The Emerging Market for Web-Based Training, 1996-2002 Section 1
Ellen H. Julian Marla M. Capozzi
Report #15602 - March 1998

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Abstract

This report analyzes the market for Web-based IT training and presents IDC's forecast for growth in the emerging market segments. In addition to evaluating the overall Web-based training content market, IDC discusses the issues and trends affecting the various market segments and profiles players in each of the segments. An overview of buyer needs and requirements based on interviews with companies in the planning and/or implementation phase of a Web-based training purchase is also provided.

Management Summary

Web-based training content, products, and services are emerging as a new opportunity for training suppliers and software firms. The models for these products and services are evolving. This report presents an initial attempt at creating an industry structure and market model for analysis.

Market Growth

IDC estimates that in 1997, the U.S. market for Web-based training generated $197 million in revenue. IDC expects this market to exceed $6 billion by 2002, representing a compound annual growth rate (CAGR) of almost 95% from 1997 to 2002. (See Figure 1.) Drivers fueling growth within this market include increased buyer readiness, maturation of IT infrastructures to accommodate Web-based training, enhancement of service portfolios, increased funding available from venture capital sources, and continual increases and advancements in Internet technologies and access. IDC expects to see a huge shift in distribution vehicles from current market options and hybrid approaches to purely Web-based training.

Figure 1 - The Market for Web-Based IT Training, 1996-2002

Source: International Data Corporation, 1998

Buyer Perspectives

Healthy market growth will occur as suppliers deliver on the promise of Web-based training. Cost effectiveness, ease of use, and wider access to content are just a few of the compelling characteristics of Web-based training. Although classroom delivery remains the most common delivery of education, percentages for Web-based training are rising. Buyers are looking to reduce costs associated with traditional classroom delivery and increase the value of their spending dollars.

Buyers surveyed indicated that Web-based training will play an important role in their training plans and purchasing decisions. Key challenges include the need for advice, balancing internal and external resources, and defining deployment capabilities and limitations.

Supplier Profiles

IDC surveyed 22 public and private companies representing initial market segmentation with the Web-based training market. These profiles, along with observations, are contained in the supplier profile section of the report.

Market Analysis

In its nascent stage, the market is seeing a huge influx of start-up companies entering the market. These companies are already seeking partnerships and joint ventures that will allow them to offer a full range of services to their customers. Merger and acquisition activity in the market is already beginning, and we expect this activity to increase as the race continues to establish market leadership.

Over the next five years, IDC expects the following dynamics to fuel market growth and development:

  • Compression of R&D cycles and faster time to market
  • Shifting distribution models (more direct sales from downloads)
  • Increased preview of training prior to purchase
  • Continued investment funding from venture capital firms
  • Shift from hybrid approaches such as Web/CD-ROM to purely Web-based delivery
  • Expansion of value-added service options, including consulting, student support, hosting, and administration from professional service firms and consultancies

    Clearly, the success of Web-based IT training will be used as an indicator of things to come for non-IT training segments. IDC expects the entire training industry to follow the lead of the IT segment.

    Methodology

    Data Sources and Methodology

    This report reflects IDC's continuous collection and interpretation of information on the Web-based training market. Information for this report was obtained from primary sources and secondary sources, such as publicly available company financial information, industry association data, and new reports. For primary sources, IDC relied on the following user surveys and interviews with suppliers:

  • Supplier surveys. IDC conducted research interviews with Web-based training content and software suppliers in November and December 1997. Respondents were senior managers in charge of marketing and product development, representing 22 public and private companies. The companies are not comprehensive with regard to the market, but rather are representative of the growing segments.
  • User surveys. Primary data was gather by means of a telephone survey in the summer of 1997. Respondents were training managers and IS managers representing 17 companies. Given the relatively early adoption stage that most of the market is currently in, IDC selected organizations considered at the forefront of the market in adopting training technology. The perceptions of these more advanced users of training technology provide a view of how the wider training market will evolve.

    Revenue covered in this report includes revenue derived from corporate IT training (that is, training on computer hardware, software, systems, and networks) delivered via Web-based training. Revenue and forecasts for Web-based training products, including authoring software, applications software, and training management software, are also included (see the "Market Definitions and Segmentation" section). Revenue derived from sales of non-IT training content is not included.

