Management Update: A Growing Market Battle to Deliver E-Learning Systems
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1 IGG K. Harris, D. Logan, J. Lundy Article 20 November 2002 Management Update: A Growing Market Battle to Deliver E-Learning Systems A battle is developing to deliver e-learning systems and other infrastructure. Enterprise resource planning (ERP) and technology providers are joining the e-learning gold rush, and traditional learning management system vendors are feeling the heat. Many enterprise executives know that e-learning can help employees learn more quickly and effectively. However, the e-learning market has far too many vendors and a battle is developing to deliver systems and other infrastructure. ERP and technology powerhouse vendors are joining the e- learning gold rush, and traditional learning management system vendors are feeling the heat. Growing E-Learning Demand In most enterprises, the demand for e-learning is growing. Many leading enterprises are at least thinking about e-learning, some are already funding an e-learning infrastructure, and most report that they already use some form of e-learning. Types of Vendors Vendors and service providers are seeking footholds, especially with large or visible enterprises and in key business functions such as human resources (HR), sales, IT and customer relationship management. The biggest opportunity lies in the e-learning delivery platform, which includes the infrastructure for access, user interface, mode of navigation and, often, a virtual classroom. Enterprises have three clear vendor choices for e-learning infrastructure: ERP (enterprise resource planning) vendors Powerhouse technology vendors Traditional learning management system (LMS) vendors The Corporate Learning Hype Cycle Enterprises must understand the risk/reward relationship of any technology, and Gartner has developed the Corporate Learning Hype Cycle to help enterprises better understand the timing of new technology (see Figure 1). Learning and technology have been linked for some time, but many Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
2 newer e-learning approaches are higher risk than established approaches such as higher cost, more culturally invasive and more technically challenging. Figure 1 The Corporate Learning Hype Cycle in 2002 Visibility Virtual Classrooms Technology Trigger LCMSs E-Learning Suites Mobile Delivery Advanced Simulation Engines Source: Gartner Research Skills Management Peak of Inflated Expectations JIT Just-in-time LCMS Learning content management system LMS Learning management system Application Simulation Tools Hosted LMSs Learning Portals Authoring Tools Trough of Disillusionment Embedded JIT Help LMSs Web Conferencing Slope of Enlightenment Self-Paced IT Courseware As of October 2002 Plateau of Productivity Time However, even conservative enterprises with low thresholds for failure may have to make investments in technologies before full maturity and ensure e-learning success with good design, strong methodologies and management practices. Leading-edge enterprises may want to assume more risk and carve off some funding for experimentation in areas of high potential return. Technology-enabled learning is imperative for all enterprises in two areas: High-turnover positions. For such jobs, especially in lower-paying positions, creating two or three hours of high-quality, new-employee programs delivered through the most-accessible channel (often CD-ROM) can improve service, time to knowledge and retention, while freeing up managers. Computer-focused users. With labor shortages, people uncomfortable with computers need good, scalable solutions. Packaged courseware and mentoring should be explored to speed learning or assist cultural change. The Learning Management System Gartner defines an LMS as the infrastructure on which e-learning can be built and delivered. An LMS is comprised of six main components: Registration capabilities
3 Management of curriculum and courses Skills and records management Student interfaces to courseware Administration (for example, test and assessment capabilities, certification; also, instructor assignment to the courses, any regulatory requirements and history) External system application programming interfaces, including human resources and, optionally, ERP systems An LMS is a tool suite that delivers or helps deliver the right course or content to the right student at the right time and in the right format. LMSs have become required technology for any large enterprise with a formal learning program budgeted anywhere greater than 1 percent of an employee s fully loaded salary. LMSs require discretionary funding upfront to automate and focus the programs downstream. LMS systems are also the touchpoints for users and are being integrated with learning portals. Expect to use a portal as the access tool to training support and content. ERP Vendors and E-Learning Every major ERP vendor has entered, or is preparing to enter, the e-learning market, but most will not actively compete before mid Most ERP vendors have built some form of e-learning to support the core business