E learning the engine of the knowledge economy ( e learning industry report)

ELEARNING

THE ENGINE OF THE KNOWLEDGE ECONOMY

JULY 6, 2000

“An investment in knowledge pays the best return.”
-Benjamin Franklin

Brian W. Ruttenbur
(901) 531-3458


Ginger C. Spickler
(901) 579-4865


Sebastian Lurie, Associate Analyst
(800) 366-7426


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MORGAN KEEGAN

ELEARNING INDUSTRY REPORT

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ELEARNING:

THE ENGINE OF THE KNOWLEDGE ECONOMY
TABLE OF CONTENTS

EXECUTIVE SUMMARY ...................................................................................................... 5
SECTION I: INVESTMENT THESIS
ELEARNING FOR THE KNOWLEDGE AGE .............................................................. 10

LEARNING IN THE 21ST CENTURY ........................................................................ 15
SEEKING PROFITABILITY IN THE ELEARNING INDUSTRY ..................................... 20
VALUATION AND PERFORMANCE OF THE ELEARNING STOCKS ............................ 22
RISK FACTORS..................................................................................................... 26
KEY TRENDS AND SIGNPOSTS FOR INVESTING IN THE ELEARNING INDUSTRY ..... 28
SECTION II: A TOPOLOGY OF THE ELEARNING INDUSTRY
A BRIEF HISTORY: THE FORMATIVE YEARS OF THE ELEARNING INDUSTRY ....... 32
THE BUSINESS MODELS OF ELEARNING ............................................................. 37
SECTION III: THE LEARNING MARKET
THE ACADEMIC MARKET .................................................................................... 50
THE CORPORATE MARKET .................................................................................. 66
THE CONSUMER MARKET ................................................................................... 74
SECTION IV: LEARNING TECHNOLOGIES
FROM ABACUS TO LMS: THE EVOLUTION OF LEARNING TECHNOLOGIES ......... 78
NEXT ON THE AGENDA FOR ELEARNING?............................................................ 84
ELEARNING STANDARDS:

CREATING A BLUEPRINT FOR THE FUTURE ................ 89

CONCLUSION ................................................................................................................... 98

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MORGAN KEEGAN

ELEARNING INDUSTRY REPORT

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EXECUTIVE SUMMARY
The following is a summary of the four main sections of the report. For more information on any of the
topics mentioned in this summary, please refer to the corresponding section in the body of the report.
Section I: Investment Thesis
eLearning will be critical to the success of individuals, organizations, communities and economies in the
dawning knowledge economy. Much touted are the benefits of the Internet for the various functions of
organizations ranging from procurement to marketing to customer service. However, the digital age has
spawned an overwhelming mass of raw information that is frequently difficult to retrieve and to use. We
argue that the critical and distinguishing strength of countries, organizations, and individuals lies in their
intelligence and knowledge in this new economy. Network technology has enabled a proliferation of
customized and timely educational tools that optimize investment in human capital: eLearning solutions
facilitate the delivery of the right information and skills to the right people at the right time. The
globalization of the economy, shortage of skilled workers, free agent mentality, new flexible work
situations (telecommuting, for example) and numerous other factors have created problems not easily
solved by traditional education, spurring the initial growth of the eLearning industry. Companies in this
space are addressing these problems using technology-based
learning resources targeting the academic, corporate, and consumer
eLearning solutions facilitate
spheres with managed, interactive, just-in-time, current, and userthe delivery of the right

centric education tools. These factors, and others, set the stage for
information and skills to the
what we believe are exceptional investment opportunities in the
right people at the right time.
eLearning space.
Although profitable Internet companies are still few and far between, we think that, with rapid top-line
growth and highly scalable business models, select eLearning companies should reward investors with
significant returns.
•

Rapid Top-Line Growth: We estimate that expenditures by organizations on education in the United
States alone exceed $750 billion and worldwide reach $2 trillion. Swelling demand for educational
products (particularly U.S. products), a shortage of teachers and other learning resources, and the
centrality of education in the knowledge economy should drive growth in the education and training
industry. Revenue growth for eLearning should considerably outstrip revenue growth in all sectors of
the education industry as eLearning companies capture an increasing share of the industry total. In the
corporate space alone, IDC is projecting eLearning revenues to grow from right around $1 billion in
1999 to $11.4 billion in 2003. We expect growth in the academic and consumer markets to be
significant as well.

•

Highly Scalable Business Models: We believe that eLearning companies will benefit from the same
favorable cost structures that other “e” businesses, in theory, will. Whereas traditional education and
training providers have high fixed costs in the form of real estate and high G&A expenses, eLearning
companies are considerably leaner. An eLearning company is
also likely to be better able to leverage its content over a larger
We believe that the maturation
body of learners, as they are generally not reliant on live
of the industry should bring

instructors for delivery of their services. Over time, we expect
declining costs and, therefore,
that more and more content will be developed in the form of
increasing profitability.
learning objects that can be assembled on the fly into highly
customized courses, analogous to a just-in-time inventory system. We believe that the maturation of
the industry should bring declining costs and, therefore, increasing profitability.

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Given that most of the players are still losing money, traditional profit-based valuation techniques will not
be effective in the early stages of the eLearning industry. Since first-mover advantage, market share, and
the possibility of leveraging costs will be central to determining the winners in this industry, we think
revenue-based valuations are most germane. However, given the variety of companies competing in the
space and the rapid evolution of the space itself, companies will succeed due to a variety of competitive
advantages. Therefore, treating revenue as a predictor of profitability is an exercise that must be conducted
with care and must be tailored to specific companies.
Section II: A Topology of the eLearning Industry
The eLearning industry has emerged only within the last couple of years, and like many new high-growth
industries, it is highly fragmented and populated mainly with young, unprofitable start-ups and a few of the
more traditional companies in transition to e-companies. Many of the
younger players are getting financial support from venture capitalists, who
We expect that today’s
have invested a total of $6 billion in education and training companies since
relatively small public
1990. Of this figure, $931 million was invested in the first quarter of 2000
company comp group
alone, with 64% going to eLearning companies in particular. Given this
will grow significantly

growing support from the financial community and assuming continued
over the years.
product adoption by customers, we expect that today’s relatively small public
company comp group will grow significantly over the years.
eLearning companies are difficult to categorize because they offer such a wide range of products and
services to a number of different target markets, using several different revenue models. In broad terms,
we divide the industry into three main categories: content, services, and technology. However, we have
developed a unique “eLearning matrix” which allows a company to also be characterized by which sector
of the learning market it serves (academic, corporate or consumer) and by what type of revenue model it
employs (contracts, pay-per-use, or ads/sponsors). We also break down the content, services and
technology categories into several subcategories, which enable a more detailed look at a company’s
business model.
Section III: The Learning Market
Our method of analysis divides the overall learning marketplace into three main categories: academic,
corporate and consumer. Each of the three categories is characterized by different drivers of growth that,
when considered in aggregate, suggest the potential for sizable growth in the overall learning market. We
believe that each of the three sectors presents a set of unique challenges to the eLearning vendor
community in terms of providing the products and services that will truly meet the needs of learners.
•

