Blackboard had a lot of news to share two weeks ago when we spoke with CEO Bill Ballhaus and senior teaching and learning executives. The updates addressed efforts to streamline the business, customer retention, and customer acquisition. Blackboard1 was upbeat about their current position and prospects going forward, but we see a mixed picture.
Ballhaus said that Blackboard's efforts to simplify the business were paying off and leading to greater focus on their core teaching and learning businesses. While the company was built as an enterprise software amalgamation based on 20+ corporate acquisitions, Ballhaus described how management is looking forward to becoming a Software as a Service (SaaS) business with a simpler focus. While the executives declined to comment on current M&A activity, Blackboard appears to be trying to sell its CashNet and Transact products that are part of the same business line focused on campus ID and payment processing, for up to $800 million and $720 million respectively2. Remembering that Blackboard reportedly tried but failed to sell the entire company for ~$3 billion in 2015, there is no guarantee that they will actually sell either unit or get the desired prices. [Update 3/7: Blackboard did end up selling entire Transact business unit , including CashNet, to PE firm Reverence Capital for a reported $720m.] But if they do succeed, the profits from either sale will help the company pay down and manage its debt. And it will back up the claims of focusing the company on core teaching and learning business.
The claim of the company looking forward to being a pure-SaaS business is largely based on their ability to migrate the flagship Learn LMS client base over to the AWS-enabled Learn SaaS offering. Blackboard leadership believes that the ongoing migrating effort has been a critical factor in improving their customer retention numbers, an argument that we made last summer.
The third issue, which is related to the first two, is that we believe that the migration to Learn SaaS might be a better indicator - at least in the short run - than Ultra adoption of whether a school plans to stick with Blackboard. Whether or not the school enables Ultra base navigation or any courses in the Ultra Experience.
When a school moves to Learn SaaS, they tend to sign contract extensions for 1 - 3 years to cover the new services. And the migration to Learn SaaS does not suffer from the vague terminology issues - a school either uses Learn deployed on SaaS (through AWS) or they don’t.
Ballhaus went so far as to say that Blackboard's improvements in client retention was the primary factor in the overall market slowdown last year. While we certainly feel that Blackboard has benefited from the slowdown and has improved client retention lately, we are not convinced on the cause and effect dynamics. By tracking the public proclamations of Learn SaaS adoptions, we see an interesting linear trend leading to the current ~25% of Learn clients being on SaaS.
Blackboard continued to present the importance of their broad product portfolio combined with their experience. Ballhaus stressed that the LMS is necessary but not sufficient as a strategy for the company. Blackboard management sees Blackboard at an inflection point in 2019 in a good way, and they stressed that their big focus will now be on data and analytics offerings. Remember this paragraph when we get to the Instructure update post.
Early in February Blackboard announced what could be their biggest LMS win since we broke the news of University of Phoenix selecting Blackboard Learn Ultra in late 2015 (a migration that is scheduled to be complete by this summer). From the press release about Galileo Global and their 100,000+ student system:
Blackboard today announced that Galileo Global Education, a leading international provider of higher education and Europe's largest higher education group, will roll out Blackboard Learn with the Ultra experience as the common Learning Management System (LMS) for its network of 37 schools with 80 campuses across 10 countries. Blackboard Learn Ultra was selected over other cloud-based solutions for the ease of use, the powerful features, and the unparalleled level of support provided by Blackboard.
On the surface, this is a big win for Blackboard, but the story comes with a caveat regarding its relevance to the LMS market. What was not shared during our call with Blackboard executives is that they share their private equity owner (Providence) with Galileo as described in late 2017.
Laureate Education, Inc. (NASDAQ:LAUR), the world’s largest global network of higher education institutions, and Galileo Global Education, a company under the umbrella of Providence Equity, a leading global asset management firm, have signed an agreement for the sale of Laureate’s institutions in Italy and Cyprus for a total transaction value of Euro 225 million (USD 263 million at the current exchange rate).
Two or three schools within Galileo were already on Blackboard Learn, a few on Moodle, and the majority on Homegrown or not really using an LMS previously. Unless we can get independent confirmation about the nature of the selection (was it truly competitive or was it earmarked for Blackboard as long as they met minimum requirements), I would not extrapolate this news to show broader movements in the market.
Blackboard also presented some data around roughly 200 new LMS customer acquisitions in 2018 ("new logos") for both Open LMS (the rebranded Moodlerooms) and Learn.
- The majority of the reported wins, roughly 120 based on interview, are for Open LMS, showing continued growth for this under-the-radar Blackboard product. These numbers are impressive, but we note that last year the company reported 223 Moodlerooms "new logos" in 2017. It will be interesting to track over time if this deceleration is primarily driven by the general market slowdown vs. fallout from the cancelled Moodle Partner agreement.
- For the Learn LMS, Blackboard is reporting ~80 new logos in 2018, of which 52% are in higher education. If accurate, this would be a significant turnaround for the company; however, our data do not show this level of new wins for Blackboard unless you include Galileo as roughly 30 "new logos". We asked Blackboard to back up that number with specifics such as sample listings to see if we have holes in our data, but Blackboard declined to provide further information due to "privacy reasons". During the same time period, according to our data, Blackboard has lost more than 100 institutions, more than three fourths moving to Canvas and the remainder moving to D2L Brightspace.
In the end, Blackboard is making steady progress with Learn SaaS deployments and contract extensions, benefiting from the LMS market slowdown, and winning their biggest new LMS account since 2015. We are not convinced that Blackboard is causing the slowdown or that their new Learn momentum goes beyond Galileo Global, but there are signs of progress worth sharing.
Update 2/27: Fixed description of CashNet and Transact, which are part of the same business line, and added footnote.