processes within their offerings. Those vendors are now stepping up their efforts to deliver not only their ERP system-specific learning support, but also to provide a fullservice platform that will deliver other vendors courseware and enable enterprises to develop custom courseware. Furthermore, e-learning may be packaged as an independent service offering. Most ERP and powerhouse technology vendors also provide a full complement of professional services that focus on e-learning strategy, as well as deployment. Siebel Systems offers its E-Training Suite as a subset of its relatively new Employee Relationship Management (ERM) suite. Siebel E-Training is a full-scale LMS, and Siebel Distance Learning is a virtual classroom. Siebel also offers performance management and competency management capabilities that are part of its overall ERM Suite of products. Gartner has not observed significant demand for Siebel s E-Training yet and suspect that potential customers are simply unaware that Siebel offers the capabilities. That is due, in part, to Siebel s marketing focus on its overall ERM Suite and lack of emphasis on its e-learning offerings. PeopleSoft announced on 31 July 2002 that it would purchase Teamscape and migrate its LMS into a new PeopleSoft product that will be called Enterprise Learning. Enterprise Learning can be installed with or without other PeopleSoft products and will likely be available in 4Q02. A majority of LMS vendors interface their products into PeopleSoft HR applications in enterprise environments. That means that PeopleSoft will be carefully considered by its customers, assuming that its pricing is competitive. SAP s Learning Solution has been on the market since 17 July The SAP Learning Solution includes a full-function LMS that can be purchased with or without mysap HR, authoring software and a learning content management system (LCMS). The only piece that SAP is missing from its e- learning suite is virtual classroom technology, for which Gartner expects it to partner. SAP has just started shipping its new offering in the initial rollout, it will not be available in every country SAP supports. SAP s previous e-learning solution Knowledge Warehouse, which was geared solely to provide training for SAP s own products is still available, but some confusion exists as to when and how the content will migrate to the new platform.
4 The offerings from the ERP vendors should be considered first by enterprises that already are customers of the vendors, especially if they have a large amount of employee data already committed to the system in question. Functionally, ERP vendor offerings are not yet competitive with the stand-alone LMS vendors products. However, because IT spending growth will likely continue to be slow during the next 12 to 18 months, extending an established platform will be the more attractive option in terms of pricing, and best-of-breed functionality will not be the paramount consideration for most enterprises. The major ERP vendors will use their customer bases to gain at least 25 percent of the LMS market share by year-end 2004 (0.8 probability). Technology Vendors and E-Learning Many technology vendors have used e-learning to deliver their technical support courseware to customers for a decade or more. They have also used the same infrastructure to deliver e-learning to their own employee bases. So, retooling, packaging and extending their internal learning management infrastructure is a logical step. Some are also acquiring niche vendors (for example, authoring and content management vendors) to add enabling functionality. IBM/Lotus e-learning group is building a new LMS that should be announced in 4Q02. IBM announced its newly re-architected virtual classroom, Learning Space Virtual Classroom, on 1 October IBM s virtual classroom is built on Lotus collaborative technologies, such as Lotus Sametime, plus an instant messaging and Web conferencing platform. Although IBM is a leader in e- learning content, its success outside of content has been limited. A new virtual classroom and a fullfunction LMS should help IBM in this area, assuming that IBM s sales force can be focused on selling its e-learning products. Oracle offers its Learning Management Suite, which includes the Oracle i-learning LMS. Optional modules include Oracle Training Administration, a product designed to manage a training business, and Oracle s HR management system. The Learning Management Suite got off to a slow start, but Oracle has been growing its installed base during the past year. Most of Oracle s installs of its i- Learning LMS are with established Oracle clients. Sun Microsystems e-learning product is Enterprise Learning Platform. The product has been enhanced to include skills management, assessment and collaboration functionality. Sun offers LCMS capability through a partnership with Avaltus. Sun also offers a large amount of Sun productfocused e-learning content, and partners with leading off-the-shelf content vendors, such as Thomson s Netg. Sun has slowly been building its presence in the e-learning arena, but it will have to add significant channel focus to