In reading the news about Blackboard’s take over of Elluminate and Wimba (on the heel of the take over of WebCT and ANGEL), I got a little fired up and decided to check out Blackboard’s public financial statements. I have prepared an argument against any institution choosing Blackboard based on this information:
1. Most of the money Blackboard charges a client is going to overhead and not into the value of the product itself.
In 2009 Blackboard took in $377 million and spent $98 million on sales, $56 million on administrative costs, $11 million on interest, and $10 million on patent issues while only spending $20 million on professional services (training), $45 million on software development, and $90 million on hosting/production costs. This means that for every dollar spent by a school on Blackboard $0.41 went to services provided and $0.59 went to sales, administration, overhead, and profit. Blackboard has 1,100 employees of which 370 are in marketing and sales, 183 are in administration, and only 270 are in development. Moodle HQ has 16 employees and yet still manages to create a competitive product.
2. Their business strategy involves take-over of competition, vendor-lock of clients, and up-selling clients on new products. I will let you read their strategy in their words first.
“Our Growth Strategy
• Growing annual license revenues. We intend to increase annual license revenues with existing clients through upgrades to current products, cross-selling of complementary applications and increased total license value commensurate with the value of our offerings.
• Increasing penetration with U.S. postsecondary and K-12 clients. We intend to capitalize on our experience in U.S. postsecondary and K-12 education to further enhance our leadership position.
• Offering new products to our target markets. Using feedback gathered from our clients and our sales and technical support groups, we intend to continue to develop and offer new upgrades, applications and application suites to increase our presence on campuses and expand the value provided to our clients.
• Increasing sales in our emerging markets. We intend to continue to expand sales and marketing efforts to increase sales of our various offerings within the less mature domestic and international markets we serve.
• Pursuing strategic relationships and acquisition opportunities. We intend to continue to pursue strategic relationships with, acquisitions of, and investments in, companies that would enhance the technological features of our products, offer complementary products, services and technologies, or broaden the scope of our product offerings into other areas.”
Why is this so insidious you ask? Well the cost to acquire new customers and develop new software is very high. A study in 2006 estimated the cost to Bb per new client was $250,000. Once a client has been established, Bb needs to recoup its losses from that sales process. That means preventing that client from leaving and cross selling that client upgrades and enhancements. Once the sale has been made to administration, there is inertia to stay with a product in spite of complaints about support, documentation, usability, etc from the users. Essentially Blackboard has become a giant software reseller. It purchases ed tech software companies (such as NTI Group->Connect) and then sells it to its existing LMS clients. It purchases competing LMS’s and then absorbs them into its single product offering. Blackboard has purchased two of the three major commercial LMS competitors (WebCT and ANGEL) and just purchased two real time web collaboration companies at once (Wimba and Elluminate). This has created a vertical monopoly in ed tech. There is no other vendor to go to, no other solution. (Except for open source).
Of course at the time of merger the spin is always, “You will experience no change”, “Our support will stay the same”, etc. But Blackboard buys companies in order to integrate and streamline them. That means cutting wasteful support staff and making sure that you can’t use one piece of software without the whole enchilada. There is ABSOLUTELY NOTHING BINDING about verbal statements assuaging fears by any of the parties involved. You cannot get WebCT or ANGEL anymore, why would you think you will be able to get Wimba/Elluminate on their own in the future? Why are they buying two companies that produce the exact same product at the same time? Why are they paying $116 million in cash for expected revenue (not profit) of $30 million/year (which can’t mean more than a few million in yearly profit)? There is no way they are going to merge the code bases of these two products. They are sending a chilling effect to developers, “We own real time web collaboration”.
3. Open source options are equally reliable, usable, and feature rich. They have professional companies supporting/partnering with them to provide training, hosting, integration, and extensions. If at any time you choose to change service providers or software the open nature of the platform will allow you to get your data.
Check out http://www.masmithers.com/2009/09/20/public-lms-evaluations/ to see that many institutions have evaluated the available LMS’s and found that Moodle and Sakai are both very viable. You can host open source yourself or hire any number of companies to do it for you for a very reasonable cost. Sure some places choose Blackboard, but once again think about that sales staff. At my district we “evaluated” Blackboard and Moodle. This meant that the Blackboard sales staff were in constant contact with administrators and then gave a professional presentation to a committee. Then on the Moodle side, a teacher (me) presented the software to the committee. The committee was told not to consider cost in the evaluation, even though Blackboard was 15 times the annual cost. Moodle won by a single vote. Since that time we have continued to use Moodle in spite of the recession and budget concerns. A cheaper solution means you can spend more on training (where the software meets learners) the and have a higher chance of weathering recession. (70% of all web servers run open source software Apache, Linux, MySQL – if its good enough to run the internet its good enough for your school). Great post about open source fears.
4. Why am I writing this?
I am not in the employment of any software company and not part of any software development. I am an educator (7 years science teacher, 2 years ed techie). I truly believe that Blackboard’s business model is going to make it harder for schools to embrace new technology because Blackboard will prevent open standards and increase costs. The lack of competition means a decrease in innovation. I first used Blackboard as a student and really liked it, but I had no way to use it as an individual teacher. Open source software empowered me to use new tools with my students without needing top down buy in. I am not an open source fanatic, I use commercial software all of the time and understand you have to pay for development somehow. I wouldn’t mind if a company produced a nice, competitive LMS, however Blackboard has a habit of using unfair competitive practices to maintain its dominance. Think about the arenas where open source products have high market share, Open Office and Firefox jump to mind. Why isn’t there a company creating commercial competition for Microsoft Office and Microsoft Internet Explorer? Many people (including Anti-trust court cases) would say that there wasn’t any way a business could viably compete against a monopoly.