    Market Definitions and Segmentation

    IDC segments the Web-based training market into four major categories: content, authoring software, applications software, and training management software. IDC recognizes that these categories are general. In addition, IDC notes that in several cases companies belong in more than one category. Nonetheless, these categories are intended to be an initial attempt at creating an industry structure and market model for analysis. A description of the categories and companies that they comprise is as follows:

  • Content. These firms develop training content that is delivered through various media. (Companies profiled are CBT Systems, DigitalThink, Gartner Group, McGraw-Hill OnLine Learning, NETg, Oracle, and Street Technologies.)
  • Authoring software. These firms are developers of software tools for the development, delivery, and management of training content. (Companies profiled are Allen Communications, a Times Mirror Company; Asymetrix Learning Systems; and Macromedia.)
  • Applications software. These firms are developers of products that enable content development and delivery using a software template. (Companies profiled are Centra Software, Eloquent, ILINC, Lotus, ONE TOUCH Systems, Placeware, and WBT Systems.)
  • Training management software. These firms develop products for registration, tracking, and administration of training. (Companies profiled are Databeam, KnowledgeSoft, Pebblesoft Learning, Saratoga Group, and Syscom.)

    Related Research

    1997 Survey of Education Buyers' Needs and Requirements, IDC #W14651, November 1997

    The Internet: An Assessment of Market Opportunities for Professional Service Providers, IDC #W13331, November 1997

    Winning Strategies of Emerging Internet/Intranet Integrators, IDC #W13427, November 1997

    Issues and Strategies in Web-Based Customer Service and Support, IDC #W12991, November 1997

    Future Growth Opportunities and Strategies for IT Training Firms in Canada: 1997 -- A Competitive Market View, IDC #W97078T&E, November 1997

    1997 Canadian IT Training and Education Markets and Trends -- A Competitive Market View, IDC #W97039T&E, October 1997

    The Corporate Buyers of IT Training and Education Services in Canada -- Needs and Requirements in 1997, IDC #W97040T&E, August 1997

    1997 European IT Training and Education Services: Markets and Trends, IDC #QO7D, August 1997

    Internet Commerce in Europe, IDC #WH02D-01, July 1997

    The Global Market Forecast for Internet Usage and Commerce, IDC #W13855, July 1997

    How Real Is Internet Commerce? IDC #W14061, July 1997

    Purchase Plans for Web-Based Training: Preliminary Survey Results, IDC #W13243, April 1997

    Adoption Trends and Vertical Analysis: Data Warehousing, Decision Support, and Internet/Intranet, IDC #W13194, April 1997

    The Market for Web-Based Training: A Look at Current Developments in Internet and Intranet Course Delivery, IDC #W12602, January 1997

    Emerging Market Model

    The rapid development of Web-based training content, products, and services is beginning to take shape as an emerging market opportunity within the training industry. This section presents an analysis of current market dynamics.

    The Web-based training market possesses the following characteristics common to emerging markets:

  • No strategy has yet emerged as the "right" one for success in the market. Firms are grappling with different approaches to product development, marketing, and service and support. Because no company has developed the "killer app" for Web-based training, companies are keenly interested in joining in its pursuit.
  • Suppliers consist of many start-up firms. These nascent companies are increasingly involved in mergers and acquisitions to expand their expertise and scope. Venture capital is the source of much of the funding for these new companies.
  • The majority of purchasers are first-time buyers. First-time buyers must typically progress through a steep learning curve before adopting a new Web-based training technology. In fact, most companies that IDC interviewed are still in the pilot phase and have not yet made large-scale purchases. The result is longer sales cycles for suppliers of Web-based training content, products, and services.

    Buyers of Web-based training content, products, and services include corporations, academic institutions (K-12 and higher education), content providers, publishing companies, and third-party training firms. Individual buyers should not be discounted, yet they represent a more difficult audience to reach.

    Characteristics of Market Activity

    Figures 2 and 3 provide a construct for the economics of this emerging market.

    The Web-based training market is creating opportunities for direct consumption and new market creation. In Figure 2, the number of buyers increases as suppliers offer training options through the additional medium of the Web. In Figure 3, market activity occurs in two phases. The first phase involves the sale of Web-based training products to buyers. The second phase involves the creation of products and services by the buyers, who in turn become suppliers. It is likely that we will see even further permutations of these basic activities as the market matures.

    Figure 2 - Market Activity: Content Suppliers and Buyers

    Source: International Data Corporation, 1998

    Figure 3 - Market Activity: Product Suppliers and Buyers

    * New market activity occurs when:
    Corporations develop in-house content for employees (often proprietary).
    Universities develop courses and programs online to offer to more students with the goal of gaining additional revenues.
    Content providers develop content products for sale to existing and new customers.
    Training firms develop products and services for existing and new customers.
    Source: International Data Corporation, 1998

    Characteristics of Market Entrants

    Market entrants represent companies extending their existing business into the new arena of Web-based training and new companies whose core business focuses exclusively on Web-based training.

