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Why Instructure’s News Matters: Big Tech

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This is part 2 of a short series examining the significance of Instructure’s announcement that they are going “to explore strategic alternatives in order to maximize shareholder value”, where the alternatives could include selling the company to financial buyers (e.g. private equity) or strategic buyers (e.g. big technology). Of course, one alternative is to not make changes and remain a publicly-traded company. In part 1 I looked at the historical context of the LMS market, and in this post I’ll explore the context of Big Tech (i.e. involvement of Amazon, Google, and Facebook) in this story.

There are at least three relevant parts of the Big Tech story – the rise of cloud hosting, the international expansion of AWS and Canvas, and the entry of Google Classroom.

Disclosure: I will note more prominently than usual that Instructure, Blackboard, D2L, Moodle, and Microsoft are all subscribers to the MindWires LMS Market Analysis data service, and that we have a number of investment firms who are also subscribers to the service and pay for in-depth market data and research.

Cloud Hosting

To understand the significance of cloud hosting to the rise of Canvas, we can start with Bill King’s comments in the first post.

One market dynamic that I’m sure you are aware of, but is worth including here, is why Canvas could take off so quickly (I was in sales at WebCT, and then a non-LMS edtech vendor, who moved from on-prem to cloud deployment, and then Canvas, before leaving academic IT system sales). While the ease of use and faculty-friendly interface and design was important, so was AWS (Amazon Web Services). CIOs by nature are conservative — generally, they don’t like change, because all the change falls on their shoulders, with limited staff, and usually with a bigger demand that they get the SIS, ERP and other admin systems correct. This left little time for academic systems. Even when there was a strong academic tech department, Academic tech was usually classroom tech. The area of servers (and network traffic) still had to go through the CIO office. Which reminds me – at the time, another big IT project was upping the bandwidth capacity across campus. IT had LOTS to do.

Canvas came along with a cloud-based deployment scheme that eliminated the need for the CIO to source servers and stand up instances (let alone fail-over and backup systems). Even when early vendors moved to “managed hosting” (where a third party ran your server license for you), often times the CIO required proof of the safety of the data — at rest and in transit. You also had to prove the up time commitment (I remember early boasts of 93%, which is laughable today). So, you had to sell your product AND you had to sell the hosting service. With Canvas, you could just point to AWS’s terms of service, and EVERYONE knew Amazon was rock-solid reliable and secure. Whether that was true or not (I generally think it is), the point is that Amazon was like IBM from a few decades ago. Everyone trusted them and, even if AWS went down, it impacted everyone, so your IT group would not be blamed.

This, to me, is the key why faculty and academic technology were free to choose their LMS platform. The entire IT services equation was taken care of, and AFAIK, Canvas had first mover advantage here. Then you throw in their culture at the time, and the product, and it was never a question of “if” – it was always a question of “when.” (e.g. I remember talking with one major private research university in 2014, that had planned their Canvas move for 2017, once all their legacy contracts expired and a few other internal issues were taken care of.)

I think Bill gets this description just right and ties together these first two posts, but I’ll add two comments.

  • Instructure’s competition made strategic mistakes in dismissing the allure of Canvas, and also to cloud hosting (also described as Software-as-a-Service, or SaaS). But nine years after the launch of Canvas, the situation has changed dramatically. D2L has recently completed its rearchitecture of the Brightspace LMS to be fully deployed on AWS – a three year effort. Blackboard is roughly a third of the way through its changes to cloud hosting. The significance here is not just having SaaS deployment options; it is also on the freedom to manage a unified code base and the ease of regression testing, introducing new features on one configuration, and ensuring clients are using the latest and greatest versions. In higher ed, Canvas is no longer the sole fully cloud-based LMS – add D2L Brightspace. In K-12, add Schoology and Google Classroom as two additional fully cloud-based LMS solutions. While there are variances in how well each company manages its cloud deployment, Canvas no longer has a completely unique approach.
Percentage of Blackboard Learn clients who are using self-hosting (44%), managed hosting (26%), and SaaS hosting (30%) globally
Percentage of Blackboard Learn in Higher Ed and K-12 on three different hosting options
  • Bill and I both mention AWS and not just as an example of Big Tech cloud infrastructure. With little notice, EdTech infrastructure has moved en masse to AWS. Canvas, D2L Brightspace, Bb Learn, Schoology, and most other EdTech platforms such as adaptive learning tools and competency-based platforms. Microsoft is making a bigger play in higher ed with Azure and Teams and business intelligence, but for Infrastructure-as-a-Service or Platform-as-a-Service, AWS is king in EdTech.

AWS and International Growth Opportunities

A corollary to the importance of Big Tech-based cloud hosting is that much of Instructure’s growth – past and future – is strongly tied to the expansion of AWS data centers worldwide. When AWS was purely hosted in the US, there were regions that were out of reach for Canvas or any other AWS-based system. There are policies and regulations in many world regions that prevent their core data from being processed outside their boundaries, particularly in the US (thanks, Mr. Zuckerberg).

While the first AWS region in Europe was opened in Ireland in 2007, it wasn’t until there was a mainland AWS region in Frankfurt (opened October 2014) that Canvas really had a chance to expand. The University of Birmingham was the first major university win for Canvas in Europe, and that was when Canvas gained credibility and started their expansion. Now, Europe is pretty well covered, and the Middle East opened a new region just this year.

