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Blackboard (BBBB)Stock (Multimedia & Graphics Software Industry)
 Blackboard's Software as a Service model brings in stable revenues because its customers often renew their contracts annually. The difficulties associated with learning a new course software technology convince most institutions to stick with Blackboard once they sign up - 92% of customers renewed their licenses in 2007.[2] The software is also popular with university IT departments because it can be adapted for use alongside existing software the school already uses. Blackboard acquired its largest competitor WebCT in 2006. Today it dominates the market, with about 70% market share in 2007,[3] although some lower cost and open-source products exist, such as Desire2Learn and Sakai.[4] However, many institutions are attracted to Blackboard's established brand name and technical support system, which open source programs cannot offer, as schools can ill-afford to have software breakdowns that irritate professors and tuition-paying students.
[edit] Business DescriptionBlackboard sells three types of software suites:
In addition, the company reports "Professional Services" revenue, which includes training users and integrating Blackboard's offerings with existing service in the client's network. The software business is high-margin, while the Professional Services business, which requires high labor cost and material cost, is significantly lower margin. However, the added value from professional services helps to attract new customers - key for Blackboard, as they retain these new customers at a 90%+ rate. (92% in 2007, and 91% in 2006)[9] [edit] Financial AnalysisBlackboard's revenues have increased 30% over the years 2006 and 2007[10] , although this has not come without growing pains. Operating income in 2006 went negative. The reason for the large increase in operating expense was largely tied to R&D and other overhead from the WebCT acquisition. In addition, the company ramped up operating expenses in sales & marketing to prepare for increases in revenue.[11] Margin recovered in 2007, back to 8.3%, as management expensed most of the growth costs in 2006.[12]
[edit] Key Trends and Forces[edit] Captive customer base offers opportunity for revenue growth with bundled productsBlackboard has penetrated a difficult client base in educational institutions, and this has long-term value because these schools tend to renew their contracts. Furthermore, educational institutions are continually open to upgrading their programs, and they have a steady revenue stream (endowments and student tuitions) with which to do so. Blackboard's acquisition of the NTI group for its messaging service is an example of an opportunity to bundle services to existing clients. While offering the Academic Suite Software, salesmen up-sell customers on Blackboard Connect Suite (NTI's renamed product) by touting its useful application in emergencies. While the Blackboard Academic Suite is currently Blackboard's most important offering, with approximately 4000 licensees, the Transaction and Connect Suites only sell to approximately 400 clients.[19] There is an opportunity to sell these services to existing Academic Suite clients to build revenues. [edit] Increasing online collaboration at institutions is an opportunity for growthAcademic institutions and individual courses are adopting sophisticated online systems at a rapid pace. Students at secondary and post-secondary institutions grew up in the internet age, and schools have adapted to the changing needs of these students. The era of the "professor's homepage" handwritten in HTML has ended. Instead, Blackboard functions as an interactive, "always-on" bulletin board, so when students have a question and the professor is not available, they can find grading information, future assignments, and other course-planning needs online. Or, they can pose questions to their classmates, allowing collaboration outside of the regularly scheduled meetings. More secondary schools as well as colleges are looking to add these programs to their curricula - and Blackboard, as the first mover and premier brand name in its market, is positioned to benefit as its market grows. [edit] Increasing sophistication of open-source software a riskAlternatives to Blackboard's proprietary software have gained traction since the company's founding in 1997. For example, MIT's open source platform, called OpenCourseWare, has fans around the world and can be used free of charge. More sophisticated open-source platforms sprang up after Blackboard consolidated its market with the acquisition of WebCT. Some of these alternatives have been created by university staff themselves, such as the Sakai Project (created in a collaboration between the University of Michigan, Indiana University, Stanford University and Massachusetts Institute of Technology).[20] The code underlying this software can be changed to meet a particular user's needs, while BBBB's software is closed-source. However, switching to open source software is a significant risk for an educational institution, and Blackboard's software support and "hands-free" reliability help it retain customers despite the threat posed by new competitors. [edit] Competitors
Some clients have found Blackboard's pricing prohibitive since it acquired its primary competitor, WebCT. This has created opportunities for lower-priced competitors such as Desire2Learn and ECollege.com (ECLG).[21] It has also motived the proliferation of open-source software such as Sakai, mentioned above. However, Blackboard has its foot in the door at many more institutions than the competition, at approximately 29% of all US universities.[22] Once a school contracts with Blackboard, it is unlikely to switch over - and this poses a significant barrier to success for any competitor to Blackboard's technology. [edit] Market ShareThe course management software market is dominated by BBBB, with a 51% share of the market pre-merger with WebCT, who held 32% of the market, in 2005 according to Market Data Retrieval.[23] The estimates for BBBB's share for 2007 are between 60-75%, explained by the loss of some WebCT customers as Blackboard began retiring the legacy products.[24] This is calculated by install base in terms of institutions, as a calculation of market share by revenues would undercount the market since there are a number of free open-source alternatives that do not generate revenue. [edit] References
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