December 2018: Things to Watch in 2019, Updates from Brazil, and the LMS Market in the Middle East

This month’s newsletter begins by identifying five things to keep an eye on in 2019 that could affect the direction of the LMS market. We then discuss what Bolsonaro’s recent election means for the LMS market in Brazil (spoiler alert: it could be good for business). We wrap up our last newsletter of the year with our first ever view of the LMS market in the Middle East.

Also, a reminder that we are moving from a late Fall / late Spring reporting schedule to end of year / mid year schedule to enable us to look at a full calendar year of data. You should expect our next report in January to cover full year 2018, and a mid year report in July.


Things to Watch in 2019

As the year winds down in 2019, we’ve been reflecting on what has turned out to be an eventful year in the LMS market. As we look forward to 2019, we thought it would be useful to identify some of the key trends we’ll be monitoring in the coming year. 

  • Will the LMS market pick up in 2019 after a downturn this year? This is a topic that the investor community has paid close attention to but it has not been widely discussed in the broader market. It has now become clear that the number of higher education institutions switching to a new LMS in 2018 is noticeably down from 2017. Part of this downturn is likely due to a spike in 2017 from Learning Studio going end of life. Other factors could include a down year structurally for contracts coming up (leading to fewer evaluations and selections), Blackboard’s aggressive sales activities to retain customers, and Moodle customers largely staying put. More holistically, this past year saw a lack of urgency of the part of schools to make changes. One reading is that institutions remain interested in evaluations and migrations, but they are more patient in their timing for a selection process. 
  • Does anything change for Blackboard if they successfully offload CashNet and Transact? Blackboard is in advanced talks to sell off the cash-generating CashNet and Transact platforms. These platforms are peripheral to Blackboard’s teaching and learning focus but worth considering in the impact on the company. One important impact is that successful sales would generate significant cash that can be used to pay down what is proving to be a significant debt load. Reducing debt load will certainly give Blackboard some breathing room, but it’s not clear yet whether this year’s slowdown in LMS churn represents the beginning of a trend in terms of Blackboard improving retention of existing customers or acquiring new Learn Experience users. The Blackboard Open LMS (the rebranded Moodlerooms) is reportedly generating new business internationally. In North America, they have have reported wins on converting Moodle customers from Moodle hosting companies or self-hosted situations, but not in sufficient quantity to be material.
  • Will Instructure succeed in their strategy to go after Moodle customers? It’s no secret that when Canvas first entered the market, their initial target was the set of dissatisfied Blackboard customers. Instructure was the anti-Blackboard, leading to the company’s early and ongoing success. During Instructure quarterly earnings calls, they have indicated a new focus on trying to convert Moodle clients, and we are hearing from our sources that sales efforts have ramped up noticeably in the last six to twelve months. This is particularly important in markets outside North America, where Moodle is still very strong and where the total addressable market for commercial, vendor-hosted LMS’s is growing. Moodle Partners and more recently Moodle HQ have implemented defensive strategies that include price, mission allegiance, and finally greater investment in product development and marketing. This will be interesting to watch next year, both in North America and in other global regions. 
  • Will D2L’s investment in product and customer satisfaction move the needle? We’ve been posing this question internally and on the e-Literate blog site over the past couple of years as D2L has been revamping its approach to product development and putting more resources behind increasing customer satisfaction. So far, however, the market has not responded in a way that moves the needle in a significant way. D2L continues to gain new customers, but they also have lost customers (primarily to Canvas), so their resulting market share is staying fairly consistent. When we compare forward-looking indicators from today and a year ago, the trend lines are not favorable, despite product and cloud-hosting improvements.
  • What are the biggest cross-selling opportunities? Particularly in mature markets like US and Canadian higher education, LMS companies are increasingly looking to cross-sell other products and services. This may be increasingly true as well in growth markets where use of educational technology more generally is coming on fast. For example, Blackboard has told us that, for every dollar in Open LMS licensing—a product which is strongest in the growth markets—the company realizes roughly fifty cents in cross-selling revenues. The main vendors have substantially different cross-selling portfolios, with substantially different levels of breadth and maturity. Further, we don’t have strong indicators that any one product in their portfolios has particularly high levels of market penetration. So, as these companies try to find way to get more money out of each customer without just raising licensing fees on their core product, it will be interesting to see whether the market converges on a single strategy or has any serious breakout hits. 

