2006: the year of Moodle

The meteoric rise of Moodle

A major talking point of e-learning in 2006 is the meteoric rise of Moodle. Two key announcements drew the attention of the e-learning world: the UK government-funded OSS Watch Survey reported Moodle was now the LMS of choice for 56% of UK FE institutions; and the Open University publicised its £5.6m OpenLearn initiative, making 900 hours of e-learning immediately available on their new Moodle platform. From discussions we have had at Epic with LMS vendors, since the OU announcement in particular the established vendors are now viewing Moodle as a serious competitor.

Our clients are also taking notice and this year Epic has worked on developing Moodle courses for Bro Morgannwg NHS Trust, who are delivering courses on NHS Wales’ Moodle site, and the Waste and Resources Action Programme (WRAP), a not-for-profit company created as part of the Government's nationwide waste strategies. Many more of our clients have been keen to talk about the possibility of using Moodle in the future.

As usual, wherever open source goes, myth, bias and evangelical opinion follow, so we feel it’s high time for an objective analysis of Moodle and its effect on the LMS market.

What is Moodle?

Moodle emerged in 1999 from the Australian higher education community. Most of its rise to fame has been in the last two years, and as of December 2006 there are 19,000 registered Moodle sites serving 7.7m learners in 160 countries. It is designed to support social and collaborative learning which comes at a relevant time as the industry refocuses on informal and blended learning models. Functionally, Moodle is a credible substitute for any standalone LMS. It comes with an impressive array of features and is highly configurable and extensible. And, of course, the bit that is on everybody’s lips: Moodle is free.

Moodle is open source

Moodle has a small core team of permanent staff and an army of volunteer contributing developers. Like most high profile open source projects, Moodle isn’t just sustained by volunteer efforts but has a source of funding in the form of the Moodle Trust, which hires core programmers and covers project expenses. The central premise of open source allows you to read, redistribute, and modify source code, encouraging rapid evolution as people improve it, adapt it and fix bugs. Code in public view is exposed to extreme scrutiny and becomes highly reliable and secure. Nowhere is security a bigger issue than in Defence, and it was for this very reason that NATO chose to implement the open source Ilias LMS over a proprietary one.

Moodle is part of a diverse LMS market

While there were over 250 LMS vendors in 2001, the much-anticipated consolidation phase reduced this significantly. In 2006 we still have a volatile and diverse LMS market:

• a small number of key vendors include Sum Total and Saba in the corporate market and Blackboard in the academic market.
  
• with cost as the only significant barrier to entry, global ERP players with deep pockets like Oracle, Peoplesoft and SAP have entered the market.
  
• a large number of small LMS vendors continue to chip away with specialised or hosted solutions.
  
• a small number of open source solutions offer a free alternative.

In terms of market share, it’s difficult to compare like-for-like between open source and commercial systems. Market share reports tend to focus on share of overall licensing revenue and so omit open source. Installations and number of learners served can provide a better comparison as both types of vendors tend to keep this information for marketing purposes.

In terms of revenue share, Bersin & Associates report that there is no clear market leader overall. In a $480m market, the big three players of Saba, SumTotal and Plateau comprise approximately 29% of all LMS license revenue, and neither Oracle nor SAP have achieved significant market penetration.

Of more interest is the number of installations and users served by the main LMS vendors, as the following table shows. Note that in the absence of scientifically gathered market stats for this comparison, vendor marketing information is used instead, which may be biased.

* Saba figures represent Saba Enterprise Suite, of which the LMS is one component

Moodle is new wave

History shows that open source has a commodifying effect on software markets. It reduces the power of monopolies and fosters competition for the benefit of consumers: it weakens brand values, drives costs down, provides access to production technologies and creates interchangeable products and services. The LMS market started to commodify in the 1990s with SCORM standardisation, which created interchangeable products, grew the market for vendors, and increased competition for the benefit of customers. Open source represents a new wave of commodification. If the effect of open source in other software markets is repeated, and there is nothing to suggest that it won’t be with further open source products like Sakai hot on Moodle’s heels, the LMS market is heading towards a new period of accelerated growth, increased innovation and an abundance of new opportunities. Vendors and customers alike will be winners.

Moodle is innovation

The effects of further commodifying the market will be particularly felt by the small LMS vendors occupying the middle ground between high-end vendors and the open source upstarts. They will be the first to react against the perceived open source threat and will have to adapt and innovate. Researchers IDC believe that open source “will fundamentally change the value proposition of packaged software for customers… The real impact of open source is to sustain innovations in mature software markets... Price effects are a less important impact than the effect of open source on the entire life-cycle of software invention and innovation.”

