After the Sale

(Spoiler alert! This is a long blog – more than 2400 words.)

It’s been 20 days since the announcement that Providence Equity Partners would acquire Blackboard. The acquirer became the acquired in this transaction: Blackboard, which has spent more than a half a billion dollars over the past five years to buy a range of technology firms that focus on the education market (Angel Learning, Elluminate, iStrategy, NTI, Presidium, WebCT, and Wimba, among others) agreed to be purchased for approximately $1.64 billion.

Not surprisingly, the message from Blackboard, as reflected in a public letter from Blackboard CEO Michael Chasen, a blog post from Blackboard Learn president Ray Henderson, and an accompanying set of FAQs – is, in essence, that the sale to Providence will have little impact on the company’s relationship with clients. Chasen’s letter announced that he and the current management team “will remain in place and we do not anticipate any changes [in Blackboard’s] day-to-day operations.” Henderson’s blog provided some additional rationale for the financial deal, suggesting that private ownership frees management from the quarterly pressures to report continuously rising revenue and profits: “private equity now provides an alternative ownership model that’s more agile…firms like Providence include very long-term investors…willing to take longer-term perspectives.” Henderson also proclaimed that that the new owners “share our vision of improving the education experience for our clients, and of the mission critical role [Blackboard’s] platforms play in teaching and learning today.”

The July 1st sale announcement ended a not-so-dramatic drama. One key indicator of the low drama was the absence of any significant chatter on the EDUCAUSE CIO ListServe following the sale announcement. Previously, a major (acquisition) announcement from Blackboard typically generated a number of (often angry) comments. In contrast, the ListServe was quiet about Blackboard over the July 4th weekend, save for one forwarded press release about the sale and one self-promoting post from a consulting firm.

INSIDE BLACKBOARD. Tracking Blackboard these past few months has been an “inside baseball” experience. There is a small group of people, on campuses and in the financial markets (alas, myself included), who watch closely, probably way too closely. Looking back, it has been interesting (but not surprising) to see how much of the commentary about the impending sale now seems to have been off the mark. Consider two examples, both from an April 20th post on Forbes.com:

• The Prospective Buyers. Industry analysts interviewed by Forbes blogger Eric Savitz identified more than a dozen potential bidders for Blackboard including Apple, Google, IBM, Pearson, McGraw-Hill, Microsoft, NelNet, News Corp., Oracle, SallieMae, SAP, SunGard, and the Washington Post. Few of the interviewed experts suggested that Blackboard might be purchased by a private investment firm.
• The Sale Price. Analysts pegged Blackboard’s sale price from the high $40s to $60/share. The final sale price - $45/share - was about $5.00 under the stock’s 52 week high ($50.26), and a few bucks below the $48.80 that the stock hit in the days following the April 19th announcement of “unsolicited offers” to buy the company. The sale price was also about $7 higher than the stock price on April 18th ($37.93), the day Blackboard announced it had received unsolicited offers to buy the firm.

Also worth noting is that the speculative comments about the sale price appear to be the catalyst for press releases from more than a dozen law firms announcing that they are ”investigating potential legal claims against the Board of Directors of Blackboard. . . whether the shareholders are being underpaid for their stock, and whether Blackboard's Board of Directors acted in the shareholders' best interests.” One investment firm has also filed a lawsuit claiming that the Blackboard was sold through "an unfair process and for an unfair price."

(Allow me, esteemed readers, a moment of shameless self-promotion: my April 27th Digital Tweed blog – “Buying Blackboard” stated that “probable bidders are investment firms rather than companies that currently play a major role as content or technology providers to the campus market.” )

SHALL WE SPECULATE TOGETHER? The Blackboard sale to Providence Equity closes one set of speculative conversations (who will buy Blackboard) and serve as a catalyst for a new set of equally speculative conversations. My guess is that the next round of speculative conversations – on many campuses, on the web, among Blackboard’s business partners and competitors, and elsewhere – will focus on the four issues: leadership, the LMS franchise, synergy, and acquisitions.

== Leadership. Blackboard’s happy campus clients will be pleased by the announcement that Michael Chasen remains as Blackboard’s chief executive officer and that the current management team also stays on. I agree with my fellow Inside Higher Ed blogger Joshua Kim's comment that Blackboard Learn president Ray Henderson has become close to indispensable for Blackboard’s LMS franchise. The LMS remains the largest and most strategic of Blackboard’s operating units. Henderson is clearly “first among equals” among the leaders of Blackboard’ six business units (Analytics, Connect, Collaborate, Learn, Mobile, and Transact): none of the other operating unit directors get the corporately sponsored air time or has the public presence that Henderson occupies (enjoys?). And this all appears to be part of the corporate plan: when Blackboard bought Angel Learning in 2009, Chasen said, in essence, that he appointed Henderson to helm Blackboard Learn in part because Angel had a great reputation for quality assurance and customer service, key areas where Blackboard needed to improve. (Those “inside Blackboard” types with hyperactive inference engines no doubt noticed that Blackboard’s web page for the sale announcement titled CEO Michael Chasen’s statement about the acquisition as just a “Letter to Blackboard Clients” with no reference to Chasen’s name, while Henderson’s blog post about the acquisition appeared above of the “client letter” and referenced Henderson by name.) Henderson’s metrics for improving the LMS franchise, as presented at various public forums, suggest he is succeeding, as do the client comments on various blogs and ListServes.