Brazil: Bolsonaro’s Election and Implications for the Brazilian LMS Market

In January, Brazil will inaugurate Jair Bolsonaro to a six year term as president. For those who don’t follow Brazilian politics, Bolsonaro’s election capped a contentious campaign (and several years of instability that witnessed the exposure of massive and pervasive corruption, the impeachment of a president, and a crippling recession) that pitted a far right, populist, pro-business candidate with some authoritarian tendencies against Fernando Haddad, a left wing protégé of former president Luiz Inacio Lula da Silva. Lula himself would have ran had he not been in jail for corruption charges. The center largely fell out of play, and many voters faced a choice between two unappealing candidates. In the end, Bolsonaro won handily (55% to 45%) as negative feelings toward the Worker’s Party of Lula and Haddad, and a hope that Bolsonaro might bring more stability and pro-business policies to Brazil, ultimately prevailed.

We are not political analysts, so the relevant question for this newsletter is what does Bolsonaro’s election portend for the LMS market in Brazil? The most likely scenario in the near to medium term is an uptick in activity, with institutions pulling the trigger on LMS evaluations and selections. Here’s the basis of our analysis:

  • While the first years of the Bolsonaro administration are sure to be tumultuous, there is finally some predictability and stability. The last few years in Brazil have been very uncertain in terms of what was coming next and what direction things would head. Now, regardless of one’s view of Bolsonaro and his politics, he is likely to be in office for the next six years. This predictability and potential stability will likely encourage institutions that were biding their time in a wait and see mode to move forward with educational technology infrastructure investments.
  • It is likely that Bolsonaro will push policies that support distance education in general and for-profit educational institutions more specifically. The federal government in Brazil sets policies that affect the trajectory of distance education (e.g. caps on percentage of online students and investment restrictions). Supportive policies will likely result in more rapid growth. Likewise, the for-profits make up the largest segment of Brazilian higher ed institutions in terms of students served, and to date these schools have been the most willing adopters of educational technologies. We expect to see increased investment in distance education and for-profits, with some of that investment going to new LMSs.
  • Finally, Brazil is increasingly less insulated from global LMS trends. While Moodle is by far the most dominant platform with close to 80% of the market, our interviews and recent visit indicate a pent up demand to evaluate the two platforms that compete for the majority of new implementations in the global markets we cover – Canvas and D2L Brightspace. Brazil also lags the global market in terms of moving away from self-hosting to managed or cloud hosting but seems poised to start closing the gap.

While the factors bulleted above all point to increased activity in the Brazilian LMS market in the next few years, all bets are off if there is a sudden economic downturn or if there is a political crisis that recreates an environment of unpredictability and instability. 

Subscribers interested in learning more about the Brazilian and broader Latin American LMS market should revisit our Spring 2018 Latin America Postsecondary LMS Market Dynamics report which can be accesses on the LMS Market Analysis Archive page of our subscriber website.

Overview of the LMS Market in the Middle East

Over the last couple of years we’ve been ramping up our data collection efforts in Asia, Africa, and the Middle East. While there’s more work to be done before we formally expand our coverage, we do have sufficient data to share a preliminary view of the LMS market in the Middle East. For purposes of this analysis, the Middle East includes the following countries: Afghanistan, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, and Yemen. We expect the market share positions to shift as more data is collected, as with other regions, but in broad strokes there is useful initial information to consider. It’s also possible we’ll adjust how to configure newer global regions, i.e. maybe adding in North Africa to the Middle East in an approach similar to that of the World Bank and other international organizations.

The following chart is based on primary institutional adoptions across postsecondary sectors in the region.

LMS Market Share, Middle East Region

Given what we already know about the international LMS market, it’s not surprising to see that Moodle is a big player with 69% of the market. As reference points, this is comparable with Moodle’s 67% market share in Europe but significantly higher than Moodle’s 25% share in the United States.

Blackboard is quite strong at 23%, largely driven by strong showings in Saudi Arabia and UAE. The remainder of the market is divvied up among the remaining platforms with 5% or lower market share. It’s worth noting that D2L Brightspace is top among the smaller players with 4% share; Canvas is next with 2%, and Chamilo in fifth with 1%. We are also hearing that Schoology is active in the region and getting some traction.

As we deepen our coverage of the LMS market in the Middle East, we expect to be able to provide additional context and insights to understand the current market as well as potential future trends. This initial preview is just that, expect to hear more on the region in 2019.

Thanks for subscribing, and we look forward to sharing more updates in 2019. Remember that we are shifting our next LMS Market Dynamics report to be in January, thus allowing a complete year data analysis.

Phil & Michael & O’Neal