The Learning Experience Market Explodes: Degreed Acquires Pathgather, Taking an Early Lead
Today Degreed, one of the pioneering vendors of Learning Experience Platforms (LXP), announced plans to acquire Pathgather, another innovator in this space. This acquisition gives Degreed clear market share leadership in this fast-growing new market, putting pressure on challengers like EdCast, CornerstoneOnDemand, Skillsoft, LinkedIn and others to move faster as the market accelerates.
Background on the Learning Experience Platform (LXP) Market
Over the last several years the corporate training market has become very dynamic. Companies spend over $200 billion around the world on training, and as the demand for new skills accelerates, they are investing in new learning tools heavily.
Corporate learning tools, which make up approximately $19 billion of the money spent on corporate training, include a wide variety of products. The primary platform is the Learning Management System (LMS), which is used by most companies to administer, track, and manage training programs and compliance. They also buy tools to build content, tools for performance support, tools for content management, tools for virtual and social learning, and tools for career development, competency management and skills assessment.
While historically the learning management system has been the core technology in this space, this is changing quickly. Employees want a consumer-like experience to learn (similar to YouTube or Netflix), and the LMS was never designed for this kind of use. (The LMS launches “courses” and is more of a management system than a learning system, read more about this history in the article Learning in the Flow of Work).
As a result, the LMS, which is actually an administrative and compliance application, is moving into the world of ERP. And a new category of software for employees has emerged, something I call the Learning Experience Platform (LXP).
Simply explained, the LXP is a place employees go to learn. (A screen shot of Degreed’s user interface is shown below). It curates and recommends content based on your role, experience, goals and interests; it lets employees publish and share content they find useful; and it uses data, AI and machine intelligence to recommend, nudge, and push content to people based on the skills they want (or need) to develop.
While the market was pioneered by Degreed, Pathgather, and EdCast, it has now become a very hot space, with many other vendors trying to get in. (Today CornerstoneOnDemand, Skillsoft (product name is Percipio), Fuse, Valamis, and Tribridge have formally entered the space and we can expect Oracle, SAP, Salesforce, and Workday to enter over time).
As this chart shows, the learning experience platform sits on top of a series of tools and delivers a consumer-like experience to employees. The simple paradigm for these tools is the Netflix of Learning, but over time this layer of software will evolve to be very consumer-like, intelligent, and integrated into the flow of work. (Over time I expect categories 1, 2, and 3 to merge.)
A Large New Market
While the LMS market today is over $5 billion in size (there are more than 200 LMS companies), it is well-penetrated and grows by 3-4% per year based on turnover and economic growth. The LEP market, by contrast, is much smaller (around $200-250M today), but growing at 200% or more.
The potential LXP market size is huge. Consider the numbers here. There are more than 500 million working professionals in the world and nearly a billion employees of various types (gig, part-time, blue collar, temporary). All of them need to learn at some point in their job (onboarding, compliance training, or simply training to learn how to use the tools of their trade). So if we look at the potential recurring revenue fees to “deliver” training to all these people (separate out content as a different market), it is easily a multi-billion dollar market.
As I wrote about in a recent article, the LMS market is being reinvented. Every major ERP provider (Oracle, SAP, Workday, ADP) sell an LMS with their platform, and while they vary in their user interfaces, much of their functionality (tracking registrations, completions, compliance, and managing workflow and training cost allocation) is focused on administration. Employees don’t use the LMS that much, and most companies now believe that this system belongs in the basement – to be run by IT and HR.
Employees, on the other hand, want a visually attractive, intelligent, mobile-enabled interface that actually gives them a true “learning environment.” Hence the LXP market is becoming more valuable than people realized. And with today’s big focus on improving the employee experience, it has become a hyper-growth market.
In the last decade an employee’s learning experience was a course catalog bolted onto the LMS, so it really didn’t command a separate price. Today, however, these intelligent LXP platforms are enormously valuable so companies are spending millions of dollars to buy them (forcing down the pricing on their core LMS). I know of nearly a dozen companies that have spent millions of dollars on learning experience platforms now, often spending $20-30 or more per employee per year. That adds up fast (500 million professional employees at this price is a $10-15 billion market). Of course prices will come down as the market gets bigger, but you can see the size of the opportunity which has emerged.