The Academic Market: In the U.S. alone, 76 million people (more than a quarter of the population)
are directly or indirectly involved in providing or receiving formal education from the pre-primary
level through the upper reaches of higher education. Educational
expenditures in the U.S. are second only in size to healthcare, and
Educational expenditures
represent 7.3% of the GDP. These expenditures have grown by over
in the U.S. are second
42% since 1991. While efforts have begun in recent years to use
only in size to healthcare,
technology as an instructional tool, we believe that the academic

and represent 7.3% of the
world has barely scratched the surface in terms of utilizing the
GDP.
Internet to improve academic performance. Growth drivers of the
academic market include
•
•
•
•

a growing student population as a result of both changes in demographics and greater rates of
participation in the upper levels of education;
public demand for a more effective education system that will prepare students to be
competitive in the knowledge economy;
a shrinking base of teachers, as expertise is better rewarded in the private sector; and
increasing international demand for U.S. higher education.

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•

The Corporate Market: In 1999, U.S. organizations spent more than $62 billion on training-related
resources, salaries, and technology. Other estimates put government spending on training at $40
billion. While the eLearning component of these expenditures totaled only about $1 billion, all
indications are that training in the future will be delivered less and less by instructors in a classroom
and increasingly by networked technology. All areas of the workplace, from the manufacturing line to
the boardroom, are beginning to see this type of shift. For the same reasons that businesses have come
to rely on technology-based systems to manage their human resource and sales efforts, we believe that
the task of managing a company’s training initiatives will increasingly fall to learning systems that are

integrated into the enterprise framework. Some of the key growth drivers for eLearning in the
corporate market include
•
•
•

•

a shrinking labor pool and, at the same time, an increasing demand for skilled labor,
particularly in technology-related fields;
organizations’ need for learning resources that are both accessible and timely; and
globalization of the enterprise demands flexible training programs.

The Consumer Market: In the consumer market, we include not only “lifelong learners” pursuing
avocational learning experiences (gardening or wine selection, for example), but also individual
professionals who seek out educational opportunities either because it is mandated for or is conducive
to the purpose of career advancement. The size of the consumer learning market is much harder to pin
down, but we believe that it could eventually prove to be one of the largest growth markets for the
following reasons.
•
•

Consumers who currently use the Internet for informally researching avocational interests will
transition to more formal educational opportunities as the quality of content itself and the
method of delivery improves.
The flexibility of eLearning will draw those requiring and/or desiring professional continuing
education.

Section IV: Learning Technologies
We believe that education is one of the last bastions of society that has been largely unchanged by the

technological advancements that have revolutionized almost every other facet of life. Certainly we have
seen technology begin to pop up in the world of education and training in recent years. However, in
academia, computers are generally utilized as expensive typewriters, and in the corporate training world,
computer-based training has generally been limited to stand-alone, linear course modules that typically
elicit a groan of boredom from users.
However, as a result of the ubiquity and growing capabilities of the Internet, we believe that technology
will increasingly play a role in learning across all sectors of the market. Web-based collaboration tools
enable people in far reaches of the world to share an educational
experience, while sophisticated learning management systems allow a
As a result of the ubiquity and
user’s progress and preferred instructional style to be tracked so that
growing capabilities of the
adjustments can be made to a personalized curriculum in order to
Internet, we believe that
effectively address learning objectives. Technologies such as these
technology will increasingly
are in use today, but are, we believe, a pale version of the
play a role in learning across
manifestations of eLearning that we are likely to see in the future.
all sectors of the market.
Beyond technologies that are specific to the field of learning, we
believe that advancements in the overall capabilities of networked technology (e.g., broadband access,
wireless networks, etc.) will serve as a catalyst for acceptance of eLearning technologies on a more
widespread basis in all markets. Such improvements will make user concerns about the capabilities of the
technological medium secondary to actually providing meaningful educational experiences.

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Finally, we believe that the emergence of a set of open, industry-wide eLearning standards will be a critical

turning point for the industry as a whole. eLearning standards will allow learning content to be easily
accessed and reused in various formats and will enable the interoperability of learning technologies from
different vendors. Virtually no emerging industry has ever experienced dramatic growth without the
acceptance of a set of common standards on which all product and service offerings are based. We expect
that the eLearning industry will be no different.
Conclusion
We believe that the eLearning industry holds much promise for profitable investments over the coming
years. However, given the immature state of the industry, the wide array of target markets and the
difficulty of keeping up with changes in learning technologies, we believe that discrimination is warranted.
Careful research must be undertaken in order to determine which companies will eventually emerge as
winners, and we believe that this report addresses the issues that will be key in making investment
decisions.

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SECTION I:

INVESTMENT THESIS
In this section:
•

The information age becomes the knowledge age, driving investments in human
capital

•

How eLearning addresses the needs of the knowledge age

•

The potential for profitable business models in the eLearning industry

•

Valuing the emerging eLearning industry

•

Cautionary points regarding investments in eLearning

•

Our outlook for the industry

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ELEARNING FOR THE KNOWLEDGE AGE

“The biggest growth in the Internet, and the area that will prove to be one of the biggest agents of
change, will be in online training, or eLearning.” – John Chambers, CEO, Cisco
Keeping up with new information and knowing how to use it are “mission critical” activities to businesses
and individuals alike in a market where competition is no longer characterized by the big beating up the
small, but rather by the fast running past the slow. If we define training and education as giving people the
information and skills they need to compete effectively in the marketplace, many traditional learning
methods are anachronisms in today’s fast-paced, information-driven economy. With that realization, we
believe that training and education as we know it today will give way to a new form of preparing
individuals to be productive and thrive in today’s society.
Despite our reluctance to stick the letter “e” in front of anything else, we’ll call this new form of education

“eLearning”, as it is the use of networked technology that will make the learning revolution possible (and
it’s the trendy term these days). However, its name is less important than the role it will play in changing
the way we work and live. Many people have touted the ability of eLearning to provide information to
“anyone, anytime, anywhere”, and although we believe that this is the phrase that best describes it now, this
description is also appropriate for traditional distance learning methods or even the Internet in general. The
above description does not accurately encompass what eventually will be eLearning’s greatest strength.
We believe that the true power of eLearning will be in its ability to bring the right information to the
right people at the right time. Therefore, we would urge investors to think of the “e” in eLearning as
standing for “effective”.

