Blackboard Makes a Services Play and People Watching the Learning Content Market Should Pay Attention

The big news over the past twenty-four hours has been Blackboard's announcement that it has acquired two major services providers for the open source LMS, Moodle -- Moodlerooms and NetSpot. Blackboard also announced its new “Open Services Support Group,” a division that will sell support services to colleges that use free and open-source LMS platforms.

This bear hug of the open-source movement marks a dramatic departure in strategy for Blackboard, which previously has brushed off the threat of open-source LMS alternatives, even as they have chipped away at the company’s market share in recent years. While Blackboard has watched its share of campuswide LMS adoptions among U.S. nonprofit colleges fall from 71 percent to 50.6 percent in the last five years, Moodle has seen its own share grow from 4.2 percent to 19.2 percent over the same period, according to the Campus Computing Project. Factoring in Sakai, which has grown at a slower clip (though its clients tend to be larger), open-source platforms now serve more than a quarter of nonprofit colleges.

It's not hard to imagine that this move has touched off quite the reaction from the educational technology world. The titles alone give you a sense of people's "gut" reaction.

• You Can Acquire Open Source Companies, But You Can't Buy Open Source -- "I think there are any number of reasons why we should be deeply suspicious of this "open-washing." Why now? Why does Blackboard suddenly care to make this move? Is its share of the LMS market in that much danger?  And where is the open source community in this?  How will it respond -- I don't just mean in terms of angry pitchfork-wielding hackers.  I mean in terms of willingness to keep contributing code?"
  
  
• This kids, is why hallucinogenics and the internet don’t mix -- "It’s inconceivable that Blackboard got into this game for hosting revenue. Why, if you’ve spent years promoting your platform as the best one for complex implementations, do you suddenly start hosting an open-source alternative? It seems that they’ve acquiesced significant ground to Desire2Learn with this move. Blackboard looks scattered and unfocused by moving outside of their core (or even integrated) revenue model. Are they losing that many clients in their main LMS?"
  
  
• Yet Another Sign That the LMS Is Dying – Blackboard “Embraces” Open Source -- So, is the LMS really dying… or being slowly choked to death by The Borg? You be the judge.

The real reason Blackboard made this move can be found in this quote from BlackBoard Learn President, Ray Henderson: "One of the drivers for us, as I mentioned, is that the services element has been a very rapidly growing part of our portfolio, particularly as our client satisfaction in that area has moved northward quite nicely for us over the last three years. We're experiencing very strong growth there. And that's exactly what both NetSpot and Moodlerooms bring to the party here."

At some point over the past two years, Henderson and others realized that they could reinvent their LMS division by making a shift away from platform adoption into the services arena. Profit margins are higher, sales are easier and not subject to RFPs, and the market has been void of a single major player in the U.S. education space. As Phil Hill points out, this move means "that it doesn't matter what LMS you want, we'll support them all. That is the real message, in my opinion, more so than the open- source angle. This is a huge change in strategy.”

In the end, it's the only rational move Blackboard could make to preserve this part of their company. Mature markets that become saturated with product competition inevitably evolve into a services play. Just as IBM once made the transition from hardware to consulting to revitalize its brand, Blackboard wants to transform itself into the go-to company for learning in general.

If there's a major takeaway from all of this (other than the obvious, immediate ed tech market shift), it's this -- products in the education space are a tougher sell than they used to be and open source will continue to drive down the overall product price most are willing to pay. We are seeing this in the LMS market and, very quickly, we will see the same thing take shape in the learning content space.

Major textbook companies are facing the same issues related to open source that the LMS vendors have experienced. Over the next 3-5 years, OERs and free content will take over a significant share of the textbook market. This, along with competition from low-cost alternatives such as Flat World Knowledge and Textbook Media will reduce traditional product prices and profit margins. The logical move, which we are already seeing by Pearson (Ray Henderson's former employer), is to embrace services over product as the future revenue source.

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