AWS Regions and Availability Zones as of November, 2019: https://aws.amazon.com/about-aws/global-infrastructure/regions_az/

South America, meanwhile is quite limited with only two locations, both in Brazil. Canvas is slowly building a customer base there, but . . . slowly. I suspect AWS regional coverage is part of that reason. Keep in mind that much of Latin America does not view Brazil as similar to them.

Blackboard and Moodle have both had long-term regional coverage in the Middle East, Latin America, and in Asia Pacific, but a big part of the reason is their availability for self-hosting or regional managed-hosting options. It will be interesting to see how well Blackboard can migrate these customers to Learn SaaS (on AWS) and how that impacts Canvas future growth trajectories. Moodle is similar in having these other options available and a long history in all regions, but there are no plans even considered for the open source options. No migrations forced there.

Higher Education LMS market share in four global regions for primary LMS usage

Google Classroom

While Google Cloud itself is not a big player in EdTech, Google Classroom and G Suite for Education are very important – G Suite is huge in K-12 and Higher Ed, but Google Classroom is almost exclusively in K-12. In fact, Google Classroom has enormous interest and is growing quickly, far surpassing Canvas in the excitement factor. The issue is that Classroom does not fully solve enterprise LMS issues and tends to be used as secondary system (where the school district uses another system as the primary LMS, i.e. faculty- or department-based adoption) or for school districts not looking for a full enterprise solution with all of the reporting, advanced grade book, assessments and assessment management, and complex roster management.

You can see from the chart below that there is a Big Four of K-12 – Moodle, Google Classroom, Canvas, and Schoology – for primary systems in North America. But for secondary systems, it’s not even close.

Instructure does not make as much money in K-12 markets as they do in higher ed, but with the investor pressure to focus more on Canvas at the expense of Bridge, the K-12 market dynamics are important to their future. A strategic buyer (another, larger technology company) would likely value Instructure and Canvas for its total footprint and not just revenue potential, and a financial buyer might be interested in combining Instructure with another company.

In the next post we’ll deal with the context of how Instructure is responding to news of the strategic alternatives review and to the broader context around LMS history and Big Tech, along with privacy & data usage opportunities and concerns.

Why Instructure’s News Matters: Market history

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Last Thursday I shared Instructure’s news release that they are going “to explore strategic alternatives in order to maximize shareholder value”, where the alternatives could include selling the company to financial buyers (e.g. private equity) or strategic buyers (e.g. big technology). Of course, one alternative is to not make changes and remain a publicly-traded company.

Why is a potential change as mundane as having Instructure’s shares traded in public markets vs. being owned by a larger company newsworthy? After all, Instructure is growing, an established LMS market leader, and is not in financial trouble. Their stock price is even at its all-time high.

The reason this announcement matters is all about context. The history of the academic LMS market, the general environment of distrust of big technology and its data usage, and Instructure’s public marketing and communications are all key to understanding today’s situation. In this first post I’ll deal with market history.

Disclosure: I will note more prominently than usual that Instructure, Blackboard, D2L, and Moodle are all subscribers to the MindWires LMS Market Analysis data service, and that we have a number of investment firms who are also subscribers to the service and pay for in-depth market data and research.

Market History

When looking at the early history of the academic LMS market, from its inception in the mid 1990s through roughly 2011, the market was dominated by Blackboard. Most LMS market dynamics could be understood through the lens of Blackboard’s market position, its corporate acquisition strategy, its poor reputation for reliability and usability, its product pricing, and the market’s reaction to Blackboard. This was the situation that led to the original LMS ‘squid’ graphic, which was my attempt to help US higher education institutions understand how to interpret market dynamics.

LMS market graphic for US & Canada higher education, showing market share bands from 1997 - 2019, with notes on primary vendors and corporate acquisitions.
  • On the left side of each band is the origin of systems, and these LMS solutions mostly originated as projects at specific universities, with moves to commercialize the products happening after the fact.
  • The bands coming together show how Blackboard’s core strategy was acquisition of their competitors, eventually moving clients onto what is now known as Blackboard Learn. After Blackboard went public in 2004, their biggest acquisitions were of WebCT (#2 in market at the time) in early 2006 and of ANGEL (a growing #3 or #4 in the market) in 2009. Not shown is the 2006-2009 patent lawsuit against D2L (#3 and known as Desire2Learn at the time), where I (along with many others) believe that Blackboard tried to put that company out of business or soften it up for an acquisition. D2L ended up fighting and winning this patent lawsuit battle, but the other companies and their products are gone.
  • Based on the intense pushback against this corporate behavior, the open source market became the perceived safe haven, a way for schools to retain control and not be forced to migrate. Sakai originated in 2004, with Moodle before that, but the real grown of open source LMS adoption occurred in 2007 – 2011 in reaction to Blackboard corporate moves.

Why does this history matter? Because the academic market has a long memory, and many educators (faculty, staff, and administrators) deeply remember the days of corporate finance driving the market. Losing control of university projects, being forced to migrate from chosen LMSs, rising prices and constant cross-selling 1e.g. Bb Collaborate, created by acquisition of Elluminate and Wimba and upselling 2e.g. move from Bb Basic to Enterprise, to Academic Learn suite, with constantly rising prices, systems going down during Finals week, clunky frustrating systems, etc.

Change in Market Dynamics

The market changed in 2011 for two reasons. One was that Blackboard was taken private by a private equity firm, leading to the early 2013 change in executive team and the end of corporate acquisition of competitors. Blackboard acquired Moodlerooms in 2012 (now known as OpenLMS), but note that this product is still alive – there was no forced migration, and Blackboard has contributed heavily to the open source community. Note: Moodlerooms was the largest Moodle Partner and is not the same as Moodle HQ, the company that leads the development of the Moodle open source product. 3See Michael Feldstein’s post at e-Literate to get a description of the Moodle ecosystem.

