The downturn in the economy and the Sept. 11 terrorist attacks have accelerated interest in e-learning and Web conferencing. And while that should fuel even more growth in the rapidly growing sector, analysts predict that a shakeout — with considerable consolidation among the players — is looming.
In recent years, I-managers at dozens of Fortune 500 companies have invested in e-learning and Web conferencing in an effort to decrease travel costs and improve employee training. But in the last month, companies that provide either connectivity or software for e-learning are experiencing an unprecedented upswing in client inquiries and new business.
"Weve seen a 20 percent increase in calls from customers," says Ellen Slaby, a representative of Centra Software, which provides Web conferencing and software for e-learning. Meanwhile, at PlaceWare, a provider of Web conferencing facilities, representatives say inquiries doubled within two weeks of the attacks.
Delays in air travel because of heightened security — combined with ongoing fears among workers about the possible dangers — are fueling the adoption of e-learning, says Mike Pucci, vice president of training services of drug giant GlaxoSmithKline, which began installing its e-learning system nearly a year ago.
"People will look for every opportunity not to travel," Pucci says. "Our adoption overall will increase dramatically, because people would just as soon stay home."
About 8,000 GlaxoSmithKline salespeople must be educated continually about new drugs and business policies. E-learning has become a viable alternative to face-to-face meetings, thanks to the availability of low-cost bandwidth and better software, Pucci says.
GlaxoSmithKline uses content management software from Docent that tracks the educational progress of each user on GlaxoSmithKlines system. "In the past, the quality [of e-learning systems] has been suspect," Pucci says. "Now, the quality is finally catching up with the promise."
"E-learning" is the catch-all name for a diverse array of products and services, ranging from schools that offer online degrees, such as the University of Phoenix, to training systems on internal company networks, such as Glaxo-SmithKlines. Research firm IDC estimates that corporate e-learning will grow 50 percent annually through 2005, to a market worth $18 billion per year. And the e-learning industry has a symbiotic relationship with the Web conferencing business, so as e-learning grows so, too, will conferencing. Some of the key beneficiaries of that boom will be Web conferencing providers such as Centra, PlaceWare and WebEx Communications, as well as learning management system providers such as Click2learn, Docent and Saba Software.
"The biggest factor driving the growth of e-learning is that companies need to train disparate work forces," says Cushing Anderson, an IDC program manager. "With e-learning, they reduce travel costs and avoid the time that workers will have to be away from their offices."
The Sept. 11 attacks will "have an immediate and undeniable" positive effect on the e-learning sector. But, he cautions, "whether this will translate into sales depends on if the e-learning industry can deliver on its promise."
While e-learning is growing, theres a whiff of dot-com frenzy in the sector. For example, WebExs 2000 revenue of $25.4 million was more than 800 percent higher than its 1999 revenue, but the company still isnt making money. In the second quarter of 2001, WebEx took in $18.4 million, but lost $5.3 million. Despite that, WebEx has a market capitalization of more than $1 billion, and its stock has risen by about 50 percent since Sept. 11. Centra is valued at $228 million, despite a $13.9 million loss last year on revenue of $23 million. PlaceWare is also seeing rapid growth. The privately held company, which is backed by three venture capital firms, took in $27.5 million last year, and PlaceWare expects that figure to double this year. Barry James Folsom, PlaceWares president and CEO, wont say whether the company is profitable.
Despite e-learnings rosy future, layoffs and profit warnings are hitting the sector. Earlier this year, e-learning firm UNext laid off about 12 percent of its staff. Last month, Saba, one of the best-known learning management system providers, announced worse-than-expected numbers for its most recent quarter, losing $11.1 million on revenue of $14.4 million. That led several Wall Street firms to downgrade the companys stock, which now trades for less than $2 per share. Earlier this month, despite a big increase in users, Web conferencing firm Latitude Communications said it would fall short of projected revenue.
The challenges of the current market, combined with the huge number of competitors — by some estimates there are more than 140 companies vying for a share of the learning management system market — contribute to the belief that the e-learning and Web conferencing businesses are overdue for consolidation.
"The real question is: When does Microsoft wake up and say, Heres a huge opportunity we can own?" asks Bruce Richardson, senior vice president of AMR Research. He notes that Microsoft has a simple Web conferencing utility program, NetMeeting, that is useful for intracompany meetings. Microsoft could improve on NetMeeting and include it as part of its popular Office suite of desktop products. The move would also make sense, Richardson says, because Microsoft PowerPoint is one of the most commonly used Web conferencing apps.
Reinhard Ziegler, a managing partner of Accentures human performance practice, says Accenture now uses Docents e-learning platform to train about 70,000 of its consultants worldwide. He, too, believes the e-learning sector will continue to boom. However, Ziegler adds, "there is space for three or four learning management system vendors. We dont need 100."
For its part, Latitude — hoping to stave off consolidation in the Web conferencing business, which has about a half dozen major competitors — is betting its future on providing a secure meeting platform.
For several years, Latitude has been selling MeetingPlace, a Web conferencing system that can be set up behind corporate firewalls. This month, Latitude announced that companies that use its hosted Web conferencing facilities will be able to conduct meetings with varying levels of security on a dedicated server. For instance, a company could allow conference attendees to access a meeting via the Internet, or it may restrict entry to users on the companys intranet or even to only those users who are using a virtual private network connection.
"We can provide incremental levels of security, and we can do it on a meeting-by-meeting basis," says Mike Fratesi, Latitudes director of product marketing. "As the market matures, more people will want to explicitly manage their Web conferencing environment and do it in a secure fashion."
While the extent of the shakeout in the e-learning and Web conferencing businesses wont be known for many more months, industry officials are confident of its long-term prospects.
"E-learning will grow very, very, quickly — certainly faster than the economy as a whole or technology as a whole," says Dave Ellett, president and CEO of Docent, which now offers about 7,000 courses from 60 different content providers. "This is a cost-effective way of sharing information across organizations. But we are still in the infancy of this industry."