We read it everywhere. eLearning is the next big thing.

"We believe eLearning will prove to be the killer app on the Internet." US Bancorp Piper Jaffrey

"Corporate eLearning is one of the fastest growing and, we believe, most promising markets in the education industry... Investment opportunities in online pure plays should emerge, as numerous eLearning companies are now preparing to tap the public markets." WR Hambrecht+Co

"The next big killer application for the Internet is going to be education. Education over the Internet is going to be so big it is going to make e-mail usage look like a rounding error’ in terms of the Internet capacity it will consume." John Chambers, CEO of Cisco Systems quoted in a New York Times article called "Foreign Affairs; Next, It’s E-ducation," Thomas L. Friedman. November 17, 1999.

"Just as investors have been richly rewarded for their investments in B2B solutions providers...we believe we are at the beginning of an enormous implementation of B2B elearning content, infrastructure and services that has big potential for investors." Thomas Weisel Partners

"The landscape of learning has never looked more promising for companies in the business of education." Bank of America Securities.

"Education as we know it is changing before our very eyes. The new millennium will bring together the incredible power of technology and the Internet into the world of education." Credit Suisse First Boston.

What do I have to say? "eLearning SchmeeLearning." You can quote me on that.

I don’t like hype, and there’s a lot of it right now over this "new, emerging elearning industry". First, it’s not new; second, it’s only emerging for a limited number of innovative players; and third, I don’t like the word elearning.

I’ve been elearning since I first started using the Internet, and that was several years ago. Got a question? Do a search on Alta Vista. Need some news information? Go to CNN.com. What’s so hard about that?

Emerging? What’s emerging? A few players in a few new categories to be specific. There are learning management systems that help to manage the intellectual capital in a corporation. There are systems that emulate classroom training. There are communities for sharing and learning from each other. There are applications that aggregate content and parse it down to provide quick, instant answers to issues facing workers. There is simulation for various business situations. And of course, there are service providers that offer all the above on a completely outsourced basis.

And "elearning"? Whoever said that all we want to do is to learn? A few of us reach Maslov’s level of self-actualization by learning something new every day, but face it—the business world is not about learning. It is about doing business. This means producing, marketing, and ultimately getting customers to use goods and services. If elearning can make people better at producing and marketing goods and services, and help customers get better use out of them, fine. elearning supports business processes; it’s not a process unto itself.

So, all you elearning vendors and gurus out there, get over it. elearning will make business better. But it’s not about you. It’s about how you make something or someone better or more productive. Think of yourselves as the "BASF" for businesspeople. (Remember "we don’t make the plastic, we make the plastic stronger?") elearning makes business work better.

Nevertheless, is it all worth the hype? I argue that there will be a few big winners. More will come along for the ride.

Gaining Competitive Advantage

In his new book Living on the Fault Line: Managing for Shareholder Value in the Age of the Internet, my colleague Geoffrey Moore discusses, among other things, how companies gain competitive advantage in the age of the Internet. He diagrams how competitive advantage is an inverted hierarchy where each lower layer provides a stronger basis for power in the marketplace.

© Geoffrey A. Moore, 2000.

Here’s Geoffrey’s explanation around this graphic.

This competitive-advantage hierarchy should be read from the bottom up, as follows:

Technology Wave: In high tech, competitive advantage begins with the categorical advantage of a new technology over an older one. That is, the highest form of competitive leverage comes from riding the adoption of a new wave of technology as it displaces an older paradigm. New paradigms rewrite all the rules of competition, making obsolete all market positions secured in the prior generation of technology...

Value Chain Domination: For this displacement to actually occur, the new technology must be integrated into end-to-end systems that meet existing customer needs. In the new economy, no one company is responsible for this integration; instead, it is the end product of a value chain, a voluntary alliance of companies coming together to create an economic benefit for customers and to share in the rewards thereof...

Market Segment Leadership: Initially the new value chains support a single integrated market defined simply by the new category of product—the PC market or the wireless phone market—but over time this one-size-fits-all approach inevitably compromises the unique interests of specific market segments. Where such compromised interests rebel, vertical markets emerge and create opportunities for companies that did not garner global value-chain power to gain local market-share dominance.

