Blackboard Inc.

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Blackboard Inc.

1899 L Street NW, 11th Floor
Washington, D.C. 20036
U.S.A.
Telephone: (202) 463-4860
Toll Free: (800) 424-9299
Fax: (202) 463-4863
Web site: http://www.blackboard.com

Public Company
Incorporated: 1997
Employees: 800
Sales: $183.06 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: BBBB
NAIC: 511210 Software Publishers

REINVENTING THE BLACKBOARD IN 1997

DOUBLING OPERATIONS IN 2000

EXPANDING GLOBALLY IN 2002

GOING PUBLIC IN 2004

SWALLOWING THE COMPETITION IN 2006

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

REINVENTING THE BLACKBOARD IN 1997

Two college buddies with a great idea for the Internet and a history of successful collaboration founded Blackboard Inc. in 1997. When they were roommates and fraternity brothers at American University in Washington, D.C., in the early 1990s, Matthew S. Pittinsky wanted to be a high school social studies teacher and Michael L. Chasen a computer scientist. As seniors, Chasen ran Pittinsky’s successful campaign for student body president. They went to different graduate schools but kept in touch and in 1996 found themselves back in Washington working as Internet technology consultants to universities for KPMG Peat Marwick LLP.

Before joining KPMG, Pittinsky and Chasen had collaborated on a software product that helped high school students choose a college. At KPMG, they noticed that schools, especially colleges and universities, were beginning to develop Internet-based learning programs. They saw great potential in the online education business and decided to form a company that would help universities put classes on the Internet. In June 1997, Pittinsky, 24, and Chasen, 25, quit their KPMG jobs, founded Blackboard Inc. in the basement of a Dupont Circle brownstone, and began pounding the pavement for start-up money. They initially pitched their business plan to more than 25 venture capitalists without success. Within months, however, their enterprise found a so-called angel investor, Washington area entrepreneur Ching-Ho Fung. His $200,000 helped spur other angels and Blackboard amassed more than $600,000 in private investments.

In April 1998, Blackboard acquired CourseInfo LLC, an Ithaca, New York, firm that developed teaching software and had an online product in service at a number of universities. The product, named CourseInfo, was a course management system for universities, institutions, and corporations to deliver instruction online. It was originally created by students and faculty members at Cornell University. In May and June, with a marketable product and some seed money in hand, Blackboard won awards for its new business plan at two venture capital fairs. In November, the company closed on $3.1 million in venture financing from three Mid-Atlantic technology funds: Novak Biddle Venture Partners, the Aurora Funds Inc., and the Internet Capital Group. By the end of 1998, the company had district office suites at 19th and L streets NW, 33 employees, and $620,000 in annual revenues from customers that included Cornell University, Yale University, University of Pittsburgh, Georgetown University, Tufts University, and the College of William and Mary.

In February 1999, Blackboard announced that more than 75 colleges and universities were using its CourseInfo course management system for online instruction. In March, the company launched the world’s first free course web site service with Blackboard. com, an online classroom platform for instructors at universities, K–12 schools, and corporate training organizations. The site provided institutional as well as independent entrepreneurial instructors with everything they needed to build and maintain online classrooms, including the ability to charge course fees and sell learning materials and other services. In April, the company began beta testing Blackboard Campus, an enhanced course management system that allowed higher education institutions to take their campus, not just their classrooms, into a 24-hour online environment.

In June 1999, the company capped two years of explosive growth with a $12.2 million second round of venture financing. Since its founding, Blackboard’s annual revenues had increased 400 percent, the number of employees expanded from four to 90, and the customer base grew from eight to 280 colleges. In October 1999, the company partnered with Microsoft in a two-year agreement to ensure compatibility between Microsoft Windows NT and Blackboard’s CourseInfo server software product line. Other Blackboard education partners at the time included Archipelago, GEO Interactive, Houghton Mifflin, KPMG LLP, NextEd, Norton Publishing, PeopleSoft, Sun Microsystems, Sylvan Learning Systems, and The TLT Group. In November, Blackboard reported that its software was powering online teaching and learning environments at more than 1,600 education institutions in more than 70 countries.

