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E-learning—a market of opportunity?

This article appears in the issue June 2003 [Volume 12, Issue 6]

By Angela Ashenden

The arrival of some new competition will shake up the e-learning market, and it can only benefit from the experience. The events that will prompt that change and the effect it will have on today’s e-learning vendors are examined in this article.In recent months, the concept of e-learning has sparked a sudden interest from user organizations. So where has the interest come from? In this economic climate, much of the attention springs from the appeal of cutting costs, through not having to send employees to expensive training courses. However, the main reason that organizations are buying the software is the need for compliance and regulation.

How can e-learning help?

The key vertical industries that are buying into the market at present are pharmaceuticals, financial services and government. Within the first two markets, the need to ensure that employees are qualified and certified to an appropriate level provides a simple justification for implementing a solution that manages and tracks the training of every employee and that offers a cheaper method of delivering training. In the government sector, the various e-government initiatives that are being put in place, particularly within Europe, require that all government staff be brought up to speed with new technologies quickly and efficiently, and e-learning software seems the obvious solution. But will the adoption trends in those markets spread to other sectors with less defined business cases?

When you are talking about a solution that could cost between $500,000 and $1 million to implement, you need to be sure that you can justify such an expense. For organizations with hundreds of thousands of employees, that is not so difficult to imagine, but for small- to medium-sized organizations, it will be a much harder business case. The current market players have so far ignored the lower end of the market, and yet much of the interest we see in e-learning comes from smaller companies that want to spend less than $100,000 on such a system. They are looking for a more Microsoft-style solution—providing only the basic functionality, but at a cost they can afford.

An immature market

Such realities are stifling the growth of the many pure-play vendors that focus on the e-learning market. Although the market has been in existence for around five years, it is still very much at the early adopter stage, and the current economic climate is not helping those vendors move the market beyond that. In 2001, the e-learning software market was worth $214 million in license revenue, and 2002 saw a 6% decline to $202 million. Only two of the pure play vendors in the e-learning software market reached flotation before the downturn. Of those, Saba had a share price of only $.81 (as of April 24, 2003), and Docent (docent.com) had a share price of just $2.70 even after a 1-for-3 reverse share split in October 2002.

The competition heats up

The increased interest in the market has not been restricted to user organizations. A number of vendors from other markets have also started to move toward e-learning, with SAP releasing an e-learning suite in July 2002, which integrates with its HR solution, and PeopleSoft acquiring learning management vendor Teamscape also in July 2002, and releasing its resulting offering in January 2003. In March 2002, collaboration and content management vendor Open Text released two new modules for its Livelink suite that relate to e-learning—a learning management system (LMS) and a skills management system.

These developments highlight the growing realization of where e-learning fits in the wider technology market. It's a positive change because, until now, e-learning suppliers have only reinforced their niche role. The new offerings will have the effect of making e-learning a more accessible solution, and in many cases more affordable when it can be bought as an add-on to an already implemented system such as HR or content management. While the emerging products do not have the depth of functionality available from the pure-play e-learning vendors (and are unlikely to have for some time), they will be more than adequate for many companies, and will be a good cost compromise for many others.

Fueling the market

Going forward, we expect more to follow the path taken by SAP, PeopleSoft and Open Text, exposing the e-learning market to new growth and maturity. Inevitably, the increased competition, combined with tough economic conditions, will prompt a phase of consolidation, reducing the many e-learning software vendors that exist now to just a few. By 2005, we expect the market to be dominated by large vendors from adjacent markets, with only one or two pure-play vendors remaining.

The e-learning market is on the cusp of a change that will make its benefits available to the entire user market, and develop the technology into a vital part of the organizational infrastructure.

Angela Ashenden is senior analyst, Knowledge Management, Ovum, e-mail aca@ovum.com


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