One of the topics that I’ve been meaning to get to since EDUCAUSE is the likely impact of the patent suit on the financial health of Blackboard, Desire2Learn, and the other LMS players. I got to talk to a number of university decision-makers and observe the activity at the booths of various LMS vendors. My conclusion? In the short term, both Blackboard and D2L are likely to do just fine. However, a slowdown 9-12 months out is likely.
Let’s start by remembering that the LMS sales cycle is a long one. It can easily take one to two years for a university to go from deciding that they need to evaluate their LMS options to making a selection to having the purchase approved by the university (and, in some cases, governmental) bureaucracy. The majority of the purchases that will show up on the books of LMS vendors this quarter and next are already well along. I saw no evidence that purchasing decisions that are well down the road are likely to be deferred or changed because of the lawsuit. Therefore, I don’t think any of the vendors are likely to lose significant sales this quarter or possibly even next quarter. And in Blackboard’s case, their profits (as opposed to their revenues) may be helped quite a bit by the fact that they’ve been able to reduce expenses from the WebCT purchase much faster than WebCT customers could possibly jump ship. (By the way, after speaking with several former WebCT employees, I strongly suspect that the cuts into WebCT staff–including developers–has been much deeper than WebCT customers have been led to believe.) So Blackboard will likely have a very good quarter when they announce their earnings next month (solid revenues, possibly stronger-than-expected profits), while D2L, ANGEL, and the rest will probably do about as well as they would have done without the lawsuit. The same may be true next quarter as well.
As we get 3-4 quarters out, I believe that D2L will actually get an increase in business over what they could have otherwise expected. Their booth was very busy and D2L insiders confirmed that they have seen a strong surge in prospects. My sense of D2L is that they have the same sales problem as Apple, i.e., they have a very good percentage of closed sales once they get prospective customers to look at their product but they have a hard time getting folks to give them a serious first look. From what I can see, this lawsuit has helped them overcome that barrier. Whether those prospects will ultimately be discouraged from buying because of the legal threat remains to be seen, but so far I don’t see any signs that they will. Blackboard, on the other hand, may start to experience some deterioration in their revenue growth 9-12 months out, both because their actions have encouraged prospective customers to look more seriously at their competition and because there has been enough ill will generated that existing customers may choose not to upgrade their licenses (e.g., Basic to Enterprise) or purchase add-ons (e.g., the content management system). This would be bad for Blackboard because, in order to deliver on their promises to their investors, they need to dramatically increase their per-customer annual revenues.
Once we hit a year out, it could get ugly for everyone. What one vendor told me was that they were still seeing serious customers but the number of people out there “just kicking the tires” had dropped off very significantly. That was consistent with what I was hearing from a number of university folks who had decided to put off making purchasing decisions for at least another year. That’s where all the vendors are going to get hit–schools that haven’t yet started looking are going to wait. Between that, the increased profile of Blackboard’s competition, and the mounting ill will, I believe Blackboard’s numbers will suffer disproportionately to the rest of the field starting maybe a year out. And with a lawsuit that could easily drag out 2 years (or even much longer), that could be painful.
Yes, the cycle is long. What is worse is that once these LMS’s get entangled with the university’s enterprise system, the cost to make shifts gets high, not counting the reluctance of the faculty to migrate their efforts onto new platforms. This plays into digital inertia and the nation’s post secondary institutions. The patents become another nail in the evolution.
If institutions were really progressive in the education technology arena, they would realize that systems like Blackboard are the equivalent to “comfort food” in that they are basically a brick space to click space transition.
What they would realize is that second generation systems and beyond are beginning to be rolled out and are more in tune with the type of learning that industry sees as critical and that digital natives gravitate to. These are virtual worlds such as Open Croquet or the Multiverse platform and variants there of. New content and significantly changed students demands that academia as institutions and their faculty stop pouring new wine into old bottles that confine and constrain.