The Growing Learning Industry
It should come as no surprise that learning in America, both in schools and the workplace, is already big
business. According to The Digest of Education Statistics 1999, more than one out of every four
Americans participated in formal education, whether as a student, a teacher, an administrator, or a member
of support staff. Education expenditures alone account
for over 7% of the GDP, making it second in size only to
“Until well into the 20th century most
the healthcare industry.
We believe that when
workers were manual workers. Today
expenditures for both education and training for mediumin this country only about 20% do
and large-sized organizations in the U.S. are added
manual work. Of the remainder, nearly
together, the sum reaches over $750 billion. Worldwide,
half, 40% of our total work force, are
this total reaches $2 trillion. These numbers do not even
knowledge workers.”
include government training, the hard-to-track stats on
Peter Drucker
training in small businesses, required continuing

education, or voluntary consumer learning, all of which
would fall into the learning expenditures category.

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Chart 1

U.S. Learning Market Size
(in $Billions)
$65
$63

Post Secondary
$247
preK-12
Training
Consumer

$382

Source: Morgan Keegan estimates, National Center for Education Statistics, Training Magazine

Despite the often high costs, individuals and businesses are willing to invest great amounts of time and
money in the development of knowledge and skills because of the simple fact that today’s economy is built
solidly on the foundation of human capital. Virtually all of the big players in the technology world (e.g.,
Microsoft, Cisco, Oracle and Sun) have major internal initiatives in the area of eLearning. At the fall 1999
COMDEX show, Cisco CEO John Chambers, after provocatively suggesting that eLearning would be one
of the central catalysts of change in the development of the Internet, went on to say that online learning will
make e-mail usage look like a rounding error. And he’s not the only one. High profile names such as Paul

Allen (Microsoft), Larry Ellison (Oracle), and Michael Milken (yes, that one) have made major personal
investments in the industry.
Workers who neglect to invest in their own intellectual capital do so at their own peril, as they can no
longer rely on a single set of skills for lifetime employ. People starting out in the workforce today can
expect to change jobs, and even careers, numerous times during their working years. The nature of today’s
economy is such that even within one particular job, the responsibilities a worker has and the challenges he
faces are likely to change drastically every few years. Bearing this in mind, it’s easy to see why four years
of education in a person’s late-teens and early-twenties is hardly adequate these days if he or she wishes to
get ahead or, in many cases, just maintain a standard of living.
Propelling the need for technological innovation in education is technology itself. The infiltration of
technology into every part of society has made our lives both easier and more complicated. Yes, we are
able to generate infinitely more information with which to do our jobs and
make decisions in our daily lives, but managing all of that information has
"Nothing in
become a cumbersome task, requiring a new and ever-changing set of skills.
education is so
Ironically, the sheer volume of information that is available sometimes makes
astonishing as the
it even more difficult to find the information we need. The challenge of the
amount of
new century, then, is to take these stores of information and build useful and
ignorance it
manageable bases of knowledge, which can be tapped at any given time to help
accumulates in the
solve any given problem that students and knowledge workers face on a daily
form of facts."
Henry Brooks
basis. In other words, we believe that the much-vaunted “Information Age” is
giving way to the “Knowledge Age” and that the Internet (and eLearning by
Adams (1838-1918)

association) is at the crux of this transformation.

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The Knowledge Age: Investing in Human Capital
The industrial revolution was fueled by physical capital – the machines and the backs of the workers that
made the goods, the factories that housed the machines, and the ships and trucks that delivered the goods to
market. The businesses that succeeded in the first half of the 20th century invested primarily in things you
could touch. Around the middle of the century, however, the tide began to turn and our goods-based
economy began to give way to one based on services – people doing things for other people. Suddenly, it
was not enough to teach a worker one task and put him to work for the rest of his life on an assembly line;
workers had to learn to adapt to constantly shifting demands, both from their employers and from their
customers. The key outcome of the transformation from the industrial age to the information age was a
dramatic shift from investments in physical capital to investments in human (or intellectual) capital.
The main currency of the economy today is unarguably information: information about customers,
information about competitors, information about employees. It’s a chicken-and-egg problem to determine
whether the advent of the computer age brought about the proliferation of information, or if the need for
information drove the rapid development of computer technology (and we suspect it was some of both), but
the fact remains that the computer age and the information age hatched at about the same time. However,
even the notion of the information age, with its vast stores of computer-generated data locked away in
inaccessible databases, is looking a bit
antiquated. Information that is unavailable
Gary S. Becker, Nobel laureate and professor of
to the right people at the right time is of
economics and sociology at The University of
little use. Fortunately, though, that is
Chicago, has estimated that around 70% of a
precisely where the Internet comes into
country’s wealth today is in human capital, as

play.
opposed to physical capital. He said, “The beginning
of this century, in my judgement, should be called,
The major impact that the Internet has
‘The Age of Human Capital.’ This is because how
already had on the world and its promise
well individuals and economies succeed will be
for the future is its ability to connect man
determined mainly by how successful they are at
and machines to one another so that
investing in and commanding the growing stock of
information, whether it is stored in a brain
knowledge. In the new economy, human capital is
or on a server, can be organized into
the key advantage.”
meaningful knowledge bases that are
readily accessible to those who can benefit
from them. The result of this connectivity has been our ability to take bits of information and transform
them into knowledge that is infinitely more valuable and powerful to the enterprise. While the overt
changes from the information age to the knowledge age will be more subtle than those from the industrial
age to the information age, we think that it is a shift with major implications. As in the case of the
information age, the knowledge age is still marked by the need for investment in human capital. However,
we believe that the Internet, by creating greater connectivity, is generating marked improvements in the
efficiency and productivity of that human capital.
Hallmarks of the Knowledge Age
It has been suggested that the amount of stored information in the world doubles every 2.8 years. Our
problem is no longer that the needed information does not exist, it’s that specific information is difficult,
sometimes impossible, to locate in the vast networks of technology in which it is stored. It is here where
we believe eLearning meets the needs of the enterprise, for information and skills that are unobtainable by
the workers who need them are virtually useless. Alan M. Webber, in his 1993 Harvard Business Review

article, “What’s So New About the New Economy?” stated “In the end, the location of the new economy is
not in the technology be it microchip or the global telecommunication network. It is in the human mind.”
Students of all sorts must be taught, with the help of technology, the skills to harness the vast and often raw
array of information that technology itself has helped to generate.

