Blackboard Expands Reach in Deal to Set Up Chinese Colleges

[Harold F. Schiffman]

>>From the New York Times, September 1, 2003

Blackboard Expands Reach in Deal to Set Up Chinese Colleges
With Its Software

By BRIAN KNOWLTON

      WASHINGTON, Aug. 30 Just six years after it was founded by two new
graduates of American University, Blackboard Inc., an electronic-learning
company, has won a deal in China that has eluded many a more seasoned
company. Blackboard is expected to announce on Tuesday that it has entered
a partnership with the Chinese public-private education company Cernet,
which provides Internet services to more than 1,000 universities in China,
to create a software platform that will allow professors to post course
materials, conduct discussions and administer tests online.

This is a significant deal for Blackboard, which is based here. It has
grown rapidly but reported its first profit only last year, after years of
rumors that it was soon to go public or be bought by the Microsoft
Corporation, a minority investor. Blackboard will furnish Chinese-language
versions of the same educational software platforms it has provided to
more than 3,000 clients (600 of them abroad, and in five other languages).
Its China project, however, could dwarf the others in numbers of users.

Blackboard anticipates $3 million to $5 million in revenues the first year
from the China program, with greater revenues as users increase. Walter
Hu, the Beijing-based chief information officer of Cernet, said that
50,000 to 100,000 students in China will use Blackboard this year. He
predicted the total would rise to 5 million to 10 million students within
5 years and possibly reach 20 million within 10 years.

Another factor in the Chinese decision to select the Blackboard platform,
Mr. Hu said, was its ability to accommodate large numbers of users (95,000
at a technical university in Monterrey, Mexico) and the fact that similar
Blackboard platforms are also used at Harvard, Yale and Oxford. Andrew H.
Rosen, Blackboard's executive vice president, made his first exploratory
trip to Beijing in 2001. When a Chinese official was ready to get serious
the next year, "we immediately jumped," he said.

Blackboard is succeeding in this arena, said Jerry R. Herman, a managing
director at the investment bank Legg Mason Wood Walker Inc. in Cleveland,
because its platform is considered easy to use and it does not have a
close competitor in the niche market. The company currently has 450
employees worldwide. Sean Robert Gallagher, senior analyst for
Eduventures, an independent education-research firm, was a bit more
cautious about the China contract.

"That's a large market," he said, and China is "very rapidly growing their
education expenditures." But per-capita education spending in China
remains low compared to Western education systems. And he thinks
Blackboard's push abroad possibly shows that the American market is
nearing saturation. Blackboard technology is not particularly complex,
which is one reason that some technology-averse professors say they like
it. Some colleges have created comparable systems. The Chinese
universities "are certainly capable of doing this on their own," Mr. Rosen
said. But, Blackboard offered immediate availability and China wanted to
move quickly. When Blackboard entered the picture, Cernet was already
looking for ways to exploit the Internet, said Karl Engkvist, Blackboard's
vice president for strategic development.

Blackboard already had a prominent Asian presence, and in Australia, where
schools and universities have been early adaptors of digital technology.
In Singapore, the National Technical University adopted Blackboard
programs in July 2000, according to Daniel Tan Tiong Hok, director of the
Center for Educational Development at Nanyang Technological University.
Now, all 22,000 students and most professors use it, he said.

"Professors find the system very easy to use," Mr. Tan said. He called
Blackboard an effective "blend of click and bricks." The university
records 2.1 million Blackboard page views a week. A discussion-group
feature allows the sort of give-and-take among students and with their
professors that a big-classroom atmosphere can deter. Students are "more
conversational and expressive behind a keyboard than face-to-face," Mr.
Tan said in an e-mail message.

Mr. Hu of Cernet said that such interaction is vital in a country like
China, where the education system is changing. "A lot of Chinese
universities," he said via e-mail, "are on the journey from a traditional
teaching method, which is more like one-way traffic (from teacher to
student), to a modern method, which puts more emphasis on students'
involvement and creativity." Blackboard hopes to capture other education
markets in China, including the 600,000 elementary schools, all of which
China intends to wire by 2010.

Michael L. Chasen, the company's chief executive, predicts growth of 30
percent to 40 percent over the next three to four years. Mr. Gallagher of
Eduventures expects healthy growth for the electronic learning sector, but
with a slight slowing ahead. He puts the American market for software
platforms for colleges at $141 million this year, growing to $184 million
next year. Blackboard had revenue of $22.6 million for the quarter ended
June 30.  That was 38 percent above revenues in the same quarter a year
ago, and was its fourth consecutive quarter of profitability. Mr. Chasen
predicts revenues will total $90 million for 2003.