Kuali Goes For Profits
The summer was marked by some major “disturbances in the force” of Open Source.
Tenth anniversaries for technology companies are (or should be) big events – a real cause for celebration. A tenth anniversary, especially for tech firms that focus on the higher education market, means that you have survived major challenges: product development and launch, market acceptance, funding, personnel changes, product upgrades, multiple (and increasingly expensive) EDUCAUSE and other ed-tech conferences, and more.
As a principal or participant in a start-up that makes it ten years, you can now call home to tell your parents that your company, launched with good intentions, great energy, grand designs, bold aspirations, and never enough money, is now successful: at ten years, you are now an officially accomplished entrepreneur, even if your parents are not sure what your products or services do, or even what business you are in.
Yet many of the true believers in higher education’s Open Source Community, which seeks to reduce software costs and provide better e-Learning and administrative IT applications for colleges and universities, may feel that they have little reason to celebrate the tenth anniversaries of Sakai, an Open Source Learning Management System and Kuali, a suite of mission critical, Open Source, administrative applications, both of which launched in 2004. Indeed, for some Open Source evangelists and purists, this was probably a summer marked by major “disturbances in the force” of Open Source
As reported by Inside Higher Ed in June, Indiana University and the University of Michigan, two of the founding institutions behind the launch of Sakai in 2004, announced plans join other universities to form Unizin, a membership-based consortium of “universities coming together in a strategic way to exert greater control and influence over the digital learning landscape.” Although much of the public explanation about Unizin focuses on the control and sharing of digital content and educational resources, the consortium’s LMS platform will be Canvas by Instructure, a for-profit LMS which has gained significant market share in both the K-12 and higher education markets over the past four years. As co-founders of the Unizin consortium, Indiana and Michigan will abandon Sakai (and where the institutions also served as co-founders) and migrate to Canvas.
Instructure proclaims Canvas to be an Open Source LMS, similar to Moodle and Sakai: the source code (or “secret source” of the application) for Canvas is publicly posted and individual institutions can download the application and run it on campus computers without paying a licensing fee for the software. However, in practice it is fair to say that Canvas by Instructure operates more like a commercial LMS (think Blackboard or Desire2Learn) and than as an Open Source community.
That Indiana and Michigan are migrating to Canvas from Sakai is a big deal. As I noted in my “Looking Beyond Sakai” comments in June about the Unizin announcement, “what should we make of what seems to be the impending transition from Sakai to Canvas by two universities that were ‘present at creation’ for Sakai and whose support for Sakai no doubt played an important role (a) in providing credibility for Sakai and (b) in the LMS deployment decisions over the past decade of some colleges and universities to migrate to Sakai as their campus standard LMS?”
Many of the same institutions and individuals involved in the efforts to create Sakai were also involved in the development of Kuali. Now many of these same individuals and institutions seem to have “twice abandoned” early, strategic, and significant individual and institutional commitments to a community-based vision of Open Source applications for higher education with the late August announcement by the non-profit Kuali Foundation Board that the Foundation will launch a for-profit commercial operation – “a professional open source firm,” also referred to in documents on the Kuali Foundation website as the “Kuali Commercial Entity” (KCE) – to support the continuing development and campus deployment of Kuali administrative modules: financial management, human resources, library content management, research management, a student information system, and other applications.
The Sakai and Kuali decisions, often involving the same people and institutions, suggest a broad reassessment of the effectiveness of the community-driven structure of both the Kuali and Sakai initiatives. Each decision – to migrate from Sakai to Canvas and to create a for-profit commercial services firm for Kuali – suggests that the current structure of these two Open Source communities was not working well for key institutional participants.
However, in many ways these reassessments of Kuali and Sakai were inevitable. Ten years in, the institutional and individual participants and the leadership were obligated to take a close look and do a careful assessment. The outcome of these seemingly parallel assessments suggests that infrastructure matters, and that innovation really requires infrastructure. The “build it and they will come” strategy is not a sustainable business model.
In both instances, the decision of some of the Sakai pillar campuses to migrate to Canvas, and that of the Kuali Foundation Board to create a commercial services firm, reflects recognition of the need for more infrastructure and organizational structure than each community – Kuali and Sakai – currently provides to current and potential clients and community members. (Note to the OCR/Open Source Curricular Community: attention should be paid, as similar issues are at play in the conversation about the infrastructure required to provide long-term, sustained support for OCR curricular resources.)
Is There a Real Market for Kuali?
Recent blog posts from individuals associated with the Kuali Foundation suggest that Kuali deployments in the US higher education market are growing, if slowly: according to Kuali Foundation president (and Indiana University CIO) Brad Wheeler, a decade after the launch of Kuali, “59 institutions are in production with various Kuali products, and another 100 use Kuali Ready, our business continuity product.”
Yet lingering in the background of this conversation about Kuali going for-profit (and for profits) is a larger question about the actual market for Kuali administrative applications. In theory, the 4,500-plus degree-granting public, private, and for-profit two-and four-year colleges in the United States are potential Kuali clients. But in practice, the number is far smaller, perhaps just 1,000 or 1,000 institutions – the roughly 600 US colleges and universities that enroll more than 10,000 students (and account for approximately 55 percent of the total headcount enrollment in US colleges and universities), plus perhaps another 400-500 colleges that enroll 5,000-10,000 students. Certainly the nation’s truly small colleges – some 1350 institutions that enroll less than 500 students but which account for more than fourth of the number of degree granting colleges but account for just 2 percent of the total postsecondary headcount – are not likely Kuali clients.
