the world won't go away. They will continue to be the high-fidelity players in the fidelity/convenience trade-off. But a large swath of the population might decide that going deeply into debt before even starting work is too high a price to pay for a high-fidelity education when a more convenient version will do. They will pull out of mid-level universities. Just as surely as many consumers gave up music CDs for Internet downloads, many students will soon decide to put aside a four-year stint at a traditional university for a cheap, easy, and good-enough degree delivered through laptop screens and smart phones. Schools in the middle of the pack—neither high-fidelity nor high-convenience—will have to adapt or suffer.

Before it's here, it's on the Bloomberg Terminal.