This is a guest blog post by Jim Farmer, Coordinator, Scholarly Systems Group at Georgetown University and editor at the eReSS project, University of Hull.
Blackboard’s Second Quarter financial reports and conference call (edited mp3 audio) may say more about eLearning in higher education than it did about Blackboard. And they say a lot about Blackboard. There are hints of increased outsourcing of eLearning, expansion of an academic “suite” of integrated applications, and an Outcomes System to encourage public support of higher education based on accountability.
Blackboard continues to show growth. Since 2005 contract value—the amount expected the following year from current contracts—has increased 40%, ASP hosting clients by 46%, and total licenses by 5%. Total revenue has increased 80%--due, in part, to the acquisition of WebCT. In the last year, second quarter revenue increased 36%.
In the quarterly earning call Tuesday, CEO Michael Chasen cited additional international customers and praised the K-12 sales team for new K-12 clients.
Hosted Applications Growing?
Many of the higher education clients Chasen listed were using the Blackboard learning system for “distance learning.” Bethune-Cookman and Fairleigh-Dickinson Universities and the Mississippi Community Colleges all have distance learning programs . Fairleigh-Dickinson and the Mississippi Community Colleges will be hosted by Blackboard—8,300 and 65,000 students. Macquarie University—home of LAMS—is upgrading from WebCT to Blackboard now using “external hosting”.
At MoodleMoot Savannah (2006) and Albuquerque (2007) the Moodle Partners reported sharp increases in hosted Moodle—increases in the number of clients of 5 to 20% per month (and quoting prices of US$1 per student per year). These observations and Blackboard’s performance suggest colleges and universities are selecting hosting for mission-critical eLearning systems.
Data from Educause’s Core Data collection suggests a possible reason: Lack of information technology staff supporting instruction. In 2003 and 2004 there three supporting administrative systems staff for every IT staff member supporting instruction.
If Chasen’s examples are representative, students who cannot attend classroom instruction and those students who prefer “distance learning” over classroom-based instruction are creating demand for online learning. In November 2006 the Sloan Consortium reported “There has been no leveling of the growth rate of online enrollments; institutions of higher education report record online enrollment growth on both a numeric and a percentage basis.” This growth suggests a sharp increase in the need for rich online content—a reading list and syllabus is not sufficient for online courses, and may no longer be sufficient for blended learning.
There is a concurrent sharp increase in students using online services of publishers. Now more than 30% of faculty are assigning publisher-based online materials to students. In 2006 Pearson reported 2.5 million enrollments using their online services; Thompson Learning reported 1.5 million. At the recent JA-SIG Conference, Pearson cited a portal system performance goal of 10 million enrollments by January 2008; performance goals are not expected enrollments, but this also signals a sharp increase is expected in publisher-hosted eLearning.
The Academic Suite
The number of learning systems licenses decreased 4% since 2006—3,569 to 3,423, perhaps because Blackboard is negotiating more statewide and consortia licenses than licenses with individual colleges and universities.
The ePortfolio and Outcomes systems now provide growth in licenses. Moving from basic to enterprise licenses increases revenue per client—now cited as $36,000 average per contract as compared to annual revenue per client (not contract) of $35,000 for Blackboard and $21,100 for WebCT prior to the merger. This suggests revenue per client has not increased as much as suggested by the October 2005 merger briefings. The availability of open source learning systems may restrain prices.
Chasen lauded Mississippi Governor Haley Barbour, one of the most sensitive to public opinion, for Blackboard’s Mississippi Community Colleges contract. In his October 2006 Remarks to the Mississippi School Board Association, Barbour said “Since I have been Governor, support for Community Colleges has increased 12% and including a doubling of state support for workforce training, the combined increase is 29%.” He expects to leverage education to increase wages in Mississippi. In face of limited state revenue, all state higher education executive officers are seeking ways to demonstrate the value of higher education as they seek budget increases for public higher education and financial aid programs for private institutions.
Audra Kimble, Director of Distance Education of the Mississippi State Board for Community and Junior Colleges, in a prepared statement reported by Campus Technology, said: "Also, the Blackboard Outcomes System and supporting strategic and technical services will provide us with an enterprise system designed for our specific program and institutional assessment needs. It will provide us greater insight into our institutional effectiveness, guide us in improvement initiatives, and assist us in meeting ever-increasing accountability standards (emphasis added)." And provide data for Governor Barbour and Commissioner Thomas C. Meridth.
In May of this year, National Center for Public Policy and Higher Education reported; “Other signs of [public] disenchantment [with higher education] include the significant number of Americans who think waste and mismanagement are very important factors in driving up college costs. In focus groups, there was also evidence of a willingness to hold colleges responsible when students drop out rather than blame the problem on poor high school preparation or the students themselves.”
The public demand for accountability—documented first by Performance Reviews in Texas, Oklahoma, and California and then by the Spellings Commission—may propel the Outcomes System into widespread adoption creating increased revenue per client. Chasen described the motivation for using the Outcomes System as colleges and universities trying to improve “institutional effectiveness.”
The Outcomes System —at this point unique to Blackboard— enhances the “suite” available from a single vendor—cited by Chasen as the primary reason Blackboard is selected. The benefit of the Outcomes System will depend upon how well higher education executives and boards, legislators and governors, and the public accept the published results. The success of the Outcomes System as a product then may be dependent upon a consensus of the indicators of teaching and learning effectiveness and their implementation at colleges and universities. Anticipating the need for discussion, in May Blackboard’s Peter Segal initiated the first Blackboard Education Leaders Forum. The first forum listed challenges to higher education and, during questions and answers, focused on the effectiveness of eLearning software products. Whether Blackboard will commit its resources to ensure Outcomes users are successful will determine whether others will consider the Outcomes System worth the investment—success key to increased sales and leverage for other Blackboard products.
Chasen also cited Blackboard’s plagiarism detection feature as a differentiator between Blackboard and other learning systems.
Has Blackboard's Business Model Changed?
Blackboard’s professional services provide only 12% of revenue, but has grown 92% since 2005 as compared to products—including ASP services—78%. Because consulting services has a lower gross product than product, 42% as compared to 77%, consulting services are likely not important to the sales staff.
Blackboard increased its R&D expenses in Q2 2006, but little changed as percent of revenue. Research and development expense has increased from $3.6 million pre-merger to $7 million for the three months April to June. R&D now must maintain both the Blackboard and WebCT product lines, develop new products, and should begin integration of Blackboard and WebCT products.
Blackboard has returned sales and marketing to a pre-merger percent of revenue—which still means increasing sales and marketing expenses almost $7 million per quarter since 2006 or 2005. Sales and marketing expenses are now expected to exceed $64 million per year—a formidable sales effort. Blackboard now has 800 employees and continues to expand. Employee headcount is given in Table 2. Most will be located in the new Washington DC headquarters when the move is completed.
As the dominant supplier of learning systems in the U.S., Blackboard cannot expect growth in U.S. learning systems licenses alone. Internationally institutions are constrained by traditional and limited budgets. The new products, public demand for accountability, and in ability of colleges and universities to support an enterprise-level academic suite suggest Blackboard’s growth can continue, but in different directions. The focus on suites was an effective strategy used for ERP software. Statewide and system-wide sales can be leveraged by the Outcomes System. This strategy does not place Blackboard in direct competition with Moodle and Sakai learning systems, or publishers.