Service Industry Shell Games

On the subject of universities, Matt Yglesias notes that rather than attract more customers or increase productivity by upselling existing customers, “schools are more often trying to ditch their existing customer base in favor of obtaining a different, more prestigious set of customers.” The one observation I would have about this is that this particular business model seems to be most widely seen in businesses whose services are of dubious value. By “dubious value” I don’t mean that that the service rendered is worthless, exactly, but that the service rendered has a much more questionable relevance to the customer’s desired outcome than is generally assumed.

Most people aren’t going to college to learn how to think, despite the glossy brochures full of ivory-tower talk that the admissions office sends out. They’re going because a degree is the gateway to securing a middle-class or better lifestyle, even though the jobs they’ll end up taking usually require exactly zero of the knowledge they learned in college. And the same is true of, say, old-style ad agencies and investment banks – due to the particular idiosyncrasies of how those sectors evolved, they’re able to operate hugely profitable and largely unaccountable businesses despite it being unclear why their customers really need them at all to accomplish their ultimate goals.

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