Kieran Levis uses indepth research to explore the real size of the market beneath the hype and the critiques.

Kieran is the principal of Cortona Consulting and the author of The Business of (e)Learning, published by Screen Digest. The report is based on a strategic analysis of the e-learning industry and a detailed study of the development of corporate and university markets in North America and Europe. This is the third of four articles which draw on the study.

Part One: Why e-learning often fails

Part Two: The pattern of e-learning adoption

Part Four: Has e-learning caused a learning revolution?

---

How Big Are e-Learning Markets?

The question most people want to ask about the markets for e-learning is how big they are. During the dot.com boom, IDC and various investment banks with an interest in exaggerating issued lots of confident estimates and forecasts. These are now largely discredited, thought still occasionally cited. A more interesting set of questions concern how learning markets work:

- Who are, and who will be, the customers? What exactly are they buying?

- What are the value propositions of e-learning products and services? How do suppliers add value for customers?

- What is the competitive structure of these markets?

Cortona’s study concentrated on these issues, but we did include our own analysis of market size. Our estimates are much more modest than others - we calculate the US corporate market to be about $3.5 billion and the global corporate market, $5 billion.

Corporate e-learning, Global Estimates

Source: Cortona Consulting

Learning markets are complex

Quite apart from the hype, the main reason that nobody knows with any precision how much companies spend on different forms of learning is that these are very diffused markets:

- The training industry is highly fragmented, with probably millions of mostly small suppliers worldwide.

- Although most businesses of any size do some training, markets of paid-for goods and services constitute only a small part of total learning activity. Most corporate training is still conducted in-house.

- Learning takes many forms, is intrinsically difficult to measure and informal learning can scarcely be measured at all.

- Paying customers are only rarely the consumers of the product or service in question.

- Many companies do not measure or know how much they spend on training. Virtually no sizeable company includes expenditure on training in its annual report.

In the case of e-learning, problems of definition and usage make the field even more complicated:

- Expenditure is frequently bundled with that on information technology or knowledge management.

- The shift towards self-paced learning often means a drop in measured expenditure.

- In recent years, the picture has been confused by the deep recession in the IT industry.

- Most published market research is based on small, statistically insignificant samples and biased towards suppliers’ inflated estimates

Sources, reliable and otherwise

Although the big reports published by Merrill Lynch, Hambrecht and others between 1998 and 2000 contain a great deal of exaggeration and the forecasts are largely fantasy, they do have some value. We started with a critical synthesis of these, and then conducted an analysis of the revenues of the main suppliers. These provide a useful sanity check on the maximum levels of some of the markets.

We concentrated initially on the US, because this is by far the biggest market and the one where adoption (and analysis) has been greatest.

Corporate expenditure on training (excluding the costs of the trainees) is about $60bn in the US and about $17bn in the UK. The commonly quoted global figure of $300bn is probably a slight overestimate of direct expenditure, but it is certainly well over $200bn. Most of this is spent in-house. There is in fact a strong argument for saying that the true cost is significantly higher, as the salary and travel costs of trainees are real costs to the company, and indeed one of the triggers for adopting e-learning in many companies.

IT training accounted for half ($31.9bn) of all corporate training expenditure in the US in 1999, according to IDC and Hambrecht. As the other half, according to Hambrecht, consisted entirely of skills training ($31.3bn), this figure should not be taken too literally. However, there can be little doubt that IT accounted for well over half of all technology-based learning then - 75 per cent, according to IDC. As IT companies and users account for a very high proportion of e-learning adopters, there is no reason to assume that this proportion has declined significantly.

In the period 1998-2001, expenditure on e-learning grew rapidly in the US. The most objective measures are the growth in sales revenues of companies concentrating solely on e-learning (SmartForce, SkillSoft, DigitalThink and the specialist LMS providers). There is also solid evidence that the revenues of systems integrators and consulting groups associated with e-learning grew substantially, with companies like Accenture and Ernst and Young setting up autonomous businesses.

Revenue Growth, e-learning Suppliers, 1999-2002, $millions

*In fiscal 2000, SmartForce changed its method of reporting revenues.

Note: all these figures are for the financial year-end in question.

Saba, Docent, Centra, SkillSoft and Digital Think have all grown from negligible four years ago to $30m-$50m companies. Of these, Saba and Docent have plateaued since 2001 and Centra’s sales have shrunk. SkillSoft and Digital Think have continued to grow despite the recession. Click2Learn in 1999 was considerably larger than all these start-ups put together, but grew only modestly during the boom and is now faltering again. SmartForce is by far the largest of all these, and perhaps the most troubled now.

Most of the growth was in sales of off-the-shelf content and LMSs. During this period, the Web started to displace videotape, satellite CD-ROMs as the primary platform for IT training and some skills. However, according to Training Magazine’s annual survey, which has a large sample, usage of CD-ROMs actually rose from 37 per cent to 39 per cent between 1999 and 2001.

The same surveys suggest that total corporate US expenditure on training has actually declined recently, as it was estimated at $60bn in 1996 and only $57bn in 2001. These figures almost certainly mask big variations between different industry sectors.

Synchronous, web-based learning grew from negligible to about $100m in the period 1998 to 2001. Satellite usage has probably grown slightly as an efficient means of overcoming bandwidth limitations on Internet broadcasts, though the number of dedicated satellite networks has not increased. It is difficult to distinguish training usage from other applications, but the most important use of these broadcasts is updating sales people on new products.

Usage of asynchronous group learning remained low in the corporate sector, and it would not be possible to distinguish learning sales or usage from other collaborative or knowledge-sharing applications.

Analysis

Our estimates of the size of the corporate e-learning markets in the US are based primarily on what we know of the revenue figures of suppliers, other indirect evidence and informal discussions with suppliers, users and pundits. We have rounded them up fairly generously, because they are so much lower than the estimates commonly used. However, it is difficult to see how the totals could be much higher than those we have calculated.

Estimates of US corporate e-learning markets, 2001

Source: Cortona Consulting

These figures are not dissimilar to IDC’s estimates for the total in 1999, which they expected to triple by 2003. They are also consistent with Gartner’s estimate of $2.1bn for 2001, which did not include consulting revenues. If we are correct, it represents about 6 per cent of total corporate expenditure on training. What these figures do not include is spending on IT infrastructure, where learning is a significant part of the cost or activities like building tailored portals, where learning is an important outcome but not the only one. These are certainly relevant and important contributors to e-learning, but would be very difficult both to measure and to allocate.

These estimates include ASP revenues in the US of about $300m, mostly split between the totals above for off-the-shelf content and LMSs. Global ASP revenues are estimated by several sources to be worth about $5bn. We assume that learning accounts for less than 10 per cent of this, $500m.

We know that European levels of expenditure are significantly less but presently growing faster, not least because of the greater severity of the economic recession in the US. We therefore calculate the total European market to be worth a third the value of the American, $1.2m.

In the long-term, the drivers for widespread adoption are sufficiently powerful to expect significant future growth, notwithstanding the current recession. We will cover this in fourth and final article in this series.