compete with the other powerhouse and ERP vendors. The case for using an established technology vendor is somewhat less compelling than for using an ERP vendor. Oracle and Sun, in particular, have demonstrated mixed commitment to the business application spaces that do not constitute their core businesses. E-learning is not part of their core businesses. IBM/Lotus has failed to capitalize on what would seem to be a natural advantage, given its historic focus on knowledge management and collaboration support. Its e-learning products have thus far failed to capture mind share or market share, and its continued emphasis on components vs. suites (for example, Sametime and Quickplace) lacks the focused integration required in the e- learning market. Sun and IBM offer compelling content, but content is LMS-independent; thus, having content from IBM or Sun should not preclude buying an LMS from another vendor. The powerhouse technology vendors will likely make some inroads in the LMS market during the current IT recession, because their sales forces will be motivated to get additional revenue from
5 established customers. However, 2004 will be a make or break year for technology powerhouse vendors in e-learning, as new business picks up and they refocus on their main lines of business. LMS Vendors The leading e-learning-focused vendors have developed software suites to create a stand-alone e- learning environment, including learning management, administration, integration with other applications such as HR, content and courseware, virtual classrooms (see Figure 2). Some vendors have made progress toward an enterprisewide view for users (a consistent learning interface and common navigation schemes) for their e-learning programs. Those vendors provide an attractive alternative to ERP or technology powerhouse vendors because they specialize in and focus on e-learning. Figure 2 Gartner s Learning Management System Magic Quadrant Challengers Leaders Ability to Execute Click2Learn Intellinex Learnframe Hyperwave KnowledgeNet Element K Fuel Plateau Saba THINQ Docent Pathlore WBT Systems Knowledge Sun Planet IBM SmartForce DigitalThink Niche Players Visionaries Completeness of Vision Source: Gartner Research As of February 2002 s The LMS vendors, however, face some challenges: An LMS system creates yet another place to go for employees one more application to learn and use and one more vendor for the IS organization to support, resulting in higher ongoing costs. By comparison, adding e-learning from an ERP or powerhouse technology vendor may offer a familiar environment that is integrated with at least some existing applications.
6 The initial cost of an LMS is an issue, because most systems require a substantial investment. The initial price for the LMS can range from $20 to $50 per employee, even when delivered through an externally hosted environment. LMS vendor pricing may compare well to ERP or technology powerhouses when those vendors have no foothold in an enterprise. When they do have a foothold, their prices are likely better than a stand-alone LMS vendor s price, from a perstudent purchase cost and ongoing support cost basis. Changes in IT buying behavior (due to the economic climate and the desire to lower risk) favor large and well-established vendors, even when they have less-than-optimal product offerings. Key LMS vendors include: Click2learn Saba Software Docent Thinq Pathlore Plateau Systems VuePoint The general weakness in all IT sector markets is driving mergers, acquisitions and outright business failures, especially among pure-play vendors in all software segments, including e-learning. By year-end 2005, 50 percent of the independent LMS vendors in the market today will cease to exist (0.9 probability). Although the jury is still out on which LMS vendors will be the most likely to survive, their strong positioning might make them attractive acquisition targets to their ERP and powerhouse technology vendor competitors. Bottom Line The market for the enterprise learning management infrastructure is becoming crowded, with traditional LMS vendors being challenged by ERP and powerhouse technology vendors. Enterprises should not be swayed by promises of better integration with established applications or infrastructure. Instead, they should focus on a vision for e-learning followed by indepth evaluation, including business-to-employee (B2E) initiatives, ERP strategies and e-business use of e-learning. Through year-end 2003, the maturity of traditional LMS vendor products will exceed that of ERP and technology powerhouse vendors. However, maturity will not ensure survival, and, by year-end 2005, 50 percent of today s independent LMS vendors will cease to exist (0.8 probability). Written by Edward Younker, Research Products
7 Analytical sources: Kathy Harris, Debra Logan and James Lundy, Gartner Research For related Inside Gartner articles, see: Management Update: Simulation Winning Application for E-Learning, Numerous Benefits for Enterprises, 18 September 2002 Management Update: How to Get Over E-Learning Hurdles, 16 January 2002
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