DOUBLING OPERATIONS IN 2000

In March 2000, Blackboard announced the $2.1 million stock-and-cash acquisition of MadDuck Technologies LLC, of Richmond, Virginia, developers of Web Course in a Box (WCB), the industry’s first widely used Internet-based teaching and learning environment. Blackboard planned to integrate WCB capabilities into its CourseInfo software platform. MadDuck’s founders and staff joined the company but their new Blackboard office remained in Richmond. As a result of the acquisition, more than 3,300 institutions used either Blackboard or WCB. In May, Blackboard announced an expansion of its war chest when it closed on a $30 million third round of strategic financing. The deal included all of the company’s previous investors as well as newcomers America Online Inc., Dell Computer Corp., and Pearson Inc., a British publishing company.

COMPANY PERSPECTIVES

Our role is to improve the educational experience with Internet-enabled technology that connects students, faculty, researchers and the community in a growing network of education environments dedicated to better communication, commerce, collaboration and content.

Blackboard’s large and diverse community of practice supports, enhances and extends our offerings every day, all over the world. The Internet offers great potential for education and the educational experience. While our role as the platform is important, communities of practice make the best solutions. The value of the network is connectedness. Each Blackboard client makes every other Blackboard client’s solution more valuable as a result of that connection.

In June 2000, the company launched Blackboard 5, a software platform that integrated course information and administrative systems. Blackboard 5 allowed instructors to provide course materials, discussion boards, virtual chat, and online assessment. It also enabled students, with just one log-in, to access courses, web-based email, calendars, and announcements. The all-in-one package also unified diverse online campus systems such as administrative records and academic departments. In October, a respected industry report named Blackboard the number one company in the higher education e-learning market due to its strong cash position, significant market penetration, key strategic partnerships, and single-source solution strategy. In November, when Chairman and co-CEO Pittinsky was asked by the media to identify the company’s direct competitors, he named only one other company, Boston-based WebCT.

In December 2000, Blackboard doubled its operations when it completed the $29.5 million stock-and-cash acquisition of two major campus card vendors: CampusWide Access Solutions Inc. from AT&T Corp., and CEI SpecialTeams from iCollege Inc. Buying the two companies, which supplied software for managing smart-card college ID systems to more than 450 U.S. schools, made Blackboard a leading card supplier to universities and colleges overnight. The number of company employees increased from 250 to 415 and the acquisitions established Blackboard offices in New York and Phoenix.

In early 2001, the company named cofounder Michael Chasen as chief executive officer. Chasen had previously been company president and, for a time, co-CEO with Pittinsky, who continued as chairman. The financial implications of Blackboard’s latest acquisitions became apparent in April 2001, when the privately held company took the unusual step of releasing its financial results for the year 2000. Though it lost an undisclosed amount, Blackboard announced combined revenues of $32 million for the year. The company’s December acquisitions alone, which were reorganized as Blackboard’s Commerce & Access Solutions business, accounted for $19.5 million. In mid-April, with the aim of keeping the company afloat until it became profitable, Blackboard completed a $48 million fifth round of venture funding. The round’s biggest investors were Oak Hill Capital Partners and Microsoft, and brought Blackboard’s total venture financing to $103 million.

In June 2001, Blackboard expanded its unique global alliance with Microsoft with a codevelopment and comarketing agreement for emerging Internet technologies. In July, even as it continued to hire and grow, Blackboard cut about 40 jobs from a staff of 490. The company continued to upgrade its software platforms with the November rollout of e-Education Enterprise Suite, which allowed academic institutions to license independently, or in a bundle, Blackboard’s three primary systems for course management.

Blackboard began 2002 by making its fourth online learning sector acquisition. In a January deal, the company bought Prometheus, a software package for putting course material on the web that was created in 1997 by George Washington University’s information technology department. Prometheus, bought for stock and debt worth $9 million, was in use at 65 postsecondary institutions at the time. In March, the company reported that revenues had increased to $46.5 million for 2001.

EXPANDING GLOBALLY IN 2002

In May 2002, Blackboard announced an alliance to market products and services in India’s e-learning market with LearningMate, a division of the Delhi-based Educomp Datamatics Ltd. Blackboard announced another long-term strategic partnership in July with Bell & Howell Co.’s XanEdu. August brought the release of Blackboard Learning System ML, the multilanguage edition of the company’s course management system and the industry’s first multilanguage enterprise-class learning system. Learning System ML enabled a variety of languages to be displayed in the user interface, including Chinese, French, German, Japanese, Spanish, and English.

