For those of you who have been living under a rock, you may have missed a cluster of announcements from Blackboard this week:
- Blackboard Acquires Moodlerooms and Netspot
- Blackboard Appoints Sakai Foundation Board Member Charles Severence to Lead Company's Sakai Initiatives
- Blackboard Announces Open Source Services Group
- Blackboard Announces Continued Support for ANGEL
There has been a lot of really good, thoughtful coverage on the web about these developments. I recommend starting with the e-Literate friends and family, including Phil Hill's post right here on this blog, Audrey Watters' passionate rant on Hack Education, Rob Reynolds' commentary at his blog, The Learning Lot, and frequent and eloquent e-Literate commenter Kate Bowles' ruminations on her highly worthwhile Music for Deck Chairs blog. Those posts, in turn, link to other really good posts. I am really impressed with the level of sophistication of the dialog that the educational community is having about these developments.
That said, I do think that there is more to add before we have exhausted the topic. I'm going to provide my own thoughts on what Blackboard is up to in this post and an analysis of what this means for non-Blackboard customers---particularly users of open source platforms---in a follow-up post.
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Pivot or More of the Same?
There has been some debate regarding whether these moves represent a new strategy from Blackboard or more of the same. From my perspective, it's some of both. Let's start with the more-of-the-same part.
In January 2006, I wrote (based on a wonderful financial analysis by e-Literate featured blogger Jim Farmer),
Blackboard pays a quarter of a million for a new customer. That’s adds up to be more than 30% of the total amount of money that they bring in. How, exactly, do they stay in business? How do they grow? $250K is a pretty high hurdle to jump, particularly when you consider that Blackboard is also constantly losing some customers (as any company does) even as they pick up others. According to Jim’s numbers, Blackboard needs to acquire 185 new customers every year to hold steady, 371 to get 5% growth, and so on, up to 742 new customers needed to grow at 15%. How many new customers a year has Blackboard been getting? 152. Less than they need to break even.
So Blackboard has to employ some other strategies in order to stay afloat. First, they try to sell to entire university and school systems rather than individual colleges and schools. For example, they’d prefer to spread that $250K cost across the entire 64-campus SUNY system by making one sale to the central offices than incur it 64 times to sell to each campus individually. Second, once they have a new customer, they upsell and cross-sell like crazy. Once you’ve signed up for the Blackboard LMS, they’ll try to sell you the Blackboard content management system, the Blackboard portal, the Blackboard toaster oven, and the Blackboard time share in Boca. The typical customer licensing the works will pay $160,000–per year. (Remember, you don’t buy Blackboard. You rent it.) [Emphasis added.]
Because of the way that university LMS procurement processes work, LMS companies have to spend a lot of money to acquire customers. Open source can help reduce the cost of acquisition for platforms like Moodle and Sakai, but not radically so. That means any LMS vendor that has aggressive growth aspirations---particularly if they take venture capital money or take on a lot of debt---pretty much has to sell add-on products and services to meet growth targets. From the very beginning, Blackboard was always going to be in the business of using the LMS to sell other stuff. It was in their DNA.
But they had a big problem. At the time that Blackboard grew up, the LMS was the only educational technology product or service that was mature enough to get broad adoption. They had to stay dominant until the market matured to the point where they would have lots of other stuff that they could sell. So they took a four-pronged strategy: (1) keep raising prices to compensate for the lack of other goods to sell to existing customers, (2) buy any competing LMS that threatened their dominance of the product category, (3) assert a patent to freeze the market, making customers afraid to migrate and potential new entrants afraid to compete, and (4) buy up the emerging market leaders in nascent but promising educational technology product categories.
This strategy worked (at the cost of horrific damage to their brand). The company was able to maintain a strong market position and use their access to cheap capital to buy up both competitors and market leaders in new product categories. To be clear, the strategy's effectiveness did erode over time, as can be seen by this graph of market share based on data from the Campus Computing Project:
But it held off competitors well enough for long enough that Blackboard was able to grow (or, mostly, acquire) a whole slew of products and services that it can now cross-sell. This happened just as their LMS competition became significantly stronger and pricing pressure on the LMS became significantly greater. So they were able to begin a pivot just at the moment they absolutely needed to do it. In July, 2010, when Blackboard acquired both Wimba and Elluminate, I wrote,
It looks like the vast majority of the churn in the LMS market is at Blackboard’s expense. At the same time, Blackboard has been moving aggressively to diversify its revenue stream by acquiring non-LMS product lines like emergency notification systems, a campus mobile portal, and now webconferencing software.