So innovation is set to become the core value proposition in the LMS market. There are two ways to adapt to this: technical innovation offering increased choice and value at high prices - or business model innovation - reducing development and sales costs to offer choice and value at low prices. Both strategies require vendors to develop service and product offerings that require an intimate understanding of their customers’ business problems, in order to deliver increased loyalty and value.

Faced with new customer requirements, many LMS vendors are already embracing technical innovation, like using social and collaborative technologies to support informal and blended learning, and delivering learning to handheld mobile devices.

Regarding business model innovation, commodifying low-value products works well for market leaders in creating new opportunities and new markets. When market leader VMWare was threatened by XenSource in the server virtualisation market, VMWare adopted a ‘mixed source’ model with great success, open sourcing their entry level products while keeping their high-value enterprise-level products proprietary. Those not in a market leading position stand to gain more from the ‘professional open source’ model of open sourcing their core products to maximise distribution opportunities, establishing a presence in organisations from the bottom up, and then being called on as the trusted experts in that product to provide professional support and service contracts.

Moodle is a substitute

Moodle has to compete with the incumbent LMS vendors and to do this it must continually meet and exceed the innovation in commercial products. Sam Adkins refers to the ‘threat of substitution’ as defined in Porter’s Five Forces model of competitive analysis, stating “Customers will switch if they perceive a higher degree of value. In a commodity market, value is a matter of innovation.”

So does Moodle provide more or less value through innovation than its proprietary counterparts? The answer is largely sector dependent.

In Further Education, it clearly does as 56% of UK FE institutions now use Moodle. Many FE Moodlers cite Blackboard and WebCT (now acquired by Blackboard) as being too slow to respond to changing customer requirements.

The schools market is keen to embrace Moodle, but there are political barriers to entry. Supporters are actively campaigning against outdated purchasing frameworks enforced by Becta and the DfES that exclude open source software from schools. This is likely to be resolved soon. Research Machines, vendors of Kaleidos LMS, have been sending circulars to customers pointing out a list of things that Kaleidos does which Moodle cannot. This is reprinted in a dedicated thread on the Moodle forums, followed by a detailed debunking of all RM’s claims.

Moodle is clearly perceived as high value in the education community and has also made an impact in government where open source is routinely evaluated alongside proprietary solutions. However it is yet to make much impact in the corporate sector. Moodle’s existing functionality is not yet geared towards common business requirements. In particular, areas like skills gap analysis are not supported; interfaces to proprietary HR solutions would be a real benefit; the language used throughout the system reflects the teacher/student relationship; and out of the box it does not look polished enough to compete. But most of these issues could be easily addressed by a company with the vision to repackage a corporate Moodle and sell associated support services around it.

In all sectors, the LMS procurement process should involve assessment and evaluation of both open source and proprietary solutions before making a selection, but we believe this is of particular importance in the corporate market where Moodle is not yet adding anough value to be a credible threat to the existing vendors.

Moodle is here to stay

Moodle is not the only open source LMS; Sakai is another major player. Four major US universities invested $4 million in the development of Sakai, and commercial affiliates include Oracle, IBM, Sun and Unisys. But Moodle is protecting its position by creating barriers to entry for other open source projects, successfully forming an extensive developer and partner network to create third party add-ons and complementary businesses. Creating a substitute to Moodle would now be very expensive and time consuming.

Moodle has joined a volatile LMS market that continues to consolidate while having to adapt to new market pressures and customer values. This volatility is not going away any time soon, and only the most adaptable vendors will survive. Given that open source is a known catalyst for commodifying software markets, as the first vendor to really break into the LMS market Moodle could find itself making a very real impact. In the short term, the middle ground LMS vendors will certainly need to rethink their strategies as open source vendors continue to gain market share. In the long term the LMS market will commodify further, providing great opportunities for adaptable vendors and very real benefits for customers in terms of price and innovation. Exclamations of the death of the LMS are premature; we can be sure that the next few years are going to be very lively indeed.

References

Wake-Up Call: Open Source LMS: http://www.learningcircuits.org/2005/oct2005/adkins.htm

Open Source Impact on Software Innovation Outweighs Impact on Pricing, Says IDC: http://www.tekrati.com/research/News.asp?id=7614

Moodle V Kaleidos: A Considered Response: http://moodle.org/mod/forum/discuss.php?d=54293

OSS Watch Survey 2006: http://www.oss-watch.ac.uk/studies/survey2006/execsummary.xml

Moodle Statistics: http://moodle.org/stats/

Open Source 2.0 The continuing evolution, by Cooper, Dibona and Stone