The e-Learning market for corporations.

University Degree Business and Administrative studies

e-Learning Delivery Solutions

Industry analysis

Company analysis – Centra software Inc

High Technology, Entrepreneurship and Strategy

Professor Ron Adner

Students

Uri Einan

Vinod Janardhan

Rajat Nag

Yaron Spigel

Adrian Horotan

Fontainebleau

June 2001

Table of contents

Part I – Industry analysis

1. Introduction 1

2. The size of the eLearning market 3

3. Definitions 5

4. Market segmentation 6

4.1 content

4.2 services

4.3 technology

5. The SCEL platforms market 8

6. Market drivers 10

7. The future of elearning 11

8. Conclusion 13

Part II – Company Analysis - Centra software Inc.

1. Preface 14

2. Company background 15

3. Product 17

4. Value chain 21

4.1 Suppliers

4.2 Customers

5. Partnerships 23

6. Competition 25

6.1 Interwise

6.2 IBM/Lotus

6.3 Mentergy

6.4 Microsoft

6.5 ACEL platform companies

6.6 LMS companies

6.7 Content providers and Service providers

7. Competitive advantages and strategy analysis 33

Appendices 39

Appendix I Comparison of C-learning with Elearning Appendix II Customers

Appendix III Partnerships

Bibliography

Part I – Market Analysis

1. Introduction – The e-Learning market

The landscape of learning has never looked more promising for companies in the education business. Education is the second largest market in the US with revenues of over $ 625 Billion (Banc of America). About 10% of this figure is related to corporate learning. With these figures it is no surprise that both present and future developments in the learning market are closely being watched. Economics and technology are key growth drivers for the market - economy is quickly becoming dependent on human capital, which forces all of us to increase our aptitude at managing and productively employing human capital, a task incumbent on our learning systems. The inevitable technological revolution continuously overhauls the workplace, thereby forcing workers to treat learning as part of their basic job description. Technology is not only a driver for more learning but it is also an enabler of electronic learning (e-learning). E-learning is quickly establishing its presence in corporations and institutions of higher education.

There are many players in the learning value chain and among them the educational sector, as a main provider of knowledge, is one of the most active areas of the e-learning landscape. The number of colleges and universities offering e-learning is increasing by 33% annually (IDC). Universities are important buyers of technology solutions to deliver the knowledge but funding problems and other organizational issues make them more of a long-term market than a source of profits today.

As mentioned before, an important market is corporations that buy learning services in order to improve the skills of their employees across the organization. We believe that this is where the highest growth potential is present and we will focus our analysis on this market.

The growth of corporate learning market (and the adoption of online learning as well) is being fuelled by various changes in corporations. Technological advancements are causing a shift in the structure of workforce dramatically increasing the demand for skilled employees. This increased demand for skilled employees is causing a skills shortage and finding and retaining skilled employees has become a serious problem, as cited by many CEOs. The old solution of simply replacing the workers with obsolete skills with those possessing the right skills is not working as well anymore. As a result of all this, companies are increasingly viewing learning as an investment (as opposed to a cost) and the criteria for choosing a learning provider is the ability to prove that learning occurs and productivity improves as a result of the process.

This shortage of skilled employees is also causing a widening wage gap between high school and college graduates so the market is also fueled by the employees’ “pull” seeking better jobs or retaining the ones they currently possess. Another reality is that product life cycles are shortening thus requiring corporations to continuously innovate in order to stay ahead of the competition. For every new product brought to market certain parts of the organization (manufacturing, marketing and sales for example) have to learn about and very quickly put this knowledge to work. The growing globalization of corporations also creates the need for multilingual education, as well as multi-location availability of training courses.

All these changing realities create demand for learning and the classic learning solutions have certain drawbacks and only partially solve the organization’s needs. The classic classroom learning is difficult to deploy across an organization that is spread geographically. It is costly to customize and update, difficult to track and monitor in terms of effectiveness, is overly human intensive, lacks automation and scalability and it is fragmented and costly.

We see online learning as a solution for these problems because it brings the following benefits:

Online learning is integrated and scalable.
Employees can access learning around their work, family and personal schedule. Online learning is convenient and flexible, accessible 24 / 7.
Online learning is cost effective not only in terms of traveling and accommodation expenses component but also in terms of organizing the learning event itself. Regarding traveling and accommodation costs it is estimated that as much as 40 cents per dollar spent on in-person corporate learning goes to travel costs (Merrill Lynch). The cost benefits of e-learning may be indicated by two examples: The cost of a Cisco Systems instructor led course is $1200-1800 compared with only $120 over the web. Novell used to pay $1800 for a four-day certification course that now costs $700-800 over the web.
One of the most important benefits of online learning is that it delivers learning when an employee needs it (in other words “just-in-time”) as opposed to attending classes just in case the materials will be needed at some point in the future. This immediacy of learning causes a much higher retention compared to the classroom model.
Learning management systems allow corporations to know who is participating, in what type of corporate learning, how they performed and what is the level of improvement.
Online learning has the ability to create a program designed and structured specifically to address an individual’s needs based on interests, career objectives and job profile.
Online learning is also driven by return on investment, thus by the need to improve productivity as a result of learning.

Exhibit 1: The benefits of online learning versus the classroom

e-Learning also has a down-side and that is the absence of direct human contact, which is deeply ingrained in the human culture. Whether this obstacle will be surmounted by the other advantages of e-Learning is still to be proved but we believe that there are high chances for that.

2. The Size of the e-learning Market

The push from employers who need a more educated workforce combined with the pull from employees who want to learn more in order to advance has created an environment in which both parties are increasingly realizing that learning is a lifelong process. The global corporate and government learning market is expected to grow to over $365 billion by 2003 (Merrill Lynch).

As we move to a more and more automated society human labor is being replaced by technology and this creates the need for higher skilled employees. It is expected that by 2005 the percentage of skilled labor will represent 85% of all jobs.

Exhibit 2: The need for skilled workers

Source: Merrill Lynch

The life-long learning process and the increasing demand for skilled labor shapes a business reality that requires companies to have a strategic learning plan. The rising number of corporate “universities” also illustrates this point. Corporate universities are formalized corporate learning programs that cut across all company divisions. In 2000, over 1600 corporate universities existed, up from only 400 in 1998 (Corporate University Xchange, Inc).

The learning needs of the knowledge economy coupled with the current system’s inability to satisfy many of these needs provide a fertile environment and open ended growth opportunities for the emerging e-Learning companies.

Exhibit 3: Corporate learning market estimates

Source: IDC

An early adopter of e-learning is the IT corporate learning where technology based learning market share is expected to grow to 46% by 2003, up from 24% in 1999.

The performance improvement learning sector is also moving online but at a less speedy pace because topics such as communication, leadership and business skills are more difficult to translate to an online environment as they are more subjective in nature and require a higher level of demonstration and participation.

Currently IT content dominates corporate e-learning spending but it is expected that non-IT corporate e-Learning will get closer in terms of market share as content providers will take advantage of technology and increased bandwidth to deliver their content via the Internet.

In the long run, we don’t expect class learning to disappear but we believe that companies will adapt to a mixed solution including technology delivered and classroom based instruction.

3. Definitions

E-learning includes many different markets. We would like to open the discussion on the various market players by giving a few definitions:

Distance learning - The Distance Education and Training Council (DETC) defined distance learning as the enrollment and study with an educational institution that provides lesson materials prepared in a sequential and logical order for study by students on their own. DETC believes distance learning includes:

A correspondence course in which the text and assignments are mailed to a student who completes the homework and returns it by mail to the instructor.
A satellite transmission of a teacher in one city to a classroom in another city.
An instructional video teaching a student financial management.

This definition seems to be tailored for higher education institutions. We prefer the wider approach, which defines distance learning as any learning, which involves a learner and a remote source of knowledge.

E-learning – E-learning is the delivery of learning content via all electronic media, including Internet, Intranet, satellite broadcasting, interactive TV, CD-Rom and audio/video tapes. E-learning covers computer based learning, web based learning, virtual classrooms and more. Yet, e-learning is a more narrow definition than distance learning, which includes for example also correspondents earning.
On-line learning (web based learning) – learning via Internet, intranet or extranet. On-line learning may vary from a basic tool which includes text, graphics and record keeping to a more sophisticated program which may include animations, simulations, audio and video, discussion groups, online mentoring links to extra material and more.
SCEL - Synchronous (on line, real-time), Collaborative E-learning. A learning event in which all participants and the instructor are logged-on at the same time and communicate directly with each other. Virtual class rooms, audio/video conferencing and two-way live satellite broadcast are all included in SCEL. This paper will focus on platforms, which enable SCEL from desktops or laptops.
ACEL - Asynchronous Collaborative E-learning. ACEL, describes a learning event in which people cannot communicate without a time delay. ACEL may include Internet courses with time delay but also e-mail, audiocassettes, video taped and CBT such as CD tool kit.

