As we have long covered, Moodle is the world’s most-used academic LMS, and much of the future of the LMS market will be determined by which solutions are able to address the needs of the self-hosted Moodle market. From our latest LMS market report:
Many schools world-wide started their eLearning initiatives with self-hosted Moodle, but online and hybrid education are now mission-critical, and these schools need more. Often this means external-hosting and servicing from an organization large and organized enough to keep the software up-to-date, deployed in an environment that is scalable and reliable (increasingly in the public cloud), and with integration and help desk support.
Open Source M&A
A few weeks ago there was a little-noticed news item about an interesting set of corporate acquisitions that directly touch on this subject [emphasis added].
Moodle is pleased to announce that it will be acquiring three US-based Moodle Partner companies: My Learning Consultants, Moonami Learning Solutions and Elearning Experts, and merging them into a single new services company called Moodle US. Due diligence is currently underway and the deals are expected to conclude by June 2021.
The acquisition and merger of these three respected Moodle partners into one Moodle US company represents the first time clients will be able to access a comprehensive range of services direct from Moodle itself.
Moodle US will be a wholly-owned subsidiary of Moodle Pty Ltd (aka Moodle HQ), and it represents a major change in the business model, as described in the highlighted text above.
Why Make the Change?
Michael Feldstein wrote an extensive post after my coverage of the Moodle – LTG kerfuffle which called out Moodle Pty’s “sanctimony”, and this section of his description sets the context for the Moodle US announcement quite well.
Let’s focus on the utilitarian part for a moment. Martin created Moodle Pty with a particular revenue model, a particular open-source license, and a particular approach to using the Moodle Trademark as intellectual property. These pieces all fit together into a machine for growing “Moodle,” by which I mean both the adoption of the software and the company that Martin owns. It’s a model that served the Moodle mission and sustainability goals well at the time it was created. Many small schools, colleges, and other organizations all over the world had no access to any tool for centrally supporting online and technology-enabled learning. The Moodle software is free and easy to run (up to a point). Moodle Pty created a network of small, local businesses supporting support schools that did not have the capability to run Moodle on their own. Moodle Pty collected (and still collects) a percentage of revenues from these local vendors. This money went toward the development of the Moodle software, promotion of Moodle and its partners, paying salaries, and so on. At the time, the model worked incredibly well, making Moodle far and away the most popular LMS around the globe outside of the US and Canada.
But the world has changed. Moodle was created before cloud computing and before online learning became mission-critical at scale across large swathes of the globe. These changes broke Moodle’s business model. It has been broken for quite some time. It arguably broke when a Moodle Partner called MoodleRooms, before it was eventually acquired by Blackboard, demonstrated that it could support one million simultaneous users on a single multi-tenant instance. This was a cloud version of Moodle, even if that term wasn’t popular at the time. Once a cloud version of Moodle existed, the power balance between Moodle Pty and its customers…er…partners shifted, and the number of customers from which it could collect revenues was destined to shrink. Rather than being a supplier to many small businesses, Moodle increasingly became the supplier for a few large businesses, each of which became increasingly important for its revenues.
What the Moodle US acquisition and new services address is Moodle Pty’s attempt to replace this business model due to the realities of the cloud. In an email interview with a Moodle spokesperson I asked for additional commentary on the new model.
Q. Martin stated in February that “Acquiring service companies (and their customers) and moving them into a closed system is against the values and direction that we think are best for the education technology industry”, yet Moodle HQ is doing the first part on its own (acquiring service companies). Was the Moodle US-based acquisitions of My Learning Consultants, Moonami Learning Solutions and Elearning Experts a response to the M&A strategy of LTG, or was it already being considered before the December eThink acquisition? Is the difference between LTG’s M&A strategy and Moodle HQ’s M&A strategy based in the nature of Moodle plug-ins and associated code?
A. With Moodle LMS the source code is licensed in a way that allows anyone to download the entire software for free, to change how it works by writing new code or to add new features or customise for their own requirements. In addition to a multitude of other benefits, we know that this freedom in education technology is fundamental to allowing education to flourish globally and grow in a more equitable and accessible way. Moodle LMS will always remain open source, it is fundamental to who we are and what we stand for. It’s not the easy path to run a software development project, but it’s the right path.
Our objective in acquiring My Learning Consultants, Elearning Experts and Moonami (all longtime Moodlers) is about us working closely together to serve our customers more effectively, increasing the efficiency of our partner/service provider network and ensuring the sustainability of Moodle’s open source projects. It has been planned for some years and is something that customers in the US have been asking us for.
Moodle US will actually strengthen our partner network by allowing us to build a larger and more cohesive offering to our customers. For instance, we want Moodle US to be the hub of developments in hosting and services technologies that can benefit the entire network of Moodle Partners. In other words, Moodle US will allow us to reduce duplication of effort in maintaining technical infrastructure or support. Plus, a single US operation under the Moodle name will strengthen Moodle’s credentials and ability to win larger projects in the competitive landscape.
