"It's the (Credential) Economy, Stupid": Alternative Credentials, Competition, and Higher Education

Starting in earnest in 2014-2015, a number of colleges and universities in North America began offering “alternative credentials” - digital badges, verified certificates, nano-degrees, and others. Reports suggest that many more plan to join the party. 

This means, among other things, that traditional institutions are offering credentials substantially the same as those provided by a growing number of organisations outside of higher education - professional associations, non-profit groups, private companies, etc.

If maintained over time, the move into alternative credentials by traditional colleges and universities will ultimately bolster the capacity of alternative education providers to compete in the post-secondary education market. 

treating alternative credentials and providers as A Competitive Threat

Institutions explain that the investment in alternative credentials is motivated by their long-held commitment to serving students in new and better ways - in keeping with the institution’s social mandate. But advocates of alternative credentials in higher education also see this move in terms of competition: as a means of responding to the threat of competitors from outside of the institution. Daniel Hickey, Professor of Education at Indiana-Bloomington, believes that “open e-credentials in 2017 are indeed as inevitable as e-commerce was in 1997.” 

“While something other than Open Badges may prevail, it seems certain that e-credentials will transform education in the next two decades much as e-commerce has changed retailing today. If that is true, colleges and academic programs that continue to ignore or resist e-credentials may have already begun a slow but inevitable decline.” (Source)

how value is determined

While alternative credentials from organisations outside of higher education may grow as predicted, this view reflects a common misunderstanding of how value is determined in adult education. 

By responding to competition in this manner, colleges and universities make the mistake of assuming that institutions compete solely on the basis of the value (a balance of cost and quality) of the education they provide. But, of course, higher ed is also the holder and beneficiary of a deeply entrenched monopoly in which widely recognised credentials serve as a core source of value to students.

the credential monopoly

Value in higher education is based heavily on access to widely recognised credentials - the sole property of a highly restricted set of institutions. Credentials act as a significant barrier to market entry for potential competitors.  (For example, some for-profit colleges in the US market have bought accredited non-profit institutions to gain entry to the higher education market.)

Over time, the types of credentials offered by accredited institutions (e.g. Bachelors, Masters) have become deeply entrenched in the education and employment sectors. Employers use the credentials issued by colleges and universities as the basis for filtering job applicants; only those with completed degrees are considered. No one would consider applying to graduate school without a widely recognised undergraduate degree. It is an established form of currency. 

In contrast, alternative credentials - badges, verified certificates, nano-degrees, and the like - are mostly unknown and consequently, of little social or market value. The point is that alternative credentials and those organisations outside of higher education that offer them are not competing on a level playing field, based strictly on instructional value. The credential economy is all-important. 

The point we're trying to make is not that alternative credentials should or shouldn't be widely recognised as valuable. (Indeed, we suspect that they often offer great value for the student’s investment of time and money - given their narrow focus, emphasis on competencies, and the use of clearly defined criteria for assessment.) Rather, we want simply to underline how institutions have competed against education providers from outside the accredited system.

A Barrier to Market Entry

The importance of credentials explains why alternative providers of education have assumed such a small place in the total education market, despite the frequent prognostications by pundits over years. Many argued that the Internet would enable external parties such as media companies, textbook publishers, and others to take a big bite out of traditional higher education. We heard, too, how higher education would suffer the same fate as the music recording industry, journalism, and bookstores. But no such disruption occurred, precisely for the reasons that the alternative credentials example illustrates: long-held practices and conventions regarding credentialing. Without the authority to offer widely recognised credentials, alternative providers cannot offer “substitute goods”, as Economists put it. A music fan will get her fix from the best available source. The quality of the music file and the music it holds don’t need to come only from sources that have been validated by a central, overarching body - as is the case in higher education.  

With the above factors in mind, the basis of competition between providers outside of higher education and traditional higher education becomes clearer and begins to explain why, as a result, the alternative providers and their credentials need and want new sources of validation to grow in popularity and value. 

the knight is anointed by the queen. Or, isn't it ironic?

So, where does this leave us? 

First, higher education institutions are offering alternative credentials to compete with emergent competitors from outside of higher education who are offering the same. 

Second, alternative credentials and the education providers offering have historically unable to obtain a type of legitimacy held by colleges and universities.

Participation by traditional institutions in the alternative credential market acts to provide precisely what these emergent competitors lack: legitimacy.

By misunderstanding the basis of competition between traditional institutions and those without access to established credentials, higher education is setting out to compete with alternative providers in a way that directly supports the interests of the very entities it believes it is competing against. Participation by traditional institutions in the alternative credential market acts to provide precisely what these emergent competitors lack: legitimacy. Higher education is deeply established as the arbiter of what constitutes legitimate education. In the eyes of students and other stakeholders, these colleges and universities have the authority - naturalised over centuries - to define what is and what isn't "real" education. No single entity could provide a more robust validation of alternative credentials than traditional higher education.

For those institutions committing to alternative credentials for social and educational reasons, I salute you and wish you good luck. But for those pundits advocating that colleges and universities commit to this new market for competitive reasons - to generate revenue and so as to "not be left behind" - I strongly recommend a rethink. A broad-based push by higher education into the alternative credentials market will be an effective means of eroding the powerful basis of a competitive difference in this market. Having said that, though, it should be noted that the validation of alternative providers (by way of the alternative credentials they offer) does not require the participation of all institutions, not even a majority of them. In matters of public perception, validation of legitimacy can be realised through the involvement of a subset of institutions.  


We've done a substantial analysis of the alternative education provider market. While there are significant differences within this category, we are generally optimistic that it will grow a good pace at least for another decade. The factors supporting its growth go well beyond the issue described above. 

Keith Hampson, PhD

Keith HampsonComment