KEY DATES

1997:: Matthew S. Pittinsky and Michael L. Chasen establish Blackboard Inc. in Washington, D.C.
1998:: Blackboard acquires CourseInfo LLC and itsfirst course management system product.
2000:: Company doubles operations with purchase of two major campus ID-card vendors.
2001:: Blackboard completes $48 million fifth round of venture funding, bringing total to $103million.
2004:: Company raises $50.9 million in successful initial public offering (IPO).
2006:: Blackboard acquires WebCT, its largest rival, for $178 million.

Blackboard continued its push into the global market and building relationships with partners in September with a distribution alliance with Australia-based Harvest Road. September also brought the rollout of Release 6, the third major upgrade to the company’s e-Education suite: the Blackboard Learning System, the Blackboard Community Portal System, and the Blackboard Transaction System. In December, the company announced a strategic partnership with Learn-ingMate and World Links, an international nonprofit organization, to expand e-learning opportunities for teachers in rural and underserved schools throughout Africa, Asia, Latin America, and the Middle East.

In February 2003, the company further expanded its college campus infrastructure e-product line when it paid $4.5 million in cash for the assets of the Boston-based Student Advantage Inc.’s SA Cash, a business that had agreements with more than 1,500 higher-education organizations that enabled students to use their identification cards to make discounted purchases from merchants. Blackboard added 14 employees, which brought its worldwide total to around 450, and opened an office in Boston with the transaction. In March, the company reported annual revenues for 2002 had increased 49 percent to $69.2 million. Blackboard products accounted for $61.4 million or 89 percent, while services brought in $7.8 million.

Blackboard’s 11,047 percent revenue growth from 1998 through 2002 made it the fastest growing private education company and the nation’s sixth fastest-growing business, according to the annual top 500 rankings by Inc. magazine. In September 2003, the company significantly expanded its potential in Asia with the creation of Cernet-Blackboard Information Technology Co., a partnership with Cernet Corp., a semiprivate Beijing company that was created by the Chinese Ministry of Education to establish Internet connections in the country’s approximately 1,000 universities.

GOING PUBLIC IN 2004

With Chairman Matthew Pittinsky pursuing a Ph.D. in education at Columbia University and living part time in New York, 2004 began with cofounder, President, and CEO Michael Chasen in charge of managing Blackboard’s day-to-day operations. In March, the company reported that revenue in 2003 totaled $92.5 million and the company’s annual loss shrank to $1.4 million from $41.7 million for 2002. There was great speculation on Wall Street, and some considerable doubt, about Blackboard’s March 5, 2004, announcement to go public. Blackboard, some analysts said, had too many similarities to companies that folded in the NASDAQ crash of March 2000: It grew very fast, was venture financed, built on acquisitions, and having only shown a profit in the last two quarters of 2003, had a record of losing money.

On June 18, 2004, trading under the symbol BBBB on the NASDAQ National Market, shares opened at $15.80. The stock closed the day at $20.01, 43 percent above the $14 offering price, which made it the most successful new technology public offering since December 2003. The sale of 6.3 million shares of common stock netted the company $50.9 million. Company founders Pittinsky and Chasen owned less than 6 percent of the stock between them.

With 90 percent of U.S. college and university campuses using learning software made by Blackboard or its competitors, the company in the second half of 2004 intensified its marketing to international universities and American K–12 schools. In July, Southern Denmark University’s five campuses added the Blackboard Learning System and the Blackboard Content System, and the University of Cambridge adopted Blackboard’s Academic Suite. Other new clients included the University of Melbourne in August, the Freie Universitat Berlin in September, and the City University of Hong Kong in October. At the same time, Blackboard made inroads into K–12 school systems in New York City, Dallas, Kansas City, and Toledo. In December, the company’s Blackboard Course Cartridge Catalogue grew to over 3,500 offerings when the company added 1,165 new titles to its line of prepackaged course materials formatted for the Blackboard Learning System.

As reported by the company in February 2005, annual revenues for 2004 increased 20 percent to $111.4 million. Net income was $10.1 million in 2004, which made it Blackboard’s first profitable year. In April 2005, more than 2,200 universities and K–12 schools worldwide were using e-learning software and services from Blackboard. In June, Blackboard International B.V., a wholly owned subsidiary of Blackboard Inc., opened a new Applications Service Provider (ASP) Data Center and European Headquarters in Amsterdam. The data center allowed Blackboard’s European customers to host their Blackboard e-learning initiatives in Europe, and complemented the company’s two data centers in the United States, which hosted more than 330 institutions.

