CORPORATE E-LEARNING: EXPLORING A NEW FRONTIER Trace A. Urdan [email protected] 415.551.8600 Cornelia C. Weggen [email protected] “In a time of drastic change, it is the learners who inherit the future. The learned find themselves equipped to live in a world that no longer exists.” Eric Hoffer, in Vanguard Management, 1989 2 March 2000 Equity Research TABLE OF CONTENTS Executive Summary .....................................................................................................................................1 Education in the 21st Century – Creating a Learning Economy.......................................................................2 Why e-Learning?...........................................................................................................................................3 The Solution – Bring Learning to People .......................................................................................................6 Definitions – e-Learning versus Online Learning ............................................................................................8 Key Trends – The End of Learning as We Know It ........................................................................................10 The Corporate e-Learning Market – The Pie is Big ......................................................................................13 Market Segmentation – Claiming a Stake on the New Frontier ...................................................................18 Valuation – Comparing Incomparables........................................................................................................22 Soft Skills Training Industry – Content is King .............................................................................................24 IT Training Industry – Fast Out of the Gate ..................................................................................................25 Scrutinizing Online Training – Is c-Learning Going to Disappear?.................................................................27 Building Blocks for Success – Who Will Be the Winners?..............................................................................28 Conclusion – The e-Learning Revolution Has Just Begun .............................................................................31 Endnotes....................................................................................................................................................32 Public Company Profiles.............................................................................................................................33 Centra Software, Inc. (CTRA)..............................................................................................................................34 Click2learn.com (CLKS) ......................................................................................................................................36 DigitalThink, Inc (DTHK) ...................................................................................................................................38 Learn2.com, Inc. (LTWO) ...................................................................................................................................40 NETg (H)............................................................................................................................................................42 ProsoftTraining.com (POSO) ...............................................................................................................................44 RWD Technologies, Inc. (RWDT)........................................................................................................................46 Saba Software, Inc (SABA)...................................................................................................................................48 SkillSoft Corporation (SKIL)................................................................................................................................50 SmartForce, PLC (SMTF).....................................................................................................................................52 SmartPlanet (ZD).................................................................................................................................................54 Private Company Profiles ...........................................................................................................................56 Cognitive Arts Corporation .................................................................................................................................57 CyberStateU.com, Inc. .........................................................................................................................................59 Docent, Inc. .........................................................................................................................................................61 eMind.com, LLC.................................................................................................................................................63 Headlight.com .....................................................................................................................................................65 InterWise.............................................................................................................................................................67 KnowledgeNet.....................................................................................................................................................69 KnowledgePlanet.com..........................................................................................................................................71 Ninth House Network.........................................................................................................................................73 Pensare, Inc. ........................................................................................................................................................75 SMGnet, Inc. .......................................................................................................................................................77 Teach.com ...........................................................................................................................................................79 TrainingNet, Inc. .................................................................................................................................................81 UNext.com ..........................................................................................................................................................83 WBT Systems.......................................................................................................................................................85 Glossary.....................................................................................................................................................87 Important Note...........................................................................................................................................92 3 March 2000 Equity Research EXECUTIVE SUMMARY This report focuses on corporate training, one of the five segments of the education and training market. In particular, we identify key drivers, perform preliminary market segmentation, and estimate growth for market segments and product groups of the technology-based corporate training industry. We outline major trends and likely winning strategies for companies targeting the corporate e-learning market, which we also refer to as e- training market. Since the e-learning industry is a relatively new, unexplored frontier, this report is intended to provide a concise overview of the key aspects of this emerging market and to offer a framework for analysis for industry players and the investment community. How Large Is the Market? How Quickly Is It Growing? • Corporate e-learning is one of the fastest growing and, we believe, most promising markets in the education industry. While the market is currently relatively small and early-stage, it is poised to explode. The online training market is expected to nearly double in size every year, reaching approximately $11.5 billion by 2003.1 Investment opportunities in online pure plays should emerge, as numerous e-learning companies are now preparing to tap the public markets. • Soft skills training outpacing IT. Online IT training is already a $0.87 billion industry. It has outsized the market for soft skills training fourfold since its emergence. However, at a stunning 123% CAGR, the soft skills training market is growing twice as fast as the IT training market and should surpass it by 2003. • Market share and growth rates vary widely among the three major e-learning market segments: Content, Technology, and Services. With 66% market share, Content is the largest segment, growing at an annual rate of 74%. However, Services is the fastest growing segment, surging ahead at a CAGR of 111%. What Are the Key Trends? • Branding is the key strategy element e-learning providers should focus on. Low market transparency and limited knowledge of e-learning products will likely represent serious challenges for corporate customers in the next several years. We believe companies will increasingly prefer the “safe choice” and retain e-learning