Canvas Surpasses Blackboard Learn in US Market Share

As of July 6th, our data partner LISTedTECH informs us that Canvas is now the primary LMS in more US colleges and universities than Blackboard Learn. By a margin of two; Canvas has 1,218 installations, while Blackboard Learn has 1,216. Statistically speaking, the two companies are tied for US market share:

Still, this is a stunning development for a company that seemed to have established an unbreakable market dominance a decade ago. When Blackboard, the number-one US platform in early 2005, announced that it would be acquiring its closest competitor (WebCT) in early 2006, the combined company owned approximately 70% of the US and Canadian market. Their next largest competitors were far, far behind. A few platforms, most of which no longer exist, were vying with "homegrown" to become the Dr. Pepper of the LMS market at the time that the Coke acquired the Pepsi.

Blackboard's acquisition of WebCT hit the market like a thunderbolt. At the time, I wrote,

Yes, yes, we've all heard the news by now. BlackCT Wednesday has hit. Will it be remembered as The Day the Music Died? I don't think so. Unfortunately, it could be remembered as The Day the Music Was So Badly Wounded That It Became Barely Listenable for a Really Long Time.

You know. Kinda like the '80's. Except with software.

Blackboard was already viscerally disliked, both as a product and as a company, by a large segment of the market in those days. Customers responded to the merger by talking with their feet. Moodle, Sakai, and Desire2Learn—A.K.A. Brightspace—all surged in 2006 and 2007 as customers began fleeing the Blackboard behemoth.

Blackboard responded by suing D2L1 for patent infringement in 2006, acquiring ANGEL Learning in 2009, and acquiring Moodlerooms—the largest US Moodle support company—in 2012. It seemed like the US LMS market was done. Any time a competitor grew large enough to become a threat, Blackboard would acquire them and force migrate their customers to Learn. If they couldn't acquire the company, then they would attempt to sue them into submission.

Nobody would have predicted that a project started by two graduate students Brigham Young University and assisted by their professor, who happened to be a bored former executive from a pioneering cloud storage company, would become the product that could break through Blackboard's dominance. Yet that is exactly what happened. The Canvas LMS was concieved, and Instructure formed, in 2008. The combination of a reliable, cloud-based offering, updated user interface, reputation for outstanding customer service, and brash, in-your-face branding, the company surpassed all of the more established contenders to take the crown (at least in the US).

Not just symbolic

Anybody who has paid attention to this market at all knows that Blackboard's market share has been dropping while Instructure's has been rising. But this symbolic end of an era marks more than just those two market share lines crossing. Bigger changes are afoot.

Humans have a tendency to assume that what is true now and has been true for a while will continue to be true in the future. The LMS market was more vulnerable to change than we thought it was in 2006, and it is more vulnerable to change than many realize today. Blackboard in particular is in a precarious position. Their long-delayed Ultra user experience refresh has been dragging out for so long now that customers who have been hanging on waiting for it are in danger of losing patience. It's not clear whether, as of the upcoming BbWorld conference this month, Ultra will finally be feature-competitive with either the original Blackboard Learn interface or the competition. And even if it is, it's unclear whether that will be enough to prevent another mass exodus of Blackboard customers, nevermind attract new ones.

Meanwhile, their private equity ownership has the company in financial peril. Even with a shrinking customer base, Blackboard has been a relatively well-run and financially healthy company—if you don't count the pile of debt that their private equity owner has saddled them with. But they have big interest payments to make. When Providence Equity bought Blackboard, they paid for it by taking out something analagous to a massive mortgage on Blackboard itself, with the plan that Blackboard would pay off that debt with the profit that it generates. This is a classic private equity investment strategy, but sometimes it backfires. Blackboard would be doing OK financially, despite its shrinking market share, were it not for those massive mortgage payments. The LMS market is seasonal, which means that Blackboard sells more in some months than in others. During the better months, the company can still comfortably make its debt payments. During the slower months, debt ratings company Moody's warns that Blackboard's margin for error on being able to make those debt payments is worryingly thin.

But it's worse than that. Sticking with the mortgage analogy, some of Blackboard's debt has what you can think of as very aggressive foreclosure terms, in the form of "lien covenants." If the company's cushion for making its debt payments drop below a certain level—even if it doesn't actually miss a payment—then the bondholders can demand that Blackboard pay off the principle. If this were to happen, it would likely force the Blackboard into bankruptcy. (Keep in mind that bankruptcy doesn't necessarily mean that the company disappears. But it's not good.)

So because of its financing, Blackboard's continuing loss of market share is at the tipping point of changing from a serious problem to an existential threat.

Lo, how the mighty have fallen.

What might happen next

Chances are good that we will see some fairly dramatic changes at Blackboard soon. Even if Ultra catches up with the competition this summer, and even if that is enough to prevent a major customer exodus, and even if all of that is enough for the company to avoid triggering the bankruptcy-inducing lien covenants, the company will have to take some steps to improve its financial soundness. The easiest place for them to start would be to sell off of some parts of the business so that they can pay down some of their debt. (Blackboard's Transact commerce and security line of business is the most obvious candidate.) But that may only be the beginning. The next possible move would be for Providence Equity, the company that owns Blackboard, to sell them off—either as a whole or in pieces. Depending on how all of this plays out, it could be good, neutral, or bad for current customers. All we can say with confidence right now is that there will probably be some significant changes fairly soon.

The other companies are not static either. Instructure lost much of its executive management team, and we are now hearing rumors of a second wave of departures in the Asia/Pacific region. Between these changes and Wall Street's pressure on the company to show more growth in the corporate training side of their business, it remains to be seen how much past performance will be predictive of future behavior. Meanwhile, D2L has quietly been improving their core product.

People tend to only focus on the top two competitors in any product category: Coke and Pepsi, Hertz and Avis, Uber and Lyft, and so on. And, as I noted at the top of the post, they also tend to underestimate potential for change. If Blackboard's situation changes dramatically enough to shake up these default assumptions among customers, then that could open up all kinds of possibilities. Maybe Brightspace will rise, or Moodle will be resurgent. Maybe Instructure will continue to gobble up market share until it owns the market the way Blackboard did back in the day. Maybe a couple of kids in some university somewhere will come up with the next big thing. Maybe Blackboard will pull a rabit out of a hat. It's hard to know right now. The market is approaching a tipping point, which means that a some basic assumptions about the LMS market that people could take for granted during the era of Blackboard's dominance are not safe to assume anymore.

We just released our Spring 2018 report for our LMS market analysis subscription service, which provides more context for these potential changes (including a more international view of the markets than I've provided in this post). As we enter LMS conference season, we will be providing increased coverage of the market, both here on the blog and in the monthly newsletter in the subscription service.

Buckle up, folks.

1. D2L was called Desire2Learn at the time and shortened its name later.

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