A counter-argument to you could be that this university could have *some* tenured professors, but then we end up back at the beginning -- some tenured professors doing long-term, deep research, and some adjunct professors that often have real jobs, perhaps teach more classes, etc. (In other words, I agree with you)
I think the idea overlooks the purpose of higher education. While some argue that it's just like a vocational school, universities still exist largely to further knowledge for the sake of knowledge. Journalists, op-ed columnists, and parents may complain that universities are not preparing people for the workplace with their classics degrees, but the university would say "we may help people develop to become better employees, but we are not a four-year job-placement service."
I'm not sure exactly what you're talking about with the "Business School Product" stuff, though. People who complete MBAs at actual universities get a good education that's much more than widgets and sales (I just finished an MBA at a top university). Yes, there are more MBA degrees from fly-by-night online universities, but just like other degrees, where you actually go to get the education counts for quite a bit. For example, scientific research out of Princeton is useless because it's an undergraduate-only program -- there are no grad students or post-docs working on serious research for serious science journals.