State of the eLearning Industry

Trace Urdan, who leads WR Hambrecht+Co.'s eLearning research group, kicked off Monday's discussion of major trends in the eLearning industry.

Urdan began with a rebuttal of recent criticism that eLearning users are becoming too focused on the financial health of eLearning companies. "Users should be trying to predict which business models are working,”  he said, noting the inconvenience caused to customers of firms that have recently filed for bankruptcy. Headlight.com, which recently went under, is an example of a promising company that despite an innovative business model and solid technology, failed to survive the venture capital squeeze.  Headlight’s demise is indicative of how even seemingly strong companies can become vulnerable in the current climate, a reason why buyers should pay attention to financial performance.

Trace talks with George on the conference phone

Click for blow-up of Sherrin's cartography of the session. (Sorry for the fuzzies; better images are on the way.)

Trends that Urdan sees in the market include:

·        Making a sale based on saved travel costs is no longer unseemly compared with a year ago, when the larger vendors were emphasizing more long-range benefits for buyers.

·        Buyers are migrating to perceived market leaders as a hedge against consolidation that many expect to continue as venture capital remains tight.

·        Sales cycles for subscription-based (hosted) services is lengthening, indicating growing difficulty with the appeal of that model.

·        Enterprise deals are still happening (most recent evidence includes four behind-the-firewall implementations for corporate clients announced by Docent)

·        Live Web-based training is proving to be very popular and is a relatively easy way for companies to get started in eLearning.

·        Buyers are becoming more savvy about eLearning technologies in general and about the importance of quality content

Best-of-Breed vs. End-to-End Business Models

The question of whether integrating ‘best-of-breed’ technologies or a single-vendor end-to-end solution is the stronger business model for vendors and users brought a variety of viewpoints.

David Stirling of PricewaterhouseCoopers noted that both models have their strong points, and that different facets of PwC are using differing combinations of packaged solutions and best-of-breed combinations. Jamie Clark of Deloitte Consulting said that many buyers want best-of-breed for me,” and that the consultant’s role is helping them figure out the right combination of technologies. He added that Deloitte is in the final stages of selecting an LMS for its internal use; SmartForce, which recently purchased LMS developer ICGlobal, is a close partner of Deloitte’s and is on the short list.

Growing Price Competition

Trace Urdan commented that more vendors are competing on price points, an indication of tightening competition in the market. In some cases, large buyers are seeing large discounts even free deals in exchange for allowing the vendor to use their name in marketing materials. Even eLearning leader SmartForce is exerting price pressure in the market, Urdan said.

That led to a discussion of the ASP model in eLearning vs. behind-the-firewall implementations. Mark Cavender of the Chasm Group observed that ASP solutions represent a slower way to recoup an investment in eLearning than behind-the-firewall solutions. Urdan said that vendors are aggressively backing away from ASP offerings. And Glenn Oclassen, vice president of business development for market researcher LGuide and former Headlight.com manager, said midsize and small companies proved a difficult sell for its ASP offering. They are doing nothing.

George Sutton, an investment analyst with Dain Rauscher Wessels, sounded a contrary note. A lot of larger companies are doing internal implementations, but its still recognized that long term ASP is going to be a pretty big opportunity,” he said.

Jay Cross, an eLearning consultant and CEO of the eLearning Forum, decided to stir the pot by questioning the linkage between eLearning and traditional classroom training. Training has never been able to do the job of leveraging human capital, and eLearning is nothing like training, said Cross. I’d rather we call it something else and get away from comparing eLearning with training, where we have to start out with all this training baggage. The lighthearted comment was met with chuckles and nods of agreement.

LCMS?

Participants also mulled the significance of a newly christened class of vendors known as Learning Content Management Systems (LCMS) whose products focus on the development and management of object-based content. Eilif Trondsen, who heads SRIC-BI’s Learning-on-Demand program, noted the recent efforts made by companies such as WBT Systems and others to distinguish themselves from LMS providers. The question he posed to analysts and others is whether LCMS will be incorporated into LMS systems and/or be combined with synchronous tools.

Urdan observed that LMS vendor Docent already uses content management as a differentiator, though its unclear to what degree customers actually take advantage of those functions. Content management and live e-learning combined makes a lot of sense, though it needs to be put on an LMS infrastructure, which is the logical integration platform, Urdan said.

George Sutton noted that the tight VC market has left LCMS developers struggling to raise capital in the past year, and he says many of them are for sale. LMS vendors are the logical buyers of such technologies, he added. Cross added that content publishing is hardly new, and the industry probably does not need yet another acronym to toss around.

Quality?

A remote member had asked a question via email: Is quality a problem, since analysts and customers cannot tell good stuff from bad? Customers cannot differentiate the good content from the bad. Glenn Oclaasen said that’s what drives customers to focus on pricing. Greg Willmarth, formerly CEO of Loose Cannon, said, The problem is a lack of measurement on the back end. A major developer said, I'll be the first to admit that the quality of what we're doing is about the same as everyone else. It pretty much sucks. Sutton sounded a cautiously optimistic note about a resurgence of venture capital in the eLearning space. VCs are thinking of this group more broadly than we are here, he said, noting the growing interest of VCs outside the education arena in eLearning companies. We’re seeing more interest in making investments in this space.

Jamie Clark of Deloitte offered a final thought on the shift toward learning object methodologies. The sooner we can get LMS providers to agree on standards, the faster we’re going to see more extensive ROI’s, he predicted.

Background: Check out our growing collection of research & opinions on where eLearning is these days.