Exhibit 4 – Sub-segmentation of distance learning

4. Market Segmentation

The e-learning market is usually segmented by analysts into three main segments: content, technology and services. We would focus in this paper on the technology segment but we would like first to give a short description of each of the segments.

4.1 Content - Content providers author and publish materials through a variety of training delivery methods and media including synchronous and asynchronous course delivery. This segment includes off-the-shelf courseware, as well as customized courses, but should be separated from contract content developers, which prepare tailor-made content for specific customers and are considered service providers.

Certain e-learning content vendors license content from large brand holders among academic institutions or professional, which themselves are content vendors off-line and may be in the future major players in the content market for e-learning.

The players in the content segment may be sub-segmented to traditional classroom training companies such as New Horizons, World wide, Excu Train and others, pure online players-publishers such as SmartForce, Ninth House, Tech.com, DigitalThink and pure online players who are licensers such as Pensare, Unext, eMind.com and University Access.

The questions about the future trends within the market of content providers for e-learning are various and interesting but are out of the scope of this paper. It should be noted though that content is currently the biggest segment among the three mentioned segments with about 66% share of the market in 1999, yet it is expected to decline to about 54% by 2003.

4.2 Services

Service providers offer a variety of learning-related services, which are often categorized to three groups: Portals, Learning Service Providers (LSPs), and other Professional Services.

Portals provide consolidated accessibility to learning and training content from multiple sources by aggregating, hosting, and distributing (as portals always do).

Some of the portals operate online communities, either as stand-alone learning communities or in combination with course offerings. As happens with portals in different markets, the e-learning portals try to have specified vertical portals, which focus on specific niche market segments. Examples to players in this sub-segment of portal and communities services are Click2learn.com, Headlight.com, KnowledgePlanet.com, TrainingNet, Learn2.com, and eMind.com.

LSP’s are specialized type of Application Service Providers (ASP), offering different applications on a hosted/rental basis via diverse business models and content applications offered include learning, training, tutoring and mentoring services, delivery software, and/or other enabling technologies, assessment and testing services and certification and degree granting. Players in this segment include Eduprise.com, KnowledgePlanet.com, Infonautics and MindLever.com.
Other Professional Services include, as we mentioned above, contract content developers, distributors, consultants, Web integrators, hosts and network and IT service providers. Players in this segment are varied in background and type of services, though the leading players include the biggest consulting firms in the world such as Accenture, Deloitte consulting, and PricewaterhouseCoopers. The services segment is the fastest growing segment of e-learning with a growth of 113% and is expected to reach $4.1 Billion in revenues by 2003 (36% market share).

4.3 Technology – Analysts include as part of the technology segment all technology vendors who provide creation and capture tools, enterprise systems, and learning-specific hardware enabling the creation, deployment, delivery, and management of technology-based training. This broad definition includes companies offering products such as ERP and knowledge learning management systems (LMS) and other web based products. We prefer to focus our analysis on the pure e-learning tools, which include collaborative software & virtual classroom and conferencing technology. These platforms enable the use of the web as a learning channel and are the corner stone of the e-learning revolution.

5. The SCEL Platforms Market

SCEL platforms started to appear in the market only in the last 5 years. In the middle of the nineties companies like Interwise (1994) and Centra (1995) were founded and only on 1997 did the first installations take place. Today, the platforms of SCEL enable users to do almost everything one would expect:

Video and audio streaming - present material and information to learners and let them see and speak with the advisor via computer speakers and the Internet, rather than a telephone.
White boarding - is the replacement for the traditional blackboard in a classroom and it allows documents to be viewed and edited by the learners. Shared whiteboards allow class members to “draw” and view the same on-screen page.
Application sharing - the learning advisor and learners can work on the same program or document simultaneously. For example, the learning advisor might ask a learner to type in a formula in an Excel worksheet, and all the other class participants can see it being done. Breakout groups are an example where a smaller group of learners can meet separately for collaboration over the Internet.
Floor control - classroom controls allow the learning advisor to monitor who is “in” the classroom and give impromptus quizzes. The controls also provide for quick feedback from learners to the learning advisor
Handraising - if a learner clicks on his or her “hand” icon, the learning advisor can see who may have a question or comment.
Message boards - these are places where learners can post questions and answers about related topics.
Text chat - Text chat provides an electronic forum in which the learners can communicate outside of the main classroom.

The SCEL products also offer different combinations of administrative functionality that facilitate e-learning. Such as:

Reporting which provides information about the learners and progress of the class.
Scheduling. Organization of assignments and other meetings for the class.
Support services - Technical and customer support that is provided by the company.
Tracking. Which allows the learning advisor to monitor a learner’s progress.
Asynchronous learning. SCEL primarily helps facilitate synchronous learning, but certain packages also provide asynchronous components such as archived course materials.
Authoring. Allows users to build online courses with ...

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The SCEL products also offer different combinations of administrative functionality that facilitate e-learning. Such as:

Reporting which provides information about the learners and progress of the class.
Scheduling. Organization of assignments and other meetings for the class.
Support services - Technical and customer support that is provided by the company.
Tracking. Which allows the learning advisor to monitor a learner’s progress.
Asynchronous learning. SCEL primarily helps facilitate synchronous learning, but certain packages also provide asynchronous components such as archived course materials.
Authoring. Allows users to build online courses with their own content.

SCEL Platforms Technology

When we compare SCEL to c-learning (class learning) we can see that with today’s technology there is nothing that can be done in class and cannot be done with e-learning. (see a comparison in Appendix I). The barriers for e-learning as a replacement for c-learning are mainly psychological as people are used to the face-to-face interaction. On the other hand e-learning provides many potential advantages in comparison to c-learning. The first advantage is of course cost savings as e-learning enables a simultaneous learning experience for a large group of people who are in different places around the world without a need for physical class room. More importantly, there are no travel expenses and loss of workdays due to traveling. E-learning offers further advantages in the form of their availability which is a by product of the use of technology. Examples of such advantages are the options to see/hear the class again by recording and storing it and also some of the administrative functions we mentioned above.

Today’s business operates in a very competitive world where innovations are continuous and knowledge provides more leverage than capital. Without keeping up with innovations by training employees on a regular bases, no business can survive. The tools given by SCEL will revolutionize the way corporations train their employees. As said by Doug Donzelli, CEO of Pensare: “e-learning will revolutionize training the way airplanes changed transportation. Training focuses on the number of employees in class, and the competencies. E-learning will drive knowledge closer to meaningful organizational results by enabling the enterprise employee to share best-practices and apply expert thinking to their daily jobs”

These thoughts are no longer only projections, as first signs of the use of e-learning as a training tool for corporations can be easily found in the market. Multi national corporations have already started to discover the power e-learning can give their organization. Companies using ERP software such as SAP for example found out that using a SCEL may help them deploy the systems much more efficiently in the different branches around the world. Coca Cola Corporation and Penzoil Corporation are examples of multi national companies, which use SCEL (Centra in this case) to instruct and teach thousands of employees how to use SAP in their firms. The software giant SAP only started giving live training over the net on September 1999 (using Interwise). Another use for SCEL systems was experienced by companies like Domino’s Pizza and Legg Mason (financial holding company with thousands of broker in 130 offices), which use SCEL to instruct their employees about new offers by the firm and increase the variety of training they offer to their employees. Leading corporations in America and Europe are already starting to use e-learning as a training tool but the potential is only starting to be revealed.

Although the future is expected to be bright, the market of SCEL platforms is currently only at its infancy. According to a survey by Frost & Sullivan (01/01) the market of SCEL is divided among four major players which hold together over 80% of the market in the following division: Centra 46%, Mentergy 13.8%, Interwise 11.9% and Lotus 9%.

6. Market Drivers

The competition between the existing players in the SCEL platforms market is intensifying as the market grows. Yet, since the potential of the market hasn’t really been exploited fully until now, market drivers are not easily defined. The purchasers of e-learning currently are in most cases HR directors who do not know much about technology and talking to a sales person in the industry we realized that the purchasing procedure is usually not very sophisticated and each case is different.

Price - Differences in prices are not significant for major corporations as the average deal is in the range of $120K to $150K and the return on investment period is usually one or two quarters. Differences of $20K - $30K in the purchase price are therefore not the driver for the decision.
Performance - Performance which is in many cases a clear parameter is not such currently in the case of SCEL. The reasons for this are that all important features are offered by all players and if one comes with a new feature which is proven to be important, the others add this feature after a while. More importantly the customers who buy the platforms usually do not know what they want to have and therefore as they are less knowledgeable than the sellers they cannot take decisions according to performance.
Reliability – Reliability seems to be the strongest driver for decisions in this case as in many cases of innovations. As there is not a lot of history to any of the platforms reliability cannot be identified based on past performance. The result is that reliability is judged more by who are the customers you already have or who are your business partners. Partnerships are therefore significant, but the major potential partners such as Microsoft, Cisco, Oracle or major content and service providers partner with all the major players.

