Elearning Market Update – April 2012

Last week we saw further consolidation in the Learning Management System market. This time through the acquisition by Blackboard of Moodle partners Moodlerooms and Netspot. These latest acquisitions have generated a lot of debate and emotion in the market. The main discussion has been why Blackboard, with their proprietary LMS product, have set up their own open source division and acquired two Moodle partners. We believe there is no secret; this is just a natural progression and the development of an active commercial open source market.

If you can’t beat them...

Despite many years of spreading fear, uncertainty and doubt about open source solutions the proprietary solution vendors have failed to dent the advance of open source. There is still a lot of confusion about open source, what it is and how to deploy it effectively. Traditionally open source products enabled organisations to do it themselves. They could download the software free and install, configure and maintain the product themselves. This was attractive for certain organisations with internal skills and experience, but was never that attractive for many other organisations who wanted to contract with someone who would take full responsibility for the deployment and support of the product, i.e. someone who would provide commercial services around the open source product.

This led to the development of professional open source companies that generate revenue from paid professional services, maintenance and support provided along with the software or a customised version of the software. For more on professional open source see the Wikipedia entry.

The most successful of these professional open source companies is Red Hat. This year Red Hat's revenues will pass $1bn. See the latest review of Red Hat from Wired last week. Totara, a custom distribution of Moodle that Kineo, Catalyst and Flexible Learning run, is another example.

Look at the numbers  did they really have a choice?


Whilst there is a lot of debate and emotion around Blackboard's move, it simply follows market trends and is designed to enhance business growth at Blackboard. US consultant and blogger Phil Hill pointed out some time ago that Blackboard's share of campus-wide LMS adoptions among U.S. non-profit colleges fell from 71 per cent to 50.6 per cent in the last five years. At the same Moodle's share grew from 4.2 per cent to 19.2 per cent over the same period, according to the Campus Computing Project.

If you were Blackboard, what would you do?


If you are losing market share for your core product you have to look at a strategy to deal with this. Though not everyone agrees with their tactics: prominent commentator George Siemens has argued the acquisitions by Blackboard are a mistake.

He argues "It leaves the impression that Blackboard doesn't have the confidence to compete on their own product." This may be true, but surely it is better than doing nothing with a declining market share.

To be fair, George does see some potential benefits to Blackboard such as customer acquisition and the ability to resell other services. It seems to us that both are accurate. Whilst Blackboard's core business is their LMS, they have been actively acquiring complementary products including mobile, analytics, video teleconference and payment services. Finding new customers is difficult; acquiring large Moodle partners enables Blackboard to offer its wider range of products including Blackboard Collaborate, where Moodle doesn't have a competitive alternative, to this new customer base.

The acquisitions also enable Blackboard to develop economies and scale in its wider software as a service business.

This is just the beginning


Thus in our view the acquisition makes business sense for Blackboard, and we expect to see further developments in the professional open source market. There are already many companies offering professional Moodle services and companies such as Kineo, which is one of 40 commercial companies that provide professional services for Totara, a custom distribution of Moodle for enterprise customers. We believe we will see more companies offer professional open source services as the benefits become more widely known such as:

  • No per user licence fees
  • Flexibility
  • No vendor lock-in
  • Professional, global support companies

The largest Moodle partner now is Blackboard. That may sound weird to a lot of people, especially the open source community. However, the professional open source model is growing quickly and we will see much more activity in this area. It should be an interesting few years ahead...

By Steve Rayson