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The concepts of eLearning and knowledge management are beginning to
organization, but we believe that the characteristics of the “new economy”
are making the need for these tools even more apparent. What are these
characteristics? Not surprisingly, they generally all relate to the humans
within an organization.

make their mark on the
“This new economy is
based more on brains
than brawn – and
moves more on
broadband byways
than concrete
highways.”
Ray Smith, former
Chairman, Bell
Atlantic

•

Global Economy: The workforces of today’s organizations are
increasingly spread out around the globe, creating the need for a

corporate knowledge base and learning tools that are just as accessible
(and perhaps even more so) to an account rep in Korea as they are to the
CEO in Chicago. Barriers such as time, distance and language must be
overcome if strategies devised around the water cooler in the home
office are to be communicated to and implemented in far-flung branches,
and vice versa.

•

Need for Skilled Workers: Job growth today is occurring at the top end of the food chain, requiring
an increasingly better-educated workforce. According to Futurework, a paper published by the U.S.
Department of Labor, occupations that require at least a college degree are growing twice as quickly as
others, and this is true throughout the economy.
Chart 2

10 Fastest Growing Occupations in the U.S., 1998-2008E
120%

Growth Rate

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60%
40%
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Source: U.S. Dept. of Labor, Bureau of Labor Statistics

•

Shortage of Skilled Workers: The supply of skilled workers has failed to keep pace with the surge in
demand. Organizations must be ready to take untrained workers and quickly bring them to a point
where they contribute to the organization’s goals. The flip side of this problem is that in today’s fastmoving business environment, employers can rarely afford the luxury of pulling workers away from
their jobs to attend off-site training events. Learning opportunities must be available in a just-in-time
package.

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•

“Free Agent” Mentality: The skilled workers who are participating in the marketplace today exhibit
little of the loyalty to their employers that characterized earlier generations. Whereas career
advancement used to mean moving from the mailroom to the boardroom within
the same company, today it often means a series of moves to positions of
“The rise of Free
greater responsibility in different companies. Recognizing this trend,
Agent Nation means
companies increasingly understand their obligation to employees in terms of
that big companies
the cultivation of marketable skills rather than the promise of lifetime
no longer have an
employment. Also, individuals are now taking more responsibility for their
advantage over
own career development by seeking outside educational opportunities, such as
smaller ones when it
second degrees or certifications, in order to enhance their prospects for
comes to getting the
advancement. The result of this trend for the organization is that valuable
best talent.”
intellectual capital may walk out the door with the employee unless efforts
Seth Godin,
have been made to integrate his personal intellectual capital into organizational
Fast Company
intellectual capital.

•

Training Viewed as a Benefit: Workers are more likely to leave an organization that does not give
them the opportunity to learn new skills because they know that it does not take long to become
unmarketable in an economy where the skill sets employers demand change so frequently. Futurework

estimates that at 1,600 and growing, the number of “corporate universities” could exceed the number
of traditional universities by the year 2010.

•

Stretched Workforce: Putting in hours outside the time and space parameters of the traditional
workday is becoming more commonplace as both work and family responsibilities pull employees out
of the office on a more frequent basis. Workers must have be able to pursue their education and have
access to company knowledge resources whether they’re sitting at their desk, in an airport, or at a
weekend Little League game.

It is largely these issues that have spurred the first wave of eLearning initiatives in the corporate
environment. Likewise, we look for similar factors (time constraints, access to distant resources, the need
for more learning opportunities) to drive growth in the academic and consumer
markets as more products come to market that efficiently meet the needs of
We believe that
these groups. Simply put, we believe that eLearning addresses many issues
eLearning addresses
that traditional learning methods cannot in today’s marketplace. We will look
many issues that
at the markets for eLearning and their growth patterns a little later, but first,
traditional learning
let’s outline exactly why it is we believe that eLearning is not just a neat
methods cannot in
gimmick, but rather is a fundamentally better way of accomplishing education
today’s marketplace.
and training goals.

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LEARNING IN THE 21ST CENTURY
We believe that of all the major components of daily life, formal learning is the one that has, to date, been
least affected by the technological developments of the past 50 years. Advances in technology have
revolutionized communication, transportation, and even household chores, but in fundamental respects, the
process of learning today is much the same as it has been throughout recorded
history. In an interview in the March 2000 issue of Converge, Don Tapscott,
The ability to adapt
author of Paradigm Shift, The Digital Economy and Growing Up Digital,
and learn may have
describes the current education model as one that has “teachers simply being
never been more
factoid fountains at the front of the class.” Members of today’s wired
urgently required
st
generation, he suggests, are no longer interested in this model. Indeed,
than in the 21
enlightened educators from ancient times have insisted that the cultivation of the
century economy.
ability to think, rather than the accumulation of facts, is the proper goal of
education. However, the ability to adapt and learn may have never been more
urgently required than in the 21st century economy, and these abilities can now be fostered in entirely new
ways with the help of networked technologies.
To date, the use of technology in instruction has generally been limited to copy machines, calculators and
overhead projectors. Certainly attempts have been made to utilize technologies such as audio- and
videotapes, and even non-networked computer based training (CBT), in the learning process, but without
mechanisms that tie use of these sometimes expensive technologies to actual improvements in
performance, their broad-scale purchase could often not be justified. In addition, the creation of these older
types of technology-based learning materials is often a time-consuming exercise, particularly when we
consider the fact that they are often not reusable outside of a narrow context.

We believe that the concept of eLearning addresses a number of these issues, and below we will examine in
greater detail the primary benefits of eLearning.