But also instructive is the assessment of CIOs and senior campus officials about the likelihood that their institution might migrate to an Open Source ERP application in the reasonable future – by fall 2018. And here the data from the 2013 Campus Computing Survey tell an interesting story. CIOs and senior IT officials from less than 10 percent of the institutions that participated in the fall 2013 believe that there is a high likelihood that their institution could be operating an Open Source ERP application by fall 2018. Even among major/large research universities and large public master's institutions, presumably the core market for Kuali applications, the numbers are often small, generally under 10 percent, save for a student information system (SIS) application, where senior IT campus officials at about about 15 percent of public universities, private universities, and public master's institutions could envision an Open Source SIS running at their institution by 2018, even as the application is still under development.
Inquiring Minds Want To Know
The Kuali 2.0 (or “Kuali Commercial Entity/KCE") announcement raises some interesting questions about operational and funding issues. Here’s my list.
• Funding Kuali 2.0. Academics often have a problem with money – and profit. That’s apparent in statement from the Kuali Board about how it intends to fund the new for-profit KCE: “The commercial entity will not take Venture Capital money and will not have a Wall Street IPO. It will be funded by investors with patient values-based capital, who align with our mission, who aren’t just in it for a quick exit.”
Will the for-profit KCE seek investment from current and future institutional clients? Many institutions (and individuals) have already made significant “cash and kind” contributions to the development of Kuali over the past decade. Is there a potential “grandfather” clause that might allocate stock in the new KCE based past on past investments and contributions?
Alternatively (or additionally), what about a Kickstarter strategy, open to the “Kuali Community” and other individual investors? For example, say that I have written Kuali code and that I am upbeat on the prospects for the KCE, even if I know that there is no “pot of IPO gold” ahead, but only small payments to shareholders (i.e., dividends) from the actual profits of the firm. Will I be able to invest in the KCE? And if I do invest, would my investment have any liquidity: in other words, how do I sell my stock in the KCE three, five, or ten years from now?
• Profit Targets? How much “profit” will the KCE need? How much profit will it make? What are the profit targets set by the management and the KCE Board? And what are appropriate profit targets, given the larger mission of the Kuali Community and history of leaders and members in this community, including members of the Kuali Foundation Board, for railing against for-profit software companies such as Campus Management, Ellucian, Jenzabar, Oracle, and Workday, that provide major administrative/ERP applications to the higher education market?
• Who Profits? As the new Kuali Commercial Entity (KCE) will be for-profit, the underlying question is “who will profit?” In most commercial ventures, Board members are rewarded for their service with stock and or cash payments for attending Board meetings. Will the board members of the new, for-profit KCI be rewarded for their service? Will the institutions or individuals who contributed code to Kuali over the past decade be profit participants? How will the new KCE address potential conflict of interest issues if current or former CIOs, CFO, or other campus officials who are (or were) Kuali clients are also KCE board members? And what about employees of the new KCE: will they participate in a profit sharing plan?
• Raiding Talent. Where will the KCE find technical talent to enhance and advance Kuali code? Were I the CIO, CFO, or Registrar of a campus that has contributed code to various Kuali applications or installed a Kuali module, I would carefully guard my “Kuali coders” to be sure that they don't jump from my campus for better, higher paying jobs at the new, for-profit KCE.
• Operating Costs. Sales and marketing, along with user services and support, represent significant operating and overhead costs for any software company. The new KCE will have to add these functions and services, which means hiring people and building sales and support organizations. If the goal of the Kuali community is to reduce the cost of administrative software and the support services to campuses, how much will these essential company functions and services add to the fees charged to campus clients by the KCE?
• Why Not rSmart? To use the words of the Kuali announcement, higher education already has “a professional open source firm.” rSmart, launched in 2004 concurrent with the launch of both Kuali and Sakai, has been standing up, standing with and investing in Kuali support services for a decade. Chris Coppola, president and co-founder of rSmart, has served as an elected Board member of both the Kuali and Sakai Foundations.
On the assumption that it often is wiser, better, faster, and less expensive to borrow or buy than build, if the Kuali Foundation Board felt the need to align the Kuali movement with a “professional open source firm,” the looming question is why not align with rSmart, which has supported Kuali since its inception, rather than take the significant time and incur significant costs to build a new company from scratch, one that will now compete with rSmart for what is, at present, a small market for Kuali services and support? This is, in essence, what the Unizin campuses, many of which are also deeply involved with Kuali, did with the decision to migrate from Sakai to Canvas: the Unizin campuses turned to an existing provider rather than create a new one.
The new KCE will now compete with rSmart, which has a decade of (presumably successful) experience and expertise with Kuali code, Kuali clients, Kuali deployments, and serving the higher ed market. The competition between these two firms can only add to the operating costs of each as they compete for talent and clients.
Moreover, given the obvious ties between the non-profit Kuali Foundation and the new for-profit KCE, the question emerges about a level playing field between the two companies: will the KCE be advantaged because of its close ties to the Kuali Foundation, or will the Foundation steer a neutral course, favoring neither company with early information about Kuali code, strategy, and related issues?
An Evolving Narrative
Admittedly, the KCE story – both the public explanations as well as the somewhat less public back stories – are only beginning to emerge. As with any start-up, there is a creation story, there is the "how we plan to grow the company" narrative, and there will be iterations on both as the company evolves.
Disclosure: Blackboard, Campus Management, Desire2Learn, Ellucian, Instructure, Jenzabar, Oracle, rSmart, and Workday are corporate sponsors of The Campus Computing Project.
Follow Me on Twitter: @DigitalTweed
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