Whither goes the LMS market?

As we read more and more about talent management suites and the rapid growth in the market for integrated HR software, what has happened to the market for learning management systems?  I’d like to provide our readers a brief update, with more details available in our research library.

1.  The LMS market continues to grow. 

The LMS market will reach over $700 Million this year and it continues to grow.  While more than 70% of large enterprises have some LMS in place, almost 40% of these are being replaced, consolidated, or upgraded.  In the mid-market segment (more than 20,000 organizations in the US alone), this market is still very under-penetrated, and as more and more LMS vendors deliver SaaS products, the buying will continue.

2.  LMS products are evolving in two important directions:   talent management and Web 2.0.

Learning management systems are what I call “bread and butter” applications.  Everyone who does any significant amount of training needs one.  In that role, they are critically important systems for the administration and management of training programs.

In a broader role, however, LMS systems are growing in two ways.  First, most companies now realize that their training must be integrated with their performance, career, and talent management processes – so these systems must interoperate and function as talent management tools.  Second, once companies have tens to thousands of learning programs loaded into the system, the LMS becomes a critically important content management system which facilitates informal learning and what we call “learning on demand.”  The next step will be social networking.

Fig 1:  Two Directions for the LMS Market

Vendors which have jumped onto this include KnowledgePlanet (completely renamed to Mzinga and refocused the company on corporate social networking, while continuing its enterprise class LMS business), Saba (acquired Centra and offers blogs, wikis, and collaboration within the context of every learning program), Learn.com (built its own web conferencing system which is available in its platform), SumTotal (which just announced support for the iPhone), and almost every other LMS provider.  In fact one of the potential risks to the LMS market is that you can now implement a Wiki so easily with tools like Customervision or Gaussian that collaborative learning can be implemented fairly easily without an LMS (although the tracking, registration, and administration features are still needed).

3.  New financial investments and financial progress.

Most financial analysts find the LMS market confusing.  This is changing.  This last quarter both Saba and SumTotal delivered operating profits, an important step.  In addition, two of the fastest-growing Software as a Service (SaaS) LMS vendors received large investments:  GeoLearning received a $31 Million investment from Fidelity Ventures and CornerstoneOnDemand received $32M last Fall.  These investments show that the financial community now understands the ever-growing need for these systems and the huge market opportunity for vendors with well positioned products and SaaS offerings.

4.  Where is the market going?

The LMS market continues to expand.  Despite the fact that the two largest vendors are now over $100M in sales (SumTotal is now running at a $133M revenue runrate and Saba around $107M), smaller companies continue to grow rapidly.  CornerstoneOnDemand, Plateau, Softscape, GeoLearning, Learn.com, Meridian, Certpoint, Mzinga, as well as Oracle and SAP are all seeing tremendous growth.  While the market is highly competitive, each of these companies is identifying its own market niches – and there are many.   We consider training to be a “horizontal” market – it takes place in almost every large organization.  But within this horizontal market there are many segments:  customer training, reseller/channel training, certification and compliance training, rapid e-learning for small companies, global enterprise learning management, as well as content development, publishing, and informal learning. 

LMS vendors are reaching into content management and publishing in different and valuable ways.  Plateau’s i-Content offering provides a unique and open approach to management of corporate e-learning;  EEDO, Outstart, and Certpoint offer robust content management and development systems to manage enterprise-wide content and blended learning programs, and we recently talked with another exciting company which has developed an enterprise-class LMS for the publishing industry.

Will this market “consolidate?”  I do not see it happening.  There are still many “unsolved problems” in the LMS space, and buyers continue to select different solutions based on their own internal strategy.  While all HR managers would like to have an end-to-end software system for all elements of talent management, only 15-20% of organizations can even do this.  Organizations have a “tower of babel” of existing systems — and the LMS is a system with many masters.  While it is often purchased by the L&D organization, it is used by sales, compliance, talent management, career development, customer education, and many other groups in the company.  With exciting new technologies now available for corporate learning (tagging, blogs, wikis, mobile interfaces, social networking, and we see many new ones on the horizon) the role of the LMS is everchanging. 

If vendors do not continue to evolve with this market, organizations will find that their LMS becomes a “back office mainframe” (I guess many of you have never seen a mainframe – its a big blue file cabinet in the IT department) which is only used by training adminstrators.  But we have a vibrant industry of creative professionals serving this market, and rather I see a tremendous amount of new innovation continuing to fuel the corporate learning market.