Looking for solid, bottom-line price comparisons among e-learning vendors? Forget about it.
In coming years, online learning will no doubt be hailed as one of the greatest advancements in the annals of business and corporate education. And with good reason. E-learning has already, in its short but frenzied history, changed the way corporations look at employee development.
But for all the impressive tales of better learning and higher efficiency, the burgeoning offerings in e-learning have also brought with them a mountain of chaos. Chief among the culprits: a dizzying array of pricing models. It is, as analyst Peter Stokes of Boston-based research firm Eduventures puts it, "extremely difficult to know how much you should have to pay for anything."
Why? Industry observers are quick to cite the rampant pace of technology development. Fair enough. But there is, of course, much more , namely, last year's NASDAQ Composite Index turbulence that sliced wide open the notion that anyone with start-up investment and a dot-com tagged to their company name could do business online.
To be sure, torrents of money still flow on Wall Street, but investors have clearly taken several steps back from the speculative excesses of 1999 and early 2000, preferring instead to bank their money with organizations poised to turn a profit. All of which has e-learning, like the rest of the technology sector, in the midst of an ongoing shakeout. And that means it's not only difficult for buyers to gauge the worth of e-learning products and services, but also very hard to pinpoint just who is selling what , and for how long.
"We're finding that more and more chief learning officers, the people in charge of buying, want a bottom-line, cost-versus-benefit figure to take back to their companies," says Robert Burnside, director of research for market analyst Corporate University Xchange in New York. "But when it comes to getting that exact pricing model, they're being sent in so many directions. It's a very messy situation."
The model maze
Industry stalwarts from Brandon Hall to Elliott Masie have embarked upon extensive surveys and studies to quantify the costs of e-learning, with varying results. But the reports do agree on what, for now at least, qualify as the three leading pricing models:
o Many vendors sell e-learning content on a "per-seat" basis with a one-time implementation fee. In other words, you pay the vendor a flat rate for an employee to take a package of courses, plus an up-front amount for any assistance needed to lay the technological foundation.
o Other vendors charge one lump sum for everything they offer within a given program for the entire year. With this approach, an unlimited number of employees can access a specific library of courses an unlimited number of times.
o Still others charge on a "pay-as-you-go" basis, meaning they'll bill you for each course or seminar in which a given employee enrolls.
Of course, some vendors use an amalgam of the three, creating an entirely different slew of pricing options. As such, vendors eager to please every potential customer are in a constant state of flux, arranging and rearranging their pricing models.
Confusing? Well, even if you understand a given model, says analyst Cornelia Weggen of WR Hambrecht & Co. in San Francisco, you still face "a real big and fuzzy issue." Even if two vendors offer essentially the same services, they probably price them differently, which creates an iceberg-size question that haunts a multitude of corporate board rooms: How do you comparison-shop?
The only universally accepted answer, it seems, is this: Executive decision-makers in the hunt for e-learning should approach vendors with a healthy dose of caution and a surefire understanding of their own organizations? learning initiatives and technology capabilities. Don't waste time, Stokes says, trying to wrangle services out of a vendor that cannot clearly establish how it will address your needs. And don't create an additional burden for your company by trying to take on programs you simply cannot afford to support on the IT end.
That said, the matter of varying in-house IT capabilities has opened the door to more content being hosted on vendor Web sites. Learners can access the courses on the Web, thus leaving much of the IT management to the host. The pricing approach for this is akin to a billable monthly service such as your cable TV service. That sounds simple enough, but it actually adds yet another wrinkle to the pricing dilemma. Because each company has its own unique IT strengths and weaknesses, it's very difficult for vendors to establish defined cost models.
One relatively new pricing model is to charge companies based on the amount of time their employees spend on a course. But, critics contend, basing costs on time is no easier than evaluating the value of employees based on how long they sit at their desks. That's because some courses speed through the material, while others delve into it more thoroughly. In other words, 10 of vendor A's courses might include the same amount of content as two of vendor B?s.