In October 2005, Blackboard announced a definitive agreement to acquire its leading competitor, Lynn-field, Massachusetts-based WebCT, Inc. Like Blackboard, the ten-year-old venture-financed but privately held WebCT provided software products that helped teachers put coursework and conduct discussions and tutorials online. Their business model was also based on an annual recurring subscription-based licensing model. Together, the two firms controlled an estimated 80 percent of the U.S. market for sales of online learning systems. The deal was planned to close in late 2005 or early 2006 and called for the combined companies to eventually operate under the Blackboard name and brand. In the short term, the company planned to maintain WebCT’s offices in Lynnfield and Canada, produce WebCT technology under the WebCT name, and retain most of its 270 employees.

SWALLOWING THE COMPETITION IN 2006

In early February 2006, the U.S. Department of Justice cleared Blackboard’s acquisition of WebCT of potential antitrust violations. As reported by the company in February, total revenue for 2005 increased 22 percent to $137.5 million. Net income jumped from $10.1 million in 2004 to $41.9 million for 2005. On February 28, Blackboard completed its acquisition of WebCT Inc. for $178 million. Adding WebCT’s 1,480 customers brought the company’s client base to more than 3,700 higher education, K–12, corporate, government, and commercial academic institutions. After the transaction, which doubled Blackboard’s international presence, the combined companies had operations in the United States, Australia, Canada, China, Finland, France, Germany, Hong Kong, Ireland, Japan, the Netherlands, Singapore, South Africa, Spain, and the United Kingdom.

The company continued to court the K–12 market with its July 2006 release of Blackboard K–12 Starter Edition. In July, Blackboard also announced that its 1999 application for a patent covering the company’s e-learning software had finally been granted. At the same time, Blackboard initiated what turned out to be a very well publicized and controversial patent infringement lawsuit against rival Desire2Learn of Waterloo, Ontario. Critics, including the academic computing community, called the patent overly broad and claimed it was invalid because similar technology existed before Blackboard sought the patent. In October 2006, the company launched a partner initiative with Google Inc., which allowed Blackboard to integrate Google Scholar and Google OneBox for Enterprise into its web-based learning-management system.

Blackboard began 2007 with an early January rollout of Blackboard Outcomes System, a comprehensive platform designed to cover all academic and administrative processes of a higher learning institution in a single product. In late January 2007, the U.S. Patent and Trademark Office ordered a reexamination of the controversial e-learning patent owned by Blackboard. The action was taken in response to a formal request by the Software Freedom Law Center on behalf of Sakai, Moodle, and ATutor, three educational software projects. On February 1, Blackboard took the unusual step of making a Patent Pledge, declaring that the company would never pursue patent actions against open-source software or homegrown course management systems, especially academic-based open-source projects. Further, Blackboard extended its pledge to specifically include Sakai, Moodle, ATutor, Elgg, and Bodington. Blackboard did not give up the right to pursue patent actions against proprietary software companies and chose to continue its lawsuit against Desire2Learn, which was scheduled for trial in February 2008.

On February 6, 2007, Blackboard reported that total revenue for 2006 increased 35 percent to $183.1 million but the company suffered a net loss of $10.7 million. Despite the loss, Blackboard’s stock hit an all-time-peak of $35.55 on March 21 after one analyst said the company was poised to reap benefits from its February 2006 acquisition of WebCT. In May, the company reported that first-quarter revenue in 2007 increased 47 percent to $55.3 million and net income rose thirteen-fold to $1.9 million. Company stock hit a new all-time high of $38.85 in trading on May 3 as a result of the news.

Having launched just before the dot-com boom and having survived the dot-com bust, Blackboard emerged in 2007 after just a decade in business as a stable giant in the e-learning industry. With the full integration of WebCT’s course-management systems with its other products scheduled for completion in the second or third quarter of 2007, the company appeared on the brink of achieving steady growth in what looked like a balanced market.

Ted Sylvester

PRINCIPAL SUBSIDIARIES

Blackboard International B.V. (Netherlands); Cerbibo (China); Blackboard Australia (Australia); Blackboard Japan K.K. (Japan).

PRINCIPAL COMPETITORS

eCollege.com; Desire2Learn Incorporated; Jenzabar, Inc.; SunGard Higher Education Solutions; Datatel, Inc.; eWebUniversity, Inc.; School Technology Management, Inc.; VCampus Corporation.