Why Instructure’s News Matters: Big Tech

Author

Phil Hill
November 22, 2019

This is part 2 of a short series examining the significance of Instructure’s announcement that they are going “to explore strategic alternatives in order to maximize shareholder value”, where the alternatives could include selling the company to financial buyers (e.g. private equity) or strategic buyers (e.g. big technology). Of course, one alternative is to not make changes and remain a publicly-traded company. In part 1 I looked at the historical context of the LMS market, and in this post I’ll explore the context of Big Tech (i.e. involvement of Amazon, Google, and Facebook) in this story.

There are at least three relevant parts of the Big Tech story – the rise of cloud hosting, the international expansion of AWS and Canvas, and the entry of Google Classroom.

Disclosure: I will note more prominently than usual that Instructure, Blackboard, D2L, Moodle, and Microsoft are all subscribers to the MindWires LMS Market Analysis data service, and that we have a number of investment firms who are also subscribers to the service and pay for in-depth market data and research.

Cloud Hosting

To understand the significance of cloud hosting to the rise of Canvas, we can start with Bill King’s comments in the first post.

One market dynamic that I’m sure you are aware of, but is worth including here, is why Canvas could take off so quickly (I was in sales at WebCT, and then a non-LMS edtech vendor, who moved from on-prem to cloud deployment, and then Canvas, before leaving academic IT system sales). While the ease of use and faculty-friendly interface and design was important, so was AWS (Amazon Web Services). CIOs by nature are conservative — generally, they don’t like change, because all the change falls on their shoulders, with limited staff, and usually with a bigger demand that they get the SIS, ERP and other admin systems correct. This left little time for academic systems. Even when there was a strong academic tech department, Academic tech was usually classroom tech. The area of servers (and network traffic) still had to go through the CIO office. Which reminds me – at the time, another big IT project was upping the bandwidth capacity across campus. IT had LOTS to do.

Canvas came along with a cloud-based deployment scheme that eliminated the need for the CIO to source servers and stand up instances (let alone fail-over and backup systems). Even when early vendors moved to “managed hosting” (where a third party ran your server license for you), often times the CIO required proof of the safety of the data — at rest and in transit. You also had to prove the up time commitment (I remember early boasts of 93%, which is laughable today). So, you had to sell your product AND you had to sell the hosting service. With Canvas, you could just point to AWS’s terms of service, and EVERYONE knew Amazon was rock-solid reliable and secure. Whether that was true or not (I generally think it is), the point is that Amazon was like IBM from a few decades ago. Everyone trusted them and, even if AWS went down, it impacted everyone, so your IT group would not be blamed.

This, to me, is the key why faculty and academic technology were free to choose their LMS platform. The entire IT services equation was taken care of, and AFAIK, Canvas had first mover advantage here. Then you throw in their culture at the time, and the product, and it was never a question of “if” – it was always a question of “when.” (e.g. I remember talking with one major private research university in 2014, that had planned their Canvas move for 2017, once all their legacy contracts expired and a few other internal issues were taken care of.)

I think Bill gets this description just right and ties together these first two posts, but I’ll add two comments.

  • Instructure’s competition made strategic mistakes in dismissing the allure of Canvas, and also to cloud hosting (also described as Software-as-a-Service, or SaaS). But nine years after the launch of Canvas, the situation has changed dramatically. D2L has recently completed its rearchitecture of the Brightspace LMS to be fully deployed on AWS – a three year effort. Blackboard is roughly a third of the way through its changes to cloud hosting. The significance here is not just having SaaS deployment options; it is also on the freedom to manage a unified code base and the ease of regression testing, introducing new features on one configuration, and ensuring clients are using the latest and greatest versions. In higher ed, Canvas is no longer the sole fully cloud-based LMS – add D2L Brightspace. In K-12, add Schoology and Google Classroom as two additional fully cloud-based LMS solutions. While there are variances in how well each company manages its cloud deployment, Canvas no longer has a completely unique approach.

Percentage of Blackboard Learn clients who are using self-hosting (44%), managed hosting (26%), and SaaS hosting (30%) globally

Percentage of Blackboard Learn in Higher Ed and K-12 on three different hosting options

  • Bill and I both mention AWS and not just as an example of Big Tech cloud infrastructure. With little notice, EdTech infrastructure has moved en masse to AWS. Canvas, D2L Brightspace, Bb Learn, Schoology, and most other EdTech platforms such as adaptive learning tools and competency-based platforms. Microsoft is making a bigger play in higher ed with Azure and Teams and business intelligence, but for Infrastructure-as-a-Service or Platform-as-a-Service, AWS is king in EdTech.

AWS and International Growth Opportunities

A corollary to the importance of Big Tech-based cloud hosting is that much of Instructure’s growth – past and future – is strongly tied to the expansion of AWS data centers worldwide. When AWS was purely hosted in the US, there were regions that were out of reach for Canvas or any other AWS-based system. There are policies and regulations in many world regions that prevent their core data from being processed outside their boundaries, particularly in the US (thanks, Mr. Zuckerberg).

While the first AWS region in Europe was opened in Ireland in 2007, it wasn’t until there was a mainland AWS region in Frankfurt (opened October 2014) that Canvas really had a chance to expand. The University of Birmingham was the first major university win for Canvas in Europe, and that was when Canvas gained credibility and started their expansion. Now, Europe is pretty well covered, and the Middle East opened a new region just this year.

AWS Regions and Availability Zones as of November, 2019: https://aws.amazon.com/about-aws/global-infrastructure/regions_az/

South America, meanwhile is quite limited with only two locations, both in Brazil. Canvas is slowly building a customer base there, but . . . slowly. I suspect AWS regional coverage is part of that reason. Keep in mind that much of Latin America does not view Brazil as similar to them.

Blackboard and Moodle have both had long-term regional coverage in the Middle East, Latin America, and in Asia Pacific, but a big part of the reason is their availability for self-hosting or regional managed-hosting options. It will be interesting to see how well Blackboard can migrate these customers to Learn SaaS (on AWS) and how that impacts Canvas future growth trajectories. Moodle is similar in having these other options available and a long history in all regions, but there are no plans even considered for the open source options. No migrations forced there.

Higher Education LMS market share in four global regions for primary LMS usage

Google Classroom

While Google Cloud itself is not a big player in EdTech, Google Classroom and G Suite for Education are very important – G Suite is huge in K-12 and Higher Ed, but Google Classroom is almost exclusively in K-12. In fact, Google Classroom has enormous interest and is growing quickly, far surpassing Canvas in the excitement factor. The issue is that Classroom does not fully solve enterprise LMS issues and tends to be used as secondary system (where the school district uses another system as the primary LMS, i.e. faculty- or department-based adoption) or for school districts not looking for a full enterprise solution with all of the reporting, advanced grade book, assessments and assessment management, and complex roster management.

You can see from the chart below that there is a Big Four of K-12 – Moodle, Google Classroom, Canvas, and Schoology – for primary systems in North America. But for secondary systems, it’s not even close.

Instructure does not make as much money in K-12 markets as they do in higher ed, but with the investor pressure to focus more on Canvas at the expense of Bridge, the K-12 market dynamics are important to their future. A strategic buyer (another, larger technology company) would likely value Instructure and Canvas for its total footprint and not just revenue potential, and a financial buyer might be interested in combining Instructure with another company.

In the next post we’ll deal with the context of how Instructure is responding to news of the strategic alternatives review and to the broader context around LMS history and Big Tech, along with privacy & data usage opportunities and concerns.