Life was simple in the early days of e-learning before anyone had yet invented the term. There was no such thing as SCORM or AICC to worry about as there were no LMSs. Courses, like books, were mostly purchased for individual study, or for company “learning centres” – usually a spare PC in the corner.
Access Group’s first courseware, for example, an introduction to business finance, was delivered on five floppy disks in a box.
There were very few barriers to entry in those early days. You just needed a PC, a box of floppies, and a suitable authoring tool, along with some rudimentary instructional design skills. And that, I hear you cry, is still true today - apart from the box of floppies. Indeed, arguably the barriers to entry are lower than ever.
The rise of rapid development tools that don’t require programming skills, such as Articulate Storyline, Adobe captivate and iSpring, have made start-up even easier, supported by online communities where ideas are shared and problems quickly resolved. Now anyone can create online learning. The downside of course is that there are an awful lot of badly designed, educationally incompetent page-turners on the market.
Although easy entry makes for plenty of healthy competition, it also tends to drive down margins, and in the longer term that constrains growth. Over the past ten years or so, better communications have exposed the US and European providers to global competition, most notably from a well-educated, highly competitive workforce in India, resulting in further downward pressure on prices.
Many UK and US bespoke companies have tried to use this to their advantage, setting up offshore development centres. Unfortunately, the reduced direct costs can be outweighed by additional management costs in ensuring that quality, creativity and cultural relevance are not compromised. So, if you quoted on the basis of cost savings that in the event you can’t realise, your margins are squeezed even further.
When you compound low entry costs with low switching costs – unlike LMS and off-the-shelf content vendors, there is no recurring licence or subscription fee in the classic bespoke model - vendors need a constant stream of new business to sustain them, and that is not a recipe for stable profitable long-term growth.
Differentiation is difficult in a market where ideas can be swiftly copied, but the alternative of selling on price is generally economic suicide. There are very few economies of scale, and as prices are driven down towards marginal cost, quality suffers and the bottom feeders will drive out the companies with higher standards before going bust themselves.
Some of the most enduring bespoke companies have succeeded in differentiation through the quality of product and service, and through focusing on a specialist niche or vertical. But, almost by definition, these businesses tend to remain relatively small.
All these factors - low entry barriers, low switching costs, few economies of scale - are the primary reason there are so many small niche eLearning businesses, and so few successful large ones.
Over the years there have been many attempts to break out of this pattern through merger and acquisitions, but the record is if you will forgive a dose of English understatement, chequered. The short history of this industry is littered with examples of failed acquisitions, and very few successes. There are few advantages in size, and management problems tend to multiply as teams get larger and more dispersed. It is a tough world out there and it does appear that when companies lose their focus, as is almost inevitable in the shake up after a merger, they also lose their way.
Growth by acquisition is of course back in fashion again, accompanied by optimistic statements about the benefits of scale, market leadership and access to “high-value strategic contracts”. Maybe it really will be different this time, but maybe not.
Explore our Access Digital Learning and Compliance software