Shelf life
As the world gets increasingly mobile, Peter Phillips asks how can Off the Shelf (OTS) suppliers keep pace with industry innovation and demand?
The OTS business model is marked by substantial cost entry barriers - the up-front investment to develop products - and requires regular investment to sustain competitiveness.
Depending on the nature of the content, there can then be significant on-going costs in keeping it up-to-date. Courses on subjects such as financial regulation, for example, might require updating several times a year as regulations and tax rates change.
Technology trends also create costs. Generally OTS companies don’t need to be as close to the technological edge as bespoke businesses, and will often potter along at the same pace as the slowest of their major clients.
But major step changes in technology can create substantial conversion costs. The move from CD-ROM to online was one such step and the rise of mobile learning is the latest. For a bespoke company, such a technological advance is an opportunity; clients will pay to have their bespoke courses updated. For OTS businesses, however, it is a major challenge. Imagine having 500 titles all built in Flash!
Cost benefits?
Investment in a route to market remains critical too. Previously this meant a sales force, promotional brochures and stands at HR events
alongside whiteboard manufacturers, and hotels and conference centres. Now it is much easier to target your sales and marketing,
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but it remains a major cost. But perhaps the most important feature of the OTS business model is repeat revenue.
The early pioneers in this sector in both the US and UK adopted an annual licence model and it has proven robust. The predictable revenue stream funds ongoing investment in the product and the channel.
An OTS business has inherent transferrable value in the form of the repeatable revenue stream and the IP in their range of courseware titles. Consequently, growth by merger and acquisition has a better track record than bespoke.
It’s easier to put a value on an OTS company that both parties can agree on, and it’s easier to integrate a new range of titles into an existing catalogue than to integrate teams of developers and managers who can leave.
Although few of the pioneers still remain as independent companies, most, like Ken George’s Ivy and Paul Palmerossa’s Intellexis have become part of larger groups. Growth- by -acquisition has been a major feature of the development of this sector
Strategies for success
Michael Porter’s work on business strategies identifies three main routes to success – Cost Leadership, Differentiation and Focus. Across the OTS market, you can see examples of all.
SkillsSoft are the outstanding example of the cost leadership strategy. They have grown through acquisition - NetG, Element K and many others - to a market leading size few can rival. They can sell on value rather
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