From optimism to reward?
By David Wilson (March 2004 Issue)
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Life hasn’t been that fun for e-learning vendors over the past couple of years. The death of dotcom funding, the collapse in corporate capital and IT expenditure, and the evaporation of many training budgets all contrived to make those hockey stick-like business plans look a tad imaginative. Go to any e-learning conference and count the number of vendors, and I’m pretty sure you will be underwhelmed. US and UK e-learning stalwarts alike have shown patchy or declining revenues, with an associated risk of implosion or exit into administration.
So how sick is the patient? Is the seemingly omnipresent optimism of the vendor story just marketing spin? Or are there real signs of emerging growth?
I think it is important to emphasise that some of the ‘evidence’ of market woes represents only one side of the story. It is clear that the market has been very difficult. Some of the vendors have struggled to change fast enough from the aggressive market share strategies favoured in dotcom land to the hard economics and profitability requirements that re-established themselves soon after. With the challenges in raising new cash, a number of the higher-profile companies are still struggling to assert themselves and maybe even to survive. And while ‘positive earnings before interest, tax and depreciation’ may sound a step forward, it’s still no substitute for good honest net profitability. Or maybe I’m just a bit old-fashioned for an e-learning commentator?
Either way, the picture is mixed but improving. Declining revenues seem to be on the mend and some high profile mergers will further strengthen balance sheets as well as building greater market share. In my opinion, given the bigger hiccups in the broader IT marketplace and the desperate position of many mainstream training companies, maybe e-learning hasn’t done that badly – relatively anyway.
While some of the bigger boys stumbled, plenty of new guys still continue to try their hand in the e-learning space. A steady stream of press releases from new companies with e-learning content, blended learning solutions, new learning management systems (LMSs) or other e-learning technologies land on our analyst research table every month. Overall, almost everyone is more optimistic, but will their optimism translate into success? Is there a pot of gold just round the corner or have we still a few hairpins to navigate first?
In early 2002, I used Geoffrey Moore’s 'Crossing the chasm' model to talk about the state of the
e-learning market.1 In particular, I focused on the demand-side shift of corporate buyers away from the e-learning visionaries towards mainstream training buyers. I also expressed a view that most of the vendors were still on the wrong side of the chasm, and therefore with a big risk of not making it across. While buyers were talking guaranteed solutions, vendors were still selling technology and vision (despite the number of times they may have used that ‘solution’ word in their presentations!).
I also talked about the need for consolidation, and the likely entrance of the mainstream technology and learning suppliers such as the HR vendors and systems integrators. Well, I think that view is still largely on the money. The only thing I couldn’t have predicted (out of scope, sorry) was all the associated corporate fall-out following the horrors of 11th September 2001. But consolidation has happened and continues to happen. The HR vendors such as PeopleSoft, Oracle and SAP are now absolutely at the LMS and e-learning table. Many major training companies now have some form of blended learning or e-learning story, and while I am unconvinced of the extent of the real change, it is clear the process has started. Early days, but definitely real signs of mainstream market dynamics.
Is anyone making money? Well, yes. Some of the smaller second-generation e-learning companies have been quite profitable and are growing quite quickly. This is particularly true of custom-content development companies, which operate on a service-fee basis rather than having large up-front investments in their own content or technology assets. But even the content and technology companies are now starting to be cash-generative and profitable. Their challenge is the sunk cost, large retained losses from their historic activity. Their challenge is, of course, to continue to build their business and their balance sheets while the market is still fragile.
But all this talk of making money worries me slightly. It might sound a bit vulgar, although ultimately it is important. I have no doubts that the long-term training industry needs a healthy and vibrant e-learning segment. For that we need competitive and viable vendors investing in new propositions and solutions. No one here is owed a living; they have to earn it. But if when they do start really earning, we need to take notice!
Reference
1. David Wilson, ‘Crossing the E-learning Chasm’, Learning Technologies, January 2002.
David Wilson is managing director of eLearnity, a leading independent e-learning consultancy, which he founded in 1996. David can be contacted on +44 (0) 20 7917 1870 or at DavidW@elearnity.com
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