Elearning Market Update April 2011

This month we are talking bubbles and a tale of very different learning markets.  The corporate market for face to face training appears to be declining at the same time as we are seeing a boom in the elearning and higher education markets. Steve Rayson gets into the bubble.

The latest 2011 training market survey by Keynote does not make for happy reading for traditional training companies. The report estimates that "UK employers spent around £2.5bn on external trainers in the year to April 2010, which represents a fall of about 17% on the value spent in the previous 12 months." That is a huge reduction in expenditure in a 12 month period.

The consequences have been predictable:

"As the training market contracts, price cutting has become more common; a number of high profile — and successful — companies are implementing price reductions of as much as 50% in 2010."

"Several successful companies operating in the training market made a loss in 2009, whilst others ceased trading — this is symptomatic of conditions within the industry. There remain some companies that are weathering the market comparatively well, but the majority are experiencing falling revenues."

You can buy the full report at http://www.trainingdirectoryuk.com/the-uk-training-industry-2011-market-intelligence-/

Not all of the training market though has suffered in this way. For many of us involved in creating blended and elearning solutions the last few years have been ones of sustained growth. The Keynote report notes that “the take up of elearning packages has increased."  The difference is quite marked to the point where we have actually wondered if we are seeing a bubble in elearning and market valuations of elearning companies.

A few weeks ago we saw the public floatation of Cornerstone Ondemand. We are very much admirers of the Cornerstone team who have taken a SaaS based approach to HR systems and have been very successful in growing their client base and revenues quickly. Last year they grew by over 40%.

As this article is written in mid-April 2011, the current market value of Cornerstone Ondemand is over $800m; the best part of $1bn. Last year we saw Skillsoft acquired for in excess of $1bn. Saba’s share price is up 60% in the last six months; not as dramatic as Cornerstone, and valued significantly less, but encouraging all the same. It is great to see the success of elearning companies such as these. However, is there a bubble growing or is this simply the consequence of having seen a tipping point in the demand for elearning which sustains these valuations. In the case of Cornerstone Ondemand, that valuation is for a company with net revenues of $43.7 million in 2010 but which has never been profitable. To be fair the revenues are growing but so are the losses with a net loss of $48.4 million in 2010 compared to a net loss of $8.4 million in 2009.

In our view, elearning appears to be at a tipping point where companies no longer start with the assumption learning will be delivered through face to face training events but a range of learning interventions including self paced elearning, virtual classrooms, coaching, short master classes, and collaborative social learning. Thus it may be the market has called these valuations correctly and the Cornerstone model will go from strength to strength. However, the market is still a changing one the technology and delivery models continue to change quickly with open source software gaining ground, including Totara LMS, a custom distribution of Moodle for corporates, more collaborative and social learning models and many more mobile and tablet devices which may change delivery formats.

Talking of potential bubbles, last week I was in Chicago at our new office, and picked up a copy of The Economist which had an article on Peter Thiel's arguments about a higher-education bubble.  Mr Thiel, the co-founder of PayPal and a legendary investor, has a long history of identifying bubbles. According to the Economist“Mr Thiel believes that higher education fills all the criteria for a bubble: tuition costs are too high, debt loads are too onerous, and there is mounting evidence that the rewards are over-rated.”

The article quotes Paul Krugman who argues contrary to popular wisdom, that technological progress may reduce the demand for high-end jobs, not just low-end jobs. Thus the benefits of higher education may not give the security many believe.

Krugman argues “Most of the manual labor still being done in our economy seems to be of the kind that’s hard to automate. Notably, with production workers in manufacturing down to about 6 percent of US employment, there aren’t many assembly-line jobs left to lose. Meanwhile, quite a lot of white-collar work currently carried out by well-educated, relatively well-paid workers may soon be computerized. Roombas are cute, but robot janitors are a long way off; computerized legal research and computer-aided medical diagnosis are already here.”

It will be interesting to watch these developments in the US and in other countries. Next week I am off to the Kineo office in China, and to attend the major training conference which is held in Shanghai. It will be intriguing to get a Chinese perspective on developments in the training world and I will update on my findings next month.

By Steve Rayson

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