The second reason is that Canvas emerged as the fastest growing LMS solution – an intuitive, cloud-native product with a company with a unique corporate culture. From 2011 through the present, Canvas began to dominate the market dynamics – either through its constant growth with no losses, or from competitors’ reactions to Canvas. We now have much more reliable systems with better usability built in, not just in Canvas but in particular with D2L Brightspace and increasingly with Blackboard Learn itself. While many people are frustrated with the pedagogical limitations of most LMS solutions, the market is much healthier and more focused on educators’ needs than it was a decade ago.

One related change in the market is that the primary buyers of an academic LMS – the most important people in a decision on which LMS to adopt – has shifted from the CIO to the faculty and academic technology support. This shift happens along a spectrum and differs among schools, but there have been dramatic changes. A decade ago, LMS migration mostly occurred in spite of faculty wishes. CIO-type needs, or product end-of-life coming from acquisitions, forced schools to change, and academic types (faculty, academic tech support) at best had input in reaction to these needs. Today, quite often it is the faculty or academic technology support staff that are driving LMS adoptions, requesting changes with the CIO and IT staff having to react to these demands.

Underlying Tension

There has been an underlying tension this whole time, however, with many educators wondering whether and when the market might shift back its previous dynamics. Would corporate finances come back and take priority over customer satisfaction, would Canvas become just like corporate players of the past market?

It is this underlying tension that still exists and in my opinion is increasingly coming out in reaction to Instructure’s corporate moves recently. Many of the details of the market history are forgotten or jumbled, but the underlying tension is deeper than the surface language. The sentiment is more intense for US higher education than for K-12 markets or for global regions outside of North America, partially as these other market segments never viewed Canvas quite as intensely as the market champion. But the tension is still there.

Why does this news matter? From the market history perspective, there is a risk that the potential sale of Instructure will unleash more of this market sentiment against the company, impacting future market growth. And this sentiment is particularly intense among the academics that have driven the growth of Canvas. At the same time there is a chance that Instructure will come out of the process better able to serve the academic markets. The result of the risk and opportunity mostly depends on whether Instructure is sold, to whom, and how the company responds in public during this process. But there is a lot on the line and underlying questions are being raised. In this market, I would not discount sentiment based on history.

In the next post we’ll deal with the broader context of Big Tech.

About the PowerSchool Acquisition of Schoology

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On Thursday we got word that PowerSchool has reached an agreement to acquire Schoology, potentially shaking up the K-12 LMS market. EdSurge covered the news on Thursday.

If approved, the pending acquisition would mark the latest puzzle piece that PowerSchool has purchased this decade. Founded in 1997, Powerschool was first bought by Apple in 2001, and then by Pearson in 2006. The publisher sold the PowerSchool to private equity firm Vista Equity Partners in June 2015. Onex, another private equity firm, invested in PowerSchool in 2018 and shares equal equity ownership with Vista.

Since 2015, PowerSchool has acquired eight companies. Through these deals, the company has expanded its product suite beyond its original K-12 student information system offering to assessment, enrollment, special education and talent management services. Schoology would be PowerSchool’s second purchase of a learning management system (LMS), after it acquired Haiku Learning in 2016. Haiku has since been rebranded as PowerSchool Learning.

I have covered Schoology in a series of posts at e-Literate, mostly focusing on their partial entry into the higher ed LMS market. I described the company and product in some detail in this 2016 post. In addition, Jeanette covered the recent Schoology NEXT users conference. In the EdSurge article last week, she observed:

Even in third and fourth place, Schoology holds unique bragging rights. While Instructure, the developer of Canvas, has reportedly never lost a higher ed customer, “our data showed that two K-12 districts became the only losses of customers that we are aware of in the history of Canvas, with both selecting Schoology in 2019: Tempe School District and Turner Unified School District in Kansas City,” wrote Jeanette Wiseman, a senior associate at MindWires, an education market consulting and market analysis firm, earlier this year.
From her perspective, PowerSchool’s desire to add a popular tool to complement its flagship student information system makes sense. “They’re taking what is a really successful LMS in the K-12 space, and pairing it with the tool that all teachers have to work with, the SIS. All the data that schools manage … everything flows into the SIS,” she tells EdSurge.

New K-12 LMS Market Data

The “third and fourth place” comment relates to our new K-12 LMS Market Analysis service, and the data helps explain why this acquisition makes sense.

Like our higher ed market analysis, we (through our partnership with LISTedTECH) track historical trends in the K-12 market, allowing a view of market trends. One view is looking at percentage of North American (US & Canada) new LMS implementations each year by vendor.

LMS percentage of new implementations each year in K-12 market for US & Canada, showing Canvas, Schoology, PowerSchool, and All others.

Some notes from this data: 1Disclosure: Schoology, Canvas, and D2L are subscribers to our LMS Market Analysis service.

