What’s Important about the Blackboard Market Share News

My last post on Canvas' US market share surpassing Blackboard's predictably got a fair bit of attention, including some follow-up press elsewhere on the internet. There were a few comments to the press made by Blackboard executives and industry experts that merit some further examination.

But let me start by being crystal clear about one point: In and of itself, the fact that (by our count) Canvas now has two more primary systems than Blackboard Learn in the US market, is purely symbolic. It has historic significance for those of us who have been long-time watchers (or sufferers) in the LMS market. But if Blackboard's number were ten higher or ten lower, it wouldn't change the big picture.

The more important question is this: If the crossing of the lines is purely symbolic, then what is it symbolic of? What actually matters about this story to colleges and universities, and why?

Let's see if we can separate the signal from the noise by working our way through a couple of well-sourced articles and the commentary that they contain.

First, there's Lindsay McKenzie's piece in Inside Higher Ed. She chased down a number of customer reactions. Some of these were the usual pile-on of "we hate these guys and we love those guys."1 But she also got an interesting pricing anecdote, which is helpful given how opaque LMS pricing tends to be:

Now that Canvas is the “hot product,” Instructure has been trying to aggressively increase its fees, said [Emporia State University's Rob] Gibson. A 5 percent increase per year for such services is not unusual, but Instructure has been asking for more. Gibson said his institution has had to push back against further increases.

Blackboard, on the other hand, was “desperate to keep us,” said Gibson. They offered a 50 percent discount to stop Emporia from making the switch. “I think they could see the writing on the wall,” he said.

Customers take note: Blackboard's change in fortunes may affect the behavior of all the LMS vendors.

The article also has a quote from Lou Pugliese who, in addition to being a current senior innovation fellow at ASU and CEO from Blackboard's early days, was CEO of Moodlerooms when Blackboard acquired it. In other words, he knows something about the LMS market. He raised an interesting question:

Pugliese said that the statement that Canvas is “now the primary LMS in more U.S. colleges and universities than Blackboard Learn” is misleading. “The real measurement metric should be akin to website traffic. Statistical data on number of unique users, not total ‘installations,’” he said.

For a long time, Blackboard has been at the top of the LMS food chain not only in raw market share but in terms of having a high percentage of the largest customers. In fact, at one point the company killed off Learn Basic precisely because the company calculated that small colleges were not profitable enough to justify continuing to sell the cheaper, no-frills version of Learn.

So, if we look at number of students served in the US market rather than the number of universities served, is the market share picture substantially different?

Nope.2

Second lesson: Blackboard's customer loss is no longer contained to smaller colleges. Both the IHE piece and the Bloomberg piece that I will be commenting on next mention that Cornell, which is the birthplace of Blackboard, has announced that they will be moving to Canvas. This is another example of a milestone with more symbolic than literal significance. Blackboard's loss of Cornell may sting from an emotional perspective, but it's probably not material to the company's balance sheet in and of itself. On the other hand, the loss of schools like Cornell is material. As is the loss of schools like Pugliese's current professional home, ASU.

Lastly from the IHE piece, there's a substantial quote from Blackboard's Chief Learning and Innovation Officer Phill Miller:

Phill Miller, chief learning and innovation officer at Blackboard, said that the data shared by Feldstein were “not consistent with our own,” which show that “Blackboard remains the dominant ed-tech company around the globe.” He added that Blackboard Learn is not the only service that the company offers -- “we have thousands of Blackboard Collaborate, Moodle and Blackboard Ally clients,” he said.

Miller said that over the past year and a half, Blackboard has “taken a hard look as a company at what we need to do to better serve our clients.”

In response to customer feedback, Blackboard has been working to improve existing products and develop new ones. Though Miller notes that development of Ultra “took longer than we anticipated,” he says institutions are reacting positively to the changes.

“We’re in a much different and better place than we were a year ago,” said Miller. “We’re seeing that RFPs are slowing down, our renewal rate is strong and we’ve won in a number of competitive situations recently.”

There's a lot to unpack here. Let me preface my comments by saying that I've known Phill for well over a decade and have a high opinion of his integrity. I feel the need to say this because his comment about our data not being consistent with Blackboard's own comes across in the context of the article as a dodge that I don't believe Phill would make in regular conversation. Our numbers likely do differ modestly from Blackboard's. Counting installations is more complex and requires more methodological decisions than you might think, such as the date when you officially register a switchover. But I don't believe our numbers are different by much, and I don't believe anyone can credibly deny that Canvas has achieved rough parity with Blackboard Learn in US market share.

The comment about Blackboard having "taken a hard look...at what we need to do to better serve our clients" is the right thing for any executive at a company with declining market share to say, and I believe it is also true in this case. Blackboard has had a long reputation hangover from former CEO Michael Chasen, who was notorious for his disregard of customer satisfaction. For what it's worth, Blackboard is not that company anymore. Emphasis added here because people still have strong feelings about the company's behavior from that era and don't always realize that there has been a complete turnover in company management since then. (Twice.)

