Three important words characterize the LMS market in 2006:
growth, expansion, and change.
Bersin & Associates's newest research study, "Learning
Management Systems 2006: Facts, Practical Analysis, Trends, and
Vendor Profiles," analyzes the LMS market from multiple
perspectives, such as market size by segment, market growth,
penetration rate by segment, and vendor market share by revenue and
license revenue. The report also details key technology trends and
features, implementation best practices, and benchmark costs of
implementation and support. It also reviews the role of e-learning
suites and LCMS solutions, as well as the growing role of
performance and talent management. Here's the executive summary.
The LMS market has grown considerably over the last few years.
Organizations of all sizes now realize that they need some form of
learning management solution. In 2004, when Bersin & Associates
published its last report on the U.S. market, it forecast LMS
vendor revenues at $380M. In the last year, despite consolidations
and mergers, the market reached approximately $480M, an impressive
26 percent growth rate.
This growth is fueled by three primary factors. One is that most
organizations now recognize that learning management systems work.
Many large, conservative organizations using internally developed
training management systems decided to "take the plunge" by buying
vendor-provided enterprise LMSs in 2005. The August 2005 Bersin
& Associates study, "The High Impact Learning Organization,"
shows that enterprise LMSs dramatically improve the efficiency and
effectiveness of corporate training. Organizations have realized
the benefits to be gained from these systems, spurring LMS
penetration and vendor revenues.
E-learning growth has also fueled the LMS market. U.S. training
organizations report that 28 percent of total student hours are
delivered online. This tremendous growth has forced organizations
to see the LMS as a mandatory application to manage the
administration of online content.
Finally, growth is fueled by the maturation of LMS vendors. In
2005, we witnessed the merger of Click2Learn, Docent, and Pathlore
into an LMS giant with potential for $100 million in annual
revenues: SumTotal Systems. Saba acquired THINQ and Centra,
bringing its sales potential to more than $70M. Companies like
Plateau Systems, Learn.com, GeoLearning, and others also saw
substantial growth rates. As companies get bigger and reach the 200
customer mark, they become well established players, making
customers feel comfortable doing business with them.
Expansion: from global enterprise to mid-market
While the enterprise market continues to grow at a moderate pace,
the mid-market segment has become red hot. Organizations with less
than 10,000 employees can now purchase well-engineered, cost
effective systems. As we describe later in this report, we estimate
that the mid-market is growing at a very fast rate, more than 40
percent last year in the United States, and several vendors have
developed focused strategies to penetrate this market. These lower
cost solutions have opened the market to non-profit organizations,
state and local governments, and other buyers who did not have the
money or sophistication to implement an LMS in prior years.
As the LMS market has grown in size, it also has grown in breadth.
Vendors with new LMS offerings, most notably SkillSoft and Thomson
NETg, have entered the market. In addition, the ERP vendors (Oracle
and SAP) became serious about the LMS market and experienced
tremendous growth in 2005. Both companies have proven
enterprise-class LMS solutions and have created dedicated sales
teams to help position these solutions.
In both cases, however, the companies still see the LMS market as a
relatively small piece of a bigger market for Human Capital
Management Systems. Neither company will sell its LMS to customers
who are not using its HR application. However, the new focus on
performance management within organizations has started to change
the LMS market, which should bode well for the future of these
Change: mergers create uncertainty in buyers
Amidst this growth and expansion, major mergers are making buyers
more nervous than ever. The biggest mergers in 2005 were SumTotal's
acquisition of Pathlore, Saba's acquisition of THINQ and Centra,
and Oracle's acquisition of PeopleSoft.
In each of these cases, product issues create uncertainty for
buyers. These companies now support multiple LMSs (SumTotal has
five LMS products, Saba has four, and Oracle has four). Each
product line has different features, architectures, and strengths
and weaknesses. Each vendor must make difficult decisions about
which products to support and which to discontinue. Buyers of the
products left behind may consider switching to another vendor. In
2005, Bersin & Assocaites talked with many customers of these
vendors who are trying to determine whether they should stay on
their current platform.
Management and governance keys to success
As the LMS market evolves, a new learning landscape is taking
shape. These changes create challenges for organizations trying to
be successful in their learning initiatives. In 2005, Bersin &
Associates developed a significant database of best practices in
the management, operations, and measurement of training. Research
shows again and again that the biggest driver of success in an LMS
implementation is not the software, but the leadership, governance,
management, and operations of the training function itself.
The implementation of an enterprise-wide LMS can cause a "shock
change" to a training organization. It forces the organization to
centralize administration, reporting, content integration,
measurement, and support. It requires a focus on shared services
and establishment of a three-tier governance model to be
successful. These complex issues are
vitally important to the ongoing success of the project.
As LMS technology evolves, the support and management processes
will evolve as well. LMSs are both a catalyst and an enabler of
business change, and all organizations that select and implement an
LMS must be prepared for this change. The business benefits can be
tremendous, but we warn buyers not to take the implementation of an
One of the most interesting and surprising changes in the LMS
market for 2006 is the integration of performance and learning
management systems. For years, Bersin & Associates have been
skeptical about competency-based learning because of the tendency
for companies to try to "boil the ocean" with competency-mapping
projects that never end.
In 2006, Bersin & Associates sees a real market emerging.
Driven by the aging workforce and economic growth, companies now
see talent management as a critical focus area for HR. Our
research shows that many organizations now
have a new job: VP or Director of Talent Management. This
individual is responsible for a new set of processes: performance
management, competency management, and learning. Together, these
functions form a new integrated focus that enables companies to use
training and e-learning in a more strategic way than ever before.