Market Update August 2014: Steve Rayson's Final Insights

Sadly this will be my last market update as I leave City & Guilds Kineo at the end of August. Since starting the company with my colleagues in 2005, I have written over 90 monthly market updates for Kineo (and CG Kineo) and thought I would take this opportunity to look back at the changes in the bespoke/custom elearning market and changes in the technology underpinning elearning content.

Market Changes

What strikes me most when I look back over the last 9 years is the degree of change in both the learning platforms market and the generic courseware or content market. There have been literally hundreds of acquisitions, resulting in market consolidation and the emergence of billion dollar global companies. Last week’s acquisition of SumTotal by Skillsoft simply reinforces this point about the consolidation of platforms and packaged content. By contrast I am struck by just how little change there has been in the bespoke or custom elearning content market.

For those of you that are not as old as me, here is just a quick reminder of what things were like in 2005…

At that time I was a Director at Epic and we were arguably the market leader in the UK bespoke market. In the financial year ending May 2005, we posted revenues of £8.1m (£10.85m in real terms today) and a post-tax profit of £1.5m. Line was the second largest bespoke company that year. By 2008 Line had grown to revenues of £7.1m (£8.6m in real terms today) and Epic slipped back, making Line the largest UK bespoke elearning company at that time.

Below the larger companies the market was very fragmented. Companies such as Redtray, Brightwave, Intellego and Saffron Interactive, along with many others, were all threatening to break through to challenge Epic and Line.

Today Redtray and Intellego no longer exist and Brightwave and Saffron remain in similar positions surrounded by a great many small custom development companies. As the elearning market has grown we have seen more small bespoke elearning companies emerge. IBIS identified many hundreds and there are over 500 on the Elearning List but they all remain relatively small. Thus the lower end the market remains a competitive, price-sensitive red ocean.

The Top of the Market Has Changed, A Little...

As Kineo we have grown consistently since our launch in late 2005, and (as City & Guilds Kineo) we will post revenues of £20m for 2013/14. Epic and Line have recently merged to form Leo Learning. However, as both their revenues have been broadly flat over the last 9 years, their combined revenues may still only be around £20m or less (their interim results will be issued in September).

Only a few other companies have also grown to £20m+ by focusing on specific areas and developing generic content to complement their bespoke elearning. Intuition is a good example, posting revenues of £21.5m in 2012.

Thus while a few companies have pulled away a little at the top of the market there has been a lack of successful consolidation in the bespoke or custom elearning space. The picture looks very similar in the US where, whilst there are some large players that do custom elearning (such as General Physics and Convergys), the market is fragmented and characterised by small regional players.

Whilst the platforms and courseware market has seen very large global companies emerge this has not happened in the custom or bespoke elearning market. There are a few companies around the £20m mark, achieved either through organic growth in the case of Kineo and Intuition or mergers in the case of Leo. Below these companies the market remains very fragmented and dominated by small regional companies.

Future Predictions For The Custom Elearning Market

Back in 2005 there was a view that custom content development would scale and a lot of development would be moved offshore to lower cost locations such as India. However, scripting and even graphics are culturally specific, making them very difficult to offshore. There are technical elements such as animations, builds and testing that can be done offshore but these are not where the major costs lie.

I don’t believe we will see the emergence of large companies that are primarily focused on custom elearning content. In part I think this is because the very nature of custom elearning can actually lead to diseconomies of scale as companies grow larger. Resourcing is a major task as project deadlines consistently move. Even simple things such as script sign offs being delayed affects resourcing. This gets more complex as companies get bigger and it is harder work to maintain high levels of utlilisation.

Equally, bespoke or custom content is just that, bespoke. Lead learning designers or consultants need to spend time with the client and subject matter experts. They need to understand the culture and really get under the skin of the business. This process is hard to scale.

I think we will continue to see a very fragmented market of small custom elearning companies, with many run as ‘lifestyle’ businesses. At the top end we will see the emergence of more companies like Intuition and Kineo which offer a full range of services such as consultancy, content (custom and catalogue), platforms and support but focus on specific areas such as compliance.

Custom elearning in these companies will continue to grow but as part of a wider service offer as the focus of the companies will be broader learning solutions delivered globally. They will compete increasingly with the larger service companies such as General Physics and Accenture. These companies will be increasingly consultancy led which will create challenges to recruit, reward and retain the right people.

Game-Changing Hardware

On a trip to our Chicago office in April 2010 I bought an iPad on the first day of its release (I was one of those clapped by rows of enthusiastic Apple staff which made for a very weird shopping experience). The impact of this device on corporate learning has proven to be much greater than the release of the iPhone in 2007. That impact was magnified when Apple refused to allow Flash on the iPad and decided to make use of open standards like HTML5.

By 2013 sales of HTML5 compatible phones topped 1billion. For those developing elearning this heralded a major change in development technology and approach.

I personally think the emergence of the iPad as the best selling computer ever, and one which didn’t run Flash, was one of the more significant changes to the industry over the last ten years. Mobile technologies have also had an impact, but not as great as the iPad and its adoption of open HTML standards.

...and Software

There was a rush towards developing apps for learning with the growth of smartphones and the app economy. However, HTML5’s ability to support responsive and adaptive solutions has helped establish it as the technology of choice for custom content.

HTML5 content is broadly hardware independent and will run across not only different smartphones but across all devices, from phone to tablets to desktops. Authoring tools like Adapt not only reformat HTML content for different sized devices, but they adapt content: displaying it in different formats or even changing the content shown according the the screen size.

I think open source has had a major impact as well and a lot of credit has to go to people like Martin Dougiamas at Moodle and Richard Wyles at Totara LMS. Both are strong open source advocates and we have seen these platforms widely adopted in corporates.

It is still early days, but the more recent advances in internet technologies have the potential to transform learning by providing collaborative learning experiences and by personalising content.

Having just finished reading through the interviews for this year’s Learning Insights Report I was struck by five examples of how corporates are using Yammer to provide effective support and learning. One quote stands out from a manager who said: “I find out more from Yammer than any other communication channel in our business”.

In Summary

It has been a privilege to work in the industry over the the last 15 years and learn so much during my 100 months at CG Kineo.

It is challenging for learning departments to adapt to a fast changing world, but the opportunities to make an impact are far greater now than ever before. New technologies allow learning to be contextualised and relevant, and delivered to the learner wherever they happen to be. On elearning development I think that SaaS (Software as a Service) or cloud-based approaches will have a major impact in the future. Authoring tools will also be cloud-based rather than installed on individual desktops, as many are now.

The world will inevitably be more global in the future and will demand solutions that work globally. This will create new challenges for learning departments. I have personally learnt a lot about the global challenges and opportunities from working with our Kineo offices in Australia, China and the US.

It is difficult to know what impact technologies such as virtual reality headsets and wearable devices will have in the future. I do know the CG Kineo team are actively exploring these opportunities and will continue to create innovative solutions. These are exciting times as we are still in the early stages of applying internet technologies to learning. I am very much looking forward to the next ten years.

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