On Monday of this past week Michael Chasen announced that he is leaving Blackboard, the company he co-founded in 1997 and has led as CEO since 2001. Blackboard simultaneously announced the appointment of Jay Bhatt, a software industry executive as the immediate replacement.
As Rip Empson has noted in TechCrunch, this is the end of an era. I agree with Josh Kim and Ray Henderson in calling out Michael Chasen's role as an industry pioneer, and I would argue that Chasen was the leading force in creating the enterprise-level, mission-critical educational technology market. Henderson also points out that Chasen played a leading role in developing a sustainable revenue model that enabled much of the transformation seen over the past decade.
Empson described in his article that this are two sides of this latest story from Blackboard.
This week, in a letter addressed to “The Education Community,” Michael Chasen stepped down as the CEO of edtech software giant, Blackboard. In a way, it’s the end of an era. Whether or not it was an “era to remember” remains to be seen.
Why is this significant? Because of what Blackboard has come to represent — both for good and for ill. On the one hand, the company became one of the biggest success stories in the education space, bringing mainstream consumer and investor attention (and scale) to an industry that previously had little. But that’s only one part of Blackboard’s story.
What should we expect from the future Blackboard? I believe the best way to understand future changes at Blackboard is to view the CEO transition as the latest move in a corporate turnaround - and an unsurprising move .
- Providence Equity buys Blackboard, taking them private in Oct 2011
- Blackboard reverses strategy away from one LMS to rule them all to a platform-neutral strategy in Mar 2012
- Blackboard replaces its CEO in Oct 2012
Bill Flook at the Washington Business Journal set the stage with his description.
Blackboard has, since the completion of its $1.7 billion acquisition by Providence Equity Partners LLC in October 2011, snapped up two opensource competitors, undergone two rounds of layoffs, brought on a new chief financial officer and faced steppedup rivalry from Instructure Inc. and Desire2Learn Inc. In the ed tech space, Blackboard is looking to shed its image as the Microsoftlike incumbent, now far removed from the startup Chasen cofounded with Matthew Pittinsky in 1997.
If anything, it’s surprising that Chasen stayed on so long after the private equity buyout. He and Providence had “mutually sat down and worked out the right time frame for there to be a transition,” Chasen said in an interview Monday afternoon. “I’ve been here 15 years,” he said. “While I love Blackboard, and I think there is huge opportunity in front of us, I’ve been doing this since I was 25 years old and looking for there to be a good time for me to phase out.”
I have long argued that Blackboard's core product line, the Learn LMS, has been losing market share for years. While the company has acquired several new product lines, none of them have grown sufficiently to replace the lost Learn market share and revenue. Take Blackboard Mobile, for example, which the company positioned as a high growth opportunity while offered at ~$30,000 per institution. They have struggled, however, to find a sustainable revenue model for the product line, when the primary LMS competitors offer their mobile solutions for free - table stakes for playing in the educational technology market.
Meanwhile, Blackboard is not sitting still in terms of product development, and they have been pursuing a fairly bold cloud-based platform strategy as described by Michael Feldstein.
A few weeks ago, I had the opportunity to attend the BbWorld conference and conduct a private interview with Chief Technology Officer and President of Academic Platforms Ray Henderson.1 What I learned is that the company is embarking on a fairly radical, high-risk/high-reward strategy of re-architecting both their platform and their business model. The implications of what they are attempting are much larger than you might infer from the press releases. [snip]
That’s right. Blackboard has announced its intentions to peel off pieces of what have traditionally been considered core LMS functions and offer them as separate SaaS offerings. While Ray couldn’t comment on the details, it seems likely that these pieces will be true multi-tenant applications built on modern web technologies, and they will have some functionality that will be bundled with the core Learn product and additional functionality that will be licensed separately.
By coincidence or not, the three strategic moves thus far have come in 6 month increments. What is likely to happen in the next 6 months? It is instructive to look at the new CEO, Jay Bhatt, and his background. While he may have a passion for education, he has no experience in this industry. What he does have most recently is experience in changing strategic direction, including major cost-cuting moves, in a maturing enterprise software industry. Bhatt also has experience leading cloud-based software strategies.
I would expect that Jay Bhatt, the incoming CEO, has his most important job in stabilizing the financial prospects of the company, particularly based on managing the corporate debt. In another post by Michael Feldstein:
The most fundamental fact you need to know about companies like Providence is that they use large amounts of debt to purchase other companies. Blackboard, as a publicly traded company, has lots of people who own little pieces of it in the form of stock shares. Some of those stock shares have been purchased with borrowed money, but a lot of them have been purchased with cash. It’s the stock market’s system of aggregating a large number of buyers with smaller amounts of cash that enables companies to get the cash they need to grow big quickly. When a private equity firm like Providence purchases a publicly traded company like Blackboard, they do so by essentially taking out a giant mortgage to buy up all the shares that are floating around in the market.
Why does this matter? It matters because giant mortgages come with giant mortgage payments. Private equity firms are able to get very good interest rates, but even a low interest rate on the purchase of a $1.5 billion company adds up to something substantial. There is a cost structure that is inherent in these deals, and that structure puts some constraints on what the new owners can do with the company.
Given the corporate turnaround, here are several possibilities to consider.
- I would not at all be surprised to see additional cost cutting moves at Blackboard, through some combination of layoffs and divestiture of under-performing product lines.
- On the product side, I expect that Blackboard's cloud strategy will continue to roll out, and even accelerate under the new CEO. While there is a strong counter-argument that private equity ownership is often hesitant to invest in product innovation during a turnaround, I believe that at the very least the cloud strategy will become more central to Blackboard's sales presence.
- On the services side, I expect that Blackboard's biggest developments will be on the school-as-a-service side. They already hired a new VP away from 2U, Inc (formerly 2tor), and they got a taste of the service revenue potential with the University of California Online program.
- If Blackboard acquires a company, it will not be to augment their product line or to buy a competitor and move their client base to the Learn LMS. Any future acquisitions will be focused on changing Blackboard's capabilities, such as adding curriculum development or program design to their school-as-a-service offerings.