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Author: TMFConnor One star, 50 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 199  
Subject: Why Blackboard will be bought by Google Date: 1/26/2010 1:21 PM
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Online education is clearly a long-term trend, but that does not guarantee Blackboard (the current leader) success. While it has done a good job of acquiring its main competitors (WebCT, Angel Learning), open-source solutions (as mentioned in the original rec.) are a serious threat. To judge Blackboard’s long-term success, we need to further examine the industry’s competitive landscape.

Copied from the 10-K:
"We operate in highly competitive markets and generally encounter intense competition to win contracts. If we are unable to successfully compete for new business and license renewals, our revenue growth and operating margins may decline. The markets for online education, transactional, portal, content management, transaction systems and mass notification products are intensely competitive and rapidly changing, and barriers to entry in these markets are relatively low. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. Some of our principal competitors offer their products at a lower price, which has resulted in pricing pressures. Such pricing pressures and increased competition generally could result in reduced sales, reduced margins or the failure of our product and service offerings to achieve or maintain more widespread market acceptance."

After examining some of the competitors, here is how I would describe the competitive landscape: Blackboard was the early leader in online education, formed relationships with schools that lead to a pretty stable and recurring revenue stream, acquired its main competitors, and now has to deal with

1) Bigger competitors such as

a. Google (more on this below)
b. Microsoft (http://www.microsoft.com/education/teachers/guides...)

2) Open source solutions/other competitors
a. The Sakai Project
When I first glanced at the list of schools using Sakai, I thought they were mostly smaller schools. However, large schools with lots of financial resources such as Yale, Columbia, Notre Dame, and Cornell are using The Sakai Project. When schools with huge resources like that are using the technology, it is definitely a serious threat. Here is a link that lists all of their partners: http://sakaiproject.org/whos-using-sakai
b. Moodle (http://moodle.org/about/)
c. eCollege.com (http://www.ecollege.com/index.learn)

As you can see, there are many competitors in this industry and it is rapidly changing. The real advantage that Blackboard has is that it was the first-mover, is the biggest company dedicated solely to online education, and has a large network of partners who have already invested time and money into their software that provide a recurring revenue stream. So, with all of these factors considered, what is the future of online education? Who are the winners and losers?

This brings me to Google Wave. Many believe that “Google Wave Will Revolutionize Online Education.” Here is a link to the article:

http://www.soyouwanttoteach.com/google-wave-will-r...

Google Wave certainly shows promise, but they still have a disadvantage in that they are “late to the game.” For example, even if Google Wave can revolutionize online education, are Blackboard’s 5,500 customers who have invested thousands of dollars and hours implementing their technology, teaching their faculty, teaching their students, etc. going to want to switch? Probably not.

Instead, Google could try to partner with schools that do not yet have an online education management solution, but these would be mostly smaller schools and would not be as profitable. In addition, Google would run into the same issues with Blackboard customers switching as they would with Blackboard’s competitors, who also have many clients with high switching costs. So what is the best move for Google?
Google should buyout Blackboard because “Blackboard can do for Google in online education what YouTube did for it in online video” says James Altucher (see his Yahoo video link below). This would give them the leader in online education, allow them to improve their product offerings, expand their customer base, etc. It would be great for Blackboard, which is facing increasing competition on a variety of fronts, and it would be great for Google because it would give them the leader in online education and allow them to improve it with their technology and resources.

Below, I have linked to more great information on this topic.
Additional information:

1) A great Motley Fool article about Blackboard as a potential buyout candidate:

http://www.fool.com/investing/small-cap/2009/10/20...

2) James Altucher’s Yahoo Video discussing Blackboard as a potential buyout candidate:

http://finance.yahoo.com/tech-ticker/microsoft-buy...

Fool On,

TMFConnor

Disclosure: I own shares of Google
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