Market update March 2014
Shaping the future of learning
It was 100 months ago we published our first market update on the elearning market in November 2005. We take the opportunity to look back at what has changed - and what hasn’t - since 2005. We look at how companies and markets have changed over the period. So get your scorecards out….
More different than the same?
The learning technology landscape has changed dramatically since 2005. There have been over 100 acquisitions and mergers that we know of and many of which we have reported on in this column. There have also been hundreds of new start-ups. IBIS in 2013 identified over 3,000 elearning companies active in Europe alone thus there is no shortage of innovation or investment in the elearning space.
LMS market changes
The biggest winner in my view in the last 100 months has been Cornerstone. It has grown its revenues to $185m in 2013 from $46m in 2010. In 2005 Saba was named the top elearning LMS vendor with estimated revenues of $65m. Saba’s annual revenues last year were $116m, so revenues have doubled in 8 years in actual terms, but they have grown much slower than Cornerstone.
The open source platforms have also grown significantly in this period: Moodle to over 60m users and Totara, a custom distribution of Moodle for corporates, has grown strongly from a zero base in the last 3 years to over a million users. Nine years ago we were in evangelist mode around open source LMS solutions, it was even in our very first newsletter. Now it is common to see companies choose open source solutions.
The big technology players have acquired innovative smaller players in their quest to provide integrated talent management solutions. For example companies like Success Factors were bought by SAP for $3.4bn and Taleo were acquired by Oracle for $1.9bn. This follows trends in other technology markets where big players look to build integrated suites of services.
The product and tool companies that have performed well in the last 100 months are those that have won in a particular market. A good example is the authoring tool Assima which did £5.6m revenues in 2005 and over £20m in £2012. However, for every Assima there are dozens of failed products and tools. Getting a groundswell of users, continuing to innovate, and providing great service and support are the keys to the kingdom here. Our friends at Articulate do this really well. Open Source authoring tools are a disruptive threat to this market and we’re doing our bit with our Adapt Open Source authoring framework.
Generic content – Skillsoft became huge, but did they just buy the growth?
On the generic content side some people may feel the big winner over the last 100 months is SkillSoft which was sold for a reported $2bn recently. In 2005 Skillsoft’s revenues were $212m, by the end of January 2013 its revenues had increased to $380m. In 2013/14 Skillsoft’s third quarter revenues grew to $105m, so the company is on target to double its revenues.
However, let’s peel back the layers to see how they go t there. This revenue growth includes a number of large acquisitions for example:
- Netg was acquired in 2006 for $270 million in cash, Netg was doing annual revenues of $160m at the time
- Element K was acquired in 2011 for $110 million in cash, Element K was doing $86m in annual revenues at the time.
Thus just adding Skillsoft’s 2005 revenues to the Netg and Element K revenues would give you revenues of $258m, and this excludes many other smaller acquisitions such as Thirdforce/Mindleaders, Books 24x7 and 50 Lessons. Thus overall revenues have arguably declined over this period. Nothing wrong with acquiring to expand and dominate a sector and then drive up margins, but it does mask the organic growth levels.
Others that have done well in generic content have focused on specific niches, e.g. Intuition in financial services, or ones that have moved fast to address a market need, e.g. specific products in health. Many successful niche players have ended up getting bought by Skillsoft and many may even have this as a strategy.
Custom Elearning Companies
The growth of custom elearning companies has been particularly disappointing over the last 100 months. In the UK the market leader in 2005 was Epic which did £8m revenues in the year to May 2005, which would be £10.1m today if increased for inflation. Epic also achieved a pre-tax profit of £2.2m in 2005. The Learning Technologies Group which now includes Epic announced revenues of £7.7m in 2013, so a decline in revenues in actual terms and significantly down in real terms since 2005. Line has done slightly better over the period. They did £7.134m in revenues back in 2008 which would be around £8m in real terms today and I am led to believe the they did higher revenues in 2013. Good luck to both these companies and others in this changing market. To put their performance into context we should remember that many other custom elearning companies active back in 2005 are no longer with us.
In my view the very fragmented nature of the custom elearning market means the winners are either the smaller innovative and nimble players who grow quickly from a low base or the large companies who provide custom elearning as part of a wider suite of learning services on a global basis. Call me biased but I think our experience at Kineo supports this view. We grew from zero in 2005 to over £10m in 2012 by disrupting the market with new innovative approaches. Following our acquisition by the City & Guilds Group in 2012 we have continued to grow by developing a much wider range of services including our new Managed Learning Services that provide complete solutions including platform, content, qualifications and accreditation in areas such as apprenticeships, management, onboarding and compliance. We have also continued to grow by expanding overseas with production teams in countries such as the US and Australia.
There are examples of other companies growing their custom elearning development but as part of their larger business. These companies also tend to have global content production factories such as GP Strategies. GP Strategies total revenue was over $430m in 2013.
What lessons can we learn?
I think the forecasts of growth in spending on elearning by the analysts since 2005 have been broadly accurate. However, it has been hard for companies to achieve consistent revenue growth in a very competitive market and one which continues to change quickly due to changes in technology. This has been particularly marked in the custom elearning market which remains characterised by small companies, fierce competition, relatively small projects, high costs of sale, limited guaranteed recurring revenue, and technology delivery challenges not least those generated by multiple devices such as smartphones and tablets.
There has been no shortage of innovative product and technology companies launched in the last 100 months and I suspect we will see even more new companies formed in the next 100 months. The barriers to entry for new companies are low and falling. Internet technologies allow small companies to get going and compete quite quickly and cost effectively. However, the majority of these new companies unfortunately will fail. The ones that will succeed at scale will be product companies that accurately forecast future learning needs and technology; and service companies that provide an integrated range of services. In both cases these companies must be able to fund their ambitions and investments through to profitability.
The winners going forward in my view will be:
- Product companies that are able to accurately predict and follow market changes, and with access to the resources to invest and see them through difficult periods. The best recent examples of this in my view are companies like Cornerstone that picked up very early on the demand for LMS SaaS solutions and had the scale to invest and to grow a substantial market share. This has not been easy in 2012 Cornerstone spent over $45m on sales and marketing to establish their market position. How they will compete in the longer term with the giants of Oracle and SAP remains to be seen.
- Companies that provide a wider range of learning services which draw upon and use learning technology in various forms as part of their learning solutions to act as a full service learning partner for clients. Custom elearning will be one of a number of services that give them more scale and sustainability. This has been very much the rationale for City & Guilds acquiring Kineo, to provide wider, more integrated learning services.
- Custom elearning companies that are very nimble and innovate at pace in a fast changing market. I really like what small companies such as Make Sense Design are doing and their innovative Elucidat authoring tool.
As we’ve said many times – it’s not enough to be on the right track, you have to keep moving or you will get run over by the competition. And I’m sure we’ll still be saying that in another 100 months…