As I mentioned above, many vendors are eyeing this market. SAP’s product Jam and Workday Learning are potential players in this space, and nearly every LMS vendor is trying to build a similar product. Percipio, the LXP developed by Skillsoft, is already generating meaningful revenue and the company plans to integrate it with SumTotal. One could also argue that LinkedIn Learning (it can publish and manage third party content) is an LXP, and I believe Microsoft Teams could become one over time as well. One could imagine that Google sells a corporate version of YouTube that could compete.
Over the last few months I’ve carefully surveyed the market and believe that today the total revenue captured by these products is probably around $200-250 Million and growing at 150-200% per year (this is for separately priced products that compliment the LMS). While some vendors don’t explicitly charge for the LXP today (Cornerstone and LinkedIn for example), I believe they could over time.
Degreed Now Clear Leader, EdCast Growing Fast
Who are the real leaders? Today, with over 200 enterprise customers, Degreed is well ahead, and by acquiring Pathgather the company accelerates its lead. Pathgather was developed with a similar paradigm to Degreed, but it had an even more engaging user interface, so the company captured major client wins. As a combined company Degreed gains a larger market footprint, a larger engineering team, and valuable product management from the Pathgather founders and marketing team.
Degreed has already signed up dozens of the biggest employers in the world, including Bank of America, Citigroup, Mastercard, Intel, Cisco, Harley Davidson, Tesla, Unilever, and most recently, Boeing. Now, though Pathgather, which brings Visa, Qualcomm, and Capital One, it has emerged as the clear leader in the Fortune 500 market.
But this game is far from over. The fast-growing alternative is EdCast, which is about a third the size of Degreed and also growing quickly. EdCast positions itself as a knowledge management platform, with technology for learning, information discovery, and knowledge management. The company does not have the maturity of skills assessment and ERP integrations of Degreed, but does have tools for robotic process automation, digital adoption, and scalable knowledge management. EdCast has also captured deals from some of the world’s largest companies (Anglo American, HP Enterprise, Schneider Electric, Kraft Heinz) and has been selected by NASSCOM, World Economic Forum, and Norway’s non-profit Future Learning Lab to power large public-facing skills development networks. So the market is still wide open.
One way to think about this market is that LXP software is to learning what middleware is to applications. Look at the enormous growth of ServiceNow, a company that provides case management and employee experience software that sits between employee service applications and both IT and HR. ServiceNow has more than 2,000 customers, over $2B in revenue, and is one of the fastest growing cloud vendors in the world. I believe the focused LXP companies have the potential to play a similar role in the gigantic employee learning market, selling an employee-centric layer that sits on top of the LMS.
Market Still Young
This is still a young market and I expect a lot of things yet to happen. As more learning moves to short form video (micro-learning) and more courses are authored by experts and employees, we can expect these LXP systems to “deliver” learning right into the platforms of work.
This means tools like Salesforce, Microsoft Teams, Slack, and Google G-Suite will be seen as learning platforms, since that’s where employees spend most of their time. IBM Watson today can deliver learning through conversations, and I know of several vendors who have systems that “chat with employees” to help them learn what they need to know (Filtered and Butterfly.ai, for example). Already Skillsoft’s Percipio has a feature called ELSA, the Embedded Learning Synchronized Assistant, that recommends content based on your web activity already and Degreed offers integrations with Slack.
Imagine, for example, if you have all your company’s learning content in Degreed or another LXP and you now decide you want to build an onboarding program for sales people in Salesforce. Rather than try to build a training program and embed it into the Salesforce portal, you could simply build it in the LXP and then use the LXP’s integration to provision it to all your sales people. This is what we always wanted the LMS to do – the LXP is just more open, flexible, and easier to integrate.
In an adjacent market, the fast-growing marketplace of on-demand digital adoption tools (WalkMe, EnableNow, EdCast’s GuideMe, and others) is impinging on this space, delivering software that recommends instructional content based on your job and learning history with systems that monitor your minute-by-minute activity to guide and help you along the way. Learning is one of the most exciting marketplaces for AI and conversational systems, and I expect that the LEP will become the platform for some of the most advanced AI-based innovations.
I attended the ServiceNow customer conference a few weeks ago and was astounded at how much money and energy companies are putting into tools that “simplify the employee experience.” Think about the opportunity to do the same for employee development, learning, and performance support. With a robust and now well-defined market for Learning Experience Platforms, I think we have a new billion dollar market coming fast.