== The Campus LMS Franchise. Give Blackboard credit: it helped to create and provide credibility for the notion of “learning management systems.” Moreover, large numbers of Blackboard’s current LMS clients are upgrading to the newest version of Blackboard’s LMS application, Learn 9x.

Yet Ray Henderson’s best efforts notwithstanding, Blackboard’s LMS franchise continues to lose clients in the campus market. Blackboard’s public data suggest that some 700-plus Blackboard LMS clients (mostly but not exclusively colleges and universities) confront "up or out" decisions by the end of 2013, when Blackboard terminates support for its "legacy" LMS applications, most notably WebCT and Angel Learning. These impending "up or out" decisions fuel what has become an increasingly competitive LMS market in higher ed: Blackboard’s competitors include “established” rivals such as Desire2Learn, eCollege, Moodle, and Sakai, plus new entrants, including Epsilen, Instructure, and Nixty, among others. Until recently, Blackboard’s LMS defections have been from client campuses on legacy LMS licenses. However, over the past year Duke University, Miami University (Ohio), and the University of North Carolina at Chapel Hill have announced plans to migrate from the enterprise version of Blackboard Learn to Sakai. Similarly, the University of Mary Washington in Virginia, also a Blackboard enterprise LMS client, has announced plans to move to the Instructure. It’s a safe bet that other Blackboard enterprise LMS clients will make similar migration decisions over the next two yeas. The question is how many enterprise and legacy LMS clients migrate to another LMS, over what period of time. Data from the 2010 Campus Computing Survey document the shifts in the LMS market in recent years and also suggest that many campus are evaluating their options: three-fourths (74 pct.) of the CIOs who participated in the fall 2010 Campus Computing Survey report that budget issues are a catalyst for their campus to “review options for the campus standard LMS.”

On the revenue side, the defections of legacy LMS clients may not adversely affect Blackboard’s balance sheet. At least that’s what I infer based on a recent conversation with a campus official confronting an “up or out” decision regarding an expiring WebCT license. For this institution, the current WebCT license runs $40k annually; a new Blackboard Learn license would cost the campus almost $200,000. If these numbers accurately reflect the revenue profile of Blackboard’s LMS contracts, then a small number of institutional upgrades to the enterprise edition of Learn could offset the revenue loss from legacy licenses migrating to other LMS applications. In other words, Blackboard could still grow its LMS revenue even as its share of the campus LMS market continues to decline.

Interestingly and ironically, Blackboard CEO Michael Chasen predicted the rising competition from new arrivals in the LMS market five years ago. Defending Blackboard’s (controversial) decision to sue Desire2Learn for patent infringement at an EDUCAUSE conference town hall meeting in fall 2006, Chasen explained that his company had invested significant dollars to develop its LMS application. The patent lawsuit, he stated, was one way for the company to protect its investment in its intellectual property from new firms that might want to enter the LMS market. And as noted above, the competitors have come: they are gaining traction and signing contracts with campus clients. (Blackboard ultimately lost the civil lawsuit against Desire2Learn on appeal in 2009; concurrently, the USPTO also rejected Blackboard’s patents claims for its online learning system.)

== Growth. Providence and its investment partners bought Blackboard because they feel the company has good prospects to grow revenues and profits. Even as the strategic LMS franchise declines as portion of overall revenue, Blackboard officials have been consistently bullish about company’s growth opportunities. Admittedly, I’ve not seen the Blackboard briefing books reviewed by the Providence analysts and executives. But like many other observers, I’ve reviewed Blackboard’s public numbers on product licenses for 2006-2009, as well as data from The Campus Computing Project and other sources. Consequently, my own assessment is that Blackboard confronts significant competition in each of the business units in its core market – higher education. For example, as noted in the April 2011 “Buying Blackboard” blog, the company was a first mover the mobile arena, but major competitors – both LMS and ERP providers – are now in the mobile game, often at price points well-below the cost of Blackboard’s service. Too, I’m hearing from a small but growing number of CIOs that they want to circumvent branded (iPhone, Android, etc.) mobile applications and hope to move their institutions to a “web-based approach to provisioning mobile apps.” The new Analytics business, based on the recent iStrategy acquisition, comes late to the market and confronts significant competition from established ERP/administrative systems providers that have long-term relationships with campus clients and also the "middleware" analytics firms that also have established market positions and campus relationships. The Collaborate products also confront significant competitors, including some Open Source applications. The (admittedly old) data that Blackboard released from 2006-09 about the number of licenses for each of its operating units revealed slow growth for Connect and Transact licenses in the latter years; there is little reason to believe that number of Connect or Transact campus clients has grown significantly in the past two years.

== Synergy. Acquisitions provide an opportunity for both analysts and executives to look for synergy (and cross-selling) opportunities. Providence owns or is an investor in several for-profit colleges and also a number of technology firms that provide services to the higher ed and K-12 markets, including, most notably, SunGard, parent company to SunGard Higher Ed, a major provider of administrative/ERP systems to colleges and universities.

