E-learning a consolidation update: Some little fish escaped being swallowed by big fish in the sea of e-learning vendors - Industry Overview

T+D, April, 2002 by Paul Harris

eyebrows were raised through-out the corporate training field in December when the giant McGraw-Hill Companies announced it was pulling the plug on its three-year-old Lifetime Learning unit, a content developer that provided hard and soft skills to the e-learning marketplace. The move came less than two months after the unit's management trumpeted impressive growth achievements and new partnerships with other e-learning companies. Lifetime Learning had the dubious distinction of being the final announced closure of a major e-learning company in 2001.

What a year it was for c-Learning vendors and their corporate customers!

A handful of vendors continued to acquire technologies and rivals selectively that they thought would bolster their market positions. Meanwhile, weaker competitors hung on desperately or got hitched to another firm--or, sadly, failed on both counts. It was a year in which the e-learning marketplace offered no refuge from the recession's dot.com meltdown. The steady flow of venture capital trickled--a grim message for free-spending entrepreneurs who had banked on their killer apps to revolutionize the world. Although eclipsed by SmartForce's US$284 million acquisition of Centra Software in January 2002, last year was one of meaningful consolidation for an industry that's projected by IDC to produce $18 billion in revenues by 2005. More than 100 e-suppliers closed their doors, while 26 major corporate e-learning acquisitions took place.

Last year, wisps blew regarding other industry-shaping trends. For example, companies from outside of the training industry continued to stake their territory. The arrival on the e-scene of all Big Five consulting firms culminated with the debut of Indeliq, an e-learning venture from Accenture, formerly Andersen Consulting. Enterprise software giant SAP announced that it would roll out an internally developed learning management system in 2002, joining competitor Oracle in the field. And tech giant Sun Microsystems signaled its intentions with its $68 million acquisition of Isopia, a Canadian LMS provider.

So, does McGraw-Hill know something that the others don't? Is that why it's climbing out of the pool just as others are diving in? Not exactly.

"The market is moving toward a full-service system solution," explains one McGraw-Hill executive. Translation: Off-the-shelf content providers, such as Lifetime, aren't a dominant force. The same executive says that McGraw-Hill will rake "a fresh look at the market" and possibly return to the e-arena in another role.

The retreat demonstrates that having a large, established parent company doesn't guarantee survival as an e-learning provider, particularly if that parent views e-learning as a risky side venture and not a core area for growth.

Where's it going?

Precisely where the e-learning market might be headed, especially in terms of ownership, continues to be the subject of intense scrutiny. What's certain is that the industry is following the pattern of many young businesses, especially in the software field, in which products and services are so new that many customers can't define their own needs. Vendors are gambling, and often losing, on untried business models. Even less certain is the ultimate destiny of Internet learning in general and its various niches in particular. As the market feverishly seeks to develop credibility, customers will decide whether their hefty investments in c-learning are paying off.

Though corporate trainers may not know precisely what they want from e-learning vendors, they're dearly tired of expensive platforms their employees don't use. They grasp the differences among technology and content offerings, and they insist on one-stop shopping and replacement of tedious content streams with granular learning objects. For definitions of that and other e-learning terms WWW.LEARNENGCIRCUITS.ORG/GLOSSARY.HTML.

Training purchasers also want fewer choices, instead of the current dizzying array of vendors. "The field is currently so fragmented that the largest company doesn't even have a 5 percent share of the market," says Eilif Trondsen, director of the Learning on Demand program at SRI Consulting Business Intelligence.

Structure is coming. Trondsen predicts future growth to include increased participation from such tech giants as IBM, SAP, and Sun Microsystems, which will all flex their muscles globally.

A feverish acquisition pace

In 2001, there were about 26 major corporate acquisitions in e-learning, totaling an estimated $380 million, says E. Yegin Chen, director and senior analyst with Eduventures Inc. That was up from 25 acquisitions with an aggregate estimated total of $200 million in 2000, notes Chen.

The size of transactions is also climbing, says Chen. The largest publicly disclosed transaction in 2000 was $26 million (DigitalThink's purchase of LMS developer Arista Knowledge), while last year's leader was the Sun-Isopia deal at $68 million. DigitalThink's purchase of content developer LearningByte for $60.5 million was last year's second priciest deal. Both Arista and LearningByte were stock transactions. Combined, the three deals helped boost the average size of transactions to $11 million, up from $8 million in 2000. Chen predicts that acquisition activity will increase to roughly $400 million this year and the next, bumping up both the average transaction size and the largest single price. The SmartForce-Centra merger certainly bears that out.