Under these circumstances, it is mostly in Blackboard’s financial interest to maintain good partnerships with LMS rivals that integrate with Elluminate and/or Wimba. I say “mostly” because Blackboard is still in a transition period where a lot of its revenue rides on their LMS platform, and they need to do what they can to slow erosion there if they are going to pull off their metamorphosis into a diversified company without having their revenue growth slow enough to scare investors. But the long-term financial interest for Blackboard is tipping away from protecting their core LMS product as their overarching imperative and toward having some sort of relationship with as many schools as possible. To make that work, they will have to build products that play well with whatever other stuff customers happen to have. I do not expect Wimba and Elluminate to be the last products Blackboard buys or builds that will integrate with rival LMS products. Blackboard’s long-term interest dictates cultivating partnerships with their rivals in the LMS space.
I wrote that 20 months ago. When I spoke to Ray Henderson on the phone a couple of days ago, he emphasized to me that 50% of the company's revenues are now from sources other than LMS licensing, "and it's going to get larger." The pivot, baked in from the beginning and years in the making, has been fully executed.
What's new is the embrace of open source. It is consistent with Blackboard's evolution into a company that provides a portfolio of educational technology products and services, but the move was hardly inevitable. To the contrary, I don't believe the deal to buy Moodlerooms and Netspot would have been possible had Blackboard not been taken private. For one thing, I have heard from a number of sources that all Moodle partners tithe 10% of their gross Moodle-related revenues to the Moodle Trust (the non-profit organization that is responsible for overseeing the development of the Moodle core code and the Moodle.org web site). Ray didn't confirm that specific percentage, but he did say that the commitments of Netspot and Moodlerooms in this regard are unchanged from what they were previously and that he believed (but was not certain) that those commitments are standard for Moodle partners. For that reason alone, I don't believe that a publicly traded company could have done that deal. In addition, the move carries some risks and challenges that were not present in the previous acquisitions. It's worth taking a moment to dive into the details.
Moodlerooms and Netspot are quite different from each other. In addition to providing Moodle support, Netspot is already a reseller and integrator of other companies' proprietary products, including Blackboard's Collaborate and Pearson's Equella. According to Ray, the company will expand to essentially become Blackboard's regional sales hub for Australia and parts of Asia. Moodlerooms sells Moodle hosting as well as company-developed proprietary add-ons to the platform. So Moodlerooms will have more evolution to do under the new regime than Netspot will. On the other hand, Moodlerooms senior management has a number of personal ties to Blackboard senior management. Moodlerooms CEO Lou Pugliese was the CEO of Blackboard back in the early days. Moodlerooms VP of Product Management Phill Miller and CTO Dave Mills both worked with Ray Henderson at ANGEL.
According to Ray, both of these companies will remain independent in significant ways. He called out software development specifically as one area where the companies will remain independent. For example, Phill Miller will continue to head up development of Moodlerooms' proprietary Joule platform. The sales teams will also remain independent, although how this will work is less clear, particularly since it means that Blackboard Learn and Moodle sales reps could be competing head-to-head. Also unclear is how the products will be positioned relative to each other. Ray took pains not to position Moodle as the Hyundai and Blackboard Learn as the Lexus, but he did have a few interesting comments about how the products are differentiated. For Moodle, he talked about the open source community and about cost. For Blackboard Learn, he talked about total cost of ownership and value for full distance learning courses. In some ways, this division is not so different from how Pearson's Adrian Sannier positions OpenClass relative to LearningStudio (a.k.a. eCollege). But it will be delicate, particularly since Blackboard doesn't "own" the Moodle code base or community. This is a key difference from previous acquisitions. With proprietary platforms like WebCT and ANGEL, customers chose both the platform and the support organization as a bundle. With an open source platform like Moodle, customers first decide they want to adopt the LMS and then decide how they want to support it. They can self-host or hire any one of a number of support customers. It is much easier for an unhappy Moodlerooms customer to move to Remote-Learner's Moodle offering that it is for an ANGEL customer to move to Moodle. Because the platforms are largely the same, the data migration and user retraining will be relatively modest. And unlike the proprietary platforms, Blackboard can't sunset Moodle and force customers to migrate to Learn because they don't control the Moodle code base.
The company is taking a major risk that they will be able to keep Moodle customers in an environment where the barriers to exit are much lower and the company has much less control over the evolution of the core code. They will have to rely much less on power and much more on persuasion. Can they pull it off?
In the afore-referenced post on the Wimba and Elluminate acquisitions, I wrote,
Blackboard’s long-term interest dictates cultivating partnerships with their rivals in the LMS space.
Now, interest and ability are not always the same thing. Partnering requires a rather particular set of business skills as well as a corporate culture that tilts in the direction of prioritizing the long-term value of alliances over short-term gains from competition. Time will tell regarding how well Blackboard can execute.