7. The future of e-learning

Our research of the number of financing deals completed in the e-Learning space shows that eight new financings have been successfully closed in the month of May 2001 itself. This took place in the existing difficult economic situation while the venture capitalists and equity markets have been extremely rigorous in qualifying new ventures in the technology sector.

According to reports published by IDC, North America represents the largest opportunity for corporate e-learning and is expected to account for two-thirds of worldwide revenues through 2004. Western Europe will be the fastest-growing market, increasing its revenues at a compound annual growth rate (CAGR) of 97% from 1999 to 2004. In comparison, revenues in the worldwide market will increase at a CAGR of 79%.

Though the market potential for e-learning is attracting new private companies into e-Learning industry like bees to a beehive, we expect only a handful of them, with sufficient capital, to reach break-even. But before concluding that, it is worth discussing the trends that give us a glimpse of the days to come.

Buyer sophistication will rise

The recognition of the importance of e-Learning by the market in general and corporate clients in particular is expected to continue and will also lead to a more educated and informed buyer group. Buyers have started realizing the significant value proposition of e-Learning in terms of ROI and this has led to an increase in respect for using e-Learning platforms and technology as legitimate enterprise systems. We expect this trend to intensify in the future.

Content is king

Once corporations understand the revenue generation and cost saving potential of distributed learning, the immediate beneficiary of this swell will be the content providers. As per IDC analyst Ellen Julian, by 2002 for every dollar spent on e-Learning technology, five dollars will be spent on the e-Learning content. Some of the key success factors for content providers include:

providing large off-the-shelf content
having large, dedicated sales organizations
providing branded content
providing web optimized content

Blue chip partnerships are a key factor for success

Our research indicates that there is a substantial number of partnerships taking place in the e-Learning market. More specifically, at a first glance search we have found a total of 29 partnerships in the month of May 2001 itself. Partnerships are taking place all over the place e.g. between vendors, vendors and consulting companies, and vendors and universities. This is also partly driven by the highly fragmented market.

Distribution partnerships with leading systems integrators (Hewlett Packard), technology vendors (IBM, Oracle, Microsoft), and consulting firms (Accenture, Deloitte Consulting) will not only allow e-Learning vendors to tap their partners’ vast client base and open up new markets but also represent a major endorsement of the vendor’s product. Since the number of partnerships with vendors that a leading systems integrator will enter is limited, these relationships are expected to provide a distinct competitive advantage and will be a key factor for long-term success in the market.

“Enter the Giants”

While it is tempting to keep talking about the potential of private e-Learning companies and their differentiated positions, it is prudent to realize the possibility of big players coming in and dominating the e-Learning industry. The leading technology vendors (Oracle, Sun Microsystems, Microsoft), service providers (AOL), portals (Yahoo) and system integrators (IBM, Hewlett Packard) might be just waiting for the opportune moment, letting the market sort itself out to some degree before weighing in with a full scale service and technology solution.

As the private equity markets tighten, it will become increasingly difficult for small private players to invest adequately in sales and marketing, as well as R&D to keep pace with the big public companies deep pockets. Furthermore, to the extent that third-party consulting firms play an increasingly prominent role in the market as a distribution channel, the smaller players will likely find themselves increasingly locked out of the direct sales channels to Fortune 500. It can be reasonably expected that smaller vendors which will no succeed to have JV or partnerships with leading service providers or consulting firms, will be eventually swallowed by larger enterprise software vendors seeking to create best-of-breed, integrated product suites or by deep-pocketed players as mentioned above. This will also be partly driven with the customers ultimately wanting seamless integration across synchronous and asynchronous platforms, content and learning management, preferring a one-stop shopping with a reputed company.

We believe that, in the long term, a small group of leading end-to-end enterprise solution providers will capture more market share at the expense of smaller competitors and expect to see rapid consolidation in the space.

8. Conclusion

Currently, the SCEL market seems to be small, with the largest player, Centra (which has 46% of the market), having a sales turnover of only $ 23 million in the year 2000. However, given the market scenario, in which there are giants like IBM, Oracle and Microsoft hovering in the wings, and the tremendous potential for growth, it would appear that a consolidation in the market is inevitable in the medium term. It is our hypothesis that these giants are only waiting for the segment to attain a certain critical mass, which would make their entry more profitable.

For the smaller players fighting their peers in today’s competition, the entry of the giants tomorrow might make the current situation appear like a picnic.

Part II – Analysis of Centra Software

1. Preface

In the first part of the paper, we carried out an analysis of the e-learning delivery technology industry. Looking at providers of technology platforms vendors we found that it was primarily divided into two segments, depending on whether the participants were communicating in real-time, or with time delays. These two segments of e-learning are SCEL (Synchronous (on line, real-time), Collaborative E-learning) and ACEL (Asynchronous Collaborative E-learning). Having thus segmented the market, we decided to closely examine the market leader of the SCEL segment.

This analysis therefore focuses on Centra, the largest company in the SCEL segment, with 46% of the market share. In this paper, we have looked at the various products and services that Centra offers, their value chain, the various strategic partnerships and alliances that they have entered into, the nature of competition in the market that they are present in, and finally, its strategy and competitive advantages.

2. Company background

"…Centra is the world's leading supplier of enterprise products and ASP services for live e-Learning and Internet business collaboration with enterprise-class solutions for virtual classrooms, online seminars and presentations, and Web meetings…Today hundreds of global organizations have standardized on Centra for the delivery of live e-Learning, including American Express, Accenture, Coca-Cola Company, Cable & Wireless, Domino's Pizza, ExxonMobil, Siemens, Nationwide Insurance, Procter & Gamble, and WorldCom…

Centra's products and services are backed by partnerships with Microsoft, PricewaterhouseCoopers, Deloitte Consulting, Oracle, and Saba. Headquartered in Boston's technology corridor, the company has sales offices throughout North America, Europe and Asia…" (CEO Leon Navickas discussing Centra's current market position)

Back at 1995, Centra was founded by Leon Navickas, currently CEO of the company and formerly general manager of the advanced R&D department of Lotus Notes, bringing a twelve year track of successful product development in Lotus. Navickas has managed to grow the humble start-up company to it’s current position as a market leader. Besides Navickas, the management team includes vice president of worldwide sales, marketing, and services, Rick Cramer, a founding member of Avid Technology, a company he helped build into a $400 million leading supplier of digital editing and special effects software. During 1998, Centra hired Chris Reed as Vice President of Product Marketing and Alan May as Director of Channel Programs, both of whom were members of the team responsible for building sustainable market momentum for Lotus Notes.

In August 1996, Centra received the first venture capital funding of a total of $3.2 million, providing the working capital required for carrying out R&D for its real time, structured collaboration products for distance learning purposes.

In May 1997 Centra received a total of $4.2 million to close the second round of financing which led to the launch & installation (July 1997) of the first commercial version of their core product - Symposium. A combined $18.5 million in financing to date was invested in R&D of the 'Symposium'. Written entirely in Java, Symposium is the first software-only enterprise solution for delivering integrated live, instructor-led, self-paced learning to any Web browser. Symposium uniquely combines multi-way audio, live application sharing, collaborative whiteboard, breakout sessions, computer-based training (CBT), and threaded discussion forums in an easy-to-use and accessible learning environment. As a total enterprise learning solution, Symposium also provides centralized content migration, online registration, automated reporting, and links to back-end information databases and ERP systems.

The years of 1997-1998 were devoted to extensive R&D aiming to improve the reliability and increase the features of Centra's solution. Advanced versions of the products were introduced and first commercial installations were placed with Bell Canada, Wall Data, Mitel and C3i. During 1998, Centra established strategic business partnerships to strength their marketing power, which would play a dominant role throughout the company’s future development. The first strategic partnerships were set up during 1998 with CBT systems, DA consulting group and Cambridge technology partners. Typically, partnerships were a useful tool to broaden the sales channels (through consulting firms adopting Centra's solution into their customer systems) and for creating awareness and credibility (through academic organizations or commercial companies using Centra's tools within their knowledge management systems).

On March 1999 Centra was able to introduce the innovative Centra 99 product suite offering a comprehensive set of capabilities, options, event templates, and toolkits in a scalable, extensible, and easily deployed "Interprise" system. The unique combination of the new, no-install Centra CONFERENCE Web client and the highly collaborative, firewall-friendly Centra SYMPOSIUM client enables Centra 99 to span all internal and external user communities, as well as all geographic and network boundaries. Critical business processes such as 1:1 selling, product launches, and enterprise application training that may have required travel or the use of teleconferencing and component Web technologies are now supported in a single, easy-to-use software system that includes centralized log-in, administration, reporting, security, and content management.

This technological advance gave Centra the marketing ability to further exploit bigger potential customers. The year of 1999 was a successful year for Centra as far as their customer base and strategic partnerships extended. In early 1999, Centra signed a business partnership agreement with PricewaterhouseCoopers, a prestigious name on their customer portfolio. Under the terms of the agreement, Centra's flagship product, SYMPOSIUM, will support PricewaterhouseCoopers' Systems Development Methodology by enabling project team collaboration, virtual classrooms, and cost-effective delta and refresher training to support new and existing clients. Later the same year, Centra signed a similar agreement with Deloitte Consulting, to support the training and education needs of their clients during enterprise process transformation. As a consequence of those market leading spots taken by Centra during 1999, installations were to be increased in a rapid pace, from only 90 at the end of 1998 to 440 at the end of 2000.

