SumTotal Acquires GeoLearning: LMS Market Consolidation Continues

Today another major shift takes place in the talent management systems market: SumTotal Systems announced the acquisition of  GeoLearning.

Background:

SumTotal Systems is the largest provider of learning management systems today (and also a major provider of integrated talent management systems).  In our LMS 2011 research we show that before this acquisition SumTotal had 9% total market share in the LMS market, and now with this acquisition grows its market share to 12.5%.  This makes SumTotal approximately 50% larger than the #2 LMS player (Saba), clearly establishing their leadership in this segment.

GeoLearning is a 10 year old company who really pioneered the SaaS or “managed services” model in learning.  In fact, when they first came to market with an online LMS, they had a very hard time convincing customers to “outsource” their LMS.  To respond to this issue, GeoLearning added a wide variety of solution-oriented services to their LMS:  content, content development services, reporting services, and e-commerce.  Over the years as GeoLearning grew, the company became well known to mid-market organizations and at the time of this acquisition was one of the largest mid-market LMS providers (revenues around $40M).

I have always had a strong affinity for GeoLearning because the company has always had a “total solutions” focus, driven by Frank Russell, the company’s charismatic and very customer-centric CEO.  I have talked with many of their customers, most of whom were always very happy with the solution they received and often used GeoLearning for a wide variety of learning services.

GeoLearning was the arch-rival to Learn.com (now acquired by Taleo), so this takes the two largest mid-market LMS companies and now makes them part of larger players.

SumTotal’s Strategy:

SumTotal Systems is a $150M+ company with a history of successful acquisitions, including  Docent, Click2Learn, Pathlore, Mindsolve, Softscape, and now GeoLearning.  The company is now owned by Vista Equity partners, a private equity firm with a real “Playbook” for software company mergers.  John Borgerding, SumTotal CEO, is an experienced software executive who has implemented the Vista Equity playbook at a prior company in the utilities industry.

The acquisition of GeoLearning makes sense for several reasons.  First, this gives SumTotal a well-established mid-market LMS (and telesales team) to go after the mid-sized enterprise market, which is one of the hottest spaces for learning and talent management systems.  Second, SumTotal can now sell the company’s talent management products (products acquired from Mindsolve and Softscape) to GeoLearning’s 700 customers.  Over the last three years GeoLearning has partnered with SuccessFactors to sell talent management – this relationship will now end, forcing SuccessFactors to find another partner or start their own LMS development effort.  Third, GeoLearning has a major established presence in the customer education markets (Dell, Costco, and even Google use GeoLearning for embedded customer training applications) and also in the federal and state and local markets.  SumTotal can now immediately leverage this strength to build on Geo’s focus on these more nichy markets.

Finally, and perhaps the most important part of all, SumTotal’s size now makes the company the “established leader” in learning management.  The company is well over $150M in revenues and now has 39 million licensed users. The only major players left in the enterprise LMS market are Plateau, Saba, Oracle, SAP, CornerstoneOnDemand, Taleo/Learn.com, and Blackboard.  With twice the market share as the #2 player, SumTotal can leverage its size to create stronger partnerships with learning solution providers, grow its vertical strategy, and use its install-base to create a more vibrant community of SumTotal customers and ecosystem partners.

Risks:

The risks to this, and any merger, is the ability for SumTotal to maintain the product base and customer satisfaction. There are dozens of new, startup LMS companies and if SumTotal does not continue its product investments, buyers will switch platforms. Borgerding clearly understands this issue, and in fact has directed the company to make sure that all the existing product lines must be maintained.

SumTotal calls this their “unlimited” product strategy – implying that all products are supported into the future, with integration points coming. Already the company has delivered a seamless user experience between Softscape’s talent management solution and the SumTotal LMS platform. Over the coming quarters the company plans to merge the SumTotal and Softscape platforms into a “next generation” talent management platform which will leverage the deep functionality of Softscape with the deep functionality of the SumTotal LMS.

GeoLearning customers will be supported and upgraded and over time this product line will be merged as well.

Bottom Line:

This acquisition makes SumTotal an even more important leader in the talent management marketplace.   By further establishing its leadership position, SumTotal now has an even stronger revenue and customer base to build upon.  GeoLearning customers can now feel comfortable that their vendor has deep pockets, and other SumTotal customers should feel comfortable that the company now has a greater investment base to build upon.

In the LMS world, the number of alternatives is now shrinking – so this acquisition forces companies like SuccessFactors, PeopleClickAuthoria, ADP, and others to get more serious about their LMS strategy.  While LMS buyers still have many options (there are more than 30 vendors with more than 2% market share listed in our LMS 2011 research), the number of large, well capitalized vendors is getting smaller.  SumTotal, with the market lead, now only faces Plateau, Saba, Oracle, SAP, Blackboard, and Taleo/Learn.com as competitors in the “over $100M” market size.

Our most recent research on buyer strategies shows that almost 1/3 of all talent management software buyers are now willing to sacrifice their feature requirements for the opportunity to select a vendor with an end-to-end solution.  Companies like Halogen Software and CornerstoneOnDemand have proven that selling a learning management system coupled with a performance and talent management system makes a lot of sense – and gives customers a new set of applications they cannot easily implement with standalone solutions.

While the company is still private and does not disclose financials, our research shows that SumTotal is continuing to grow slowly, and we expect this move to help SumTotal further grow its leadership position in the learning and talent management systems markets.

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