    Extension-business growth is demonstrated by companies whose core business was to supply education through delivery media such as text, video, and multimedia CD-ROM. These companies now offer their content in Web-based formats for purchase by and delivery to existing customers as well as new customers. Examples of extension business include companies such as NETg, McGraw-Hill Online Learning, and Lotus Development Corp. (For more in-depth company descriptions, see the company comparison charts at the end of this report.)

    Another example of extension-business growth is demonstrated by companies offering Web-based training related to their own products and services as an additional service to customers. Examples include IBM, Sybase, and Autodesk.

    Core business growth can be demonstrated by firms such as Centra Software, ILINC, and WBT Systems. These firms were created specifically to target the Web-based training market. (In-depth descriptions of these companies can also be found in the "Supplier Profiles" section at the end of this report.)

    IDC expects to see an increase in both core and extension businesses entering the Web-based training market over the next three years. A shake-out will occur as the market matures and as companies firm up their strategies, merge with other leading suppliers, and gain significant market share.

    Market Forecast and Trends

    This report covers revenue derived from corporate IT training (that is, training on computer hardware, software, systems, and networks) delivered via Web-based training. Revenue and forecasts for Web-based training products, including authoring software, applications software, and training management software, are also included (see "Market Definitions and Segmentation"). Revenue derived from sales of non-IT training content is not included.

    In 1997, IDC estimates the U.S. market for Web-based training generated $197 million, representing a growth of 150% over corresponding revenue in 1996 (see Figure 4). Of this $197 million, $146 million represents revenue for IT training content delivered via the Web, and $50 million represents revenue for Web-based training delivery products, including authoring software, applications software, and training management software.

    Figure 4 - The Market for Web-Based IT Training by Segment, 1996-2002

    Source: International Data Corporation, 1998

    IDC expects the Web-based training market to exceed $5.5 billion by 2002. This represents a CAGR of 94.7% from 1997 to 2002. The projected CAGR for content is 95.3% and for Web-based delivery products is 93.2%.

    The $5.5 billion forecast represents growth of new revenue of Web-based training content, products, and services as well as replacement revenue as training content moves from being distributed over media such as video, audio, and CD-ROM to Web-based solutions. IDC expects to see a huge shift in distribution vehicles from current market options and hybrid approaches to purely Web-based training.

    Overall the market will see tremendous growth over the five-year period. The period between 1997 and 2000 represents a time when buyers will continue to plan, evaluate, and initially deploy Web-based training. Beyond 2000, buyers, now more educated and savvy, will make larger-scale purchases. These purchases will be substantiated as Web-based training becomes a critical, enterprise-wide business application. Furthermore, growth will be attributed to the shift of training delivery vehicles from traditional CBT and CD-ROM to Web-based delivery.

    Other key factors contributing to market growth include the following:

  • Increased buyer readiness due to a greater understanding of Web-based training options
  • Improved supplier comprehension of buyer needs and requirements
  • Increased management recognition of the validity of Web-based training
  • Increased funding available from venture capital sources
  • Maturation of IT infrastructures to accommodate Web-based deployment
  • Continual increases and advancements in Internet technologies and access

    Inhibitors to Market Growth

    The future looks great for the Web-based training market, but challenges remain. IDC believes that one of the most significant challenges for suppliers is educating buyers about implementing and deploying Web-based training in their organizations. Other significant challenges include these:

  • Ease of use. Buyers are very concerned about ease of use of Web-based training for their learners.
  • Content conversion. Buyers are faced with challenges regarding content portability and conversion.
  • Compatibility with existing IT architecture. Web-based training technology must meet existing IT infrastructure capabilities, requirements, and limitations.
  • Global distribution. Global telecommunications/network variances will be a barrier to distribution of Web-based training.
  • Localization. Language and cultural differences will be a barrier to company-wide usage.
  • Remote access. Remote workers remain disadvantaged because of bandwidth limitations.

    Despite these challenges, IDC believes that the Web-based training market will experience healthy growth.

    Market Analysis

    In its nascent stage, the market is seeing a huge influx of start-up companies entering the market. These companies are already seeking partnerships and joint ventures that will allow them to offer a full range of services to their customers. Merger and acquisition activity in the market is already beginning, and we expect this activity to increase as the race continues to establish market leadership. Examples include KnowledgeSoft's acquisition of Kobixx Systems and Asymetrix Learning Systems' merger with Oakes Interactive. These market activities were designed to expand the companies' product and service offerings.

