CONTINUED GROWTH WILL BE FUELED BY THREE
PRIMARY FACTORS
BY CHRIS HOWARD
The LMS market has grown considerably over the last few
years, because organizations of all sizes now realize
that they need some form of learning management
solution.
In 2004 (when Bersin & Associates published its first
report on the U.S. market), we forecast LMS vendor
revenues at $380 million. In 2005, the revenues
increased to $480 million. In 2006, despite
consolidations and mergers, the market reached
approximately $583 million (see Fig. 1). This article
explores some of the underlying business drivers behind
this growth and the implications for both buyers and
solution providers.
The LMS market is still growing steadily, although this
growth has slowed slightly from 26 percent last year to
21 percent this year. The slowdown in the market is due
partly to saturation in the global enterprise market and
some commoditization of learning management systems, as
vendor feature sets have become more and more similar in
recent years. This is still a buyer’s market; multiple
vendors compete for most contracts, putting pressure on
vendors to keep pricing moderate.
We forecast continued growth in the LMS market, fueled
by three primary factors.
>>Key
corporate personnel now clearly understand the important
role of learning management systems. E-learning is no
longer something new—it is a daily part of the life of a
training professional. In fact, a recent study showed
that nearly 30 percent of all formal training hours are
now delivered through self-study online or virtual
classroom methods. Today, compliance training is
critical to most large businesses. Cost often justifies
the LMS purchase, as the LMS is critical to managing and
tracking these programs.
Our research continues to point out that the LMS has
become far more than an administrative tool for
training; well-implemented learning management systems
can improve corporate effectiveness and efficiency by 25
to 35 percent.
>>Training
is of increasing importance in the changing U.S. labor
market. In 2006, total spending on training grew by 7
percent, the highest growth rate in years. This growth
is fueled by the dramatic needs for talent in U.S.
corporations. Demographic changes, the aging workforce,
and changes in the profile of U.S. education have
created talent shortages in most organizations. As it’s
no longer possible to “hire skills,” they must be
developed internally. This increase in skills-building
has created what we call “talent-driven learning
organizations,” which focus on organization- wide talent
issues, not just individual workers’ skills. This
increased focus and new spending demand the use of a
corporate LMS.
>>LMS
systems themselves are evolving. Nearly every LMS vendor
has developed a new set of capabilities for performance
management, succession planning and competency
management. Vendors understand the new market for talent
management solutions, and the LMS is taking on an
increasingly important role as the hub or core of an
integrated talent management platform.
CONSOLIDATION + ADOPTION
Most vendors have tried to focus on the global
enterprise market (large organizations with global
operations), so it is the most penetrated. Our research
indicates that as many as 70 percent of U.S. global
enterprise companies already have some type of LMS.
These organizations typically have multiple LMS’s, many
of which are outdated and poorly used. In this market,
there is a clear trend toward consolidation and the
adoption of an enterprise-wide global platform. These
consolidation projects take years to cost-justify and
complete, and we believe this consolidation will
continue for years to come.
The enterprise market (large organizations with
employees primarily located in one country) is growing
very significantly. These enterprises also have multiple
LMS’s, but they tend to have only one corporate training
system. These companies may use a platform from
SkillSoft (or one of the other midmarket players in
sales or customer training), but would like to
consolidate these into a single corporate system. We
believe this market is growing very rapidly and is still
under-penetrated.
Finally, the fastest-growing segment of the LMS market
is in midmarket organizations (companies or departments
serving fewer than 10,000 learners). These are smaller,
often fast-growing companies with highly focused, expert
training organizations. They often do not have a lot of
IT support but realize tremendous value from an LMS.
These organizations have many of the same complex needs
as enterprise buyers, but their budgets and support
staffs are far less. They tend to favor an on demand or
hosted solution, and they will often start their
journeys into the LMS market through a single training
program or program area (like sales training, customer
training, partner training or elearning for compliance).
This market is growing at a rate of more than 40 percent
per year, and most LMS vendors have made major changes
in their business models to reach this market
effectively.
LEADERS, SPECIALIZED VENDORS GAIN MOMENTUM
At the same time, the LMS market has grown and matured
rapidly. Today, the level of technology and features in
LMS systems can be overwhelming. They include, among
other features:
>>classroom
scheduling and resource management;
>>e-learning
management
>>content
management
>>customizable
portals
>>domain
management
>>certification
management
>>e-commerce
>>configurable
course catalogs
>>competency-based
learning
>>analytics
This rich feature set has created a significant barrier
to entry. In fact, the number of LMS vendors in the
market is stable for now but will likely continue to
shrink over the coming years. Seven vendors now command
more than 50 percent of the market. We believe a shift
is under way toward a market of “leaders” and
“specialized vendors.” The leaders each have market
shares of 4 percent or greater in terms of revenues and
customer bases of 200 or more; the specialized vendors
tend to have smaller revenues and focus on specific
markets or geographies.
In addition, the enterprise resource planning (ERP)
vendors Oracle and SAP remain serious about the LMS
market and continue to grow, focused primarily on the
global enterprise marketplace. We believe neither
company has the focus nor the expertise to dominate this
market; most companies purchase LMS’s from Oracle
(People Soft) or SAP because they have already made a
significant commitment to that ERP vendor’s technology,
and they are willing to accept an LMS with somewhat less
functionality than one available from a more focused
vendor.
In addition, because of the growth in the talent
management market, almost every LMS vendor has announced
or shipped a suite of additional functionality for
performance management, succession planning and
competency management. This has created a flurry of
partnerships and potential mergers with talent
management vendors partnering with and seeking to buy
LMS vendors.
The challenge for LMS buyers is the complexity of the
choices. Buyers can purchase an LMS independently and
focus on the best possible solution for training. Then
later, they can integrate this system with the
performance management and succession planning systems,
or they can buy an integrated suite (typically from an
LMS vendor) and possibly live with less functionality in
performance management. We believe the market is moving
toward the latter solution, but not at a very fast pace.
While we believe strongly that integration between
learning and performance management is a vital strategy
for talent management, most companies do not implement
LMS and performance-management systems at the same time.
In fact, each is complex enough to take one to two years
to roll out. We recommend that you consider such
integration potential as you select your system, but
still focus on the right vendor to meet your immediate
needs.
OTHER TRENDS
At the same time, there are other trends in learning and
development organizations that will have an impact on
technology purchases. “Learning on demand,” a term used
to describe learning resources (of any type) that can be
quickly and easily discovered, is becoming a reality for
organizations, both big and small, that need to respond
quickly to changing business needs. A component of
learning on demand, social learning, is also being
implemented by some training organizations. Both of
these systems require their own technology and process
investments that need to be considered in the context of
the overall learning technology strategy. These are
separate technology applications in and of themselves
and will not be adequately addressed by LMS vendors.
These trends will continue to ensure that the LMS market
evolves over the coming years. Both advances in
technology and the changing purpose and structure of the
training organization will drive much of this evolution.
In addition to serving as a catalyst for business
performance improvement, training departments will
emerge as a key component of an overall talent
management strategy rather than only as a producer and
administrator of training.
The convergence of learning and performance management
systems is still in its early stages. However, we
believe that these two important business functions will
ultimately be combined as organizations address the
growing talent shortage taking place in many industries
and organizations sizes. This evolution will continue to
impact the LMS market as buyers and solution providers
rationalize an ever changing landscape.
—Chris Howard is vice president of research and a
principal analyst for Bersin & Associates. For more
information on original Bersin research, visit the
Website www.bersin.com.