The Benefits of eLearning (or, Everything I Needed to Know I Learned on the Internet)
The main benefits of using networked technology for learning are, we believe, fairly obvious. The
immediacy of information on the Internet is an obvious advantage in comparison to the more traditional
methods of information retrieval. It is certainly a lot easier to flip over to your Internet browser and look
up information on almost any subject in the world than it is to trek down to the local library and hope that
they have a relevant book that’s not checked out. To date, the Internet has been used for primarily this type
of learning: random seek-and-find events that are not connected to your previous or next learning
experience. Some early adopters of eLearning may have taken actual
classes on the Web, but in general, the percentage of the population that has
“Learning how to learn
participated in a formal course of learning that took advantage of all the
has become the most
possible facets of an eLearning experience is very small indeed. We
fundamental skill that
believe that is about to change.
an educated person
needs to master, and the
As we stated in the beginning of this report, we believe that the true power
instrument that enables
of eLearning lies not in the anyone, anyplace, anytime model, but rather in
learning in almost every
its potential to provide the right information to the right people at the right
field is the computer.”
times and places. This is the yet-to-be-fulfilled promise of eLearning. So
Dr. Peshe Kuriloff,
what does the future of eLearning look like? We think that web-based
Adjunct Associate

integrated learning systems will revolutionize eLearning by enabling
Professor of English,
personalized, interactive, just-in-time, current, and user-centric learning
University of
tools. These systems will allow all facets of a course of study, including
Pennsylvania
pre-assessment, learning modules completed, practice items, collaboration,
and testing to be tracked. Adjustments can then be made to the learning
program to make it more effective, and learners (and those to whom they are held accountable) will be able
to monitor progress. We believe that eLearning will embrace the following characteristics.

Page 15 of 107


•

•

Personalized: Entire programs of study will be customized for the learner. By analyzing the learner’s
objectives and existing skill level, courses will be assembled on the fly that address exactly what the
learner needs to know without wasting time working on areas in which the learner is already proficient
or uninterested. This level of personalization will be achieved by using
We believe that coming
small chunks of information, or learning objects, to assemble a course
manifestations of
from the ground up using pre-existing templates. The reusability of
eLearning will truly
these learning objects will make this level of customization feasible in
engage the learner in a
terms of both time and expense. We believe that these reusable

give-and-take type of
learning objects, the interoperability of which will be based on a set of
learning that involves
accepted industry standards, will be the key to the creation of an
simulations of realexpansive learning economy. We will elaborate on the significance of
world events and
learning objects and the standards on which they are based later in the
sophisticated
report.
collaborations with
other learners and the
Interactive: Much of today’s technology-based learning is simply an
instructor.
extension of traditional textbook-based learning, where the user reads
content from a screen instead of from a page. Today’s interaction
generally consists of the learner being able to click on an unknown word for the definition on a linked
page or the ability to play a short video clip. We believe that coming manifestations of eLearning will
truly engage the learner in a give-and-take type of learning that involves simulations of real-world
events and sophisticated collaborations with other learners and the instructor.

•

Just-in-Time: eLearning will move education and training away from the “just-in-case” model in
which learners engage in event-based sessions (i.e., classes) that require learning to take place outside
of the context in which it will be used. Technologies such as electronic performance support systems
(EPSS) will allow users to receive training at the exact time and place that it is needed to complete a
task. Wearable computers will allow augmented reality experiences, in which the user can receive
real-time technology-based assistance in the actual work environment, as opposed to a simulation in a
virtual environment.

•

Current: We believe that one of the most under-appreciated benefits of learning via networked
technology, as opposed to earlier non-networked versions of technology-based training (like CDROMs or installed software), is its ability to always present up-to-date material. It is relatively easy
for the content provider to remotely change and update material on a web page based on new
information or new needs of the learner. On the other hand, a CD-ROM
is static, requiring a new product to be distributed anytime there is a
We believe that
change in the material.
eLearning introduces
an entirely new model
User-centric: Finally, we believe that eLearning introduces an entirely
for learning – one that
new model for learning – one that focuses primarily on the needs of the
focuses primarily on
learner, instead of on the abilities of the instructor. With eLearning, the
the needs of the
learner is able to participate in custom-fitted learning experiences that
learner, instead of on
offer the exact material she needs in the form in which she learns best.
the abilities of the
The instructor, if there is one, goes from being the “sage on the stage” to
instructor.
the “guide on the side.” We believe that this model of learning imparts

•

more responsibility to the learner, resulting in a richer and more dynamic
experience.

Page 16 of 107


If Aristotle Had Been an “eInstructor” . . .
We believe that the above attributes certainly make eLearning an exciting proposition for the learner.
However, the learner is not today (and we believe never will be) alone in the learning process. The
instructor, whether it be a second grade teacher, a university professor, or a corporate trainer, also plays a
key role. In our opinion, eLearning holds similar promise for making the work of an instructor easier and
more effective.
•

Leverage: One benefit, in particular, that eLearning lends to the process of teaching is leverage of
time and resources. In live collaborative learning environments, a teacher can only respond to so many
students in a given amount of time. Also, the number of students that can participate in the class will
be limited by those who can make the time (or simply fit in the room). We might place the leverage
we can get on instructors on a continuum, using Aristotle as our example instructor. So, when
Alexander the Great hired Aristotle as his tutor, little leverage on the teacher was attained. More
leverage was achieved when Aristotle lectured in his Lyceum, still greater leverage would have been
possible if Aristotle could have led a synchronous Internet seminar, and potentially the greatest
leverage could be achieved with asynchronous Internet modules recorded by Aristotle. While perhaps
not on the same level with Aristotle, in-demand business experts such as Tom Peters and Peter Drucker
are leveraging their time and expertise by developing eLearning modules.

•

Organization: Even in a traditional learning environment, such as a college classroom, eLearning has
the potential to greatly aid instructors in the organization of a class. Web-based tools are now on the
market that give an instructor the ability to centralize the management of a class on the web. Such a
web-based forum allows the archival of notes (or even video files of lectures), communication with
students outside of class, and possibly even the ability to monitor student performance. At the

corporate level, a web-based learning system can track an employee’s progress through a training
program and measure resulting changes in performance, enabling the corporate trainer to more
accurately calculate ROI for training programs.

Standards are Key to the Success of eLearning
In order for any of the above benefits of eLearning to be realized, however, we believe that a set of
eLearning standards must be developed and accepted by the vendor community. In order to achieve true
sophistication in terms of understanding the objectives of a learner and addressing those objectives with a
highly customized program of learning, all of the components of a technology-based learning system must
be speaking the same language. In other words, if I have a web-based
content management tool from one vendor, but another vendor develops the
We believe that a set
type of content modules that are crucial to meeting my learning objectives, I
of eLearning
want to know that my tool can search the various content repositories on the
standards must be
web and be able to easily identify and deliver the proper materials, regardless
developed and
of their origination. This requires that units of content be labeled to convey
accepted by the vendor
information about themselves – things like subject matter, author, vintage,
community.
format, and even price. It is these labels that will form the basis of the
standardization effort and allow an organized “digital marketplace” for
learning to develop.
While the standards development process (which is being conducted by various groups with an interest in
their existence) is still underway, it is close to being finished, and eLearning vendors are beginning to focus
on how standards will affect the products and services they offer. We believe that companies that do not
work on implementing standards in their offerings will be left out of the growth of the industry, making
examination of this issue crucial to the analysis of investments in the eLearning industry. In Section IV,

which focuses on learning technologies, we provide further discussion of standards as they relate to
eLearning.

