Friday, May 07, 2004

Types of e-learning licenses

I can offer a 'vendor's' perspective on licensing. Though it is not core to our business, we have for several years offered a rather small series of courses focused on getting employees enterprise-wide to be more confident and enthusiastic about e-business, and more competent operating in a 'wired world'. Originally developed for a telecom company, these courses have found a much wider audience. They are a very specific series aimed at large volumes of non-technical learners. Over the years we have sold these courses using a variety of models, and clients have paid anywhere from $25 to $300 per enrollment. As they are approaching the end of their life cycle in the US, we are about to offer reduced versions at around $10 per enrollment. We use the term 'enrollment' rather than 'learner' or 'course' because it best describes an instance of a learner in a course.

As a vendor, we provide incentives for clients to buy volume licenses with an up-front payment (and do everything we can to provide disincentives for pay-per-use). Our costs tend to be front-loaded -- original authoring and development of the courses, cost of sale, negotiation, setting up and customizing -- and ongoing costs are negligible -- a little maintenance and updating, hardly any tech support usage, bandwidth and so on. So we look for a substantial commitment up-front, and provide break points with increasingly significant discounts for volume.

Typically this involves the client having to estimate usage for each course within a one year time frame. They buy a one-year license for say 5,000 enrollments in a particular course, on a use-it-or-lose-it basis, and get it at a per enrollment cost that may be a tenth of an individual course fee. Then we provide additional discounts for additional courses wrapped into the same deal. And we provide further incremental discounts for licenses taken in the second, third, or fourth year.

This can lead to counter-intuitive things happening: one client paid an average per-enrollment fee of $35 in year one for around 7,000 enrollments; $30 in year two for 3,000; $25 in year three for 1,000; and is now paying way more than ever per enrollment in year four because there's hardly anyone left to train and pay-per-use model was the only way to go.

Advantages of course-specific volume licensing to the client are mainly financial -- much lower cost per enrollment, reduced ongoing administrative costs. You can also qualify for otherwise expensive additional services such as expanded support, customization, and so on. Disadvantages are that it's an up-front sum, with considerable work needed to minimize the risk of miscalculation. Overestimate usage, and you can end up paying for enrollments you don't use -- though in reality unless you make a major miscalculation your effective cost per enrollment is still going to be a bargain. And a good vendor will not enforce the 'lose it' part of the deal. There's also the risk that the vendor may not be around to provide the service a few months down the line.

A better model if you can't get a comfortable estimate of usage per course, is to buy a pool of enrollments that can be applied to a pool of courses. Most vendors are happy to do this, though you may end up with a slightly higher per-enrollment cost than if you went the course-specific route. The reason for this is that the more courses you add to the pool, the higher the license fee gets but the smaller the likely number of enrollments per course is likely to be. If your usage is going to be similar across all courses, this is fine; but if the Pareto rule applies, a pool system can be wasteful. In an extreme case, you are usually better off doing a high-discount volume license for your known big-demand courses, and pay-per-use for the marginal courses.

Advantages of pay-per-use are that you don't have to try to anticipate usage or make any commitment. (This has always seemed odd to me -- why would you go to the trouble of contracting for courses if you don't know there is a need?) It also allows you to train small groups of people who don't get near a volume discount mark. The disadvantages (apart from price) are in ongoing administration costs (particularly if you have to deal with individual authorizations). You also may lose out on any customization potential and additional services that kick in for larger volumes.

Most vendors have a rate sheet that is really just a starting point for negotiations. As your relationship evolves, the apparent rigidity of this liquifies, and your ability to craft custom deals increases. Vendors have differing internal cost structures and market objectives -- some have very high margins that let you get creative in negotiations; others (especially the big vendors) are already selling at a loss to try to hang onto market share. If you can find the time to try to understand where the vendor is coming from, you can probably find a licensing model that works for both of you.

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