Thursday, May 23, 2002

Course-Management Companies Are Still Seeking Elusive Profits By MICHAEL ARNONE Last fall, the three providers of learning-management software with the most customers -- Blackboard Inc., eCollege, and WebCT Inc. -- predicted that they would be profitable sometime this year. But the companies haven't gotten there yet. Blackboard predicted last fall that it would be profitable by the middle of this year. Matthew S. Pittinsky, the company's chairman, has revised that estimate: He now expects the company to be profitable sometime before the end of the year. The company has had three separate months with positive cash flow but has yet to see a full quarter where more money has come in than gone out, he says. He cites the seasonal nature of customer purchases as a reason. "We're sort of tantalizingly close right now," he says. Blackboard expects an increase in income when many of its customers renew their contracts this summer, says Michael J. Stanton, the company's senior director of corporate communications. Blackboard is charging considerably more than it used to for some of its core products and the company expects increased revenue as a result. Oakleigh Thorne, eCollege's chairman and chief executive officer, says his company achieved a positive cash flow for the first time in the fourth quarter of 2001, a quarter ahead of schedule, although it is losing money again now. He credits an increase in income from student fees and decreases in other costs, such as travel, for the good performance. Although the company will spend more money than it takes in through the summer, it expects its income to exceed its expenses consistently by the fall. Mr. Thorne says he expects the company to be profitable by the middle of next year. WebCT is still on target to become profitable sometime this year, says Carol A. Vallone, the company's president and chief executive officer. She refused to predict when that might happen or to release specific figures, but did say that WebCT's revenue for 2001 was 292 percent higher than its 2000 revenue. WebCT increased its customer base by 750 institutions, or 40 percent, over the same period, she said. The company now serves more than 2,500 institutions in 81 countries. In the first quarter of 2002, Blackboard posted $14.7-million in revenue, 103 percent more than in the $7.3-million it collected in the same period last year and 5 percent more than in the fourth quarter of 2001. For the first quarter of 2002, eCollege had $5.6-million in revenue, 33 percent more than in the same period last year. Some 85,000 students are enrolled in courses that use the company's technology, almost 50 percent more than last year. Blackboard is the largest of the three companies and the closest to being profitable, says Trace A. Urdan, an equity analyst with ThinkEquity Partners. The higher-education market is too limited to permit much further growth, he says, so the companies have to either eliminate their competition or branch out into new markets, such as corporate training or high schools. The companies will become profitable more quickly if they move out of the post-secondary market, Mr. Urdan says. "Something has to give, and it won't be in the college camp," he says. Blackboard is reaching out to corporate customers, and eCollege is exploring the high-school market, Mr. Urdan says. WebCT remains focused on higher education, he says. The only publicly traded company of the three, eCollege, released all of its financial data. Blackboard and WebCT are privately held and released limited data. On Wednesday, Blackboard rolled out a multilingual version of its course-management system. The product, called Blackboard Learning System ML, will be available in French, German, Spanish, Japanese, and Chinese, with Portuguese and Italian versions soon to follow. The new product -- which works on Windows and Sun Microsystems platforms -- is expected to go on the market in July or August. One-quarter of Blackboard's clients are already from outside the United States, and Andrew Rosen, the general manager of Blackboard International, characterized the multilingual version as part of a "significant investment in global operations" by the company. Speaking at a news conference at the World Education Market conference in Lisbon, he said that the new product would "support culturally distinct methods of teaching and learning. ... For example, universities in France will not use an English product." The new product also represents a response to the growing cross-border needs of institutions, he said. The cost will be based on institution size, and will be the same as for the English-language version. Earlier this week, Blackboard announced that its products would conform to technical standards developed by the Open Knowledge Initiative, a consortium led by the Massachusetts Institute of Technology that is developing open-source course-management software. Following the standards will permit users to use software from other manufacturers with Blackboard's products. Kate Galbraith contributed to this story from Lisbon. Background articles from The Chronicle: Pricing Shifts by Blackboard and WebCT Cost Some Colleges Much More (4/19/2002) 3 Companies That Sell Course Software Say They Are Raking in Money (11/16/2001) Easy-to-print version E-mail this article

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