I've written about how Instructure has, by our count, tied and (very) slightly surpassed Blackboard in US market share. Blackboard didn't love that story. You know who else didn't love it?
Up until now, Instructure has gotten enormous mileage out of playing the role of the scrappy underdog. Here's co-founder Brian Whitmer reflecting on the company's cultural roots in response to our reporting:
We showed up on the edtech scene in 2008, and people were more than happy to not just give us the time of day, but to unload their frustrations with Blackboard -- and ideas for new hotness they were afraid they'd never see. Blackboard was really stinking it up from what we could tell. We crashed their user's conference in Vegas after a few years and told everybody we were the anti-Blackboard. We didn't need a better value prop than that. Just "not Blackboard" and a bunch of t-shirts was enough to get people excited.
At InstructureCarn 2018, current employees also admitted that the company preferred the role of the insurgent and that being perceived as the market leader is a fraught position for them.
Both because of that change and because they are now a publicly traded company, Instructure is in the process of becoming...something else. We're not sure what it is yet, exactly, although there are some signs of what may be to come. Whatever it is, it will have to be more of an adult company. Instructure can't get away with crashing the other guy's party and passing out snarky T-shirts anymore. It has to grow up.
Along the way, there will be embarrassing and unsightly blemishes. There will be social awkwardness. There will be break-ups and friends lost. InstructureCarn 2018 marked the company's transition into full adolescence. Officially, Instructure is 10 years old. But functionally...well...welcome to 8th grade. Good luck in junior high, kid.
Who are you and what have you done with my CEO?
The first sign of...the changes...came early in the conference. Instructure CEO Josh Coates is known for giving odd, almost stream-of-consciousness keynotes that appear to have little direct connection to the company and yet somehow, almost inexplicably, charm the audience while arriving at an unexpected and heartwarming ending.
Not this time.
In an awkward attempt at self-deprecating humor, Josh managed to insult adjunct faculty. He also made comments that irritated disability advocates and fans of the humanities in the audience. While none of these gaffes felt egregious to me, they were far enough off-target that you have to wonder whether they would have slipped through the filter had Coates had the benefit of review from now-departed executives who helped prepare for so many previous InstructureCons. At the same time, the audience reaction was more strongly negative than I've seen from an Instructure crowd before—to anything, really, including idiosyncratic and announcement-free CEO keynotes that would have set off riots at other LMS conferences. When you are a teenager (or market leader), your friends become less forgiving.
But hey, maybe all will be forgotten once Josh brings out the special guest. Who will it be this year? They Might Be Giants? Jewel? Nope. This year it was...drum roll please...
New Instructure President Dan Goldsmith!
What's going on here? The most obvious explanation is that Josh, like much of the rest of the executive management team that took Instructure public, is likely getting ready to move on. Goldsmith is being groomed/auditioned as a successor, and part of that means preparing customers for this change.
It's delicate. Nobody at Instructure said this is what's happening, but they weren't exactly hiding it either. Our analyst interview with the executive team seemed like part Coates coaching Goldsmith on how to handle us given our quirky role in the industry and part Goldsmith demonstrating that he has done his homework and understands the company.
For whatever it's worth, our first impression of Dan is positive. He does do his homework, he did show an understanding and appreciation for the importance of the corporate culture, and he generally comes across as a nice, bright, adult human.1
But his résumé portends other changes that might come with growing pains.
Get a job, kid
Instructure's detractors are fond of reminding us that the company is not profitable. The company does indeed face some specific financial pressures now that it is publicly traded, although boiling it down to profitability is a bit of an oversimplification. Under certain conditions, investors will happily tolerate unprofitability in their investments for long periods of time. Amazon is the canonical example of this. The two things investors want to see from Instructure are (1) growth, and (2) indications on the balance sheet that the company is unprofitable only to the degree that it is choosing to invest in that growth (rather than because it simply can't be profitable).