  • Schoology and Canvas are strongest competitors for revenue-generating LMSs in K-12, generating far more new business than other proprietary systems.
  • Not directly shown in this view, but Google Classroom is playing an increasingly large portion of the “All Others” category. This is important, but that solution does not directly generate revenue, and this story is about corporate finances.
  • PowerSchool did not get big impact from the 2016 Haiku acquisition and is a secondary player at best in the LMS market. This position has limited their ability to truly provide full enterprise K-12 solutions and “unified classroom”. Schoology, however, does have real market power in K-12.
  • At the same time, business is difficult in this market, and Schoology has gone through layoffs since their late 2015 fund-raising round of $32 million. Their biggest competition in the K-12 market is Canvas and Classroom (primarily) and D2L (secondarily), and it takes capital to aggressively compete.

Does It Make Sense?

Seen in this light, the acquisition makes sense from a PowerSchool perspective. They can now try a more realistic approach to fully serve K-12 districts with their “unified classroom”. This is a data play at its heart, as described in a 2016 EdSurge article on PowerSchool.

PowerSchool has now added an array of services in the past 15 months, including a learning management system (through its purchase of Haiku Learning), special education reporting (TIENET), student enrollment (InfoSnap), formative assessments (Interactive Achievement) and a Canadian SIS (SRB Education). The company doesn’t plan to halt its shopping spree, Gulati says: “We’ll continue to remain acquisitive and continue innovating.”

By hooking up different education tools into the PowerSchool SIS, which serves more than 24.5 million students across the world, Gulati hopes to make data more accessible and actionable for teachers. He’s not alone: other companies such as Alma, based in Portland, Ore., also aim to combine SIS, LMS and other education data tools into one single package.

“What we’re trying to solve is the problem of data silos and fragmentation in K-12,” he explains. “Teachers currently have to go through several systems to use all the tools they need for instruction.”

The acquisition also makes sense from a Schoology perspective, as they now have a “potential” source of capital in a difficult market. I put potential in scare quotes because we don’t know how much Vista Equity Partners and Onex will invest in Schoology product and service development. Vista is well known for having a playbook on how they view software companies, as described in a 2018 WSJ article.

The goal of the Austin, Texas-based firm, which is 18 years old, is to transform business-software companies into profit machines. Behind its approach is Mr. Smith’s belief that certain aspects of the companies Vista buys are interchangeable.

“Software companies taste like chicken,” he said at a conference in New York a few years ago. “They’re selling different products, but 80% of what they do is pretty much the same.”

Derek Jones, managing director at longtime Vista investor Grosvenor Capital Management, says “their process is like a factory. A deal comes in and it gets compartmentalized, and they apply experts on each compartment. After it goes off the assembly line, the margins are higher.”

The article is largely about Vista’s founder and leader, Robert Smith. Yes, the one who said he would pay off all student debt for Morehouse College 2019 graduates.

Potential Impact on Market

Assuming that Vista follows this playbook, there will be significant changes to Schoology’s operations, and if successful the company will become more profitable. If those changes take investment, Vista has been known to put in near-term money (often debt) to get longer-term payoff. The real investment is in PowerSchool, but there are certainly signs that Schoology will be run as a separate entity, at least initially.

I can see both positive and negative effects for other LMS competitors such as Canvas and D2L (something makes me think that Google doesn’t spend too much time worrying about this type of move). On the positive side, corporate acquisitions tend to create pushback from academics, although this effect tends to be greater in higher ed than for K-12. But certainly Schoology’s competitor’s have new marketing messages to use. On the negative side, one of the top four K-12 LMS competitors is about to get a lot more financially sound and likely more aggressive. The acquisition makes sense, but that does not necessarily mean that it will succeed.

For now, the pending PowerSchool acquisition of Schoology is more evidence that corporate finances will have an outsized influence on the LMS market. This move could even accelerate other LMS companies to shore up finances. We’ll keep our watch on the market.

Update: Make sure to read this post from our partners at LISTedTECH, including a really cool graphic showing K-12 SIS & LMS shared usage data.

Reminder: If you’d like a deeper look at the data, check out our new K-12 LMS Market Analysis service.

Disclosure: Schoology, Canvas, and D2L are subscribers to our LMS Market Analysis service.

LMS Decommissions: A view of lost clients and campus closures

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One theme of our coverage of the academic LMS market over the past 1 – 2 years, both at e-Literate and in this blog, continues to be worth watching:

there are strong arguments that company financial health in 2018 / 19 for the providers will continue to have an outsized impact on the future of LMS offerings.

Both posts linked above described the overall market slowdown – where there has been a significantly lower number of LMS switches – that we first described to our LMS market analysis subscribers just over a year ago and in the blog starting this year. Our updated data over the summer shows no signs of the slowdown ending.

Another issue to consider is not just who is winning and how often, but from the opposite side. Who is losing LMS clients? Let’s first look at the US and Canada for LMS switches since the beginning of 2017, from our report this summer. The left side shows the previous campus LMS, measured by number of institutions, and the right side shows the new LMS.

LMS migrations in North American higher education from 2017 - mid 2019, showing the previous LMS on left side and new LMS on right.

Blackboard Learn lost the largest number of campuses, followed by Pearson LearningStudio and Moodle, then by D2L Brightspace and Homegrown and Sakai.

When looking at company finances, however, it is important to expand this view. One expansion is to look at global regions beyond North America. Another expansion is to include campus closures as a source of losses in addition to switches. The following chart shows the percentage of decommissions each calendar year in North America, Europe, Latin America, and Oceania combined (but note that North American numbers are the largest portion of these numbers). Decommissions is a combination of switches and closures, and the percentage is calculated on a per-year basis.

LMS higher ed decommissions per year for combination of North America, Europe, Latin America, and Oceania.

