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Are online learning platforms hurting colleges?

November 20, 2012 Leave a comment

This is not the first time I introduce the huge success that e-learning platforms as Coursera, Udacity or Venture Lab are achieving. The point is whether colleges already consider these platforms as actual threatens for their business model. I’ve just enrolled in my second course on Udacity. After a warm up with the Web Applications Engineering course, I felt like retaking programming. But this time I had a goal I didn’t bear in mind by the time I was at University: deploying a real (and useful) online website. That’s the reason I’m taking the Design of Computer Programs course right now.

Going back to the point, a few colleges decided to join Coursera as a shift to avoid losing competition from the very beginning. The problem is they can charge nothing for the course, and Coursera had 1.75 million users by October 2012. The whole number were not potential customers, but maybe a certain fraction was. As Coursera states on its website, you will find a course “whether you’re looking to improve your resume, advance your career, or just learn more and expand your knowledge”. Here we are, a real competitor for BSc, MSc and short-term studies.

Coursera website snapshotUdacity website snapshot

From my personal experience with Udacity, I’d point the following as advantages with respect to regular universities:

Flexibility. Classes are conducted by short videos and sorted out by units, so you can set your own pace depending on your time resources and knowledge. In a regular class, the flow depends on different factors that might have an adverse effect on advanced students.

Professors. Some of the most recognized professionals from high-ranked universities as Stanford, Harvard or MIT have joined this non-profit initiative. That means you can learn how to program your own self-driven car from highly motivated people as Sebastian Thrun, Google project’s fellow, or build your first blog with Steve Huffman, Reddit co-founder. This is miles away from the non-motivated, non-real-world professors you will find at Spanish Universities for instance.

Price. It’s free, that is, $0 down. While the US is facing a new financial crisis created by plenty of defaults on student loans (have a look on this NYT report), e-learning arises as a suitable solution for those  with limited resources who are not willing to go into debt, moreover with a scarce of jobs around. Perhaps this explosion might contribute to cut down prices and get a more affordable college education.

What do you think? Are e-learning platforms a real alternative for colleges, or just incidental tools?

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Boston start-up school

August 28, 2012 Leave a comment

I often say students are not ready to meet the proffessional market when finishing university due to different reasons: the lack of practical contents, out of date proffesors, non-vocational degrees… The Boston Start-up School came up with the same conclusion, even though American education tends to be considered as a better aproach to the marketplace than the European.

As the article reads, this school offers an intensive 6-weeks course for young people seeking jobs in the city, focusing on marketing, software development, product design, and sales and business development. Moreover, classes are free since different start-ups are providing funds to have an early access to these students.

It’s likely that similar schools arise in other hi-tech cities as San Francisco, New York or Chicago, and might be a nice initiative to be held here in Europe too.

Read the original article on nyt.com: A Start-Up Tries to Prepare Students to Work in Start-Ups

New laws to enforce purchasing renewable energy in Japan

Since the nuclear disaster happened last year in Fukushima almost devastated part of the country, Japan government and population are dealing with new ways to meet their energy necessities. Last Sunday July 1st a new regulation enforces companies to purchase renewable energy at a fixed price.

Initiatives like this might lead Japan to a notable position among the countries which invest most in renewables technologies. While Chinese manufacturers’ are capturing the worldwide market, Japanese policies might arise as a salvation to those American and German companies struggling to survive. The catastrophe has left a sense of insecurity in the population that may let these manufacturers to compete the Chinese by offering high quality products and a wide range of services at higher prices than current utilities assume.

It is an opportunity they can’t overlook, and surely Barack Obama and Angela Merkel have already included this issue in their agendas.

More info about Japan opens solar energy parks on Yahoo News

Brief overview for German approximation to the solar power

Germany has probably become the world’s leader in solar technologies. How have they outperformed the concurrency?

First, they pledged for developing a whole value chain in order to maximize the benefit to the German population, instead of just promoting an electrical production. This chain initiates with raw material (most used is Silicon) treatment and transformation into wafers, cells and eventually modules, which will be later sold internally or overseas and installed by partners or third parties. Thus the revenues generated by incentives can be partially retained in the country while new jobs and investments are sustained even by non-German investors, which additionally bring capital, R&D and some other benefits. PV Silicon AG, Wacker-Chemie AG or QCells are some examples of German companies which can cope with not only the commercialization of PV modules but also the primary activities where investments and technical knowledge is essential.

In order to achieve the previous goals, by 2000 Germany deployed a feed-in tariff which provides a 20-year-guaranteed 0.457-0.624 euro/kWh incentive with an annual reduction of 5% per new arrivals, to compensate the constant drop in costs. Besides tax credits and VAT exemptions to commercial PV providers, training support, wage subsidies and R&D incentives, and state-of-the-art infrastructures as roads and IT, Germany has become a leading country in Solars even though his environmental conditions are worse than other Mediterranean countries such as Spain, Italy or Greece. Universities and institutes of research do also play an important role in the system.

Huge investments are done every year in the Eastern regions as part of a larger plan to improve development and reduce the differences with respect to the Western. This process is supported by the many semiconductor’s companies present in this area which would likely provide key synergies at silicon manufacturing.

2011 shareholder letter from Warren Buffet

February 29, 2012 Leave a comment

Warren Buffet has publicized his annual letter for the Berkshire Hathaway Inc. shareholders discussing its performance in the S&P500 during the year 2011. It is always worth it reading such a great businessman as Buffet, moreover since goes through some burning topics I’d like to comment below. The complete letter is available on the corporate website: http://www.berkshirehathaway.com/letters/letters.html

Even though Berkshire’s outperformed the S&P500 average results, Buffet do not hesitate to admit a few mistakes for miscalculating win/loss ratio in some investments he has done. It’s not common to see such a big fish stating a “major unforced error” and this behavior is maybe a cause for his long term great success.

