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How Amazon could destroy college as we know it

Amazon Prime, but for college.
Amazon Prime, but for college.
David Ryder/Getty Images

For years, pundits have speculated that online instruction could begin to overtake traditional higher education, but too often have offered few details about how this would happen. Already, however, you can see a path through which tech companies could gain a foothold in the higher ed market.

Here's one scenario — told through the vantage point of Amazon's Jeff Bezos in 2030. I don't know if it's going to happen, but as you'll see in the footnotes, Amazon is already making moves that could suggest it would be a potent competitor to existing colleges and universities.

To Our Shareowners:

After the spectacular and occasionally criminal failure of several for-profit college companies in the years following the Great Recession1, some critics argued that the pursuit of profit was fundamentally at odds with the mission of high-quality education. Amazon University, now in its 15th year and serving more than a million customers, has proven those critics wrong and delivers higher-quality, lower-cost educational offerings than the once-vaunted nonprofits that continue to charge high tuition in pursuit of a short-term revenue boost.2

Amazon is uniquely suited to make a dent in the higher education sector because it actively avoids short-term profits and instead reinvests its earnings to keep prices low and build brand reputation and loyalty. It’s also good at keeping costs low. One way is through harsh conditions and low pay for warehouse workers (and through using more and more robots). But it’s worth noting that nonprofit schools also keep costs down through low-paying contracted labor such as food services, as well as increasingly hiring poorly paid adjunct professors in place of traditional tenure-track positions.

A dreamy business offering has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time — with the potential to endure for decades.3 Amazon University meets this standard, and then some.

These are actually Bezos's own words from his 2015 shareholder letter, including the word "dreamy."

Like some of our other ventures in the past, Amazon University was started out to fill an internal need.4 We needed our employees to have certain skills. So we found a way to give them just that.

The most famous example of this is Amazon Web Services (AWS), a cloud computing software platform originally designed for Amazon internally, and which big and small companies alike now use to run parts of their IT infrastructure. It is growing at an astounding rate, making up an ever-increasing share of the web hosting market. AWS is expected to earn $1.9 billion in pre-tax profit this year, and it’s estimated that if it were a standalone business it would be worth $160 billion. When Bezos was first presented with the idea of cloud computing for Amazon’s internal infrastructure in 2003, the authors of the internal report mentioned the idea of selling it as a product beyond Amazon’s own needs.

We started out with Career Choice, a benefit offered to employees through which we paid 95 percent of tuition for classes in in-demand fields to help our employees progress in their careers. Within a few years, we started offering classrooms on site.5 From the beginning, it was about filling needs not just at Amazon but in the larger community: The first graduate of the program earned a nursing degree.6

Yes, this is real. Amazon is doing this.
Yup, this has also already happened, and Amazon is not the only one. Starbucks, for instance, has teamed up with Arizona State University Online to offer employees discounted tuition, which is partially used as a perk to reduce employee turnover.

Separately, in 2013, we launched a certification program for various Amazon Web Services engineers, letting companies using AWS easily train or hire workers who could manage AWS infrastructure.7

Yeah, this is also real.

But we also found that many of our employees, even those with advanced degrees from prestigious universities, were incompetent at core aspects of their jobs here at Amazon. Due to our obsession with rewarding competency, hard work, and results,8 we searched for a solution. Luckily, it was right there in front of us.

Sometimes, apparently, to a fault.

In 2013, our subsidiary Zappos became a trailblazer in the use of "badges" to let employees demonstrate mastery of a skill and earn raises.9 Leaning heavily on that expertise, Amazon, in 2018, decided to revamp Career Choice and build an internal competency-based education system.10 Employees would earn a badge for a discrete skill, and earning a number of related badges awarded mastery of a "track."11 Over time, we created tracks for supply-chain logistics, factory equipment operation, and, eventually, management, accounting, and more.

This is also real. Zappos’ radical management structure is pretty flat, with few opportunities for "promotion" in the traditional sense, so the company is actively seeking ways to prove competency and justify raises through alternative means like badges.
This is where I begin to speculate. Competency-based education, or CBE, is a big topic in higher education right now.
A standardized, or well-recognized, badge is one of the new holy grails in higher education, and groups outside Amazon are trying.

We then began offering these courses at cost online, and created an official policy within Amazon that allowed for hiring talent at all levels who had Amazon badges in place of, or in addition to, more traditional education credentials.12 We called it Amazon University.

Amazon offers many of its products at cost, or even at a loss, in order to build consumer loyalty. Bezos partially outlines his theory in this investor letter.