We see that two LMS end-of-life situations created by Blackboard acquisitions (where bought their competitor and eventually cut off the product line) were huge factors through 2015. WebCT was acquired in 2006 and shut down by 2013. ANGEL was acquired in 2009 and shut down in 2016.

Blackboard Learn has consistently lost customers since mid 2000s, with roughly 27 – 36% of decommissions each year coming from this solution recently. While Blackboard is the primary beneficiary of the LMS market slowdown, and its improved performance is clearly one of the causes of that trend, when looking at the data it is clear that they are still a big source of LMS losses. Consider their recent loss of long-time clients Purdue University and Princeton University. They also are at risk from several high-enrollment systems expected to complete LMS evaluation processes this year and next.

One of the most remarkable stories in EdTech is that Instructure has not lost a single Canvas higher education client due to an LMS switch. 1In terms of primary systems available campus-wide in higher ed. They have lost two K-12 clients to Schoology. But Instructure has lost clients due to campus closures, particularly from Education Corporation of America (two systems shut down) and secondarily from DeVry University (several campuses closed), mostly in 2018.

D2L Brightspace has lost a relatively small number of clients over the years, but their LMS decommissions ramped up in 2018 and 2019, largely due to campus closures. They were particularly hard hit by the closure of Dream Center systems (Art Institutes, South University, and Argosy University, all acquired from the for-profit EDMC).

Moodle has lost a consistent number of clients over the years, particularly in North America, despite it having the largest installed base worldwide. We documented a broader look at the overall changes in Open Source systems recently.

Pearson LearningStudio, formerly known as eCollege, was popular with for-profit chains and with some nonprofit fully-online programs, but Pearson shut down that system by the end of 2017.

Sakai has slowly but steadily lost clients for years, and it continues to do so with recent decisions at the University of Rhode Island and UC Davis, and potentially with several other decisions expected within the next year.

Every LMS provider loses clients, and these losses are important to understand in terms of the organization’s financial health. If you’re interested in seeing more information on the data behind these charts, we have them available with our LMS Market Analysis service.

State of Higher Ed LMS Market for US and Canada: 2019 Mid-Year Edition

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It has been nearly a dozen years of sharing the LMS Market share graphic, commonly known as the squid diagram. This past year we at MindWires shifted our LMS Market Analysis reports from Spring / Fall to Mid-Year / End-of-Year to better allow analysis of entire years. With the release of our mid-year 2019 report this week to subscribers, it’s time for us to look at updates on the institutional LMS market for North America (US and Canada) higher education. Note that our coverage for the market analysis includes Europe, Latin America, Oceania (Australia, New Zealand, and surrounding island countries) as well as emerging coverage of the Middle East.

We present the following data “by institutions”, with market share as a percentage of the total number of institutions using each LMS as a primary system, and “by enrollments”, where we scale the institutions by its total enrollment. The latter better captures the business of the LMS market, since most licensing deals are based the number of students.

But first, let’s look at an updated LMS market share graphic for US and Canadian higher education. The original idea remains – to give a picture of the LMS market in one page, highlighting the story of the market over time. The key to the graphic is that the width of each band represents the percentage of institutions using a particular LMS as its primary system.

North American Higher Ed LMS Market share for mid 2019, based on number of institutions using each solution as primary system.

In the past five years, the LMS Market for North American higher education has become increasingly dominated by “the Big Four” (Instructure Canvas, Blackboard Learn, D2L Brightspace, Moodle) 1Disclosure: Instructure, Blackboard, D2L, Moodle, and Schoology are all subscribers to our LMS Market Analysis service. for institution-wide adoptions; the aggregate market share of year’s top four systems moving from 80% to 95% in past five years. Beyond North America, we are seeing the same trends in Europe, Latin America, and Australia / New Zealand.

Consolidation of North American Higher Ed LMS Market in Big Four of Canvas, Blackboard, D2L, and Moodle, moving from 76% combined share in 2012 to 95% today.

We recently described the overall market activity slowdown in that there are fewer LMS formal evaluations taking place since mid 2018, with data pointing to a 20 – 25% drop from a year earlier. This slowdown seems to be a type of plateau rather than a continuing trend, and we are watching to see if it is temporary or not. We have seen some increased activity this summer, but we are not ready yet to say if the trend has reversed.

In addition, last summer we shared the symbolic passing of the torch where Canvas surpassed Blackboard in US market share, which was the first time Blackboard was not the top system since the market emerged two decades ago. Despite several counter-forces (the market slowdown, University of Phoenix finishing its Learn Ultra implementation, and closure of for-profit chain and dozens of campuses using Canvas), Canvas has extended its North American lead – 28% vs. 27% based on count of institutions, and 35% vs. 31% in terms of student enrollments at those schools.

North American Higher Ed LMS market share by enrollment, with Canvas at 35%, Blackboard at 31%, Brightspace at 14%, and Moodle at 12%.

While D2L’s market share with Brightspace actually decreased slightly largely due to the closure of for-profit clients, they have picked up some impressive wins lately, including Purdue University, the University of the Sciences, University of Rhode Island, and nearly a dozen others (not all of which are publicly announced yet).

Moodle declined slightly – less than 1% in terms of institutions – over the past year. We have added Jenzabar to our main graphic, based on its somewhat persistent market share.

We have a broader set of data as part of our LMS Market Analysis service, and we will share more information on regions outside of North America this fall.

Update 8/16: Adding Disclosure – Instructure, Blackboard, D2L, Moodle, and Schoology are all subscribers to our LMS Market Analysis service.

