E-Learning Software Buyers Beware

The E-learning system developer earlier this month filed for protection under Chapter 11 of the U.S. Bankruptcy Law, announced a major business restructuring, and may be seeking a buyer, all because its pricey satellite technology was unable to compete against Internet-based training infrastructures. All this came a week after the company laid off three-quarters of its 221 workers, including CEO Chris Nguyen.

One of the early players in the E-learning market, Caliber was founded in 1996 with roughly $10 million in financing from a pair of corporate heavyweights: MCI and Sylvan Learning Systems Inc. Management believed that the future of corporate distance learning delivery was in satellite-linked learning centers that could provide rich training content for business users. So Caliber used the initial investment and roughly $60 million raised in a 1998 initial public offering to build more than 40 training centers nationwide.

"They bet against the Internet, and they were just wrong," says W.R. Hambrecht senior analyst Trace Urdan. "They didn't realize soon enough that the convenience desktop learning offers would rule over quality content."

Although Caliber offered great networking options and facilities, a lot of the business strategy entailed sending users to classrooms, says International Data Corp. senior analyst Mike Brennan. Caliber introduced an Internet infrastructure in January 2000 that could integrate with the centers, but, says interim CEO Glen Marder, the desktop model soon "cannibalized" revenue expected to come from the training centers.

Now the company has "scaled business down to focus on the Internet product," Marder says. That decision leaves 70 customers, including NEC America Inc., uncertain of their options. The $43 billion electronics manufacturer in Irving, Texas, tapped Caliber for both E-learning and instructor-led training, and director of product management Bruce Grant was happy with the product choice. Now, NEC will partner with multiple vendors for its training, he says.

Caliber is the exception in a market that IDC predicts will grow to more than $23 million by 2004. There is some consolidation going on, however, as user requirements continue to evolve.