    Over the next five years, IDC expects the following dynamics to fuel market growth and development:

  • Compression of R&D cycles and faster time-to-market
  • Shifting distribution models (more direct sales from downloads)
  • Increased preview of training options prior to purchase
  • Continued investment funding from venture capital firms
  • Shift from hybrid approaches such as Web/CD-ROM to purely Web-based delivery
  • Expansion of value-added service options, including consulting, student support, hosting, and administration from professional service firms and consultancies

    Clearly, the success of Web-based IT training will be used as an indicator of things to come for non-IT training segments. IDC expects the entire training industry to follow the lead of the IT segment.

    Buyer Perspectives

    It was clear from speaking with buyers that Web-based training will play an important role in their training plans and purchasing decisions. The following consistent findings strongly flavored corporate attitudes toward Web-based training:

  • Need for advice. Buyers are in the early stages of a evaluating nontraditional training approaches and methods, and decision makers are looking for advice.
  • Internal vs. external resources. Buyers are moving rapidly away from internal sourcing toward brokering and management of outsourced IT training vendors; many have made the change recently. However, many companies feel it is necessary to acquire internal Web-based training expertise for their non-IT training needs.
  • Decision-making challenges. Buyers are faced with a multitude of factors -- such as corporate culture, technology infrastructure, and geographical locations -- affecting their decisions on how to deploy Web-based training.
  • Deployment preferences. Buyers identified intranets as the deployment vehicle of choice. IDC also found evidence of buyers interested in the training supplier hosting the training remotely (e.g., via secure virtual private networks on TCP/IP). This appeared an attractive alternative for organizations without the bandwidth or resources to host training internally.
  • Needs and requirements. Buyers are evaluating and considering Web-based training based on the need to:

    - Reach more people faster through alternative training delivery vehicles

    - Reduce costs associated with travel and time out of the office to attend instructor-led courses

    - Provide training that was not previously available

    - Increase productivity gains in support of business goals

    - Provide training and access when it is needed, not when it is scheduled

    Complexity of the Purchasing Decision: Balancing Needs and Requirements with Available Options

    The advent of the Web-based training market presents buyers with more choices for content, products, and services that increase the complexity of purchasing decisions. In fact, nearly all companies IDC surveyed expressed a high level of uncertainty with respect to the purchasing process. This process typically includes assessment of learning needs and objectives, product evaluation, product testing and piloting, research, and review prior to final decision making.

    Web-based training options will supplant a portion of existing traditional classroom delivery of training, supplement traditional classroom training, and offer new products and services not currently available.

    Further increasing the complexity of purchasing decisions, Web-based training buyers are faced with issues such as these:

  • Short product life cycles. New software releases are announced quarterly, and new products, content, and services are entering the market monthly.
  • High switching costs. Buyers who want to change from one delivery vehicle to another face challenges with regard to content portability. It is extremely labor-intensive to move and reformat content.
  • Varying pricing structures. No clear pricing structure has emerged, and models vary among suppliers. (See the Supplier Profiles section for more details on supplier pricing models.)
  • Service and support needs. A high level of service and support is frequently required. Buyers may need to invest in a variety of support options such as consulting, education, and technical support.

    IDC expects suppliers will become increasingly aware of these issues and begin to address them in their product and service offerings.

    Conclusion

    IDC believes that the future looks great for the Web-based training market. Healthy market growth will occur as suppliers deliver on the promise of Web-based training. Cost effectiveness, ease of use, and wider access to content are just a few of the compelling characteristics of Web-based training.

    Buyer surveys revealed that Web-based training will play an important role in their training plans and purchasing decisions. Suppliers must address the following key challenges identified by buyers:

  • The need for assistance in assessing, evaluating, and piloting Web-based training
  • The issue of balancing internal and external resources
  • The balancing of critical factors, including corporate culture, technology infrastructure, and geographical locations, as they relate to Web-based training

    As suppliers race to establish market leadership, IDC believes that solutions to these challenges will rapidly be developed. Market dynamics over the next five years will be dramatic as the shape of the emerging market matures. IDC expects the following dynamics to fuel market growth and development:

  • Compression of R&D cycles and faster time to market
  • Shifting distribution models (more direct sales from downloads)
  • Increased preview of training prior to purchase
  • Continued investment funding from venture capital firms
  • Shift from hybrid approaches such as Web/CD-ROM to purely Web-based delivery
  • Expansion of value-added service options, including consulting, student support, hosting, and administration, from professional service firms and consultancies

    Clearly, the success of IT Web-based training will be used as an indicator of things to come for non-IT training segments. IDC expects the entire training industry to follow the lead of the IT segment. Next to traditional instructor-led training, Web-based training is poised to become the largest delivery vehicle for corporate training.

    Finally, buyer confidence will continue to develop over time as Web-based training becomes more accessible, cost-effective, and necessary. IDC believes that Web-based training will soon enter the mainstream of training business activity.

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