On the financial aspect, during 1999 Centra raised another $13.5 million in new venture financing from leading investment firms as The Goldman Sachs Group, and HarbourVest Partners.

During 1999 Centra's shareholders decided to go for public issue of stocks on NASDAQ which was completed On February 8, 2000 (NASDAQ: CTRA). The aggregate (based on a $14 price per share) net proceeds amounted to approximately $73.2 million. As of December 31, 2000, Centra still have approximately $57.0 million, including short-term investments, of net proceeds remaining. During 2000, the stock reached a record of around $40 per share reflecting a continuous growth of revenues (doubled between 1998 and 1999, and tripled between 1999 and 2000). Today, the stock is traded at a price of around $15 per share, coming up from a low record of around $8 per share at the end of year 2000.

Today, Centra hold a market leading position as explicitly stated in CEO Navickas' words quoted above. This position is backed up with a comprehensive, reliable, multi-feature, full compatibility product, a wide range of business partnerships and a global, diversified customer base.

3. Product

Centra’s pioneering work in creating live eLearning solutions makes its products scalable maximizing the use of available bandwidth. Centra’s product portfolio can be divided into three broad categories viz. a) Live eLearning and Collaboration, b) Choice of Delivery Methods, and c) Content Recording and Management.

Centra’s products provide all the basic features of an SCEL platform such as hand-raising, floor control, white boards, message boards, text chat, audio and video streaming, and application sharing. In addition, the tools offered by Centra also support different combinations of administrative functions such as reporting, scheduling, tracking and authoring.

Live eLearning and Collaboration

Under this category, which is Centra’s core business Centra offers three products for conducting live interactive web meetings, web conferences and virtual classrooms. Virtual classrooms allow organizations to bring together large groups of people to interact and learn in a highly collaborative eLearning environment while dramatically reducing travel, facilities, and telecommunications costs. Web conferencing and online presentations allows companies to assemble large audiences on the Web without sacrificing the benefits of real-time, face-to-face interaction, communication, and learning. Web Meetings provides a convenient means to meet with co-workers, customers, suppliers, and prospects without the hassles of complex meeting coordination or the delays of business travel. Centra’s line of products in this segment are:

i. Centra SymposiumTM 5.0 for Virtual Classrooms:

Centra Symposium can be used for highly interactive team collaboration, virtual classrooms, and hands-on training applications where each event can support up to 250 simultaneous users in a live, structured environment. It can be used for hands-on technical training, ERP application rollouts, online workshops and labs, virtual universities, and product training.

ii. Centra ConferenceTM 5.0 for Web Conferencing:

Centra Conference can support live, interactive seminars, company meetings, product demonstrations, and presentations, targeting a large audience and engaging them for the exchange and delivery of new information and ideas.

iii. Centra eMeetingTM 3.0 for Web Meetings:

Centra eMeeting augments face-to-face meetings, sales presentations, partner briefings, and other ad hoc business interactions in a secure, highly interactive, online work environment. Participants only need a PC and Web browser to have Web Meetings.

Choice of Delivery Methods

Centra offers two different kinds of delivery mechanisms of its products and services which are described below. It can either provide an outsourced solution, applicable for corporates that wish to outsource their learning requirements infrastructure, or an on-premise solution that is attractive for companies that want to have the infrastructure in-house. The decision to have one or the other solution is often decided on budget and/or security aspects of the organization. Centra’s line of products in this segment are:

i. CentraNow ServicesTM:

The CentraNow ASP offers Centra Symposium, Centra Conference, and Centra eMeeting as outsourced software solutions. It provides a full range of secure, real-time business interactions - from Web meetings and virtual classrooms to large-scale online events. This reduces the support requirements of on-premises software deployments.

ii. CentraOneTM Server:

CentraOne Server installs software on-premises as an enterprise system. Its 1 MB, browser-based thin-client architecture enables a full-featured eLearning solution over a low bandwidth connection. It is based on an open, extensible platform with industry-standard interfaces and provides a scalability of up to 100,000 users.

Content Recording and Management

This category relates to the capability to record, edit, store (in short manage) content for more flexible use by eLearning consumers, in an asynchronous (ACEL) manner. Content Recording and Management has traditionally not being the strength of Centra (which focused on SCEL platforms) but with the recent acquisition of MindLever Centra has now broadened its product portfolio and is expected to start playing in the ACEL market as well. Centra’s line of products in this segment are:

i. Knowledge Object Studio:

Knowledge Object Studio enables the real-time capture, editing, indexing, and playback of recorded "knowledge objects" derived from live online Centra events and training sessions.

ii. Learning Content Management:

Learning Content Management provides solutions for capturing, editing, managing and reusing content are highly complementary to the value provided by Learning Management Systems (LMS) which are designed to provide enterprise-level management of users, training activities, and resources. Centra acquired MindLever and by integrating MindLever's learning content management systems with Centra's live eLearning and real-time collaboration products, it provides a truly integrated solution for blended eLearning and mission-critical knowledge delivery. This will allow corporate organizations to index business content for easy retrieval, on-demand access to extensive multimedia knowledge directories of learning content in industry-standard (SCORM-compliant) formats, and define personalized eLearning programs.

Key Differentiators of Centra’s products and services:

i. Bandwidth optimized platform

Centra’s products require a uniform bandwidth of 28.8 kbps (KB per second) for all its applications viz. voice, PowerPoint slides, video, and application sharing. Centra’s bandwidth optimized platform while on itself may not seem a big advantage, it does translate to less demands on user requirements when compared with its competitors whose products have differing bandwidth requirements for different applications. For instance, some platforms need a minimum bandwidth of 28.8 kbps for voice and PowerPoint slides, 33.6 kbps for application sharing and 56 kbps for video.

ii. Democratic Software

Centra’s software infrastructure is democratic in the sense that it does not differentiate between an instructor and a student/participant. The software is same for both the student and the instructor which means that basically the instructor can hand-over the full control of a live eLearning session to any of the participants. Again in the case of competitors, the software platform is different and usually requires a different installation for student and instructor.

iii. Seamless Client Software means no installation required in Client/User PC

Centra’s software products are Java based applets that can be directly started from the web and is not required to be installed in user or client PCs (Personal Computers). This can be advantageous for two reasons. First, users do not have to carry their workstations or laptops around with them for accessing their eLearning programs. Second, many Management Information Systems (MIS) or Information Technology (IT) departments of corporate companies are not always willing to allow installation of additional software in their employees PCs for security reasons. By providing a seamless client that does not require installation, Centra overcomes both of these inconveniences for its customers. Most of the players in Centra’s competition space, on the other hand, require direct installation on the users PCs.

4. Value chain

In order to understand the value chain, we have split it up into two components – upstream and downstream. The upstream component of the value chain will consist of Centra’s suppliers, and the downstream component will consist of their customers.

4.1 Suppliers :

In order to prepare the platform, Centra purchases standard Codec and VoIP products from suppliers. Similarly, Centra has also integrated a sophisticated and much smaller component for application sharing from NetManage. These products procured by Centra are very standard products, and since there are many vendors providing them, we could say that the suppliers do not have much bargaining power in the value chain. Centra then develops in-house the interface and database management tools in order to create a seamless client, which can be downloaded in the form of a Java applet very fast into a computer, since it is a very small program.

Centra adds further value by interfacing these applications with the Learning Management Systems (LMS) that are provided by vendors such as Saba and Docent. Learning Management Systems do the function of handling the aspect of content management within the platform. Centra has strategic partnerships with both Saba and Docent, wherein Centra “bolts on” its content delivery component to the LMS provided by Saba and Docent. In return, Centra shares a part of the revenues generated from customers through the use of the integrated platform.

However, in a move at integrating content management facilities that are currently available with the LMS vendors, Centra has recently acquired Mindlever, which has a software tool that facilitates content management and greatly enhances Centra’s capabilities in the increasingly important area of editing and storing recorded training sessions. This acquisitions clearly signals Centra’s move into the space of content management that has been currently occupied by LMS vendors. The acquisition of Mindlever will also enable Centra to provide ACEL products, and therefore service customers’ complete e-learning requirements, both ACEL and SCEL, seamlessly.

4.2 Customers

Centra sells its products and services through a direct sales force and a telesales organization. The direct sales force primarily focuses on selling Centra's enterprise server products to Global 2000 companies, universities, governments, and other large organizations. The direct sales teams consisting of both sales and technical professionals who work directly with potential customers to provide proposals, demonstrations and presentations designed to meet the specific needs of each customer.