Over time, we found badges to be nearly a prerequisite for hiring in many divisions of the company, and internal surveys demonstrated less and less interest in where or if the potential hire went to college, and more interest in completion of (and scores in) certain tracks.

Again, we offered these products at low prices because we were attempting to improve the pool of potential talent, and we succeeded. Over time, we also learned that other Silicon Valley businesses were using our badge system as a proxy for hiring and promotion, and that over the course of a few years more traditional firms, like General Electric, were doing so as well.13

Corporate certifications are nothing new. Microsoft certifications, for instance, are widely recognized as proof of competency in using one of its products. The question is whether other employers would trust Amazon certifications in areas outside the more traditional lanes like AWS. I think it’s plausible for two reasons. First, Amazon is a huge company that does lots of things, making internal expertise in a variety of areas more possible, and it could also work with trusted third-party sources, similar to Amazon Marketplace. Second, the lack of any standardized measures of quality makes it easier for a trusted brand to gain a foothold; people largely like and trust Amazon even if its education offerings are unproven.

While we considered lucrative licensing deals for these products, we were, as always, focused on creating lifelong loyal Amazon customers, and therefore continued to offer our educational services at cost and introduced many as free to Prime members.14 Over time, some schools and new nonprofits created wraparound services that included encouragement and a physical sense of community, which helped certain types of students who may not have otherwise completed badges to do exactly that, and we began expanding our physical classroom presence within or near our warehouses.15 We also decided early on to not participate in the federal aid system. A study of the system found the process cumbersome, confusing, and dissatisfying to customers; it also had tended to create bad incentives among institutions participating.16

This would make Amazon different from many elite nonprofit universities, which tend to exploit their brand to maximize revenue gains. Schools like American University offer degrees entirely online for exactly the same price as ones on the physical campus. There are some elite institutions that offer free online classes, but, significantly, those free courses do not translate into a degree from the institution.
One critique of online learning in general is that certain student subgroups need more interaction and support and fare poorly in purely online environments.
The federal student aid system is byzantine, and there are big concerns over the incentives federal aid would create for CBE programs.

We continue to be obsessed with the quality of our educational offerings, which is reflected in our students' enthusiasm and persistence. Of those students who completed one badge, 90 percent go on to complete a second, and 75 percent go on to complete a "track.".17 Of those who complete one track, 40 percent go on to complete a second.18 In surveys of customers, 95 percent believe that their badges helped them secure a job or salary increase and were worth the cost,19 while market research suggests that as many as half of major US employers now consider Amazon badges to be one of their top five criteria when determining whom to hire.

Massively open online courses (MOOCs) have a retention problem, so this would be a big deal if Amazon cracked the code.
This would be an incredible feat. Fewer than 60 percent of first-time, full-time students pursuing a bachelor’s degree graduate within six years. Lower-income students and those pursuing vocational degrees or certifications tend to complete at even lower rates.
According to a recent survey, only about half of college graduates strongly agree with the statement, "My education from [University Name] was worth the cost."

Over time we have heard from many customers — or, as we like to call them, alumni — who have told us how important their Amazon education has been to them, and asking how to give back. We tell them the single best thing they can do is to purchase shares in Amazon. Not only does this give the company more capital for us to invest in educational services and continue to offer them at cost, but it also broadens our pool of investors who share our core value of doing everything we can for the customer, thus helping prevent takeover attempts from those seeking short-term profits.20 We also suggest they volunteer their time to nonprofits that assist students and keep them on track in completing their Amazon badges.

If this happened, it would be one of the biggest revolutions in theory of corporate ownership and governance, and offers a compelling alternative to the traditional nonprofit donor-based model. As Matt Yglesias recently noted, Bezos wants to avoid shareholders interested in short-term profits, and this would be a way to do it. B-corporations are trying to achieve a somewhat similar goal.

Recently, due to customer demand, we have begun to explore offering some courses in the liberal arts and are already offering these courses at a subsidy to select Prime members. We are also investing a significant amount of money into artificial intelligence that could help reduce the need for human evaluators.

The future of Amazon University is strong as we continue to become the first truly global university. As our alumni network and reputation with customers and employers grow, we predict increasing demand for our services. We are excited about the future of a more educated, less indebted citizenry.

Jeffrey P. Bezos

Founder and Chief Executive Officer

Amazon.com, Inc.

April 2030

Alexander Holt is a policy analyst with the Education Policy Program at New America, where he conducts research on the economics of higher education.


VIDEO: College in the United States is very, very expensive

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