No doubt Blackboard and Providence execs are in conversation about synergy opportunities. The quick and easy synergy (as if these things might be really quick or really easy) would appear to involve the Blackboard Student Services unit, which provides call center and IT help desk services. Providence executives could ask other firms in its education portfolio to consider moving call center and support services to Blackboard’s Student Services unit.

For many campus IT officials, the immediate synergy questions involve SunGard Higher Education, whose parent company, SunGard, is part of the Providence investment portfolio. (Providence is an investor in SunGard, but not the leading investor.) For the past decade Blackboard and SunGard Higher Ed have always occupied parallel, if increasingly interdependent worlds. SunGard’s Open Digital Campus strategy and Community Source initiatives appear open and ecumenical towards LMS providers; moreover, a year ago SunGard announced an alliance with rSmart to support Sakai. Consequently, it seems highly unlikely that the Blackboard acquisition leads to anything approaching a “BlackGuard” or “SunBoard” initiative that would redefine the relationship between the two firms in the coming months.

== Acquisitions. Blackboard has had a voracious appetite for acquisitions. As noted above the company has spent more than half a billion dollars over the past five years to buy a range of tech firms that serve the education marketplace. Asking “who’s next?” is an appropriate question.

Several Blackboard alumni now occupy senior positions at a number of firms that provide products and services to the education market. These firms might be potential acquisition candidates. One example is Starfish Retention Solutions, launched several years ago by Blackboard alumnus David Yaskin. Starfish provides software-based retention and student success services and has more than 70 campus and K-12 clients. From the distance, Starfish seems like a possible addition to the recently launched Blackboard Analytics business.

Blackboard and Providence executives might also be looking for additional educational tech firms to complement and expand their respective education portfolios. In fact just this week, Ascend Learning, which is owned by Providence, announced plans to acquire PrepMe, an “adaptive learning platform and virtual classroom SaaS” that also offers test-prep services.

LOOKING FORWARD. Beyond the speculative conversations, campus officials want to know what the short-and long-term impact of the Blackboard sale means for their institutions.

Understandably, a key concern is the cost of various product licenses: will Blackboard raise prices to increase revenue? Campus clients will have cause for concern if Providence follows the path taken when Elsevier acquired a number of scholarly journals and then increased prices significantly. Alternatively, licensing fees remained relatively stable when SunGard bought SCT some years ago and, more recently, following last year’s sale of Datatel to an investment group. A strong statement from Blackboard’s execs about stable pricing would no doubt ease concerns for campus officials who confront stressed budgets and some uncertainly about their future licensing costs.

As others have suggested, the Blackboard sale is a strong signal about how commercial markets assess the commercial value of ed tech companies. Yet for colleges and universities, the ultimate value of Blackboard and other firms is the added value that their products and services provide to campus users.

There is no question that learning management systems have become the instructional technology infrastructure for a significant portion of on-campus courses; moreover the LMS is, without question, the core technology infrastructure for online courses and programs. But do Learning Management Systems and their supporting technologies contribute to improved educational outcomes? How would we know? What metrics should we use to address the question of value added and educational outcomes?

When launched a more than a decade ago, the discussions that shadowed the LMS often included some conversation about outcomes: sure it can help you post stuff to the web, but will it do anything for student learning? These questions linger: the best research about the impact of the LMS on student learning – studies that draw on large, diverse samples of undergraduates – suggest that the students who spend more time “on the LMS” do better than their peers. In other words, controlling for a wide range of variables, it is time on task, rather than technology, that affects the learning experience and learning outcome. The organization of resources within a LMS may help foster student engagement, encouraging students to spend more time on task (time engaged in learning). But time, rather than technology, appears to be the critical variable.

Perhaps it is time to reassess our aspirations and expectations for the technologies that are now ubiquitous and imbedded in the campus experience. I suspect that there is a rising tide of semantic remorse in the campus conversations about learning management systems – particularly the “management” aspect. Were the LMS providers starting over today, no doubt many would position their products as “student engagement platforms,” a clear shift in emphasis from a faculty need (managing instructional/learning activities) to a goal for students (engagement in learning).

The ubiquity of the LMS affirms its role as a core instructional resource. But at the risk of reduction, so too are browsers, search engines, and Powerpoint. These are all technology tools that have become “core instructional resources.” Perhaps the Blackboard sale provides a symbolic opportunity for all of us – tech users and tech providers – to ratchet down the rhetoric about what we do with technology, or the magic of certain technologies for teaching, research, and instruction. Paraphrasing a comment Steve Jobs once made about the Macintosh, yes, various technology tools really can be "insanely great." But we also know from experience – with Macs, and also with PCs, smartphones, the Web, and with a lot of other tech stuff – that an “insanely great" tech tool still requires us to work at it, to work with it, and to invest time and effort to make it work effectively. The lure, promise, and potential of technology remain even as some of the luster (and bluster) has dulled.

Your thoughts? Is the Blackboard sale a big deal for higher ed, or just much ado about very little?