Augmenting the efforts of the direct sales force, Centra products are also sold indirectly through relationships with value-added resellers and distributors. In addition to several Vars in north America, Centra has currently around 27 resellers throughout Europe, the Middle East, Pacific Rim, India, Brazil, and Africa, and master distributors in Japan and Korea.

Centra’s customers can be divided into four broad classes :

Corporates
Educational Institutions
Government
Training Institutions

A cross section of customers from each of the above segments is provided in Appendix II.

Centra’s marketing efforts are focused on creating awareness of its solution among business executives considering enterprise-level live eLearning and collaboration solutions, as well as individual and departmental users suitable for the CentraNow ASP. Centra engages in marketing activities such as online seminars, direct marketing, Web marketing, trade shows, press and industry analyst relations, and user conferences to communicate the benefits of their platform.

Most components of Centra’s marketing mix are common for all four target segments. However, in the case of pricing, Centra offers subsidized rates for educational institutions. The sale process is complicated, and could be initiated either by the HR department of the company or by a line manager who wishes to purchase the product for his team across the world. However, at the same time, the IT department has to also be brought into the loop, in order to approve of the product, and work out any installation details. Given this complexity of the process, and the various interactions required with the organization, the sale cycle is normally 12 months, although the average order value is only USD 130,000 – USD 150,000.

5. Partnerships

Centra has effectively a structure of partnerships and alliances for ensuring success. Centra’s partnership programs can be split into the following categories:

Consulting
Content
Learning management
Online training
Technology
International

Centra Partners are service and support organizations that use Centra solutions integrated into their products, services and technology solutions. The Centra products add value directly to the products and services that the partners offer to their clients.

Centra offers the following benefits to its partners:

Access to dedicated program managers
Software licenses for internal use and demonstrations
Formal certification program, including a comprehensive selection of on-site and Centra-delivered technical and functional training courses
Access to the Centra technical support center
Opportunities for joint marketing and public relations
Centra field sales support, including joint selling opportunities
Access to the Centra Partner Web resource center
Participation in online Partner forums and events.

Ultimately, Centra’s partners provide their customers with a complete eLearning and Internet business collaboration solution through expertise in consulting, systems integration, content design, training, and technology.

Consulting Partners are primarily focused on system integration and end-user support services associated with enterprise software package implementations, Internet, intranet, and e-Commerce applications, and e-Learning initiatives. These partners have incorporated Centra into their methodologies for end-user training, project team collaboration, change communications, and help desk support. Many of these Partners offer custom education services specific to each client's training needs.

One of Centra’s most important consulting partners is PricewaterhouseCoopers' Learning

Solutions Group that provides learning services for employees, customers, and suppliers. The group focuses on learning strategies, content, and infrastructure to support enterprise-wide transformation and, through alliances with companies such as Saba and Centra, delivers eLearning solutions for rapid deployment of global training. Another important consulting partner for Centra is Deloitte’s Consulting Global Educational Services Group that focuses on the knowledge and skills of the client organization to operate at peak performance in an ERP-enabled environment.

This form of a partnership is a win-win situation for both the Consulting Partner and Centra, as with the help of Centra, the Consulting Partners are in a position to offer complete e-learning solutions to their clients, and through these partnerships, Centra is also able to make inroads into the client base of such Consulting Partners.

Details of other Consulting Partnerships that Centra has developed are given in Appendix III.

Content Partners are companies which develop and adapt content in topics such as information technology, management leadership skills, and education to Centra solutions. They also provide expertise in customizing content to meet a customer's specific learning objectives. Content Partners enable Centra to move down their value chain, by being in a position to provide content required by customers.

One example for such content partner of Centra is SkillSoft Corporation, which is a provider of business and professional e-Learning, offering more than 350 courses for worldwide use in 20 different curriculum categories.

Details of other content partnerships are given in Appendix III.

Learning Management Partners offer solutions to manage learning activity and track learner competency. Centra partners with some of the biggest names in the area of Learning Management Systems (LMS). These include click2learn, Saba and Docent, which are the three largest providers of LMS infrastructure in the world.

In the same way as partnerships with Content Providers enable Centra to provide content, partnerships with LMS vendors enables Centra to move upstream and offer an e-learning infrastructure to customers. The nature of the partnership between Centra and LMS vendors is often based on a revenue sharing, and Centra shares a portion of the revenue that accrues as a result of a bundled sale of an e-learning solution to its customers, with the LMS vendor whose infrastructure it utilizes for providing the solution.

Details of Centra’s Learning System partners are provided in Appendix III.

Online Training Partners use Centra products to deliver off-the-shelf and customized online training sessions to individuals and organizations. These Partners are both traditional training organizations migrating their services to the Web and Web-only e-Learning businesses. Course offerings include trainings for desktop applications, and product training programs for Microsoft, Lotus, Cisco and other leading vendors.

Details of Centra’s on-line training partners are provided in Appendix III.

Technology Partners provide software, hardware, and other technologies that are complementary with Centra's live eLearning and Internet business collaboration applications. These technologies include operating systems, learning management systems, knowledge management systems, hardware, and front and back office systems. Centra Technology Partners ensure that client products can interoperate with Centra products, and that a customer's internal IT organization can rely on and support the integrated functionality.

In addition to the LMS partners we mentioned above, Centra’s technology partners include among others Microsoft and Cisco. As a Microsoft Certified Solution Partner (MCSP) Centra enjoys a close relationship with Microsoft with early access to Microsoft's latest technology. This ensures that Centra maintains a lead on the newest system and software releases, having direct access to beta releases, technical updates, and Microsoft developers. Similarly, Cisco provides the very latest Internet networking solutions that form a part of the infrastructure of the solution that is provided by Centra.

Details of other Centra technology partners are given in Appendix III.

International Partners distribute Centra products and provide customer services outside of North America. These international partners are like extended sales departments of the central Centra organization, and have primary responsibility for managing the sales process within their region and, at times, also provide first-line support and other customer services.

Centra has International partners in 18 countries, and their details are provided in Appendix III.

6. Competition

When trying to analyze the competition we can identify different layers of competitors. These different layers are determined by the definition of the market as well as by analyzing potential future threats. The most basic layer contains the direct competitors who have similar products and sometimes also compete directly with the product on the shelf or in bidding process. Moving away from direct competitors competition can be found by looking at the periphery of the current market where we can find potential competitors who might move to direct competition by offering potential substitutes. We will try to explore the competition Centra is facing in the different layers, starting with direct competitors.

Different layers of Competition for Centra

6.1 InterWise

The clearest, most direct competitor Centra faced until now is Interwise. InerWise was founded on 1994 by Hilel Kobrinsky and Zvi Frank in Tel Aviv, Israel. In 1999, the Company moved its headquarters from Tel Aviv, Israel, to Santa Clara, California. In addition, InterWise has offices in New York, Switzerland, Germany, France, Greece, Israel, Singapore, Japan, and South Africa.

Centra and InterWise were direct competitors from the very beginning of the market activity. InterWise, like Centra, develops virtual classroom technology targeting mostly multinational corporations and academic institutions. InterWise’s flagship product is Millennium 3.0, a suite of software products and services enabling live, synchronous instructor-led training over the Internet. InterWise offers it’s clients similar features to those offered by Centra, including features such as application sharing, hand raising, text chats, floor control, breakup groups etc. as well as managing tools of the type of scheduling and reporting. Centra and Interwise observe each other closely and seem to copy good moves initiated by the other company. This is true for both the products and strategy. On the product side throughout the years each of the companies had new features and if the new feature seem to be attractive the other company offered similar feature after some time. On the strategy side both companies try to partner with content providers, LMS companies (Docent, Saba) and big players such as Microsoft, Oracle and Cisco. In most cases the same companies partner with both Centra and InterWise. The two companies often compete directly in bids for clients.

In this direct competition Centra is the unquestionable winner until now. As we mentioned in the first part of this paper, Centra currently has 46% market share compared to about 12% of InterWise. Yet, it should be noted that InterWise had a few major successes in this competition such as winning major ERP clients as People Soft and SAP or winning part of Microsoft account. Although beaten until now, InterWise is still an important competitor of Centra. It seems that several good strategic decisions by Centra helped it stay on the lead until now. These decisions included marketing decisions (more partnerships from the beginning) and capital decisions (Centra went public on time while InterWise “missed the train” by not completing its planned IPO before the crash in NASDAQ). In addition, it seems that Centra has currently some advantages with regard to the product. These advantages include: 1) No installation required - using Centra there is no need for installation as Centra is using a very thin client; 2) Bandwidth – using Centra 28.8KB modem is sufficient even when transmitting video, while transmitting video using InterWise requires 56KB; 3) Centra software has no difference between the instructor side and participants side, enabling to make a participant an instructor during the session. Later in this paper we will elaborate on Centra’s competitive advantage.

6.2 IBM/Lotus

InterWise may be the old rival of Centra, but the most worrying competition for Centra now come from the direction of Lotus/IBM. Lotus’ product, which competes with Centra, is called Learning space and it is a self-paced, collaborative e-Learning solution with similar features to those given by Centra’s Symposium. Lotus sells other e-learning related products, some of which compete with Centra’s products while some are in other segments of e-learning such as knowledge portal and knowledge management.