Company Execution—Value Disciplines: In competing for value-chain domination and market segment leadership, companies differentiate in their execution by prioritizing different value disciplines. One, for example, might choose to emphasize operational excellence, seeking price and quality advantage from highly efficient processes. Another might pursue customer intimacy, seeking higher margins through differentiated customer service. There are four of these disciplines—the other two being product leadership and discontinuous innovation...

Differentiated Offerings: Finally, none of the underlying sources of power in the competitive-advantage hierarchy can actually create shareholder value until companies ultimately transform them into differentiated offerings. They represent the surface of the model, the part that actually touches the customer.... companies that try to differentiate their offerings without building foundations in the lower strata of the hierarchy are doomed to be short-lived and undervalued.

Competitive Advantage for elearning Companies

Now, let’s look at this diagram from the standpoint of elearning:

1. What’s the technology wave? Actually, there are a number of waves, not the least of which is the Internet. Others include wireless technology and learning devices. New companies are attempting to leverage a discontinuous innovation with product leadership to create new products.

2.Because elearning is a new category, no standard value chains have yet been formed beyond those in self-contained vertical markets described in #3 below. A number of players may emerge as big winners in value chain domination, but several things have to be worked out first. What categories will exist in the value chain? Will it be the ones we mentioned at the beginning of this article: learning management systems, systems that emulate classroom training, communities for sharing and learning from each other, applications that aggregate content, simulation training platforms, or service providers? Or will it be a combination of these? Or will it be something else? Mayber an even bigger question: Will these categories eventually merge into a mega-category called indeed elearning, just as we have seen happen in ERP with the merging of financial, human resources, and manufacturing applications?

3. When the market matures, so dominant categories and players emerge, we will begin to see some of the promises fulfilled. However, I contend that most of the rewards will go to a few key players, with lots of other companies going along for the ride.

4. Some companies are emerging as leaders in specific market segments. Digital Think is strong in providing hosted IT learning; eMind is strong in professional training for accountants; PlaceWare is gaining traction in remote-presentations for high-tech. These companies have "crossed the chasm" by creating a self-contained value chain and taking it to a specific market segment.

5.The number of winning players in market segment domination will be greater than those that dominate a value chain as in #2 above. The good news for any player in this category is that they have reached critical mass in at least one market segment.

6. As we go up the hierarchy to company execution on value disciplines, we see more companies playing this game, using some combination of discontinuous innovation, product leadership, operational excellence or customer intimacy as they attempt to achieve competitive advantage. But this may not be enough.

7. Finally, when we look at most companies playing in the elearning space, they simply have differentiated offerings and nothing any deeper. It’s been said that in elearning "content is king," but in reality, while content is absolutely important, it’s at the top level of the competitive hierarchy. And while it’s key for any company to have a differentiated offering that ultimately touches the customer, I would argue that 90% of companies in the elearning space merely provide differentiated offerings and never go any deeper into the competitive hierarchy.

Thousands of Companies, but Only a Few Big Winners

Most companies are playing in the top level of differentiated offerings by providing customers elearning content or some other type of offering. Many are moving one layer deeper by pursuing better company execution on value disciplines. Some are beginning to make specific inroads into market segments, and as a result are beginning to gain competitive advantage. But the big prize has yet to be rewarded. The market eagerly awaits the emergence of the gorilla (market leader) of elearning, or at least, the gorilla of each of the several categories of elearning.

So where are we in the game? Let me make the following observation, based on my own unscientific methodology. (Note: this methodology is not endorsed by my firm The Chasm Group!) A July 25, 2000 word search in AltaVista yields 75,111 responses for "enterprise resource planning," 69,498 responses for "customer relationship management," but only 18,167 for "elearning." Draw your own conclusions.

Mark Cavender is a Managing Director with The Chasm Group, providing market development strategy and education services to the high-tech industry. Much of his practice focuses on the elearning market. Write to him at mcavender@chasmgroup.com

 

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