Instructure has three major options for growth, none of which will be easy:
- Selling new products to existing customers: Both Blackboard and D2L have portfolios of products that they can sell to their existing customer base. (They can also sell these products to schools that don't use their LMSs, but it's often easier and cheaper to sell a second product to an existing customer than a first one to a new customer.) Blackboard has a particularly mature set of cross-selling products, including established ones like Collaborate and the new smash hit they have in the Ally content accessibility support system. D2L's cross-selling success has been a little more uneven, but they do have a reasonably broad portfolio and appear to be doing particularly well at selling services. Instructure is well behind its competitors in this regard. The company backed off plans to sell an analytics data service in 2015 after customers pushed back on having to pay for it. While their Arc lecture capture product and their newer, K12-focused Gauge assessment management system seem to be well received by customers, they have not been runaway commercial successes. Instructure may turn out to have a bit of a sleeper hit on their hands with Practice, a clever video product they recently acquired and have been mostly promoting in the corporate market so far. But at the moment, these are all small ball compared to the kind of growth that their investors expect.
- Growing internationally: All the major LMS vendors are looking abroad to new markets. Much of the world is running self-hosted Moodle. As distance learning grows in popularity in a given country, the LMS becomes more mission-critical. Students and faculty become more demanding about issues like downtime and usability and universities become more willing to spend money on their LMS. Given the potential size of the international market, this isn't necessarily a zero-sum game for the LMS vendors—including Moodle support vendors. There is room for everyone to grow their respective businesses. Theoretically. In practice, there is no such thing as an "international" market. There are many national markets. Each one is different, each requires investment in product feature development, sales, and marketing, and each is growing at a different rate. International growth is hard, expensive, and often slower than casual observers might imagine.
- Growing into the corporate market: With Bridge, Instructure has entered the corporate LMS market, which is substantially different from the educational LMS market in quite a few ways. The required functionality is different, the sales process is different, and the market is much more crowded and fragmented. Of the three opportunities for growth, this is the one that has the most potential to distract the company from its current core customer base. It is also the one that Wall Street seems most obsessed with.
I've written recently about the pressure that Blackboard is under due to its private equity (PE) ownership and the heavy debt burden they placed the company under. It's important to understand the differences in the pressures on a PE-owned company like Blackboard versus a publicly traded one like Instructure. It's a little bit like the difference between waterboarding and Chinese water torture.2 In the big picture, Blackboard has a more mature product portfolio and—as far as we know based on limited public information—likely has better business fundamentals than their LMS market share trend line would indicate. But the combination of having a heavy debt burden and PE owners who typically want to be corporate "house flippers" makes the company vulnerable to sudden drastic measures imposed on them by outside forces. In contrast, there are few, if any, individual shareholders that can force Instructure to make drastic short-term moves. A single sudden stock price drop like the one that happened last week won't force the company to make dramatic changes either. But the drip, drip, drip of investor pressure over time can eventually force a company to change course if that pressure isn't actively managed.
Enter Dan Goldsmith.
I'd like to speak to your father, please
Here is how Goldsmith is described in the press release announcing his new position at Instructure:
With more than 20 years of experience in software and services, Goldsmith's career is marked by directing high-performing global teams and achieving outstanding penetration and growth in challenging markets. Goldsmith spent the last eight years as a senior executive at Veeva Systems, a cloud-based software company, where he started and ran Veeva's international business, led the company's strategy in new markets and products, and most recently was responsible for Veeva's global engagement and growth in strategic accounts.
"It is an exciting time for Instructure. We are well positioned for success as we focus on the continued growth of Canvas, expansion of Bridge, and international execution," said Josh Coates, CEO of Instructure. "Dan's energy, creativity and proven track record in driving go-to-market strategies and rapidly scaling businesses make him a tremendous addition to Instructure at the perfect time to lead us through our next phase of growth."
Goldsmith was one of the first 50 employees at Veeva. He helped lead the company through a successful IPO and a growth path to a $10 billion market cap. Prior to Veeva, he worked in various executive positions at top companies, including Accenture, PwC and IBM. During his years in management consulting, Goldsmith led initiatives in global markets and developed new offerings. Goldsmith will have an immediate impact on Instructure's strategy. His initial focus will be on market growth, with the sales leaders reporting directly to him.
Here's a guy who has international business development experience, knows how to sell to the corporate market, has built out product portfolios, and would likely be perceived as a familiar, comforting presence by Wall Street analysts.
Friends, meet Instructure's CEO-in-waiting:
Assuming the trial period goes well, I think it likely that he will be promoted to the top job within 9 months. The reason I pick this time frame is anything too close to InstructureCon 2019 poses the danger of being a distraction during the most important event of the year for the company.