The interest IBM has in eLearning is part of its effort to move away from the heavy dependence on mainframe licenses and get into the middleware and software markets. Lotus has an important role in this move made by IBM and e-learning specifically seems to be an important part of this transition.

Lotus has been IBM’s subsidiary since 1995 but did not seem to be successful since the acquisition. In the last year Lotus has been undergoing reorganization and further integration with IBM (183 positions were recently cut including some key executives).

Lotus’s strategy now is to use the messaging, application hosting and development capabilities of Notes/Domino to enable its collaborative infrastructures in order to gain a dominant position in the e-learning and knowledge management industry. The division is currently undergoing a transition from Notes messaging products to new knowledge management and e-learning software because these are believed to be the major areas where significant synergies with IBM can be derived. In terms of recent developments in IBM’s strategy in the e-learning market, the company announced in June 2001 the Lotus LearningSpace Content Partner Program aimed at increasing the content offer using Lotus’s platform for e-Learning delivery.

The program provides 3 main components to the potential partners:

1. A Web-based content catalogue of courses that will allow all potential Lotus clients view all courses offered by the partners;

2. The possibility for content providers to bundle the Lotus LearningSpace platform with their content offerings;

3. A dedicated web site that would provide support tools for content developers working with Lotus LearningSpace.

In another recent initiative, as part of its strategy to bring clarification and unify its brands, IBM announced last month across-the-board support of open Internet standards for its infrastructure software (including its WebSphere, DB2, Tivoli and Lotus products). For the collaboration application space this would bring developers the possibility to easily integrate collaboration, knowledge discovery and e-learning into Web services applications and also a more open communication and opening distribution between organizations.

Leveraging on IBM’s position and capabilities makes Lotus a very difficult competition for a small company like Centra. Building on these capabilities Lotus succeeded to make a big step a head during the year 2000 and sell e-learning solutions to more than 500 organizations (including 38 blue-chip companies, leaders in their sectors) in 54 countries. With the recent steps made by IBM the future position of Lotus in the market seems to be very strong.

In spite of this apparent success Lotus’s future as a market leader is not sure and some obstacles are still to be overcome. Until last year Lotus seemed to do very poorly since acquired by IBM and the relationship with IBM has been criticized for lack of clarity and substance. The goals of Lotus were not always aligned with those of its parent company and the results were accordingly bad. Some analysts appreciate that the current restructuring will result in better support for Lotus partners while others fear that Lotus will loose its identity and disappear in the blue giant. Looking at the e-learning market in general and the small part of SCEL platforms in particular the issues of goals and direction are very problematic. A market with a size of less than $100M currently and a few hundreds in the next few years is not big enough for a company like IBM. Every move IBM will make in this market will be affected by its influence on other markets where IBM is active. Looking at Lotus separately there are still some question marks. Lotus itself is also working in several markets and must take into consideration many aspects of every decision. Not hurting partners in other markets are worries that in some cases may be relevant for Lotus more than for Centra. Examples for challenges facing Lotus and may disturb its competitive position are:

Overcoming the scars from loosing the desktop application battle to Microsoft;
Stiff competition in the corporate messaging support software;
The legacy and perception of a closed architecture and a difficult development environment;

In spite of all these challenges Lotus is in a very strong position and is a major threat to Centra’s market leader status. The financial and marketing abilities of IBM combined with the strong distribution channel and brand equity of Lotus itself and the strong installment base of Lotus notes puts Lotus in a great starting point. In addition, IBM can create a complete solution of the sort many clients are looking for (SCEL, ACEL, services and content), while Centra must rely on partners in this respect. We think that with the right strategy Lotus may become the market leader and Centra must partner with very strong partners in order to keep its leading position in the market.

6.3 Mentergy

Mentergy (formerly: Gilat Communications Ltd.) is an Israeli based company listed on NASDAQ (MNTE). The company started it’s activity in 1990 as a satellite communication services provider. In 1995 the company started to deal with distance learning. During the last quarter of 1999 and the year 2000, Gilat made three acquisitions with the goal of becoming a leader in the e-learning market. The acquisitions included the following companies:

Allen Communication, headquartered in Salt Lake City, Utah, is a provider of consulting and advanced courseware development services and authoring and design tools for creating technology-based learning solutions.
LearnLinc Corporation, based in Troy, New York, provides software and application hosting services for live, instructor-led training over the Internet.
John Bryce Training Ltd. is a provider of information technology training in Israel, with expertise in course design and development.

In May 2000, Gilat announced the launch of Mentergy Inc., a wholly owned U.S. subsidiary of Gilat, which was intended to integrate the expertise of the above mentioned acquisitions with the goal of offering a combined comprehensive e-learning solution. At the beginning of 2001 Gilat changed it’s name to Mentergy.

Mentergy seems to be an attempt to create a futuristic company, which can provide a complete solution. Pooling under one roof a platform (which competes with Centra) a consulting company and a training company (which develops content) may be what customers will demand in the future. Some analysts believe that the winners in the e-learning market will be those who will be able to provide such a complete solution. Until now though, Mentergy seems to be a big and unsuccessful gamble. As Gilat is not a huge corporation with very deep pockets neither of the companies it acquired was a real leader in their field. The lack of major resources does not enable Mentergy to help it’s different branches to develop into a real leader. The result is that LearnLinc – the platform part of Mentergy is inferior when compared to Centra and with the sources the parent company has (or doesn’t have) right now, it seems that there is a very small chance of narrowing the gap. Mentergy was punished heavily by investors in the current crisis on NASDAQ. In the last year Mentergy’s stock fell from $20 a share to a current price of $1.14 a share! With a market cap of less than $14M Mentergy does not look now like a major player or a real threat to Centra. What happened to Mentergy may lead to the conclusion that a complete solution may be sold currently only by combining leaders in each component of the solution. This can be done either by partnerships or by one of the giants who will buyout different market leaders.

6.4 Microsoft

Microsoft creates indirect competition to Centra, as it does not sell a SCEL platform, yet two tools that are part of the Exchange servers it sells to it’s corporate customers – Net Meeting and Conference Server, create some type of competition. These two applications enable it’s users to have a meeting through the web, which can include audio and video, as well as to use application sharing. Using these tools a client can have sessions that may include training and/or teaching. Therefore some clients may see the tools given by Microsoft as substitutes and decide not to buy Centra after buying Microsoft Exchange. Having said this, it should be clarified that although some potential clients may decide not to buy Centra and see Net meeting and Conference Server as substitutes for Centra, these tools given by Microsoft currently are far from being a good substitute for a virtual class room tool such as Centra. Many special features developed by Centra for the purpose of creating a virtual classroom do not exist in the tools given by Microsoft. These features include the ability to manage events, have an agenda and evaluation, the options of hand raising and signaling “yes” and “no”, writing notes to participants and many other features. All these features were developed during the past years as a result of thinking and observing what is needed in order to run an efficient teaching session. The lack of all these features means that using Net Meeting and Conference Server one can never have a real efficient teaching session. The development of all the necessary features demands some development time. Another major issue is that the Conference Server was developed with the aim of being used within organizations and it have been designed accordingly and uses a lot of bandwidth when used outside the intranet. This use of bandwidth is another important disadvantage of using Conference Server as a substitute for Centra. We can therefore see that currently Microsoft is not a real substitute or competition for Centra and its products may hurt Centra’s sales only slightly.

A different issue is the threat for Centra if Microsoft decides to use its mentioned tools as a base to develop a real SCEL tool and compete in the market. Developing a good platform building on the existing tools should not be a problem for a company such as Microsoft, given the enormous capabilities it possesses, even if it will demand some time. If Microsoft decides to develop such a platform, it can use its deep pockets as well as its marketing capabilities and become a very strong and dominant player. This threat does not seem to be a close one now due to the size of the SCEL market and the long and demanding selling cycle. It is hard to believe that Microsoft will put any efforts into a market which is tens or even hundreds of $Millions, when the selling process is very different than what Microsoft is used to and making a sale can take as long as a year. Another risk may be identified in the option that Microsoft will buy a competitor of Centra and by doing that start competing in the market from day one combining the experience of such a competitor and the power of Microsoft. We see this option as a bigger threat to Centra but with the current size of the market it seems that Microsoft does not have the incentive to make such a move in the short run.

6.5 ACEL platform companies

Another type of competition, which derives its threat to Centra from being a potential substitute, are the ACEL platforms. Using ACEL give the users an important advantage over the SCEL – the option to learn anytime (24/7) without being limited to the timing of the instructor. ACEL gives also each participant the right to move at his own pace. On the other hand, ACEL is in our opinion one step away from the human interaction which people are so used to. SCEL also enables the class to move faster and be completed in the same session while ACEL may create delays as the students and the instructor are not able to communicate in real time. The different advantages of SCEL and ACEL assure that the e-learning market will include both and the use of each of the two different tools will be identified as better for different purposes. We believe that there will be competition between these two methods on market share. Another competition with current ACEL platform companies may appear due to a common understanding that each company which wants to sell platforms for e-learning and be recognized as a market leader, must sell both SCEL and ACEL platforms. Centra made the first step in this direction recently with the acquisition of Mind Lever. We believe that this trend is going to continue and all major players in the technology market of e-learning will sell both types of platforms.

