Wednesday, September 27, 2006

Desire2Invest

I received an email and subsequent phone call today from a securities analyst working for the investment arm of a major U.S. bank. Blackboard is one of the stocks that she covers for the bank and she had been reading my blog post (directly below, or go here) about the number of higher ed institutions that have selected D2L over Blackboard during the past few years. She wanted to chat a bit about Blackboard's prospects for the coming years from a securities perspective. She clearly realized that she was speaking to someone with more than the usual dose of anti-Blackboard sentiment, but she was interested in what I had to say all the same.

As she was analyzing their stock prospects, she seemed to be concentrating on the following factors:

  1. How difficult (costly) is it to change vendors?
  2. How long do most contracts run (how soon could schools consider making a switch)?
  3. What affect will the ongoing patent lawsuit have on D2L's ability to sign new clients?
  4. How does the higher ed market in general feel toward Blackboard as a company?
Her knowledge about Desire2Learn was limited but she had been looking for sources that would help her decide how significant a threat they are to BlackCT as we go forward and other general info about how the patent litigation would affect the stock price of the Evil Empire. Although I was probably more long-winded than this, the points below would be the gist of my remarks on the four questions above:
  1. In some respects, it is becoming easier all the time to change vendors especially to a company such as D2L that has developed a fairly decent course conversion utility. In other respects, it gets harder all the time as the sheer mass of online courses and content continues to grow somewhat like a mushroom cloud. Answering this question probably depends mostly on how big a player the school/system is in the e-learning market.
  2. In Minnesota, it was very important for us to be able to lock in licensing fees for a 5-10 year period to guard against the type of major price increases that many of us experienced with Blackboard and WebCT before switching to Desire2Learn. We have a five year contract with five one-year options to renew, effectively giving us a ten-year contract if we Desire2Stay. There are price increases built in, but they are reasonable and known in advance.
  3. This one is pretty hard to say at this time. After the patent suit was filed, D2L did sign at least one new major client (WHRO, Sept. 14) so they obviously were not put off by the risk involved in the patent litigation. My opinion is as follows: worst case scenario is that D2L loses and has to pay royalties to Blackboard in which case D2L probably has to raise their licensing fees. In that case, I would rather lock into a long-term contract before the suit is finished rather than after which would provide several years of buffer against price increases. NOTE: some will probably say that the worst case scenario is for D2L to lose the lawsuit and be forced out of business ... I'm not considering that because Blackboard has assured us that they are not seeking that outcome and I have decided to believe everything that this honorable company has to say.
  4. Regarding the perception of BBBB in the higher ed market, I really don't think that I have an accurate take on this. Clearly the vast majority of the vocal opinion mongers are outraged and disgusted by Blackboard's antics. However, the silent majority has not been heard from .... which is why they're called silent. The most important piece of information is how the top-level decision makers in higher ed are viewing this. Faculty and staff can scream all they want but if the people who hold the contract licensing purse strings are not put off by Blackboard, then you can expect this to be only a ripple in the wave pool that is BlackCT. I do believe that there will be several major BB clients who will choose not to renew when the time comes as they look at other vendors and open source as serious alternatives to the BB monopoly. I really believe (or at least I really WANT to believe) that higher ed takes a dim view of getting caught in the middle of corporate shenanigans by greedy suits. Of course I could be wrong.
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