SumTotal Systems completion of the acquisition of privately-held LMS vendor Pathlore marked another significant step in the evolution of the LMS market and further escalated the stakes for competition in the corporate / enterprise space. What implications does this acquisition have for SumTotal and Pathlore customers, and for the broader market? Here is a summary view on how Elearnity sees this playing out.
Pathlore is a well established, stable, long-term LMS vendor with significant market share. It has a well-proven platform, and has built-up a stable and loyal customer base over many years, successfully leveraging its acquisition in 2000 of Silton-Bookman Systems and its widely-used Registrar training management system, and more recently acquiring DKSystems. This background has made Pathlore particularly strong in sub-enterprise LMS, with many mid-tier customers and functional/country-level implementations. As Pathlore was also one of the few major LMS players to be consistently profitable, the acquisition represents a significant development for SumTotal Systems as it tries to consolidate its position at the top of LMS vendor tree.
What does this mean for Pathlore customers? Well, in the short term, we don't expect it will mean that much, as SumTotal will need to maintain much of the historic Pathlore organisation that services customers and maintains product. Longer term, the strategy looks likely to be to gently push customers towards adoption of the SumTotal platform, but the timescales for this are currently unclear, and product roadmap announcements will probably emerge after Pathlore's User conference in November.
Many established Pathlore customers have grown their LMS-usage organically over a number of years, often evolving from earlier departmental implementations. More recent customers will probably have rejected the high-end enterprise-level LMS players (including SumTotal or their Click2Learn and Docent predesessors) as too expensive and too complex. Whilst it is possible that SumTotal may announce a version of the platform targeted at the typically mid-tier or sub-enterprise-level Pathlore customer, we believe this is less likely than providing attractive incentives to switch to the core SumTotal platform. SumTotal aims to make significant cost savings from the combined organisation, and achieve a significant boost to its overall profitability. But given the need to maintain customer commitment over an extended period, savings cannot be at the expense of front-line capability to maintain the Pathlore customer base (both in terms of product and services).
And that highlights SumTotal's principal challenge; how to successfully transition its historic user bases to the SumTotal platform. Yes, it has a strong product story and is seeing success in its core enterprise market selling the new SumTotal platform, but it also needs to aggressively switch is now much larger non-SumTotal user base too. This is the same risk we identified previously for Docent customers in the original merger to form SumTotal. (It was always a simpler and less contentious decision for historic Click2Learn Aspen 2.X customers).
Elearnity still sees customer transitioning as the significant risk factor for SumTotal. We believe, a many larger Docent customers are still covering their future options without yet fully-committing to moving to SumTotal 7.x or beyond. And SumTotal needs to win this battle first before engaging with the Pathlore base to do the same. That should also buy more time for Pathlore customers to evaluate their options.
For SumTotal customers, it depends where you are currently. Overall this acquisition significantly strengthens SumTotal's market position at a critical time, and should result in a stronger organisation in the medium term. There are short-term risks of dilution of focus and resources, especially if SumTotal tries to unduly accelerate the transition of Pathlore customers to the SumTotal platform, but we feel this is unlikely.
For historic Docent customers, still unsure about their future direction, SumTotal has strengthened its independent position and stability in the overall market. But it now has at least 3 distinct user bases to transition to the SumTotal platform over time, with the associated implications and risks. This may well reinforce a wait-and-see approach, particularly, if like many large corporates, you are also considering the LMS position as part of overall HR/HCM systems strategy at the same time.
What about for the broader LMS/e-learning market? We believe it has strengthened SumTotal's overall position, particularly in terms of market footprint, but also in terms of revenue stability and profitability, adding to SumTotal's strong existing technology/solution story. All of these are key to success in a rapidly evolving market and should position SumTotal well in the future. (We partly see Saba's recent announcements of its acquisition of Centra to strengthen its broader suite credentials as a response to this).
The key to success for SumTotal though, will be to transition its many constituent customer bases to one SumTotal customer base over time, or risk losing them to other more aggressive LMS companies or the HR vendors. This has already proved challenging for some of its enterprise-level Docent customers, and we expect this to be equally challenging with sub-enterprise Pathlore customers.
One final point, from a European viewpoint, Pathlore has not actually been the primary sales agent here, the Matchett Group has, and that creates an interesting twist that may also have relevance to the US and other markets as well. Who will sell and service Pathlore customers going forward? SumTotal's own organisation and many of its leading partners have historically focused on large enterprise customers, not sub-enterprise or mid-tier. This potentially could leave a large vacuum if organisations such as Matchett shift their focus elsewhere. We believe SumTotal will therefore need to create a much stronger partner channel to sell and service all sub-enterprise and mid-tier customers. Arguably an historic weakness for SumTotal (and Docent before that), with more than half your customers now in these segments, this is now critical to their long term success.
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