To further complicate matters, the e-learning content itself is diversifying at breakneck speed. No longer are self-paced courses, patterned after classroom instruction, the norm. Providers from Saba to DigitalThink to SmartForce are not only carving out so-called "learning environments" with interactive media and expert mentors, but they're also trying to make them customer-specific enough to meet individual company demands.
Of course, this personalization opens up a whole new universe of costs and expenses. Vendors may charge based on how long they spend customizing, how much interactivity they need to build into the system, how big the customer is, or any number of other factors. It's like hiring a plumber: There's no way to know how much the services will cost until someone comes to your house and bangs on the pipes.
"It comes down to this: Everyone wants to customize and personalize. And that means all these providers want to, or at least claim to, do everything," Burnside says. "But obviously not all do. In fact, it's very difficult to tell who's doing what."
As the industry turns
The e-learning industry itself is fragile for the same reason its pricing models are flawed: Immaturity.
This is, after all, a business that scarcely existed a few years ago. For some, that's easy to forget, largely because wild optimism catapulted it into the limelight while it was still in its infancy. Investors were pouring millions into anything associated with the Web. With e-learning's bold promises of addressing acute labor shortages and drastically cutting mounting training costs, it became the jewel of many a venture capitalist.
But then, seemingly overnight, investors returned to reality, suddenly demanding that start-ups produce viable business plans. It was, according to economist Brad Pope of Barclays Global Investors in New York, an end of "the love affair with the New Economy."
Steven Lidberg, an analyst with Pacific Crest Securities in Portland, Ore., puts it succinctly: "Investors once again want assurance they'll make money."
Consequently, in the past several months , and surely in coming months, especially if the economy falls into a sustained recession , the market has purged itself of its weaker members. The survivors have scrambled to gobble up those being set free in order to get bigger and better than the remaining competition.
As if all that weren't enough of a mouthful, the resulting shifts and turns in the field make it nearly impossible for companies to lock into a long-term deal with a vendor. Once again, they cannot assess who's really offering what, says Clark Aldrich, analyst emeritus for the Gartner Group in Stamford, Conn.
The response? The near-term survivors of this e-learning shakeout , the ones getting ever bigger , are trying to entice buyers with one-size-fits-all solutions. They say they'll meet all your needs, no matter how unique, just as soon as you agree to pay a long-term, ongoing fee for their services.
That may prove perilous for e-learning vendors trying desperately to acquire loyal customers, says Aldrich. Even if buyers like the product and are somehow able to determine that the pricing model is fair, they aren't likely to make any commitments until the market has settled.
And WR Hambrecht's Weggen says that could take years.
But others say an unsettled market is one ripe for heated competition, the kind that produces price wars. It happens in the fast-food business, the gasoline industry, myriad retail sectors and countless others. So it should happen in e-learning, too, right?
Not necessarily. In more established industries, products and brand names are well-known. More important, the base prices from which bidding wars are launched are fairly solid. Not so in e-learning, surmises WR Hambrecht analyst Trace Urdan in recent market reports.
Regardless of where prices eventually end up, it's likely that corporate e-learning evangelists will no longer be able to tout online learning's cost savings in travel, lodging and lost office hours. Until now, those savings were compared with classroom training. In a Masie Center survey of 1,200 training professionals last July, 79 percent of respondents said they believe an online course should carry a significantly smaller price tag than a classroom course with the same material and expected outcomes.
From here on out, though, corporate boards and shareholders will compare this year's e-learning costs and savings to last year's e-learning costs and savings. "A lot of HR people made their careers by talking up the savings of e-learning," says Corporate University Xchange's Burnside. "It's not going to be that easy anymore."
That leaves the all-important question of the future: Once presented with a realistic picture of what e-learning costs, will corporate America still invest in it?
-Kevin Dobbs (firstname.lastname@example.org) is a writer living in Sioux Falls, S.D.
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