The Remarkable Turnaround in Instructure’s Position on Future Growth

8 replies
  1. F Moore
    F Moore says:

    Phil – There you go again. You should stop writing about things you have no idea about. You are trying to prove your point because you feel threatened by the fact that you have been saying slowdown and someone (with real data) actually disagrees with you. I have taught economics and investing for years. Slowdowns in business revenue growth happen due to the the cumulative effect of the denominator getting larger. Instructure could continue to add the same amount of LMS business for years and at a fixed rate of change, their YoY growth rate would slow down. That is not the same as the LMS market slowing down. Also, if you look at the financial reports, their billings were up showing a sign of growth, not decline. And, yes Boards of public companies have to prioritize shareholder value. That is how the markets have been for decades and you translating that to the integrity of the company is just ignorant. Instructure’s CEO has a fiduciary duty, but that does not mean he sacrifices customers or broader values of the company. You are a smart and talented person. Do you homework, listen instead of trying to be the first one out with a “story”, and you will get much more respect from people. Also, the fact that investors are pushing back on the deal is because they believe the company is in better shape and has a more promising future, so either way it is a win win for Instructure.

    • Phil Hill
      Phil Hill says:

      F – I am fine with disagreement, but please keep this civil. I’ll ignore your imaginations on why I write some posts and the integrity comment.

      Like you, I understand denominators, but that is not what our data say is the issue. If you’ll notice the chart I shared, the data are in total values, not percentages. No denominator. What Instructure’s data show is a slowdown well beyond the effect of a larger denominator (Canvas revenue or billings). Going from 40% yoy organic rev growth to 16% in two years is not primarily due to the denominator effect you describe. And the narrative that Instructure chose to use is most of what I shared – it is very different than three months ago.

      If you read the text above, you’ll see that the problem with the Waterhouse statement is the board having “one priority”. Nothing about value to customers, nothing about public good being in the education space, nothing else. This statement is not a one-off, as it matches the messaging we are seeing over the past three months, ignoring the impact on customers and the market in general. In my opinion that sole focus on shareholder value is harming the company’s brand and is detrimental to the health of the market.

      I appreciate that you have an optimistic take on the company and that you disagree with some of my points. In the future, please keep your critiques to what is stated, or at least back up your points. Thanks for reading and commenting.

  2. Phillip Davis
    Phillip Davis says:

    Phil, great analysis, per usual. LMS market is bound to shrink for one simple reason: colleges are closing, rapidly. The entire higher education “market” as measured by number of institutions is simply shrinking at an alarming rate. This is a MUCH bigger problem than LMS saturation debate. Good god men, the entire planet is imploding! With a declining birthrate of school-age kids, the implosion is natural, irreversible (in the short run) and will profoundly impact all-thing-higher-ed. Yes, yes, I know corporate training will absorb some of this loss of student enrollments, but that’s a different story.

    • Paul Jacobelli
      Paul Jacobelli says:

      Colleges are closing but they are relatively few and small institutions and have no effect on the LMS sales growth. The simple fact is the HE market is saturated and there are far fewer schools that don’t have an LMS. The cost of acquiring a new customer now includes taking it from your competition (discounts?), migrating courses and data to the new system (costs) and training the faculty on the new system.

      One other small but impactful change is that large institutions are consolidating their eLearning activities onto one LMS. Going are the days when there could be 3-4 different LMS licenses at one large school.

  3. Jim Wolf
    Jim Wolf says:

    Hi Phil,
    As an Instructure client I would like to address the following statement from the above piece, “but what about the message to Instructure clients?” I think that is more or less a fair question. If it is okay, I would like to help out by answering it. First off, I think BoDs should have the stockholders best interest in mind, it is a big part of their job. Please don’t think I am naïve enough to not be aware that it is also a self-serving interest. As a publicly held company, the BoDs have a few different client-vendor relationships they have to keep in mind when they make decisions, and finance is obviously at the top. What I’d like to address is the client-vendor relationship my school district and I have had with Instructure over the past four and a half years. When we first started our relationship with Instructure, I definitely had a, “let’s see where this is going to go” mentality. I was impressed with their LMS platform (Canvas) and how easily it would integrate with our SIS and how simple rostering would be. They did not let us down on any of this. Yet still, I was waiting for the first failure with their system, because that is what platforms do, they fail. The engineers at Instructure even worked with our district tech team and with the engineers at our SIS to create a “passback” system so grades could move from Canvas into our SIS and teachers would not have to double enter grades. This passback feature wasn’t built out, but Instructure did everything they could to make sure we had the Canvas instance that would best work for our district’s teachers and our IT department. Still, no failures. A lot has happened since our initial contract with Instructure. They have grown as a company, and we have grown as a district. The Canvas platform has allowed our district to not only go 1:1 but to also dive head first into Blended Learning, and most recently into Online Learning. Both our Sales Rep and our Customer Success Manager have been side-by-side with us along the way, and in some instances they were even leading the way for us. Four and a half years later and I am no longer waiting for a failure, because if it was going to happen, it would have happened.
    When I first heard of the possibility of the sale of Instructure, I was mortified. We have put a great deal into the development of our Canvas instance, I immediately called my rep and she assured me that there would be no lapse in service, and there hasn’t been. I don’t believe that the BoDs statement of “maximizing value for our stockholders” sends a bad message to us, the clients, I believe it is truly what their first priority should be. The main thing is that the customer service end of Instructure is doing what they should be doing, and that is, maximizing value for the users. It’s what they have done in the past, what they do now, and I truly believe it is what they will continue to do.
    Thanks for your time and if you feel you need any specifics on this post, please email me. Have a wonderful evening!

    • Phil Hill
      Phil Hill says:

      Jim, thanks for thoughtful comments and sorry for slow reply (family travel).

      My concern with BoD and company messaging is not that shareholder value is a top priority, it is that for general messaging it has been the only priority (see text of letter). Prior to 2018, Instructure knew how to balance their messaging and communication with clients. Over the past year, the situation has changed, definitely in public and in many cases for individual clients. I am glad to hear that your school district has solid communication and service from them.

      I’ll also note that Instructure has ramped up their client messaging over the past few weeks.

  4. Lee Johnston
    Lee Johnston says:

    Thank you Phil for your thoughtful analysis. I agree, and I’m shocked at the lack of civil discourse. My view is simple – next generation LMS systems will move us from PowerPoint to streaming learning… Strut Learning is an unknown, that has started to gain traction – it feels like 1999 all over again. As SNHU and WGU grow exponentially – the establishment could choose to do nothing, or understand that Student Experience Management is the key to growth. The fog of disruption grows thicker, with InsideHE’s article titled, Marketing for a Massive Online University. It leaves the impression that growth is simple a function of increased marketing spend. Clearly, it doesn’t hurt to spends a lot on marketing, but that’s only part of their growth story. But I digress. Again, great analysis Phil!

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