6.6 LMS Companies

The last point mentioned about the future competition with ACEL companies may become relevant to LMS producers as well. The demand for one complete technological solution already exists in the market and is dealt with by creating partnerships such as those Centra has with Docent and Saba. In the future LMS companies may decide to try and sell a complete package on their own, by developing or acquiring SCEL platforms. Centra’s acquisition of Mind Lever may again be an accelerator for this new line of competition.

6.7 Content providers and Service providers

Looking at the future of the e-learning market, we believe that the demand for complete solutions may go beyond the technological aspect. Customers may look for one point of contact where they can get the full e-learning solution – technology, content and services. Again, such demand is satisfied today by partnerships between companies like Centra with major service and content providers. The threat of big companies creating their own complete solution is something that SCEL companies must be aware of. We believe that partnerships between technology market leaders and service providers market leaders such as consulting companies will continue to represent a good alternative to one company which gives everything. Yet, such partnerships may become the only way for technology companies such as Centra to compete, and may result in lower margins.

7. Competitive advantages and strategy analysis

Centra was the first mover in the SCEL industry, and had its first installation in 1997. yet, as the first mover advantage was minor since InterWise was entering the market almost at the same time, Centra’s main advantage was being the best mover. This best mover advantage has enabled it to have a sound position within the market, in terms of gaining the largest number of installations of platforms.

We have attempted to analyze the evolution of Centra’s competitive advantages and evolving strategies in three phases: from the start-up phase to date, the position as it is today, and the possibilities for Centra for the future.

7.1 Strategies that brought Centra from a start-up to a leading provider of e-learning technology

Partnerships : Centra has always believed in entering into various alliances with companies that are present in different parts of the value chain in which it operates. Alliances with content providers such as Skillsoft, and, with LMS vendors such as Saba and Docent have been examples of this strategy. Centra opened up its product to such partners since the beginning while InterWise, for example, was reluctant to do so. These partnerships have helped Centra in the following ways :

Centra has been able to create inroads with their platform into the client base of the LMS companies.
Centra has been able to provide seamless e-learning solutions by integrating their software platform with the products and services provided by partners such as Saba, Docent, and Skillsoft.
Centra has integrated itself into the e-learning ecosystem by becoming allied with partners such as Microsoft and Cisco, even in joint marketing initiatives.

Technology : Centra utilizes a thin-client architecture, which ensures that there is very little software to be loaded on to the local client server. The application is downloadable as a Java applet from a central sever, and is therefore far easier to use than the competition’s software, which has to be loaded onto the local client software. Additionally, the software that is provided by Centra can be utilized in the same way by all the users of the e-learning session including the instructor. The competition is currently unable to offer this feature also, as there are different packages for the presenter versus the audience.
Sales Strategy: Centra chose to focus initially on the US market, which is currently the largest for e-learning and expand later by having International partnerships with Value Added Resellers worldwide. Currently, Centra has 27 Value Added Resellers in 18 countries globally, and continues to sell their products and services directly only in the US. This ability of Centra to control and direct scarce resources has given it a significant competitive advantage. The multi-channel strategy also enables Centra to target a broad set of buyers across all industries and geographies and diversify revenue streams.
Funding : The timing of Centra’s Initial Public Offering (IPO) (launched on February 2000) enabled it to collect adequate funds for progressing. Competitors such as Interwise were unable to tap the capital markets at a propitious time, therefore limiting their capabilities to invest adequately in technology, and in developing deeper relationships with their client base.
Marketing Ability: Centra has proven to be very successful with identifying and convincing the right contact people within the organization to buy its products. This marketing approach helped Centra to build its market leadership due to expertise developed as well as network which was increasingly created as time went by.

7.2 Current strategic assets and accomplishments

The position that Centra occupies today in the SCEL space is sustained by it through certain careful steps in the following areas :

Development of brand equity: Centra has been as a result of its alliances and multiple client relationships, able to develop a strong brand equity in the SCEL space, vis-à-vis competitors such as Interwise, Mentergy and even Lotus Learningspace. This brand equity that has been achieved through market leadership gives its sales efforts a significant boost amongst customers.
Industry knowledge: The long associations with multiple customers has kept Centra at the cutting edge of SCEL platform technology. Additionally, intelligent acquisitions such as that of Mindlever may also enable Centra to internalize certain software capabilities that are required to add further value to its products. This ability of moving up the learning curve at a rapid pace will enable it to stay ahead of the competition.
Blue Chip partnerships : The constant fostering of partnerships with giants such as PricewaterhouseCoopers, Deloitte consulting, Microsoft and Cisco has not only further added credibility to Centra’s marketing efforts, it has also allowed Centra to have access to technology provided by these companies.
Existing relationships : The existing 440 Centra customers will be a significant source of revenues as Centra products are implemented across their organizations. As customers continue to use the now available live eLearning and collaboration solutions, there are opportunities for Centra to up-sell and cross-sell our products and services across additional departments and business processes throughout the extended enterprise.
Achievement of broader global reach: International customers represent a significant opportunity for Centra’s products and services. European sales operations based in the United Kingdom have been established, and master distributors have been appointed in Japan and in Korea.
Visibility in New and Existing Vertical Markets: Centra has developed customer relationships with organizations in various vertical market sectors including financial services and insurance, manufacturing, consulting, software, pharmaceutical and telecommunications. This strong reference base is being used by Centra to expand customer installations within these vertical markets.

7.3 The Challenges facing Centra

The challenge of defining a concrete and viable strategy to sustain one’s competitive advantage in future often starts with an appreciation of the uncertainties that one is likely to face, both in the short term and in the long term. Not having a clear appreciation of the future uncertainties is akin to starting on a voyage without a map. While one may still reach the destination, it is more likely to be a matter of chance and less a result of strategy. The uncertainties that Centra is likely to face in the times to come is listed below in the order of its importance.

7.4 Looking ahead

As we have said before there are three major types of players/providers in the e-learning industry: the technology, the content and the service providers. All these players are interacting with the final client and they are also interacting amongst themselves through partnerships and alliances.

The issues that should be considered by Centra for devising their future strategies are as follows:

The “One-stop shop” Fallacy:

This product serves very complex needs of large organizations and a complete service requires very different skills and competencies (for instance, the skills needed in order to create a good training program for sales reps in the European pharmaceutical industry are very different than the ones needed in order to create a reliable platform that will support a wide range of learning applications). As a consequence we believe that it is almost impossible for a player to become a one-stop shop in the area of e-learning providing all the elements that a client needs.

An example of a company that attempted to transform itself into a one-stop shop, and failed, was Mentergy (former Gilat), that made an attempt to provide the entire range of services by acquiring second tier companies in all the three areas, and putting them under one umbrella and failed.

The Importance of Partnerships and Customer Relationships:

The selling cycle for the product is long and being a relationship-intensive process, clients prefer to simplify the procedure and reduce the number of entities involved in order to increase efficiency. The result is that the different players try to partner with each other and offer a bundled product whenever possible. In such partnerships the partner who has the direct interaction with the client gets control over the process and is able to squeeze more revenues out of the value chain.

In this competitive landscape, we believe that the service providers are the ones with a higher chance to succeed in getting closer to the client as they have the experience needed for this, as well as the resources and contacts.

As we said above, we believe that being a one stop shop in the e-learning space is a very difficult task and only blue chip companies such as IBM have a chance to succeed in such a trial. Moreover, we think that partnerships between market leaders in the three segments may beat giants like IBM which will try to do all by themselves. Having said this, we would recommend Centra to stay away from trying to expand into Content or Learning Services. Instead, we would advise Centra to try to seize the technology space and become the undisputed leader for providing complete e-learning technology (SCEL, ACEL and later on LMS).

Fit versus reach:

Centra may sell bundled content and services whenever possible but their main focus should be in the technology area. Centra has already made a step in this direction by acquiring Mindlever, which will allow them to offer a more complete solution. We are aware that this presents a threat by turning content management providers like Saba or Docent from allies into competitors but we believe that this acquisition is a good move towards making Centra a more complete provider of learning technology products. The strong market position and brand equity that Centra has achieved can help it sell other types of technology platforms to its clients and through that increase revenues as well as strengthen market position. While further building its position in the technology segment, Centra must strengthen the alliances it has with leading service and content providers. As strong focus on dominating the technology space will enable Centra to withstand onslaughts on the e-learning space by giants like IBM.

We believe that if Centra continues to make the right moves on multiple fronts, as it did until now, it will survive to become a dominant player in the e-learning technology segment even after the big players arrive.

