LMS 2006: A Dynamic Market

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.

Market growth

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 companies.

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[1]. 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 LMS lightly.

Looking ahead

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[2] 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.