Blackboard's Next Phase
Blackboard built its e-learning empire on its learning management system, trading legal blows with some competitors and gobbling up others as it raced to satisfy demand for a technology that had rapidly become de rigueur in higher education.
That period of conquest is now over. Last fall, close to 95 percent of institutions had some learning management system in place, according to the Campus Computing Project. Accordingly, Blackboard’s business strategy is changing: with the company adding four new, separately licensed products to its menu in the last three years, Blackboard expects that it will soon no longer rely on Learn, its popular learning management system, to bring home the bacon.
Learn brought in approximately 55 to 60 percent of the company’s $450 million in revenue last year, John Kinzer, Blackboard’s chief financial officer, told analysts in a conference call this month. But the company expects its other products — which focus on mobile learning, synchronous communication, and learning analytics — to fly off the shelves, relieving Learn of a sizable chunk of its burden.
“Over time, clearly the other products like mobile and collaborate and analytics are growing much faster,” Kinzer said. “So we’d assume that over a three- to five-year horizon that percentage is going to be much lower than that, probably down into the 20- to 30-percent range.”
While Blackboard officials insist that this doesn't mean the learning-management platform will be viewed as any less crucial to the company, Kinzer's projection nevertheless marks a large shift in the company's identity.
For those who have been watching closely, this development should not come as a surprise. Blackboard has been laying the groundwork for this second phase over the last few years, slowly absorbing e-learning companies that are not involved in learning management and rebranding them as Blackboard imprints. Blackboard Analytics, formed earlier this month after Blackboard acquired the analytics firm iStrategy, is the latest addition to Blackboard’s inventory of acquisitions. It joined Collaborate, which Blackboard created last year after buying live-communications companies Wimba and Elluminate; Mobile, which Blackboard disaggregated from the Learn platform in 2009; and Connect, which Blackboard inaugurated after buying the notification company Connect-ED in 2008.
As far as the U.S. higher education market goes, several business analysts who monitor Blackboard described this shift as a natural phase in the evolution of a company that has reached the edge of the earth and can only continue to grow by building on existing territory (the K-12 and international higher ed markets are still rife with unclaimed lands, officials point out). When you can no longer sell your core product to additional customers, the analysts said, you have to sell additional products to your core customers — that is, if you want to keep expanding. And Blackboard, a publicly traded company, does. (Desire2Learn, a private company that also sells license-based platforms, is taking a similar tack for the same reasons, according to Kenneth Chapman, its director of product strategy.)
So what does all this mean for the hundreds of nonprofit colleges that use Blackboard Learn as their primary learning management provider?
Nothing bad, said Scott Berg, a research analyst with the investment bank Feltl & Company. As a general rule, “If you have more solutions from a single vendor, you end up being able to drive more out of your business,” Berg said. Therefore, as Blackboard enters the business of analytics software, mobile applications, and other in-demand technology, campus officials might be grateful for the option of continuity, he said.
Meanwhile, colleges that only want — or can only afford — Blackboard’s learning management platform should not worry about having their interests marginalized, Berg continued. While the new products might be expected to be big new revenue streams, they are still designed to be “wrapped around” Blackboard Learn, he said. “Without a core LMS product sale to a potential customer, Blackboard has almost zero opportunity to upsell its other products,” said Berg.
Of course, that raises the question of why Blackboard didn’t just bake its analytics, mobile, and synchronous communications tools right into the learning-management system. Ray Henderson, president of Learn, said the company decided to sell those products separately so that the company could invest more money in them without having to raise the licensing fees on Learn — a tack that has gotten Blackboard in trouble with customers in the past.
Selling the applications separately allows the company to make them sophisticated enough to keep up with competitors while not simultaneously blowing up the price of Learn and shutting out customers who can’t pay for the fancy new tools, Henderson said. More products don’t just mean more revenue streams for Blackboard, he said; they mean greater choice for customers.
In fact, Blackboard’s strategic shift might represent a greater challenge for the company than for its clients. Any company that plans to bring in 70 percent or more of its revenue from sources other than its core product is taking a risk, said Lou Pugliese, a former Blackboard executive who is now president of Moodlerooms. (Moodlerooms competes with Blackboard by providing services to institutions that use Moodle, a leading open-source platform.) “The higher ed market is moving away from overly complex products, add-ons, and features,” said Pugliese. “They’re sticking to the core LMS … everything else is, to some extent, a nice-to-have.”
Trace Urdan, a senior analyst with the investment firm Signal Hill, said there is no guarantee Blackboard will be able to sell enough non-LMS products to realize the sort of diversification of revenue streams that Kinzer described in the conference call earlier this month — especially given the budget cuts on many campuses, to which technology departments have hardly been immune. “Analytics is kind of cool and all, but people were living without it,” he said.
The fact that Blackboard is staking so much of its anticipated growth in the domestic higher education market on the success of its newer products could put colleges in a better position to haggle, Urdan added. “The whole notion of the market being saturated and [Blackboard] being reliant on new products to build their revenue stream — maybe the negotiating power is shifting a little more toward the client and a little bit away from Blackboard,” he said. This might be especially true given the gradual erosion of Blackboard's market dominance in recent years.
Henderson, the president of Blackboard Learn, emphasized that even if the company begins relying less on learning management revenues to balance its checkbook, Blackboard will not divert any money from improving and maintaining its learning management platform — and will, in fact, continue increasing the amount it spends yearly on research and development for Learn. Henderson added that additional revenue streams could allow the company to be more flexible when negotiating discounts with its learning management clients.
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