Why Instructure’s News Matters: Market history

Last Thursday I shared Instructure’s news release 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.

Why is a potential change as mundane as having Instructure’s shares traded in public markets vs. being owned by a larger company newsworthy? After all, Instructure is growing, an established LMS market leader, and is not in financial trouble. Their stock price is even at its all-time high.

The reason this announcement matters is all about context. The history of the academic LMS market, the general environment of distrust of big technology and its data usage, and Instructure’s public marketing and communications are all key to understanding today’s situation. In this first post I’ll deal with market history.

Disclosure: I will note more prominently than usual that Instructure, Blackboard, D2L, and Moodle 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.

Market History

When looking at the early history of the academic LMS market, from its inception in the mid 1990s through roughly 2011, the market was dominated by Blackboard. Most LMS market dynamics could be understood through the lens of Blackboard’s market position, its corporate acquisition strategy, its poor reputation for reliability and usability, its product pricing, and the market’s reaction to Blackboard. This was the situation that led to the original LMS ‘squid’ graphic, which was my attempt to help US higher education institutions understand how to interpret market dynamics.

• On the left side of each band is the origin of systems, and these LMS solutions mostly originated as projects at specific universities, with moves to commercialize the products happening after the fact.

• The bands coming together show how Blackboard’s core strategy was acquisition of their competitors, eventually moving clients onto what is now known as Blackboard Learn. After Blackboard went public in 2004, their biggest acquisitions were of WebCT (#2 in market at the time) in early 2006 and of ANGEL (a growing #3 or #4 in the market) in 2009. Not shown is the 2006-2009 patent lawsuit against D2L (#3 and known as Desire2Learn at the time), where I (along with many others) believe that Blackboard tried to put that company out of business or soften it up for an acquisition. D2L ended up fighting and winning this patent lawsuit battle, but the other companies and their products are gone.

• Based on the intense pushback against this corporate behavior, the open source market became the perceived safe haven, a way for schools to retain control and not be forced to migrate. Sakai originated in 2004, with Moodle before that, but the real grown of open source LMS adoption occurred in 2007 – 2011 in reaction to Blackboard corporate moves.

Why does this history matter? Because the academic market has a long memory, and many educators (faculty, staff, and administrators) deeply remember the days of corporate finance driving the market. Losing control of university projects, being forced to migrate from chosen LMSs, rising prices and constant cross-selling 1 and upselling 2, systems going down during Finals week, clunky frustrating systems, etc.

Change in Market Dynamics

The market changed in 2011 for two reasons. One was that Blackboard was taken private by a private equity firm, leading to the early 2013 change in executive team and the end of corporate acquisition of competitors. Blackboard acquired Moodlerooms in 2012 (now known as OpenLMS), but note that this product is still alive – there was no forced migration, and Blackboard has contributed heavily to the open source community. Note: Moodlerooms was the largest Moodle Partner and is not the same as Moodle HQ, the company that leads the development of the Moodle open source product. 3

The second reason is that Canvas emerged as the fastest growing LMS solution – an intuitive, cloud-native product with a company with a unique corporate culture. From 2011 through the present, Canvas began to dominate the market dynamics – either through its constant growth with no losses, or from competitors’ reactions to Canvas. We now have much more reliable systems with better usability built in, not just in Canvas but in particular with D2L Brightspace and increasingly with Blackboard Learn itself. While many people are frustrated with the pedagogical limitations of most LMS solutions, the market is much healthier and more focused on educators’ needs than it was a decade ago.

One related change in the market is that the primary buyers of an academic LMS – the most important people in a decision on which LMS to adopt – has shifted from the CIO to the faculty and academic technology support. This shift happens along a spectrum and differs among schools, but there have been dramatic changes. A decade ago, LMS migration mostly occurred in spite of faculty wishes. CIO-type needs, or product end-of-life coming from acquisitions, forced schools to change, and academic types (faculty, academic tech support) at best had input in reaction to these needs. Today, quite often it is the faculty or academic technology support staff that are driving LMS adoptions, requesting changes with the CIO and IT staff having to react to these demands.

Underlying Tension

There has been an underlying tension this whole time, however, with many educators wondering whether and when the market might shift back its previous dynamics. Would corporate finances come back and take priority over customer satisfaction, would Canvas become just like corporate players of the past market?

It is this underlying tension that still exists and in my opinion is increasingly coming out in reaction to Instructure’s corporate moves recently. Many of the details of the market history are forgotten or jumbled, but the underlying tension is deeper than the surface language. The sentiment is more intense for US higher education than for K-12 markets or for global regions outside of North America, partially as these other market segments never viewed Canvas quite as intensely as the market champion. But the tension is still there.

Why does this news matter? From the market history perspective, there is a risk that the potential sale of Instructure will unleash more of this market sentiment against the company, impacting future market growth. And this sentiment is particularly intense among the academics that have driven the growth of Canvas. At the same time there is a chance that Instructure will come out of the process better able to serve the academic markets. The result of the risk and opportunity mostly depends on whether Instructure is sold, to whom, and how the company responds in public during this process. But there is a lot on the line and underlying questions are being raised. In this market, I would not discount sentiment based on history.

In the next post we’ll deal with the broader context of Big Tech.

1 e.g. Bb Collaborate, created by acquisition of Elluminate and Wimba

2 e.g. move from Bb Basic to Enterprise, to Academic Learn suite, with constantly rising prices

3 See Michael Feldstein’s post at e-Literate to get a description of the Moodle ecosystem.

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