Page 17 of 107


Who are the Learners?
While some might think of learners as being students in the traditional sense, a learner today might be just
as likely to be found carrying a briefcase as a backpack. And learning is not relegated just to those tasks
assigned by a teacher or trainer, but also takes place on a learner’s own time, when reaching personal
milestones (whether in a professional or avocational sense) is the goal. While we analyze the three sectors
of the learning market in greater detail in Section III, below we quickly review some of the factors that are
driving people in all three markets to seek out educational experiences.
•

The Academic Market: With 76 million people directly or indirectly
involved in providing or receiving formal education, the academic
market is huge. As a percentage of GDP, educational expenditures have
held steady at 7.3% (representing the second largest component of GDP)
for about the past ten years, but the dollar figure has grown by over 42%
since 1991. We expect strong growth in expenditures throughout each of
the market’s segments, driven by the following factors.

With 76 million
people directly or
indirectly involved in
providing or receiving
formal education, the
academic market is
huge.

Pre-Primary
• Recognition of the advantages conferred by pre-primary education
• Growth in the number of working mothers
Primary and Secondary Schools
• Sustained school-age population growth as a result of the “baby boom echo”
• Increasing sponsorship of technology and expertise by the business community
• Technologically-inclined and ambitious kids
• Increased involvement by parents
• Growing shortage of teachers
• Government determined to tackle the digital divide
Higher Education
• Knowledge economy offers superior compensation for highly-educated workers
• Growth in adult learners
• International demand for U.S. higher education
• Institutions reaching capacity
•

The Corporate Market: While actually counting the number of people who are involved in
workplace-related training is virtually impossible, it is a little easier to come up with a dollar figure for
the size of the market; according to Training magazine’s 1999 Industry
Report, approximately $62.5 billion was budgeted for formal training by
According to Training
magazine’s 1999
U.S. organizations, which was about 24% higher than it was in 1993. Of
Industry Report,
this, approximately 44% is spent on trainer salaries, 24% goes to outside
approximately $62.5
providers of training products and services, and the rest is spent on things
like facilities, materials, hardware, seminars and conferences. The main

billion was budgeted
part that we are concerned about, of course, is the 24% that is outsourced,
for formal training by
which currently represents about a $15-$17 billion market. More
U.S. organizations.
specifically, we are looking at the eLearning component, which,
according to IDC, totaled a little over $1 billion in 1999.

Page 18 of 107


Chart 3

U.S. Corporate eLearning Revenue by Component, 1997-2003E
12

$Billions

10
8
6
4
2
0
1997

1998
Content

1999

2000E

Learning Services

2001E

2002E

2003E

Delivery Solutions

Source: IDC

IDC predicts that spending on outsourced services, content and
technology for training will grow from approximately $14.9 billion in
1998 to $33.7 billion in 2004. While information technology (IT)
training currently dominates the mix, outsourced business skills training
is expected to reach parity by 2004. IDC is currently projecting the
corporate eLearning market to grow to $11.4 billion in 2003,
representing an 83% CAGR since 1997.

IDC is currently
projecting the
corporate eLearning
market to grow to
$11.4 billion in 2003.

Primary Growth Drivers

• The demand for skilled workers will overwhelm the internal resources of companies to train their
employees; competitive pressure demands quick response to this disparity.
• The global economy means that an organization’s workforce may be spread out all over the world,
creating difficulties in keeping all members up to date with the latest developments.
• The U.S. government is actively pushing integration of technology in its workforce.

•

The Consumer Market: The size of the consumer learning market is a little harder to pin down than
that of the academic or corporate markets. However, we believe that in time it could actually prove to
be one of the largest targets for eLearning vendors.
Primary Growth Drivers
• The Internet is increasingly used for researching avocational interests and should transition to
more formal educational opportunities.
• Instructional resources are easier to find and use when they are part of a learning portal.
• The flexibility of eLearning will draw those requiring and/or desiring professional continuing
education.

Page 19 of 107


SEEKING PROFITABILITY IN THE ELEARNING INDUSTRY
We will be the first to admit that several key factors caution against arguing for, or making predictions
about, the profit potential of eLearning companies.
•

Actuality is the best proof of possibility, and few of the publicly traded pure play eLearning companies
are operating in the black. In fact, as these companies strive first and foremost to gain market share,
many suffer widening losses.

•

Making general assertions about the group as a whole may be unwise to the extent that the universe is
comprised of hundreds of companies with divergent business models. What is true concerning the
fixed and variable cost structures of technology providers may not be true of content or service
providers.

•

As we have intimated several times in this report, the health of the space may depend in large part on
the emergence of technological and content standards. Failure of such standards to take hold on an
industry-wide basis would not only inhibit the growth of the whole sector, but would make comparison
of eLearning companies very difficult for users of eLearning products and investors alike.

•

The fact that eLearning companies are focusing almost exclusively on top-line growth at the moment
(as we indeed think they should) may have important consequences. Only a few companies--those that
are cash rich--may survive, thus reducing earnings visibility. The companies that make it to the top
may not be those with the best business models or the most advanced technologies but those with the
deepest pockets and the best luck with the capital markets. Also, “buying revenue” with deep discounts
and/or aggressive marketing may distort attempts to evaluate companies and may even undermine their
long-term profitability. By burying revenue-generating costs deep in the income statement in line items
such as G&A, companies may understate their true operating costs. Moreover, eLearning may
condition customers to subsidized products, and attempts in the later stages of the industry to remove
discounts may cause newer customers to resent older customers, and longstanding customers may not
stand for price increases. More seriously, profitability in contested markets may be indefinitely
deferred as cash-rich companies, in an effort to win market share, undercut those seeking normal profit
margins. So long as the capital markets are generous, companies can interminably “delay
gratification.”

