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.

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.