Market Failure: On Our Side of the Digital Gap

by David Behrman

There’s a Digital Gap in our Jewish schools. Technology enriches our lives, connects us to friends and family, makes us productive, and lets us have fun, yet doesn’t seem to make it into our synagogue communities and perhaps more importantly, into our schools.

This gap is growing. And as it widens, it sends a message to our children: This thing called Judaism, it’s old fashioned. It writes with a quill pen. It doesn’t fit in the modern world.

But why? We are active in the arts, in the sciences, in business, in finance. Why this big, growing gap?

The answer is market failure.

To be sure, there’s much digital experimentation in the Jewish world. Especially in the educational community, digital innovation arises from a marketplace of ideas fueled by philanthropy. Intellectual entrepreneurs have ideas, put those ideas out for competition in the market for donors’ dollars, and what gets funded gets done. It’s a market like many others, where the donors are the customer (they write the checks), and the intellectual entrepreneurs are the manufacturers (they make the things.)

But there’s a problem. The consumers (kids, teachers, learners, you and me) can be left out. We use what’s produced, but don’t play an active role in designing it. Like the health-care system, where users (customers) are disconnected from funding and supply, demand isn’t linked to what gets made. And so the projects that get funded – that get made – don’t necessarily work in our schools, or appeal to our kids, or even appeal to the rest of us. And so there are Smartboards in classrooms with little software to run on them, and cumbersome or misconceived materials people will use only because it is free.

Market failure.

What makes the digital realm a greater challenge to the philanthropic market model, when that model has so effectively and generously supported other community efforts over decades? I believe there are six parts to the answer:

  • Lack of scalability. Smaller initiatives tend to be local, designed around the unique skills of an intellectual entrepreneur and his or her particular audience, and around resources of the specific local community. The road to scalability, to larger, national impact, is limited. Without a broader reputation or appeal, entrepreneurs struggle to sustain themselves economically.
  • Lack of agility. Grants usually require a grant proposal. It sets in black-and-white, often for a long period, how a project will evolve. But in the digital world, even a year can be a lifetime, and the landscape is constantly changing. A lack of flexibility to adjust on the fly can mean failure.
  • High development costs. The production values that mass market gamers and Hollywood have caused us to expect in the digital world have pushed the costs of development into the stratosphere, yet our target audience is a mere sliver in comparison.
  • Overhead. And there’s the sheer amount of time it takes to secure funding. One of our most creative intellectual entrepreneurs (you’ve used her work) estimates she spends 1/3 of her time just looking for funding. That’s not atypical. Imagine you had a productive 9-5 job. Now imagine you had a 2-hour commute each way. You would leave for work at 7am and get home at 7pm. That‘s the equivalent of spending 1/3 of your time on overhead: a 12 hour work day with only 8 hours of productive work time. Would you stay in that job?
  • Lack of user input. Too often development of technology isn’t linked to the user until the end of the program, when there may be an assessment phase. But that’s late in the game – the program can be determined a success or a failure, but it’s too late to change, and too late to reclaim dissatisfied users who might have created a self sustaining market for the technology.
  • Mission drift and abandonment. In this model, the donor is the customer. The intellectual entrepreneur is at risk for a donor moving on to the Next New Thing. Worse, if there are not enough satisfied users willing to take over the ‘funding’ by paying for their use, we lose even the “old” innovations that have been proven to work.

Non-Profit Models Don’t Work Well

It’s a paradox. Everyone involved – most especially donors and intellectual entrepreneurs – is investing considerable resources, time, passion, and skill, all in furtherance of a common goal. Yet the outcomes are suboptimal. As with other broken markets – health care is perhaps the best example – the linkages between different parts of the market are distorted or missing, and so while each individual or group is behaving perfectly rationally and with good hearts in furtherance of a common goal, the outcome is not what they collectively seek to accomplish.

And the outcome will not change, unless we as a community intervene.

So the issue is raised: how can we cure this market failure? What mechanisms can we install to adjust the system to preserve the commitment and contributions of funders, while aligning it more closely with the needs of learners and other users of digital technology? Here at Behrman House we’re working on an answer – the beginnings of that answer in my next article.

David Behrman is President of Behrman House, a publisher of textbooks, software, and other educational materials for Jewish religious schools throughout North America. Before joining Behrman House, he was a consultant with McKinsey & Co, in New York, where he served clients in the service, transportation, and not-for-profit sectors. A graduate of Haverford College and Stanford Law School, he also practiced corporate and securities law with Davis Polk & Wardwell in New York.

chart source: developer and educator interviews; BH data and analysis