Having assembled these warnings, and in addition, cautioning the investor to consult our Risk Factors
section for further considerations, we still argue that investors should be excited about this space. We
believe that while the “land grab” strategy does carry real risks, it is the right one because in the formative
stages of this fragmented industry, the number of companies that exist and that will shortly come into being
greatly exceeds the number that can survive. We think the winners by and large will be those that establish
or leverage brand names and become leaders in their respective segments.
Also, more importantly, as we argue below, we think that eLearning
We think that
companies have the capacity to leverage their costs in a way that their brickeLearning companies
and-mortar competitors do not. Therefore, it makes sense for these
have the capacity to
companies to aggressively ramp up revenue in the hunt for profitability.
leverage their costs in
a way that their brickIt is no surprise the investment promise of eLearning stocks, like other “e”
and-mortar
companies, lies in the purported scalability of their business models.
competitors do not.
Scalability suggests that small incremental costs are associated with growth
in revenue. Or, conceived of differently, a higher proportion of a company’s
costs are fixed as opposed to variable so that as revenue ramps up, a company’s profitability increases
dramatically. For example, while Amazon.com has to spend gobs of cash building its infrastructure and
promoting its goods and services, it does not, at least to the same extent as its brick-and-mortar rivals, have
to purchase expensive real estate, hire workers, and so on, when it wants to enter a new market. In theory,
after Amazon covers its overhead, it should cost considerably less to sell each additional book or CD versus
its offline competitors. In this sense, Amazon.com (and similar companies) should be able to leverage its
resources and attain superior returns on investments vis-à-vis its brick-and-mortar competitors.

Page 20 of 107

We think that eLearning companies should enjoy many of the same sort of leveraging opportunities. In the
long run, companies should be able to enjoy better cost structures on some or all of the following: real
estate, inventory, revenue per worker, quicker time to market, and so on.
Hand in hand with the idea of scalability is the idea of the massive market
The Internet is a medium
opportunity that the Internet provides. For example, only those qualified
more perfectly adapted to
students willing to live in Nashville are able to get an MBA from
developing, advertising,
Vanderbilt’s Owen School. Universities offering MBAs over the Internet,
and delivering
on the other hand, can attract qualified students from all over the world. In
educational products than
an important sense, the Internet is a medium more perfectly adapted to
it is for books, CDs, and
developing, advertising, and delivering educational products than it is for
apparel. In general,
books, CDs, and apparel. In general, educational products can be digitized
educational products can
without loss. The eLearning module retrieved by the Mary Kay salesperson
be digitized without loss.
in Siberia will serve her well while the digitized image of a warm coat from
Lands’ End will not cut the frigid winter winds. The take-away point is that
the Internet allows education companies to hawk their goods and services to clients anywhere and anytime.
The acquisition of new customers, in the long run, should cost Internet companies less than legacy
companies. And lastly, the Internet is especially powerful when a company’s products are wholly digital or
knowledge/information based.
Clearly, Internet companies do not exist in a business Wonderland where these scalable business models
come free. Indeed, we have already discussed some of the costs and dangers associated with buying market

share. Also, having a greater proportion of costs fixed, with heavy required investments in technology
infrastructure, IT workers and marketing, Internet companies may often have higher breakeven levels than
offline counterparts. It should be no surprise that higher risks attend higher anticipated rates of return.
Nonetheless, we believe that due to the types of reasons articulated above, eLearning companies, like other
Internet companies, have the potential to attain excellent levels of profitability.

Page 21 of 107


VALUATION AND PERFORMANCE OF ELEARNING STOCKS
We are currently
valuing pure play
eLearning companies
on a multiple of
enterprise value
(market capitalization
plus debt less cash) to
projected revenue.

Valuation of stocks within the high-growth Internet sector is a science of
enormous imprecision. While companies are currently being valued on some
multiple of revenue, we believe that valuations will eventually be based on a
multiple of cash flow or at least gross operating cash flow. We are currently
valuing pure play eLearning companies on a multiple of enterprise value
(market capitalization plus debt less cash) to projected revenue. Based on
this metric the average eLearning company is trading at 9.2x estimated
calendar 2000 and 4.6x estimated calendar 2001 numbers. There are many
questions you as an investor may be asking.

Why should pure play eLearning companies be valued today on

multiples of enterprise value to forward revenues? We believe that using revenue multiples for the
valuation of the pure-play eLearning companies is justified because they are the best available predictor of
potential profitability. Given that more than 300 companies compete in this industry, we believe it is key to
grab market share at this early stage. Also, as we have argued, getting to scale as quickly as possible and
building brand identity are of paramount importance, and revenue growth is central to both. Of course,
other crucial factors such as management quality, strategic alliances, and aggressive marketing campaigns
play into market positioning and brand building. However, the best quantitative measure of progress in the
land-grab battle remains revenue and trends in revenue. We believe that companies that do not gather
market share early in the game will not be around in a few years when the valuation parameters shift to
multiples of earnings.
Should these companies always be valued in this manner? No, is the short answer to the question.
While in the short term we believe this is the most effective way to quantitatively measure which
companies are gaining market share, the problem with valuing companies on a multiple of enterprise value
to projected revenue over the longer term is that revenue can be bought. Revenue can be bought primarily
in two ways, first by using aggressive sales and marketing tactics, and secondly through deep discounting
or giveaways. Many companies are laden with cash from the professional investment community and are
spending it primarily on marketing and sales in order to grow the top line. We believe that over the long
term, companies will be valued on the viability and profitability of their business models as measured by a
multiple of operating cash flow.
Why are there such big differences in group multiples? For our analysis, we have broken the eLearning
industry into three distinct groups: content, services and technology. A description of the types of
companies we would include in each group can be found beginning on page 37. (For purposes of
comparison, we are excluding DigitalThink when calculating the average multiple of the content group.
We have done this for two reasons: 1) the company’s large multiple tends to skew the overall multiple for
the group, and 2) we believe that an argument could also be made for including the company in either of
the other two categories.) There is a large spread in group multiples, primarily between the technology and
content groups versus the service group. Pure play eLearning companies that fall into our technology
category are trading on average at 10.7x estimated 2000 enterprise value to revenue, which is slightly
above the content group multiple and far exceeds the service group multiple. We believe there are several
reasons for this differential.

1) Market Cap: We have heard over and over again that “content is king”. In the realm of investments,
however, we believe that market capitalization is king. As all the unemployed small cap or micro cap
portfolio managers will tell you, Wall Street has rewarded the larger market cap companies. eLearning
is an emerging industry and no company has more than a $2.5 billion market value (still relatively
small in the bigger scheme of things). However, the larger market cap companies have well
outperformed the smaller. Importantly the technology group has the largest average market
capitalization of all the groups.

