Your LMS Costs Too Much--And It's Your Fault

In my last post, I described the business model problems of the major (and most of the minor) LMS companies. These problems inflate the cost of an enterprise LMS beyond what it could be, and in my opinion, what it should be.

But we have this free enterprise thing going on. You don't have to buy these overpriced products. If you do, you are voting with your dollars in favor of these maladaptive business models. You are validating these companies. Since that behavior seems irrational, and I assume you are rational, something else must be at work.

In fact, the LMS vendors are themselves behaving rationally, albeit badly, in response to your (or your company's) behavior. And each time you buy from them, you reinforce their behavior. 

Before I describe your behaviors that condition your vendors to behave as they do, let me be clear that it does not matter why your company does these things. What matters is that you do them and that you are responsible for your own actions. Change is up to you. No excuses.

Enough tough love. Here are the things you do that shape your vendors' business practices and seriously inflate their costs of doing business with you, which are of course in some way or another going to be passed on to you in inflated prices.

Customization

A few years ago, Oracle CEO Larry Ellison, who is arrogant enough and rich enough to say what he really thinks, suggested that enterprise application customers should use his company's products as they are delivered. He said that customers were driving their costs way up by insisting on customization. He was roundly criticized. Few heeded his wisdom. He ultimately bowed to the market's penchant for customization by increasing Oracle's prices, especially for maintenance. Oracle thrives. Its customers, well...

Ellison was right, of course. Unless an application is central to your core business and provides unique competitive advantage, you should be using something out-of-the-box. Learning may be a strategic issue for your workforce; a learning management system is not. It is infrastructure. LMS is a mature application. Major vendors offerings are very similar in terms of features and functions. And I do not care if you are a Fortune xx (you fill in the xx that impresses you) company. Drop the ego, your learning management needs are not that special.

My experience is that all the costly customizations produce little, if any, ROI. In fact, when I'd talk to customers a year or two later, they'd often be unable to explain why they (or their predecessors) insisted on the expensive doodads in the first place. I once had a CIO fume at me for having somehow been responsible for the costly and useless customizations his predecessor had insisted on.

I know some CIOs who insist that all applications be used out-of-the-box. Their companies seem to be doing rather well.

Let your LMS vendor be a software company, not a professional services company pretending to be a software company.

(Note: customization here means something implemented by custom code; it does not mean configuring software preferences through a user interface.)

RFPs

When your vendor has to respond to a massive RFP, one way or another, you pay for it. The trend towards ever more lengthy RFPs is bad enough. Worse, it is common that when the vendor asks for clarification of an item, the customer is unable to explain what it means. If the questions are incomprehensible, of what value are the answers?

About 80% of the typical RFP asks about standard LMS features. Drop these questions, they add no value to your analysis. Focus on genuine differentiators that really matter to your organization now and will matter in the future. A short RFP (try for two pages) is actually harder to prepare than a compendium of every conceivable question cobbled together from various sources. But it is a lot better.

Contracting

Unless there is a truly compelling reason to make a change, accept the vendor's contract. Your vendor does not have a one-sided agreement. They know your legal folks will read it. They want to keep their legal costs down. They want you to be okay with their provisions. Do not let your legal department prove its worth by insisting on a bunch of terms and conditions that genuinely are not worth a thing to your organization. Do not spend time negotiating for concessions the vendor won't ever give, or that have no real value.

I have spent countless hours in this process. I have never (truly never) seen a customer get a benefit from any contract language they insisted on. All the sound and fury is a waste of time and money.

The Squeeze

Everyone tries to squeeze the vendors' prices as low as possible. Yet they want financially healthy vendors. Well, your vendor is not going to make a profit on the other guys but lose money on you. Your vendor is, instead, going to engage with you and all customers in a costly dance of price negotiation.

When everyone expects a 40% or 60% or 80% discount (because, you will recall, everyone thinks they are so special), list prices are meaningless. 

You ultimately pay the cost your vendor incurs by playing this game.

(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.)