Alongside our global partner network of over 100 companies, including some in the US, Moodle US will assist schools, colleges or organisations without the internal know-how or desire to implement or customize Moodle for their specific requirements. In an increasingly competitive US market, it is important that we protect and develop this revenue stream in order to support the sustainability of our open source project, and our mission to empower educators to improve our world.
We are the people who create Moodle LMS every day, and obviously know it best. The advantage of true open source, and the way that Moodle has always been intentionally designed, is that you choose the platform separately from the service. After you choose Moodle, you then choose from a variety of service providers, or to host it yourself.
Just as we have done with MoodleCloud, our strategy with Moodle US is to provide a service that US customers want, and that provides good value due to our scale and expertise, not because of some unique hosted software features you can only get from one place.
Our customers can also rest assured that the service fees they pay are guaranteed to always go directly towards making the product, and the services we deliver, better all the time.
The phrase “increasing the efficiency of our partner/service provider network and ensuring the sustainability of Moodle’s open source projects” directly gets to the issue of trying fix the business model in a cloud world. Not all IT infrastructure is or should be hosted in the public cloud, but all IT infrastructure has been affected by the prevalence of the cloud.
Moodle’s sustainability has been threatened by the growing number of companies providing hosting and services for Moodle that are not certified partners, even if Moodle HQ made the decision to cancel their agreements. Moodle US creates an entity that not only increases the scale of the services company in the US, but it also sets up a mechanism where 100% of the revenue is controlled by Moodle, and not just the 10% tithe. Of course this also means that Moodle US takes over 100% of the costs for these services as well, but Moodle HQ now has greater control of the services in the US market, including the control to avoid further LTG acquisitions of Moodle Partners in the US.
But it goes beyond that scope with the “hub of developments in hosting and services technologies that can benefit the entire network of Moodle Partners” phrase. Moodle US is being positioned to serve global markets, whether by direct cloud-hosting services or by sharing its cloud-hosting code with global Moodle Partners. This is much bigger than a US story.
What is Open Source in this Model?
While the business model has changed, it’s not as if this is the first move into cloud-hosted Moodle for the parent company. MoodleCloud was introduced in 2017 and offers low-cost hosting of Moodle sites “designed for the individual teacher or small organisations / institutions” for up to 1000 users per site.
The cloud-hosting portion of the code is not available as open source, but the LMS itself (and additional plug-ins) of the site are. Moodle US will need to merge the three acquired companies with the existing MoodleCloud services in some as-yet-to-be-determined manner.
In a follow-up question, I asked Moodle HQ about the cloud-hosting code.
Q. Will all code from MoodleCloud as well as any hosting or plug-in code from the Moodle US acquisitions be fully open source? Will Moodle US have extended contract terms with schools, or will schools be able to opt out at any time?
A. These are issues that our Moodle US team will be working out together with customers, and we’ll let you know as soon as we’re ready with such details. Right now we have four companies to merge together.
As for MoodleCloud, any “extra” features you can buy there are open source already, and always have been.
While Moodle US might improve services for Moodle client institutions while also addressing the sustainability of the open source project, this move makes it harder to defend the justification used in February for removing eThink and eCreators. Moodle US is in the process of “acquiring service companies (and their customers)”, and it is not clear yet that they won’t be using proprietary or “closed system” hosting code. Moodle HQ seems to differentiate hosting-related code from user-facing LMS code in its definition of open, but that seems to be getting to a level of nuance rather than a difference in philosophy.
Clarity in the Market
With the results of the LTG acquisitions under the Open LMS brand, and with the pending Moodle US creation, one effect will be increased clarity in the LMS market. In the US, there is now a lot more clarity about options for schools using Moodle. Self-hosted Moodle, LTG Open LMS, or Moodle US (the new entity). For quite some time it has been difficult for schools to fairly evaluate Moodle as an option in a competitive RFP process. Do you ask a Moodle Partner to present up-to-date, cloud-hosted Moodle, and if so, which one to choose? Now there should be the option to get Moodle US to present, or LTG Open LMS, or both. This clarity helps explain the Moodle goal that “a single US operation under the Moodle name will strengthen Moodle’s credentials and ability to win larger projects in the competitive landscape.”
Assuming the acquisitions go through by June, beyond the US we will continue to see three primary options – Moodle hosted by the school, Moodle hosted by a certified partner, or Moodle hosted by LTG. This month’s news means that the certified partner option should have much better ability to offer cloud-hosting options without requiring each company to develop their own solution. While Moodle US will be, well, based in the US, I would expect the bigger long-term impact to be outside of the US. The biggest potential source of cloud-hosted full-service Moodle conversions is self-hosted Moodle installations where the schools can no longer justify going on their own. And the vast majority of this self-hosted Moodle usage is outside the US.
Almost all LMS vendors – whether involved in open source solutions or proprietary solutions – would like to expand their global footprint but only a few (typically open source based) offer products with the price points needed to make a big dent in the self-hosted Moodle market. In general, much of the potential growth of the academic LMS market will be based on solving this problem.