Page 22 of 107


2) Coverage by Sell-side Analysts: In many cases, the companies with the most sell-side support have
performed the best over the last year. In our opinion the eLearning industry, much like many other
emerging industries, is affected by the “herd mentality”. Strong sell-side support increases a
company’s profile among investors, often resulting in better stock performance. We would note that
with the exception of SmartForce (which we include in the technology category), few eLearning
companies have yet to be picked up by any sell-side firms other than the initial underwriters.
3) Technology Companies the First to Benefit from the eLearning Growth Wave: Using the trusty
razor/razor blade model as an illustration of the eLearning industry, technology companies can be
viewed as providing the razor, whereas services and content companies supply the razor blades. In
order to implement an eLearning strategy, a backbone (the razor) must be in place. The backbone of
eLearning is technology. We believe that as customers get past the point
of making major investments in the technology-based backbone of their
In our opinion, select
eLearning system, they will begin to spend money on the content and
companies in the
services (razor blades) that will actually make the technology investment
technology category
worthwhile. In our opinion, select companies in the technology category
will maintain a

will maintain a premium to the rest of the group, but only those that
premium to the rest of
continually stay one step ahead of the pack in terms of innovation in the
the group, but only
field of delivering and managing eLearning for the enterprise. Being a
those that continually
leader in the technology field will not be easy – it will require significant
stay one step ahead of
investments in R&D. This is why we suggest that only a select group of
the pack in terms of
technology companies will maintain a premium to the eLearning group as
innovation in the field
a whole. The rest of the companies in the technology group will continue
of delivering and
to offer the products that have long since become commodities. These
managing eLearning
companies will compete solely on price and therefore will not warrant a
for the enterprise.
premium valuation.
4) Visionary and Capable Management: Management that (a) can articulate a global vision by
technological revolution and, more particularly, the value created by transforming knowledge
resources by eLearning, and (b) can explain and execute these conceptions, will garner the favor of the
investment community.
5) Key Alliances: We think investors will look for substantial relationships between established players
& eLearning companies. Such relationships can supplement young companies’ core strengths,
establish advantages of scale and size, and validate technologies. However, we would differentiate
these types of alliances with those that are made simply for press release purposes.
Why are pure play eLearning companies compelling as an investment opportunity over the long
term? We believe that three key issues will drive the eLearning sector over the long term.
•

The shift to a knowledge economy has made investments in intellectual/human capital more crucial.

•

The learning market (corporate, academic, consumer) is big and getting bigger.

•

Given eLearning’s characteristics of scalability, easy access, and timeliness, we believe that the
eLearning model is fundamentally better than that of its traditional education/training counterparts.

Page 23 of 107


eLearning Comparable Table

Company

Ticker

Price
% Chg
07/05/2000 Year High Year Low YTD

%Chg
LTM

Mkt Cap
(Mil)

Enterprise
Value*

CONTENT

Revenues**

# of Analysts

Enterprise Value / Revenues

LTM

CY2000E

CY2001E

ABOUT

BOUT

$30.58

$105.75

$19.50

-65.9%

-35.6%

$541.2

$495.2

$26.9

$94.5

$179.3

LTM
18.4

CY2000E
5.2

CY2001E
2.8

6

DigitalThink

DTHK

$35.00

$62.00

$15.00

34.6%

34.6%

$1,151.5

$1,096.5

$7.2

$18.6

$38.7

152.3

59.0

28.3

4

Lightspan

LSPN

$5.81

$25.38

$4.88

-58.5%

-58.5%

$256.9

$155.9

$16.9

$44.3

$62.9

9.2

3.5

2.5

3

Prosoft

POSO

$15.00

$29.88

$2.00

44.6%

471.4%

$286.5

$282.5

$11.7

$18.0

$30.6

24.1

15.7

9.2

3

Provant

POVT

$5.50

$26.00

$2.88

-78.2%

-62.7%

$115.5

$161.5

$211.0

$216.8

$237.3

0.8

0.7

0.7

6

SkillSoft

SKIL

$13.38

$33.50

$8.50

-25.7%

-25.7%

$176.6

$164.6

$4.2

$16.2

$42.5

39.2

10.2

3.9

3

Content Average

-24.9%

53.9%

$421.4

$392.7

40.7

15.7

7.9

Content Average Excluding Digital Think

-36.7%

57.8%

$275.3

$251.9

18.3

7.1

3.8

SERVICES

LTM

CY2000E

Learn2.com

LTWO

$2.13

$9.50

$1.50

-35.2%

-57.5%

$112.2

$108.2

$13.6

$30.0

SmarterKids.com

SKDS

$1.66

$17.13

$1.50

-77.2%

-89.4%

$34.0

$18.0

$5.4

$40.0

VarsityBooks.com

VSTY

$1.44

$13.13

$0.63

-90.8%

-88.0%

$22.3

-$5.7

$10.6

ZapMe!

IZAP

$2.88

$13.75

$1.75

$2.5

Services Average

-66.7%

-72.6%

$126.5

$46.5

-67.5%

-76.9%

$73.7

$41.7

TECHNOLOGY

CY2001E

LTM

CY2000E

CY2001E

8.0

3.6

$91.0

3.3

0.4

0.2

3

$33.5

$55.0

(0.5)

(0.2)

(0.1)

3

$34.6

$116.5

18.6

1.3

0.4

3

7.3

1.3

0.2

LTM

CY2000E

2

LTM

CY2000E

CY2001E

Centra

CTRA

$9.44

$40.38

$5.50

-71.8%

-71.8%

$227.4

$157.4

$8.6

$18.1

$31.0

18.3

8.7

CY2001E
5.1

4

Click2Learn.com

CLKS

$18.06

$23.00

$3.88

62.4%

325.0%

$265.5

$246.5

$34.7

$42.8

$59.7

7.1

5.8

4.1

3

eCollege.com

ECLG

$4.75

$17.50

$2.63

-56.6%

-64.5%

$73.6

$58.6

$4.7

$14.7

$38.9

12.5

4.0

1.5

3

Saba

SABA

$19.00

$41.00

$13.25

-42.4%

-42.4%

$828.4

$808.4

$6.7

$30.6

$67.6

120.7

26.4

12.0

4

SmartForce

SMTF

$46.19

$60.88

$14.50

37.9%

160.2%

$2,249.3

$2,181.3

$197.8

$157.5

$255.0

11.0

13.8

8.6

11

Vcampus

VCMP

$8.31

$19.00

$2.25

166.0%

12.3%

$67.3

$65.3

$11.5

$12.0

$20.8

5.7

5.4

3.1

1

Technology Average

15.9%

53.1%

$618.6

$586.3

29.2

10.7

5.7

Pure Play Average

-25.5%

10.1%

$371.2

$340.2

25.7

9.2

4.6

*Enterprise Value is calculated by taking market value and adding debt and subtracting cash
**Morgan Keegan and company estimates

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