Why Your LMS Vendor Gets No Respect

Ever wonder why the major LMS vendors, led by the two public companies Saba and SumTotal Systems, always seem to be struggling? Here we are, a decade after Cisco CEO John Chambers got the early LMS players' hearts fluttering by declaring that eLearning would make email on the web seem like a rounding error. Yet even before the current recession, Saba and SumTotal could not get their growth engines going.

A major reason for this was discussed in my last post. The enterprise LMS market is pretty saturated, and the products are mature, at least from a features-and-functions perspective. So you have limited growth options. You can grow by peer acquisition. But in a saturated market, this is just rearranging the deckchairs. SumTotal and Saba have already consolidated most of the big early players. Those that are left are not especially appealing, and, even if they were, S & S no longer have attractive enough stock to offer, nor can their performance warrant other forms of capital infusion. The current crop of second tier vendors probably believe they are better off sitting tight, or have grown weary of the dance. A number have been dressed up for the dance without suitable suitors for so long that they look and act like old maids.

Another growth strategy is the "adjacent category" play. Add Whatever Management to Learning Management. Whatever needs to be a close enough cousin of Learning to leverage at least some of your sales, marketing and services capability. You get to pick the Whatever of your choice. Human Capital? Content? Performance? The "Pick the Whatever" game has occupied, if not entertained, many LMS vendor staffers for countless hours over the years. Trouble is, the market does not seem to want to grant the LMS vendors the rights to move into any of these catagories in any meaningful way. The market can be stubborn about this: "You want to be my LMS vendor? Then I want you to be focused!"  

So what is left? More mergers? Saba and SumTotal already have hairballs for product lines as a result of their prior acquistions. More would not be merrier. Get acquired by a company in another enterprise space? Even if capital were flowing, where is the value to the acquirer? Saba and SumTotal have spent hundreds of millions forming companies that cannot get to profitability in the LMS market. I know all about the greater fool theory, but really...

So here's an idea. How about becoming a real software company? SumTotal and Saba behave more like they are in the services business than the software business, and their finacial statements and market multiples reflect this. I know, being a software company is a radical idea. Regardless, I'll explore this more soon in another post.

(Full disclosure: I was a founder of Silton-Bookman Systems, whose Registrar product, originally released in 1984, was instrumental in launching the LMS market. Silton-Bookman Systems merged with another LMS company, Pathlore Software, in 1999. I was COO of Pathlore when it was acquired by SumTotal Systems in 2005.)