Blackboard (NASDAQ:BBBB) designs and licenses course management software to schools in the United States. Blackboard's software lets instructors and students collaborate over the internet, supplementing the traditional classroom. For example, assignments and class notes can be posted and shared online, and discussion threads allow the class to discuss the week's reading prior to the actual seminar. Blackboard has licensed over 8000 copies of its software. The company earned $136 million in revenue and $31.8 million in net income in 2009.
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 . The software is also popular with university IT departments because it can be adapted for use alongside existing software the school already uses. Although some lower cost and open-source products exist, such as Desire2Learn and Sakai, 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.
Blackboard 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.
Blackboard's customer breakdown is:
Blackboard 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. There is an opportunity to sell these services to existing Academic Suite clients to build revenues.
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Alternatives 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). 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.
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). 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 a third of all US universities. 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.
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