This latest move is going to be much tougher than the Collaborate foray (which seems to have gone well, based on my limited visibility into it). Ray is clearly banking heavily on his personal brand to pull it off:
Ray took pains to assert this theme a number of times in our conversation, bringing up the following points:
- Many of the key managers in the Learn program are now former ANGEListas.
- Ray has personal relationships with many of the Moodlerooms folks (also former ANGEListas) and has taken great pains to retain them.
- The leaders of both Netspot (Mark Bellus) and Moodlerooms (Lou Pugliese) will report directly to Ray.
- Ray is the architect of the open source strategy.
- ANGEL creator and Moodlerooms CTO Dave Mills will report directly to Ray.
Correction: Allan Christie is and will remain CEO of Netspot. Allan will report directly to Ray Henderson. Mark Belles is GM of Blackboard Asia Pacific and reports to Michael Chasen.
Further Correction: Actually, it turns out that Allan Christie reports to Mark Belles, who reports to Michael Chasen. Sorry.
Update: Ray Henderson reached out to me with what I consider to be some fair concerns about the passage above. Upon rereading, I see that it could be read to suggest that (1) Ray was making it all about him, and (2) he was implicitly criticizing other Blackboard executives, neither of which was my intention to convey. (Nor was the T-shirt pictured above authorized by him as an official marketing campaign. It was a grass-roots thing done by employees.) Rather, my point is that Ray has build up some credibility in the industry and is making a very clear effort to reassure skeptics by investing that reputation in Blackboard's open source initiative.
The implicit message: You may not have liked the way the other guys ran the company, but I'm not them, and this open source thing is mine to do poorly or well.
Will it work? Will Ray be able to keep win over the open source crowd, particularly those Moodlerooms and Netspot customers that may have migrated several times specifically to avoid being Blackboard customers? Time will tell. Ray is liked and respected by a lot of folks (including me), but it will come down to execution. I would look at a couple of early signs. First, Ray has been able to retain some key personnel, including several that he was not able to keep when ANGEL was acquired. Dave Mills is apparently sticking around this time. He will be reporting directly to Ray and working on some new products out of the old ANGEL office in Indianapolis. Phill Miller is staying as well. There are even reports of former ANGEL employees who went elsewhere but are now coming back.1 If they continue to stick around, that would be a good sign.
The other place to look for early signs is the ANGEL customer base. Probably the most underplayed announcement of the week is that Blackboard has canceled the execution order on ANGEL. Those customers will not be force-migrated to Learn in 2014 after all. When I asked Ray to characterize the level of development support that ANGEL customers could expect going forward, he said, "More than we're doing today, but not as much as we were doing before [the acquisition]." The message here is very similar to Oracle's Applications Unlimited Policy. Oracle had the same problem that Blackboard did---namely, that customers on acquired products who knew that those products were getting killed off would leave in droves. So Oracle instituted a policy that they would provide support and development improvement on acquired platforms many years into the future. This is particularly important where the new product overlaps an existing one in functionality. For example, the company has a few different application servers and about a bazillion different portal products. They are all supported, and most are under active development at one level or another. The one "blessed" product in the category, (e.g., WebCenter for the portals) receives more development dollars than the others, but the others continue to receive incremental improvements. You can do this when you reach a certain scale as a company, and when you have enough other things to sell to your customer that it's worth the extra money to keep them happy by maintaining a non-preferred product. Blackboard has now reached that level of scale. Providing support for ANGEL in this way demonstrates a level of maturity that and capability that the company didn't have when WebCT was acquired. Ray also emphasized that ANGEL customers are happy. While he declined to give a specific retention number, he said it was over ninety percent, and that customer satisfaction is high "by every measure I have." If ANGEL customers are happy, that is also a good sign.
I believe that Moodlerooms and Netspot customers have reason to hope that their service, support, and pricing will continue to be as good as they are now. In fact, they may well get some improvement in some areas. For example, Ray touted Blackboard's scalability testing labs as one are where Moodle customers may benefit, and their expanded hosting and consulting options as another. So it's possible that Blackboard's Moodle customers will do fine. The proof of the pudding is in the eating.
What About Sakai?
Short answer: I don't know. Ray and I didn't have time to talk about it. Clearly, the level of Blackboard's investment in Sakai is much lower than its investment in Moodle. They didn't buy a Sakai support company, let alone two. All they've done so far is hire Chuck Severence part-time. In addition, Sakai's governance and ownership structure is substantially different from Moodle's, so the implications of Blackboard's involvement would be very different (a topic I'll delve into in a future post). There's just not enough announced yet to form an opinion about it.
- Kellan Wampler FTW! [↩]