Goldsmith was working very hard in both formal and informal settings throughout this year's conference to demonstrate that he understands, values, and intends to protect the company culture. If he's going to be the dad, he wants to be the cool dad.
Nevertheless, even if he proves himself to be the coolest dad around, there will be changes, likely including the format and feel of the company's unique and iconic annual conference.
Do you live in a barn?
Phil and I have both written about how company culture has been one of Instructure's most underestimated competitive weapons and how InstructureCon is the embodiment of that culture to the customers. It's one of those things that you can't fully understand if you haven't experienced it. There's nothing else quite like it in EdTech.
That is going to change. How much remains to be seen.
We saw some signs this year that Instructure has dialed back on the spending. It was still a spectacle and a unique cultural event. It was just a less expensive one. Carnival rides cost less than pop star appearances. The stage sets—yes, InstructureCon has stage sets, complete with props—were good, but didn't rise to the Disney Imagineer-level quality of the past. Up to a point, that change is good. As an insurgent, Instructure's extravagant spending on the conference seemed to successfully communicate the message of "people over profits" to the customers. But as the company is increasingly perceived as the market leader, educators will start looking around and asking themselves, "How much of this money could have gone toward lowering the cost for students or making the product better?"
At the same time, it will be a delicate transition. InstructureCon 2019 will be moved to Long Beach, which isn't a bad thing in and of itself. Keystone is hard to get to, hard to navigate, and probably too small for the current size of the conference. But InstructureCon 2019 will be held at the Long Beach Convention Center.
InstructureCon has never been held at a convention center.
The company is going to have to pull off the transition to a more conventional (and cost-effective) venue without losing the gravity-defying magic of the ultimate unconference atmosphere they have managed to conjure consistently, year after year. And they may only get one shot at this. If customers walk away from InstructureCon 2019 feeling like they just attended any old LMS conference, that could have an outsized impact on their holistic perception of Instructure. That, in turn, may lead them to be less forgiving of mistakes.
Speaking of which...
Did you do your homework?
After announcing two years ago that they would be responding to customer concerns about the limitations of the quizzes and tests functionality in Canvas, Instructure finally delivered "Quizzes.Next," their major rearchitecture of the quizzing functionality as a set of stand-alone micro services. The truth is that all of the major LMS providers have struggled at different times as the nature of the engineering challenges in LMS development evolve. D2L arguably hit the wall first a number of years ago, when they designed an innovative retention early warning system that was hampered by the core platform's inability at the time to provide timely and reliable data streams. Blackboard is getting hammered now for their slow progress on Ultra and early mishaps with the SaaS transition (although, in fairness, they are taking on a real beast of a transition on multiple fronts and probably deserve more credit than they get on the technical front). For Instructure, Quizzes.Next turned out to be the publicly embarrassing stumble.3
Decomposing the LMS into micro services is a seriously difficult challenge to think through and get right, both technically and functionally. It's also critical if you want to be perceived as not just an LMS but a modern, flexible learning platform (or NGDLE, or LMOS, or whatever), which Instructure, D2L, and Blackboard all aspire to be. While it's possible that Quizzes.Next was under-resourced, we tend to believe the company's explanation that they just underestimated the complexity of the challenge.
But this won't be the last such challenge. Between micro services and data analytics, today's LMS engineering challenges are substantially different and harder than building a grade book that sucks less (which, by the way, is very hard in its own way). Meanwhile, Blackboard and D2L have both raised their game from user experience and architectural perspectives. If Instructure both loses its reputation as the LMS company that's truly different and makes a couple of more stumbles like Quizzes.Next, the winds that are currently at its back could turn surprisingly quickly.
It's all part of growing up, dear
Instructure's unbelievably long age of innocence may finally be coming to an end. That doesn't mean that it is going to fail or to become the next EdTech company that everybody hates. It does mean that it is beginning to go through some changes, that some of those changes will be awkward and hard, and that the company will eventually grow up to become somewhat different than it has been. Not necessarily better or worse. But necessarily different.
- You should know that my initial positive impressions of EdTech executives do not correlate well with future performance. Phil tells me I have too much faith in humanity. [↩]
- Also known as Spanish water torture, depending on your cultural frame of reference. [↩]
- Maybe I'm taking this adolescence analogy too seriously; I'm starting to have gym class floor hockey flashbacks. [↩]