 

He is fully convinced that housing business will come back, not as soon as he predicted – which has led Berkshire into some losses this year – but in a near future, involving thousands of new jobs due to the importance this sector’s got in America. Is this expected to happen in Spain too? I hope not. Housing meant (and still does) a huge business in the EEUU, boosted by the financial firms, but they have an industrial background we do not. Coming back to housing here in Spain would culminate in a situation even worse than we are facing nowadays. “As is well-known, the U.S. went off the rails in its home-ownership and mortgage-lending policies, and for these mistakes our economy is now paying a huge price. All of us participated in the destructive behavior – government, lenders, borrowers, the media, rating agencies, you name it” he says. Just watching Inside Job to making an idea of what happened – although any film is fully objective some irrefutable figures arise.

When refers to insurance subsidiaries, Buffet describes which four disciplines any insurer should ensure before signing a premium. The last one is do not make the deal if numbers do not work out just because “the other guy is doing it so we must do it as well”. Not every customer does worth and it is something to bear in mind to ensure long-term profitability. We cannot do everything for everyone, trade-offs are as important as our own product’s features.

“Buy commodities, sell brands”. This KISS statement summarizes what marketing means. Buying commodities reduces your suppliers’ control while strong brands let higher margins. You will have to spend a lot of time in focusing on your customer afterwards.

I find Berkshire’s investing philosophy very interesting. While the standard approach is laying out money expecting to receiving more in the future, they focus on purchasing power. An investment can be influenced by many diverse factors such as inflation, currency exchange rates and taxes. Current world’s gold stock is $9.6 trillion, the same than all US cropland plus 16 Exxon Mobils. Obviously since the first produces nothing, the second would have delivered corn, wheat, cotton and dividends. In Buffet’s opinion, a new bubble is forming due to “well-publicized rising prices”, as happened also with Internet stocks and houses last decade.

Categories: business, icons, news, value Tags: , , , ,

Catching generated value: Pricing (I)

February 21, 2012 Leave a comment

With the tough competition currently present on every industry, it doesn’t become easy to run your own business with profitability. Your best chance is developing a true value proposition. If your product can save some money to the customer, why do not try to pick up a piece from this benefit?

When thinking up how to price a new product or service, there are many strategies available (see www.netmba.com/marketing/pricing). Most popular are cost-plus, value-based and psychological pricing. The win-win pricing is quite a mix of the previous ones.

Imagine you have developed a product that allows your customer to save some money with respect to the current situation. Then you must decide if establishing a fixed gross margin or find out how much is likely the market to pay for it, or even mix both strategies by setting the final price on a face-to-face negotiation. If you are running a set-up, these strategies could become quite harder due to your inexperience and your weakness as a new player.

Consider a consumer that pays 100€ for a 10 years product or service, including all the associated expenses he may incur into. Consider also that you are able to cover the same necessity for only 80€. Therefore you can set your price in the range 81€-99€ to both have a positive gross margin and mean a saving to the customer.

Contemplating a 50-50 share in the potential saving, both the provider and the purchaser would get the same profit. In this case, our gross margin would be 10€ and the price 90€. This involves a 10% reduction for the customer with respect to the original 100€ scenario while a 11% gross margin and 12,5% gross profit for us. The lower we can develop our product, the better the margin and profit goes, as shown on the following graph.

In a typical overcrowded scenario, the only way to gain some market share is by reducing prices through a cost and processes optimization. But this reduction frequently leads to less operative margins and consequently to profitability drop. The previous curves show that, since we are systematically catching from the customer some of the value our product is creating, our gross margin and profitability improve as the price goes lower, as well as our competitive position. Eventually we would be avoiding the frightening zero-sum competition.

As the 50-50 share shifts, the margin curve does as well. Any increase on our picked proportion of the saving would lead to higher margins and benefits but also to a lower value proposition. With an hypothetical product cost of 70€ and a 75-25 of the profit taken by the company-customer, the gross margin would be a 20% instead of the 15% on the 50-50 scenario.

To reflect the real weaknesses and strengths of this pricing strategy, let’s use a realistic scenario with a product cost of 70-90€ (current total expenses are 100€). Our gross profit, calculated as the ratio between gross margin and total cost, varies in the range 5%-21%, with a final price of 85€-95€, which leads the customer to a maximum saving of a 15%.

Strengths

  • The 50-50 sharing in the potential profit is an effective way to persuade a customer to purchase our product and also a simple and rapid way to establish a flexible pricing strategy “on-the-go”.
  • Our relative gross margin and profit is always higher than the customer saving percentage, so even though the absolute benefit is shared 50-50, our results are better and it is not expected for the customer to claim for a higher stock.

Weaknesses

  • Since the price is calculated by adding a half-profit to our costs, two threatens may appear. First, our operational costs become “public”, so any competitor could use our business as a benchmark. Second, we must communicate them clearly to the customer so it in no chance for him to feel tricked.
  • A 10-20% gross profit doesn’t allow large further expenses if our target is running a “blue ocean niche”. The customer withstands a portion of the cost considered in the final price, since the shared profit decreases as it rises, so the more flexible and attributably our costs become the better.

Summary

The proposed method allows to set a dynamic pricing strategy in order to effectively communicate our value proposition to the customer, while picking some of the benefit generated in order to avoid a zero-sum competition, reaching profitability even with a price drop by means of any cost optimization.

Categories: business, pricing, value