BbWorld 2019: Multiple signs of progress but questionable results

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Ignoring cause and effect, if there is one LMS company that has improved its market trends more than any other during the current market slowdown, that company is Blackboard. They are losing fewer customers, they won a big international account with dozens of schools, they finally have Learn Ultra truly in production at the course level, and their corporate financials improved significantly with the sale of the Transact business unit. As a result, this year’s BbWorld users conference had a much more positive tone than last year’s conference, both in company presentations and from customer sentiment. 1Disclosure: Blackboard is a subscriber to our LMS Market Analysis service.

The question is whether these improvements matter or not, and so far the market results are questionable. Better than before, but I do not see a turnaround yet.

Company Postion

From a corporate perspective, Blackboard emphasized its broad portfolio of teaching and learning products (Learn, Collaborate, Ally as the core) and more importantly the simplification of the company. According to executives, with the Transact sale and changes in product lines, Blackboard “has its most complex days behind it”, a point referencing the corporate financial challenges of the past year as well as the removal of non teaching and learning product lines. During an executive analyst session, CEO Bill Ballhaus was even more clear that this simplification trend shows them moving in the opposite direction of Instructure.

I found the BbWorld message quite consistent with what I described back in February at e-Literate.

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.

Learn SaaS and Learn Ultra

From an LMS perspective, Blackboard continues to push Learn SaaS (the cloud deployment of Learn, both Original and Ultra, on AWS) and Learn Ultra (the new user experience design only available on SaaS). The company’s Learn SaaS deployment continues in its remarkably linear fashion.

Blackboard Learn SaaS deployments showing linear progression from fall 2016 to summer 2019, reaching 586 by BbWorld19.

As for Ultra news, I covered that situation before the conference:

Wait – didn’t Blackboard 1 make BbWorld18 largely about Learn Ultra and claim dozens of implementations? Yes, but they were playing word games as described last year. Learn Ultra was always planned to include changes down to the Course View, and last year we heard about institution-wide deployments of Base Navigation, with only pilots or partial implementations of the Course View. Put bluntly, I didn’t believe Blackboard’s claims in 2016 or even 2018.
But this year is different for a few reasons:
– IESB in Brazil completed its migration in March 2019.
– The University of Phoenix has completed its migration – as of April 2019 – from its Homegrown Classroom system to Learn Ultra.
– Several schools, including Northumbria University and Merrimack College, are completing their full migrations such that Learn Ultra (navigation and course view) will be the primary system as of Fall 2019.

Conversations at BbWorld confirmed my understanding with a few details added in. What I did not hear this year with any consistency is the past concern of “Ultra is just not ready yet”. Schools that want Ultra and see the value in its user design are moving that direction, although not in droves. Of the approximately 173 Learn Ultra clients as of the beginning of BbWorld19, roughly half are just using Base Navigation, one quarter are using a mix of Original View and Ultra View at the course level, and one quarter are fully moving to Learn Ultra at the course level.2Please read this post to understand terminology for Blackboard Learn. This latter number is somewhat aspirational, as several clients listed as full Ultra are starting institution-wide Ultra usage this fall or at the end of the calendar year, but the point remains that Ultra is fully in production.

BbWorld keynote presenting Learn Ultra adoption - half of 173 on Base Navigation only, quarter mixing Ultra and Original Courses, quarter on Ultra Courses.

One of those clients going full Learn Ultra is Galileo Global Education, as described in my February 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. [snip]

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.

Galileo continues to represent a big victory for Blackboard, but I did not pick up signs at the conference that it is the beginning of a new set of new-client wins.

Blackboard Data

The biggest product development is Blackboard Data, despite a keynote announcement that felt like a timeshare pitch. We’ve got a really exciting free visit for you . . . which we’ll describe in a few minutes. No, really. Just a few more minutes. Oh, look, the keynote is almost over – Rachel, come on out and describe what they get. Looking under the hood, however, the Canonical Data Model and user interface access of the underlying Data Dictionary is significant and impressive. This data model is abstracted out of the LMS, and using Blackboard’s various SaaS products, presents a T&L suite data approach, with agnostic models for the LMS, video conferencing, student information system, and other tools. It also appears that this Canonical Data Model is designed to improve the notoriously weak signal-to-noise ratio of EdTech data analytics.

Eventually, the in-line data analytics – those presented in the LMS workflow (their word, not mine) – will also come from the Blackboard Data infrastructure. The first release of Blackboard Data stack will be Reporting, with no additional charge to customers. The Blackboard Data release to date appears to be a first step in a solid design, which is different than a productized suite. For example, the UI doesn’t connect the data dictionary to actual data extraction, leaving it as a live set of documentation. Like Instructure’s Dig initiative, this one deserves further analysis in a future post.

Does it matter?

Given these improvements, it is worth asking if there are signs that the market is buying what Blackboard is selling. At one level the answer is yes. The company’s losses are slowing and they picked up a big system in Galileo. At another level, however, it is clear that Blackboard has a long road ahead of it in a market with a long memory. Two examples help to clarify the disconnect between company / product improvements and market results.

The first example came during the executive listening session at the end of the conference, where it was obvious that Blackboard as a company really wants its customers to move to Learn SaaS and Learn Ultra of their own accord. There is no better way to further simplify the company than to move to one code base and one deployment option, in other words to start reaping more of the promised benefits of cloud computing. But they just can’t say that customers need to move. The closest the executives got at the conference was to say that they’ll know a lot more by next year on how long non-SaaS and non-Ultra will be available, but that customers will have plenty of time to migrate. They did not say that non-SaaS and non-Ultra will be available indefinitely, and this quite honestly makes sense.

