by Dominic D. J. Endicott and David J. Staley
American universities can access new multi-trillion markets by blending tech, place, and talent.
American higher education plays a key role in today’s economy. It generates close to $600 billion a year in direct revenue, but its impact is far wider. The 140 million American degree holders generate 70% of U.S. income and account for 80% of U.S. wealth. Venture-backed companies, often spin-outs from academic institutions and financed via academic endowment funds, have driven almost 80% of American stock market growth since 1979. The tech-driven revolution has, in turn, fueled American wealth growth this past decade, almost tripling the combined net-worth of Americans to $146 trillion between 2010 and 2021.
Nevertheless, many American higher ed institutions are in crisis and our broader society is under stress. Higher ed enrollment is in decline, especially in the slowing East Coast and Mid-West regions. The upcoming ‘Demographic Cliff’ will accelerate by 2025, further pressuring the balance sheets of many institutions. Whereas general inflation since 1980 has totaled 236%, college tuition inflation in the same period has risen by 1200%. Behind the tuition increases is a system that is ineffective at containing its costs, as evidenced by the vast expansion in administrative staff. Americans are also increasingly questioning the value of a university degree. A survey by the Wall Street Journal in 2023 indicated that only 44% of those surveyed believed a college education was worth the cost, and 56% believed it was not worth it. In contrast, in a similar survey in 2013, 53% of those surveyed viewed college as worth its cost and 40% did not. Although colleges and universities are still among the most trusted institutions, a recent survey indicated that this trust was declining, especially among Gen Z.
The United States is undergoing a simultaneous revolution on three interconnected fronts: artificial intelligence, remote work, and reindustrialization. A fourth front is opening: the need for between 20 million and 50 million new homes. Our core thesis is that a distributed network of 1,000 or more ‘Knowledge Towns’ will emerge as a result, creating opportunities for universities and their surrounding communities to create new industrial clusters and improve the quality and abundance of place. Unlike the past decades of tech concentration in places like Silicon Valley and Boston, the Knowledge Towns revolution will be dispersed across the entire country.
Recognizing this opportunity, close to 400 university-linked consortia across the U.S. applied this summer for a Tech Hubs award, out of which 31 passed the first cut to now bid for $500m in funding, in a program that could reach up to $10 billion in eventual funding. Universities, especially those with strong research capabilities, are expected to be key players in many elements of the President’s Investing in America agenda, which ultimately adds up to over $1 trillion in investment.
At the more than 4,000 degree-granting universities in the U.S., there is an opportunity to participate in the new zeitgeist. Universities have vast reservoirs of often hidden or underutilized assets, including intellectual property; alumni and local networks; property, plant, and equipment (PP&E); faculty, staff, and students; or sister institutions such as hospitals or institutes. There are massive underserved markets they are not reaching today. In education, this could include workforce development, later-life degrees, or micro-degrees. As major players in housing and as significant landowners, they could help solve the housing scarcity problem, for example by helping to form a mission-oriented development corporation. They could harness their research and talent networks by helping to create a university-linked venture capital firm, in partnership with other local and global stakeholders with aligned interests. By blending housing and place-making with venture capital, research, and education they can help incubate new high-growth industry clusters.
For many universities, expanding into these new markets will feel uncomfortable. They lack some of the skills to become housing developers, venture capitalists, or new industrial cluster orchestrators. Making these moves could raise questions around the mission of the university or hit practical constraints such as existing debt levels. Teaching in areas such as workforce development, mid-career or late-career may clash with a traditional focus on the 18-22-year school-leaver market.
Nevertheless, as universities face significant revenue and cost pressures in their core business, they would do well to lean into these new areas of opportunity. Just like auto companies in the internal combustion engine (ICE) are being required to address the opportunity in Battery Electric Vehicles (BEV), or commercial real estate (CRE) companies are confronting the shift from the traditional office model to a new hybrid work model, the university system is not immune to change.
Some universities have successfully crossed the chasm and evolved into becoming transformational agents of their community. A good example of a small city strategy is that pursued by Oxford University in the city of Oxford, England (population 129,000). Although ranked among the top 10 universities in the world, Oxford University recognized a decade ago that it had failed to develop the kind of tech ecosystem of rivals such as Stanford and MIT in the U.S. or Cambridge in England. Cambridge University estimated in 2022 that it generated over $36 billion a year in economic contribution, heavily concentrated around its local environment and almost 12 times the annual operating cost of the university. Oxford’s response was to develop Oxford Science Enterprises (OSE) as an explicit strategy to create its own venture ecosystem. With $800m under management, the amount of annual tech investment around Oxford has grown 10-fold from about circa $100m in 2017 when OSE was set up, to the range of $1 billion by 2022, according to recent interviews we conducted. Part of this was the direct impact of OSE investment and the related co-investment it attracted, but equally important was attracting global investors to now add Oxford to their set of preferred locations for investment.
Colby College in Maine has invested $85 million in revitalizing the downtown of its host city of Waterville, driving a total of $200 million in investment. This includes a new hotel, student lodgings, and a technology center, as well as strategies making the downtown core pedestrian-friendly. When President Green first came to Colby in 2014, its endowment was insufficient to support this kind of strategy. A high priority was to launch an ambitious campaign to boost its endowment under the ‘Dare Northward’ brand. This campaign helped to double the size of Colby’s endowment from $500m to over $1 billion and provided key funding for the downtown revitalization.
Looking at all the assets of a university with a fresh perspective could help them realize that there is an exciting path forward. They often have the strongest collection of capabilities and assets in their surrounding community, and if they are willing to take a lead, they will find that they can unlock a new wave of revenue growth for their institution, while participating in the improvement of their surrounding communities, and a renewal of their founding mission by solving priority 21st-century problems.