APPENDIX I

APPENDIX II

APPENDIX III

Details of Centra Consulting Partners :

RWD Technologies - provides users of technology with the tools they need to make them more effective at their jobs in four key service areas: information technology, enterprise software implementation, technology performance support, and lean manufacturing consulting.
American Management Systems, Inc. - provides deep vertical market expertise to help clients in telecommunications, finance, insurance, healthcare, federal, state and local government, and utilities become next-generation enterprises.
C3i - provides a variety of services to help sales organizations leverage the potential of sales automation.
Clarkston-Potomac - provides a information technology-related professional services, including IT planning, project management, change management, and implementation services to mid-sized companies.
DA Consulting Group - provider of end-user support solutions to companies implementing enterprise resource planning (ERP) software solutions such as Oracle, SAP, J.D. Edwards, BAAN, and Peoplesoft.
Dendrite International, Inc. - provider of highly specialized, integrated product and service offerings for the pharmaceutical and consumer package goods industries.
IQdos - a European independent consultancy that helps organizations significantly increase business performance through eLearning.
Oxford Consulting Group - an eBusiness consulting firm that is committed to helping clients utilize best-of-breed technologies to achieve a sustainable competitive advantage
QuickStart - offers integrated consulting, education, and distance learning services powered by Centra's online learning software in six practice areas: customer management, enterprise information management, retail, enterprise learning, enterprise architecture, and technical education.
Starpoint Solutions, - an e-business solutions integrator specializing in delivering Internet-based applications that help corporations increase sales and improve customer service.
Usertech - provides the education, training, and performance support services to its clients, maximizing employee performance in the workplace.

Details of Centra Content Partners :

LearningByte - a leading developer of custom eLearning solutions in performance consulting and instructional design that uses a Web-based technology to develop extensible solutions for inevitable changes, and a scalable production process.
Wronski Associates - offers training tailored to fit client’s specific needs addressing leadership skills (technical, business, and interpersonal) so that the benefits of information technology can be maximized throughout the corporation.
Novaconcept - provides complete, integrated eLearning solutions that help businesses deploy knowledge across their extended enterprise of employees, customers, suppliers, and other business partners.
NIIT's Knowledge Solutions Business (KSB) – provides eLearning content customized to each organization’s specific learning objectives, based on its unique business practices and initiatives, and tailored to diverse audiences.
O/E Learning, Inc. - a full-service training company specializing in the design, development, and delivery of effective knowledge transfer programs.

Details of Centra Learning Management Partners :

click2learn.com - leading provider of full service e-Learning solutions to businesses, government, and educational institutions.
Docent™ Inc. - the recognized global leader in Education Commerce™, providing comprehensive learning solutions via the Internet.
Generation21 Learning Systems (a subsidiary of Advantage Learning Systems, Inc.) developed the Total Knowledge ManagementTM (TKMTM) system, a fully integrated solution for training and knowledge management featuring re-usable Dynamic Learning Objects.
GeoMetrix Data Systems, Inc. - provides flexible, accessible, convenient, and cost-effective enterprise learning management solutions to utilities, governments, law enforcement agencies, universities, media, hospitals, commercial trainers, and companies
IntraLearn Software Corporation - helps organizations educate their global workforce by enabling them to rapidly create, deliver, and measure interactive training and education over the Internet and corporate intranets. IntraLearn Software Corporation is a Microsoft Certified Solution Provider Partner and a Microsoft Authorized Online Learning Partner.
ISOPIA is a leading provider of Internet learning solutions
KnowledgePlanet.com - provides the world's leading business-to-business eLearning solution to help organizations align workforce performance with business strategy for a performance-based competitive advantage.
Learnframe - a comprehensive learning service providers (LSP) that offers individuals and organizations courseware library, traditional learning materials, personal profiling, and a robust learning management system.
Pathlore - helps organizations improve their competitiveness by using the Internet for learning and to share knowledge with their employees, customers, and suppliers.
Saba - the leading provider of eLearning infrastructure to the Global 5000 and government organizations, learning providers, and Internet businesses worldwide.
THINQ - offers, an eLearning solution that combines strategies to align learning initiatives with business objectives.
Teamscape Corporation - provider of corporate learning portals and an advanced enterprise learning platform.

Details of Centra On-line Partners :

AchieveGlobal (a division of IIR) - the world's leading resource for helping organizations achieve their business strategies by developing the skills and performance of their people.
Ascolta - a leading provider of quality IT education.
The Beacon Institute for Learning - delivers technical training through academic channels.
CDI Corporate Education Services - provides Integrated Learning Solutions for IT skills management. CDI has also produced many online courses for Microsoft as a leading Microsoft Certified Technical Education Center partner.
Element K - offers more than 550 information technology and business courses designed exclusively for the Web
Excel Partnership, Inc. - offers training and consulting for business process improvement, as well as for compliance to international quality, manufacturing, environmental, health and safety, pharmaceutical, and medical device standards.
Global Knowledge Network - offers education services including instructor-led courses, customized enterprise services that align training with an organization's goals, and knowledge products for self-paced learning.
Healthy Environment Learning Processes, Inc. (H.E.L.P.) - provides business and proprietary software training over the Internet using Centra's solutions.
iGeneration - a unique and comprehensive resource for individuals pursuing Internet careers and for companies seeking skilled Internet talent.
Maxwell Training Centers, Inc. - has used Centra technology to develop a "new features" curriculum for popular desktop applications such as Office 2000 and Lotus Notes R5.
Outlook Software - a leading provider of Web-based analytic products and services to deliver cost-effective Web-based training.
Versalys - virtual classroom courses.

Details of Centra Technology Partners :

gForce Systems - offers the first complete suite of software applications for self-service eLearning, and helps companies build dynamic eLearning portals for knowledge exchange.
Andrea Electronics - developer of hardware and software for microphone technologies which optimize the performance of speech-enabled applications
InfoImage Decision Portal - the first enterprise portal solution to unite knowledge management, collaboration and business intelligence in one Web-based application.

Details of Centra’s International Partners :

Australia APPCON
Brazil MicroPower
Germany Tertia Edusoft
Greece 01 PLIROFORIKI
Hungary Synergon
India GurukulOnline
Israel AKT!
Italy DS Group

Italdata

Japan Macnica
Korea ADA Infotech
Netherlands SKI2L
Portugal Tracy International
Singapore & Malaysia Pantropic Technology Pte Ltd
Spain Telesoft
Sweden Next Learn
Switzerland Edutec
United Kingdom eLearnity

Futuremedia

Hewlett-Packard

South Africa Dimension Data

BIBLIOGRAPHY

Merrill Lynch & Co. - The Knowledge Web : Corporate E-learning – feeding hungry minds dtd 23 May 2000

WR Hambrecht + Co. industry report - e-Learning: 2001 Outlook For the Learning Management Systems dtd. April 18, 2001 and e-Learning: 2001 A State of the Industry Update dtd March 8, 2001 as available in

IDC's new bulletin - Worldwide Corporate eLearning Market Forecast and Analysis, 1999-2004 as published in dated Feb 27, 2001

Brandon-Hall’s report on eLearning industry in January 2001 titled “Live eLearning, How to Choose the Right System for Your Organization”

Banc of America – The E-Bang Theory dtd September 1999

Frost & Sullivan Industry Report

Gartner Group

Centra Software, 10-K report to NASDAQ, February 2000

Interview with Mr. Yoav Ventura, Centra Inc., Tel Aviv

Mentergy F-20 report to NASDAQ, June 2000

Subramanian Rangan and Ron Adner (2001) Profitable Growth in Internet Business: Strategy tales and truths. MIT/Sloan Management Review. 70(2): 70-82

e-learning Delivery Solutions Page of 46

The e-Learning market for corporations.

e-Learning Delivery Solutions

Industry analysis

Company analysis – Centra software Inc

High Technology, Entrepreneurship and Strategy

Professor Ron Adner

Students

Fontainebleau

Part I – Industry analysis

2. The size of the eLearning market 3

4. Market segmentation 6

7. Competitive advantages and strategy analysis 33

Part I – Market Analysis

1. Introduction – The e-Learning market

Online learning is integrated and scalable.

Exhibit 1: The benefits of online learning versus the classroom

2. The Size of the e-learning Market

Exhibit 3: Corporate learning market estimates

3. Definitions

Exhibit 4 – Sub-segmentation of distance learning

4. Market Segmentation

4.2 Services

This is a preview of the whole essay

Buyer sophistication will rise

Content is king

Blue chip partnerships are a key factor for success

“Enter the Giants”

Part II – Analysis of Centra Software

1. Preface

Live eLearning and Collaboration

Choice of Delivery Methods

Content Recording and Management

4.2 Customers

6. Competition

6.2 IBM/Lotus

6.3 Mentergy

6.4 Microsoft

6.5 ACEL platform companies

6.6 LMS Companies

6.7 Content providers and Service providers

7. Competitive advantages and strategy analysis

APPENDIX III

Details of Centra Technology Partners :

Italdata

Document Details

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