The first audience question, however, led to a very long discussion about long-term self-hosted customers who just don’t have the resources to migrate. They might buy the idea of SaaS and Ultra, but that doesn’t mean they are ready to move. One challenge Blackboard faces is that with their market losses over the years, this conservative type is a greater and greater percentage of their remaining customer base. By the way, kudos to the Blackboard executive team for taking the time to discuss this problem so openly at the conference.

The second example came after the conference when yet another long-term client announced their decision to migrate away from Blackboard. Purdue University – including Purdue Global (the artist formerly known as Kaplan) and all Purdue campuses – was a key customer for Blackboard. They were a long-term WebCT client, even using WebCT Vista, and they could rightly be called a power user university. Purdue chose to move to D2L Brightspace, choosing that LMS over Blackboard Learn and Instructure Canvas. This is a big loss for Blackboard, and it comes in spite of all of the improvements listed above.

In the end, there are definitely improvements happening at Blackboard, but a lot of their big challenges remain in terms of market results.

Disclosure: Blackboard is a subscriber to our LMS Market Analysis service.

Postscript on D2L Fusion and LMS Market Slowdown

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In O’Neal’s post yesterday he noted that despite D2L’s continuing improvements in its Brightspace LMS and its consistent market approach, we are just not seeing significant market changes.

Our view has not changed. D2L has some good wins lately (including several we expect to be announced in the next two months), but their overall market share is not improving in the core North American higher ed market. Phil will address this point in a separate post.

In interviews at the D2L Fusion conference, company executives essentially stated that their sales pipeline is strong, and they’re not seeing any sign of a market slowdown. These points could use clarifications for those following the LMS market.

Sales Pipeline vs Market Share

For its part, D2L has some recent wins in North American higher education this summer, winning new clients over Canvas and Blackboard and Moodle 1Disclosure: D2L, Instructure, Blackboard, and Moodle HQ are all subscribers to our LMS Market Analysis service. in competitive bids. These wins include the University of Rhode Island (moving from Sakai), Northeastern Technical College (moving from Moodle), and the Nebraska Methodist College of Nursing and Allied Health (moving from Jenzabar). In addition, we are aware of two large system wins (30,000+ students each) moving to D2L that we should be able to confirm within a month of two. I could see an argument of strong sales pipeline based on these wins and potential news ones this fall.

D2L is interesting, however, in that they are both winning and losing clients. Canvas in higher ed has only been winning new clients. Until the recent win with the Galileo Global Education, Blackboard had primarily been losing clients, where the primary question has been how fast these losses occur. Moodle is mostly losing schools or seeing them shift from self-hosting or mom-and-pop hosting to more professional cloud hosting. To get a sense of D2L’s market market wins and losses, consider the following two charts from our January 2019 LMS Market Analysis report show the migration of schools from one system to another during 2017-18.

LMS institutional migrations for 2017 - 18 in North America, showing the previous and current systems.
LMS institutional migrations for 2017 - 18 in Europe & Latin America & Oceania, showing the previous and current systems.

Note that D2L is the second biggest winner of new LMS implementations for both North America (primarily from Blackboard and Pearson) and the combined three international regions we currently cover (primarily from Blackboard and Moodle). But in North America, D2L also had a number of losses – takeaways where schools moved (mostly to Canvas). This year is different in that D2L has stemmed from losing clients to another system. We are finishing our mid-year report and will have more data in August to share.

D2L’s bigger “loss”, however, is the case of campus closures largely due to their wins in the for-profit sector and the Pearson LearningStudio end-of-life. The largest example is the closure of the former EDMC institutions (renamed as the Dream Center after converting to nonprofit status), a 2017 win. The net effect of both types of losses is that D2L is not gaining market share in the global LMS market based on our data, despite being the second-most-selected system for new LMS implementations. We’ll have to watch to see if their recent wins and sales pipeline changes this dynamic.

Market Slowdown

Despite D2L’s statements during Fusion interviews, we stand by our position that there is indeed a general slowdown for academic LMS market, starting last summer and continuing today. We have performed additional analysis for our premium subscribers showing that the slowdown applies beyond North America (it includes Europe, Latin America, and Oceania, with the exception of Blackboard’s recent win with Galileo), and it applies at small, medium, and large enrollment bands of institutions.

Brian Peterson from Raymond James recently downgraded Instructure’s stock based on his company’s data – independent of ours but coming to the same conclusions.

Proprietary checks indicate a meaningful deceleration in large deal activity in the North American higher-ed learning management system (LMS) market in 2018, with a double-digit decline in the number of full-year students, Peterson said in the Monday downgrade note. 

Despite this slowdown, Infrastructure’s Canvas LMS recorded an improvement in win rates in 2018, bagging the majority of large deals in the forth quarter, the analyst said. 

A resurgence in higher ed deals in 2019 seems unlikely given the modest year-on-year deceleration in the deal activity pipeline, Peterson said.

Combined, the two issues of wins offset by losses and the market slowdown clarify the challenges that D2L faces in turning its product improvements and recents wins into meaningful improvements in market share.

Disclosure: D2L, Instructure, Blackboard, and Moodle HQ are all subscribers to our LMS Market Analysis service.

