Greenberg: Is Writing on the Wall for Blackboard?
CNBC Senior Stocks Commentator
When Blackboard reports earnings Thursday, keep an eye out for any discussion about competition.
Not that competition is new to Blackboard’s core business of learning-management software, which is used by students and teachers on college campuses for a variety of purpose, such as posting course materials and grades: According to Campus Computing, the number of schools that have used Blackboard for their core learning software dropped to 57.1 percent in 2010 from 71 percent in 2006.
The competitive tale took a new twist today with Salt Lake City startup Instructure’s announcement that it’s making its core open-source learning software codes available to schools for free. The company specifically said it was in business “to compete with Blackboard.” It even rolled out a YouTube spoof of the famous Apple 1984 commercial taking on IBM . (Excpet in this case the villain is Blackboard.)
Key to the story: This is no ordinary startup. Its CEO is Josh Coates, who founded computer-backup service Mozy — which he sold in 2007 to EMC for $75 million.
In this blog posting on Coats in TechCrunch, Michael Arrington notes that he likes Coates because he has a fully operational M18 Hellcat Tank Destoryer in his garage.
The big question: Can an unknown company, regardless of its leader’s record and pedigree, make serious inroads into the traditionally conservative and lethargic educational market?
I caught up with Coates. His points:
- He stepped out of retirement to do this. He’s 37-years old. He didn’t like his kids having to explain to their friends why their father was sitting at home in his pajamas playing video games.
- He saw an opportunity to go up against the “bad guy” out there — his description for Blackboard, whose software he says shows a lack of innovation. “They dominate the market,” he says. “Somebody has to fix this. Its customers are getting cheated out of innovation.”
- Instructure’s learning software attempts to fix one complaint of schools about switching to open-source: The lack of after-market support. “That’s why we’re going the dual license route. We’re making the open source license free to get the product out there. The other license is a regular commercial license with 100 percent support.”
- Instructure’s offering, like Mozy, is cloud-based; Coates says it’s the first in the industry built specifically for the cloud, which is substantially easier to roll out; gone is the need for installation in a data center.
- Sales cycles tend to be long – from six to 12 months. So far they have 26 schools, including the Wharton School of Buisness.
- In the next 24 months two-thirds of all Universities in the U.S. will have to make a decision on their core learning software, because the Blackboard software they is being discontinued. Their options are to switch to Open Source or deploy the newest version of Blackboard. “It’s a land grab opportunity,” he says. (Note: Industry watchers tell me Coates' number is high — that it may be closer to one-third, which is still a large number.)
- He’s paid a salary of $1 a year; his upside is with the equity stake he came as the company’s original sole source of funding.
- “I want to go all the way,” he says. “Four or five years from now we want to be on the Nasdaq, and we have a plan to get there.”
Our discussion with several college tech chiefs is that Blackboard’s relationship with many schools has been rocky, in part because of cost, quality of support and a difficulty to tailor the product to fit specific school needs.
Blackboard declined comment, citing its pre-earnings quiet period. But in general it has has been downplaying the competitive threat by saying that the retention rate for its core product remains above 90%.
It’s also been rapidly expanding, largely through acquisitions, into other areas.
But this much is clear: As Michael Feldstein of the blog e-Literate wrote today after reviewing Instructure’s software, “This is a company that should be taken seriously.” Feldstein, who focuses on nothing but e-learning software, added: “I expect the entire educational technology landscape to change considerably by 2014.”
My take: Blackboard’s share isn’t likely to be going up.