Case in point: To his credit, Miller owned up to the delays in Ultra. This isn't new, but it is ongoing, so Blackboard needs to continue to be up front about the problem until customers are satisfied that it has been fully resolved. The company may be struggling to bring Ultra up to a level that customers consider "feature-complete," but they have made a consistent and visible effort to take responsibility for their results.

Miller's point that Blackboard sells more than just Learn is a valid and important one, but has to be weighed in the context of the company's short- and medium-term financial challenges. The real issue of concern is the potential behavior of their debt and equity owners. I'll come back to the point about Blackboard's total product portfolio in that conxt.

Miller's last comment, about seeing RFPs slowing down and a strong customer renewal rate, is the most consequential. Given that the market has been chasing Instructure on reliable SaaS, usability, and high-quality customer service, there has been (and continues to be) an outstanding question of how long Blackboard's customer base will remain patient as it tries to catch up on these fronts. To be honest we at e-Literate are somewhat skeptical of Blackboard's ability to forecast. Jay Bhatt, the company's previous CEO, did enormous damage to the company's sales force, which is an essential component of any company's sensory apparatus. If customers are getting nervous and thinking about bolting, the sales reps should pick that up early. But it's not clear that Blackboard's early warning system is working properly at the moment. When the e-Literate team is at BbWorld next week, we'll be looking for clues about customer sentiment.

The second "Blackboard alert" article worth reading is the one by Katherine Doherty and Eliza Ronalds-Hannon at Bloomberg News. This one wasn't a reaction to our piece but rather coincidental timing triggered by the same underlying concerns. I spoke with Doherty, whose beat includes companies with distressed debt.

The debt is the real existential issue. Without it, Blackboard would just be a company that continues to struggle with its flagship product but which would have enough runway to turn itself around over time, one way or another. In the Bloomberg article, Blackboard CEO Bill Ballhaus repeats Miller's reminder that the company sells other products and services. And as we have pointed out repeatedly here on e-Literate, the international markets are an increasingly large percentage of Blackboard's financial picture. The fundamentals of the company may not be great, but they're not dire either. Given time, good leadership, and low debt, a company in this position should be able to right itself.

But because Blackboard has high debt, their situation potentially a lot more volatile. One major reason why the market share milestone matters is that it's an apt metaphor for Blackboard's financial waterline. At their current debt levels, the company can't afford for their market share to continue to drop.

Contract losses have sent Blackboard’s revenue and earnings sliding, according to people with knowledge of the matter, making it harder to carry more than $1.3 billion of rated debt. With some of Blackboard’s bonds selling at deeply distressed levels, Ballhaus is crafting a comeback, and possible options include the sale of its payment processing division, said the people, who asked not to be identified because the discussions are private.

Even in this situation, the results for Blackboard Learn customers won't necessarily be bad, or even noticeable—depending on how the finances are resolved. If Blackboard sells off Transact, gets a good price for it, pays down some debt, and otherwise sticks with the current management's plan, that could buy them some time and some ability to survive further erosion of market share around Learn. If the company's owner, Providence Equity, decides to take more drastic steps, then the potential impact on customers is unpredictable. And Providence's calculations regarding how much drastic action is required must be at least partly driven by their assessment of how close Blackboard is to bottoming out in LMS market share loss.

So what are the take-aways for LMS customers?

• It is no longer the case the Blackboard is the big dog and Instructure is the underdog. And, as is suggested in the customer quote above about pricing, that may have consequences for the behaviors of all the vendors.
• Blackboard is in a financially precarious situation in the short term. They have a number of options for getting themselves out of this situation, some of which are more impactful on customers than others. This is worth watching closely.
• In the medium term, the fate of the company depends on them staunching the bleeding of market share, not because the loss of Learn customers is in danger of driving them out of business in and of itself, but because they need to buy time with their equity owners so that they can execute a turn-around strategy that will keep the company (relatively) intact. Ally may be a runaway hit in the market, but if its revenues aren't growing faster than Learn revenues are shrinking, that will not go over well with equity investors.
• The current situation is real trial by fire for Blackboard's executive leadership, including some new players. Phill Miller in particular may have been in senior management for quite a while, but with the departure of Katie Blot, he is now very much in the hot seat now. And he's not the only one. In the same company blog post that announced Phill's promotion, Ballhaus announced a new Chief Portfolio Officer, Chief Strategy Officer, and Teaching and Learning product line lead. This is a particularly challenging moment to be an executive at that company.
• All of this puts a lot of pressure on Blackboard to get customers migrated over to SaaS and convince the market that Ultra is ready for prime time now.
• Blackboard may be in a tight spot, but don't conflate that with behavior of the previous management in the bad old days. Schadenfreude may feel good, but it doesn't help when you're making strategic decisions. Evaluate Blackboard based on what they do today, not on what they did 10 years ago.

Watch this space.

1. See the comments on my original post; LMS personal commentary tends to be just a few steps removed from primal scream therapy. I'm not judging; just observing.
2. But the picture of Brightspace's market share relative to Moodle's does.

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