D2L Fusion: Continuing product approach and market differentiation

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The following is a guest post by O’Neal Spicer, consultant at MindWires and long-time observer of EdTech markets.

D2L held its Fusion users conference in Kissimmee, FL the week before last. Of the roughly 1,000 attendees, the majority were from the United States and Canada, but there is a growing number coming from Europe, Latin America, and Australia, reflecting D2L’s increased international presence.

This year’s conference was in many ways a continuation and elaboration of many of the themes we noted last year. D2L 1Disclosure: D2L is a subscriber to our LMS Market Analysis service. appears to have found a consistency in its approach to and messaging around product development; consistency in its one platform approach to the K12, higher ed, and corporate learning markets; and consistency in how the company contrasts itself with the competition – primarily Instructure.

Product

Over the last several years D2L has revamped its product team and their approach to product development for its Brightspace LMS platform. There is a greater focus on including users in the product development process than what we had seen in prior years. There has also been a recognition that incremental product improvements make a big difference for customers and can be more impactful than large-scale new feature development. At this year’s Fusion, the emphasis seemed more on the user role in product development, as seen in the product spotlight, where the company highlighted the Product Idea Exchange (PIE).

PIE is where users can share their pain points and ideas for product improvements directly with D2L’s product team. There were several break-out conference sessions based on the exchange, where customers worked with one another to share common needs and to brainstorm possible solutions, which are then shared and discussed with the larger group. I later found out that these were no-go sessions for analysts (my mistake), so I cannot share specific details except to note the general interest from both users and D2L staff in the process and its outputs. Some of the product improvements announced this year appear to have been directly influenced by similar sessions last year. One representative from a university in Brazil described how pleased she was to see her handiwork from a year ago incorporated in a revamped workflow.

Specific product highlights showcased during the product keynote focused mostly on incremental improvements that had already been released. One area that got a lot of attention was improved tools for grading and assessment – better organization of items in need of grading (Quick Eval, shown below) and in-line feedback (Annotations) were two specific highlights. There was also mention of a new content experience around rubrics and assignments that leverages templates, a simplified quiz engine that uses progressive disclosure to preserve robust functionality for the 10% that need it but keep things easy to use for the 90%, and an updated Pulse mobile app that makes a complete student learning experience possible on a phone.

Market Differentiation (especially from Instructure)

There were several strategic views shared during the conference that are clearly in contrast with Instructure and the Canvas LMS. For one, it was noteworthy that the live product demos shifted seamlessly between K12, higher ed, and corporate learning use cases. This combination shows D2L’s view that there is one broad learning market that can be served with one platform, which is in contrast with Instructure and their segmentation of academic (Canvas) and corporate learning (Bridge) markets served by different core platforms. 2It should be noted that over the past six months Instructure has introduced different platform offerings (e.g. Portfolium) that make their market segmentation more of a spectrum than a binary, although the core platforms are different.

Breakout sessions at the conference included a mix of K12, higher ed, and corporate presenters, and at least some sessions had a mix of attendees as well. For example, Accenture uses Brightspace for a leadership development program, and there were several learning design questions posed by academic attendees who were interested in hearing about different ways to use the platform.

D2L believes its less segmented approach and reliance on a common platform can in some cases lead to an easier sales pitch. One example is a university looking to teach students and conduct professional development for employees. With D2L, there is one platform with combined data sets. With Instructure, it is potentially two platforms, two sets of data, and multiple integrations. D2L also believes that its approach allows shared internal resources working on the same platform, avoiding separate developments on separate systems.

A further area of differentiation is that D2L’s leadership team was fairly explicit that they do not think of themselves, nor do they want to be thought of, as a software company. They prefer to think of, and position, D2L as a learning company and a partner in learning (an approach and even phrasing that they share with Blackboard).  Partially by design, and partially by coincidence, this self-image and projection is in direct contrast to Instructure who entered the market explicitly as a software company, as described in an interview with then CEO Josh Coates in early 2018.

But we are a software company. Customers should expect us to create new independent software products every 12 – 18 months. Some existing customers will use, some won’t. That’s the strategy – create new business by building great new software.

We should note that we have talked to several university clients of D2L, particularly outside of North America, where the market differentiation message is confirmed. At Fusion, we spoke with people from three universities in the Netherlands and one in Denmark. For all of them, D2L’s interest in getting to know the university and understand their needs during the evaluation process was a big part of the decision to go with D2L. Of course, the platform had to be competitive as well. We also spoke with people from a university in Brazil and a university in Colombia who are both relatively new D2L customers. They reiterated the general themes raised by their European colleagues and also found the versatility of the Brightspace platform met their needs better than competitive platforms.

The Challenge

Part of the consistency that we noted last year includes market performance.

D2L appears to have largely revamped its approach to product development that is more responsive to customer needs, and is putting resources into building partnerships. Yet they have not made the market gains envisioned after winning the Blackboard patent wars and then raising two large rounds of financing. We still see a two-horse race for new implementations (LMS product switches) in higher education, largely shared between Canvas and D2L, but the second horse that is looking better than it used to still needs to make further adjustments and run faster

Our view has not changed. D2L has some good wins lately (including several we expect to be announced in the next two months), but their overall market share is not improving in the core North American higher ed market. Phil will address this point in a separate post.

We do not believe that the academic LMS is a commodity, although it can seem that way in feature-driven evaluation processes. At a strategic level, the competitors are quite different, and D2L showed at Fusion further evidence of their approach and market differentiation.

Disclosure: D2L is a subscriber to our LMS Market Analysis service.