Did Instructure Refute LMS Market Slowdown? It’s a matter of semantics

Author

Phil Hill
October 29, 2019

On yesterday’s Instructure Q3 earnings call, the company’s opening statement seemed to refute the LMS market slowdown that we noted just over a year ago.

Now I would like to share details on how key areas of our business are performing. Domestic Canvas is progressing nicely, on track to deliver results in line with our outlook for the year. So while some analysts have been reporting a sharp slowdown in Higher ED LMS switches we are not seeing that trend in our domestic Canvas bookings. In fact our high ED domestic bookings are on track to be up this year over last year.

Brian Peterson at Raymond James is the other analyst besides us reporting on an LMS market slowdown, using independent data collection.

Did Instructure 1 refute our argument of “a sharp slowdown in Higher Ed LMS switches”? That’s a question that we take seriously, as it gets to our reputation and accuracy of data for market analysis. On one hand, if we have big holes in the data or even wrong data, we need to describe this openly and fix the problem. On the other hand, if our data is accurate, we need to call out why we have different interpretations.

One explanation that is becoming more clear is that we’re dealing with a matter of semantics, and Instructure’s statements include confusing terminology.

Before we go on, I should clarify that what we provide at MindWires and through this blog is LMS market analysis. We describe the relevant trends on the higher ed and K-12 markets and how to best understand what might happen in the future. We are not a financial analyst firm. My interest is in transparency and accuracy in market trends and not in stock prices.

Confusing Blog Post

Instructure changed their announcement strategy on new clients to list most of them in a blog post released just after the earnings call instead of during the call. In this blog post yesterday, Instructure did list some impressive new wins, including some that we did not yet have in our data set. We’ll highlight the domestic ones, since that is the scope of Instructure’s comments on our market slowdown reporting.

Previously, a list of customers from each quarter was highlighted on our quarterly earnings call, but moving forward, we plan to dedicate blog posts, like this, to highlight the organizations that are joining the Instructure family.

  • Princeton University, Wake Forest University, and Ferris State University were big wins that we already had.

  • Prairie View A&M, CalPoly Pomona, Eastern Gateway College, University of South Alabama, and Chapman University are wins that we found out about through the Instructure blog post. Note: Upon further research we discovered that CalPoly Pomona was not a new Canvas client – they remain a Blackboard client. Their listing in blog is based on some other system (e.g. Portfolium, MasteryConnect).

  • This is a good quarter with some solid wins, but let’s get to the confusing part.

Instructure also listed several clients that moved to Canvas years ago.

  • Skyline College in California adopted Canvas as its LMS through the Online Education Initiative (OEI) 2 back in 2016/17, and in early 2018 their academic senate even produced a report describing their cost savings by using this statewide contract.

  • Laramie County Community College adopted Canvas as its LMS in 2017.

  • University of North Texas Health Sciences Center adopted Canvas as its LMS prior to 2017.

Why would Instructure list old clients in a blog about “organizations that are joining the Instructure family”? This is particularly important when there are claims and counter-claims about market slowdowns.

I asked the company for a statement, and they clarified that this post included upsells and that they would update and clarify the language.

Depends on what the meaning of “Canvas” is

One issue I see is that the definition of Canvas is changing, and these changes confuse the story about organic growth. To understand, we should look at two changes in branding that happened this year. This summer Instructure rebranded Canvas from being the core LMS to being the Canvas Learning Platform. This bundled Catalog, Practice (acquired product), and Studio into the definition of Canvas.

This fall, Instructure further rebranded the software products from their acquisition of Portfolium. In essence, the Portfolium Network kept is name and is offered free to all Canvas clients, but the revenue-generating portions of Portfolium are now branded as Canvas. Canvas Folio Management, Canvas Pathways, Canvas TalentMatch, Canvas Outcomes Assessment. In essence, Portfolium brand is the free stuff, Canvas brand subsumes the paid stuff.

Now go back to the earnings call. The prepared remarks are highly-edited and very deliberate in wording. I would think that the corresponding blog post was highly reviewed as well, but that is not as clear. CEO Dan Goldsmith acknowledged our (and Brian Peterson’s) LMS market slowdown analysis as LMS switches, but he answered this claim as “we are not seeing that trend in our domestic Canvas bookings“. During the Q&A portion of the earnings call, Brian Peterson asked for more details. [emphasis added]

Brian Peterson

And maybe just a follow-up on the domestic Canvas bookings. I think the comment that the higher ed bookings are on track to be up this year but that’s better than I expected. Can you confirm if that’s an organic comment or does that include Portfolium? And are there any large deals for the rest of the year that could swing that figure one way or the other? Thanks, guys.

Daniel Goldsmith

So that is 100% an organic number. You know I can’t speak to the rest of the industry but as you and others have been indicating you are seeing us sort of sharp slowdown in LMS switches. This year when we look at our domestic higher ed Canvas bookings, you know we are forecasting being up in bookings year-over-year which we’re pretty excited about.

Note that Goldsmith said organic but did not say explicitly that the bookings growth did not include Portfolium stuff. Is this due to Canvas branding now including Practice, Studio, Catalog, Folio Management, Pathways, TalentMatch, Outcomes Assessment when these were not included last year? I do not know the answer to this question but have asked Instructure for clarification.

Who else saw the slowdown? Instructure

We should be clear that Instructure’s CFO Steve Kaminsky noted the LMS market slowdown one year ago in their Q3 2018 earnings call.

So for renewals what we’ve seen specifically this year is fewer large deals in the multi-hundred thousand dollar range than we’ve seen in previous years. It’s a little still too early to talk about 2019, we’ll be doing that in a few months but we have seen that and when I referenced earlier that it didn’t look like we’re going to grow domestic Canvas by much of it all, that’s what I was really referring to, that’s the key driver there.

There has been a slowdown in the LMS market, but there is a question of when it started and whether 2019 is different than 2018.

At the very least, Instructure is playing around with semantics and not directly answering relevant questions about its core LMS platform and the LMS market slowdown. Instructure is coming out with statements that appear to refute our analysis of an LMS market slowdown, but they have not (thus far) provided meaningful specifics backing up their claims. When they appear to show new clients in a blog post, the conflate upselling old clients with acquiring new clients (but kudos for promising to fix the post). The definition of Canvas is changing, and it is not clear how much of their platform redefinition and M&A activity gets included in their definition of Canvas bookings.

If Instructure is changing these definitions and bundling in new items into Canvas bookings, then I do not believe that Instructure has refuted our claims of an LMS market slowdown. And I believe it is misleading to describe year-over-year changes in Canvas without clarifying how the definition might have changed. It’s all well and good that Instructure is expanding its product line and generating new business, but we need to have clarity around the core LMS market trends.

If we find out that our analysis of the market slowdown is inaccurate, we will update our analysis and publicly disclose the changes.

Update 11/5: CalPoly Pomona is not a Canvas LMS client. See description above.

Disclosure: OEI is a long-time consulting client of MindWires, and I facilitated the LMS selection in 2015. Instructure is a subscriber to our LMS Market Analysis service.

1 Disclosure: Instructure is a subscriber to our LMS Market Analysis service.

2 Disclosure, OEI is a long-time consulting client of MindWires, and I facilitated the LMS selection in 2015.