Is Your LMS License Model Misaligned? How to Avoid Costly Mistakes

Making Sense of LMS License Models

Throughout the last month, I’ve reviewed 12 RFP responses for 3 different LMS business scenarios: association learning, commercial training and corporate channel/customer education.  These buying organizations are working with us as LMS selection consultants to define their learning technology requirements, identify the best vendor options and then conduct a formal proposal-based buying process.

In each case, we asked vendors for pricing tailored to the client’s unique usage patterns.  Our goal was to compare bids on an apples-to-apples basis.  However, the proposals were inconsistent in all respects — format, approach, assumptions and license model.  No surprise.  It’s always that way.

There are more than 700 LMS vendors today, yet there is no standard usage-based LMS license model.  That means buyers – not sellers – must sort out the facts, compare vendors and make smart decisions.  Even after 20 years of selling and now helping organizations buy learning solutions, I still need hours of study and discussion with most vendors to be sure I understand their licensing logic.  Clarity is essential because, without understanding, no one can compare LMS options effectively.

Preventing LMS License Model Misalignment

One of the greatest mistakes learning technology buyers make is what I call LMS license model misalignment.  It starts when you misunderstand a vendor’s pricing strategy.  This, in turn, leads to choosing the wrong LMS, paying too much for that poor choice and ultimately becoming dissatisfied with the platform and the vendor.  Sound familiar?  It happens more often than it should.

But what can LMS buyers do?  The best place to start is by educating yourself about how LMS licenses are structured.  Let me walk you through the basics.

An LMS license model depends on two key elements:

1) How a vendor calculates usage and 2) The related costs for that level of usage.

To prevent misalignment, focus on these 4 steps:

• Quantify past, present and estimated future LMS usage
• Understand the license models available in the market
• Determine viable models for their business and usage intent
• Rely upon license model alignment as a vendor qualifier

Quantifying LMS Past, Present and Future Usage

For LMS buyers, information is power.  It is critical to define how you intend to use the system now and in the future.  Here are questions to ask yourself before speaking with vendors:

• How do you define your learning audiences?  Employees, organization members, customers, channel partners and/or commercial training participants?  What do they expect to achieve from engaging with your learning content?
• If you have an existing LMS, what usage patterns are available from the past 1, 2 and 3 years for each learning audience?
• How many times does a typical learner visit the LMS in a day, week, month, quarter, year or multi-year period?
• What functions are learners likely to perform in the LMS?  For example, do they browse the catalog, buy content, register for classroom training, consume online courses, use on-demand reference materials and/or interact with other learners through private communities or public social channels?
• How many courses or learning events are in the course catalog?
• What kind of growth in learner activity (if any) do you anticipate during the next 3-5 years?

The more fully you articulate your learning realities, the more likely LMS vendors are to offer relevant licensing options.

6 LMS License Models: An Overview

Below, I’ve outlined 6 license models you’re most likely to encounter in today’s LMS market.  But there’s a catch.  Many vendors use different terms to describe the same model.  They also may define the same term differently.  And some offer variations or combinations of these models.  So, again, it pays to ask questions early and often.

1)  Registration Model – With a registration model, usage calculations can be based on any of several metrics:  how many users log into the LMS, register for an instructor-led class or webinar, buy content or earn a certification.  A key advantage of this model is that you may have unlimited learner records but only be charged when a learner interacts with the LMS.  The registration model makes zero sense for employee learning and development purposes but it can be advantageous for associations and commercial training providers.  This model is a low-risk/low-cost way to get started with an LMS but it tends to become expensive as organizations grow and learning programs must scale accordingly.

2)  Active User (Usage) – This is very similar to the registration model.  With this model, an active learner is defined when creating an account, logging into the system or interacting with content.  However, LMS buyers pay only for the first defined interaction.  The cost remains the same for each active learner whether she interacts once or a thousand times.  Also, like the registration model, you may have unlimited “active” learner records but only be charged when a learner interacts with the LMS. If you are sure that a significant majority of learners will interact with the LMS more than one time a year, then the active user model based on usage is likely to be a better deal than the registration model.

3)  Active User (Named) – This model looks at active users in a slightly different way.  It’s simply defined as an active record, user name and password.  In other words, you pay for a specified number of accounts whether those users actually interact with the system or not.  This is the most traditional LMS model. It is primarily intended for employee LMS buyers and it is useful for that purpose.  For example, if your company has 500 employees you will purchase 500 active named licenses.  If employees quit, retire or are fired, their LMS accounts are deactivated but the user training data typically is not erased.  If you have an unknown or rotating learning audience (as associations or commercial training companies typically do) an active user model is is a huge waste of money.

4)  Product-Based – Product-based licensing is an emerging model gaining popularity among LMS vendors who serve associations and commercial training companies.  The sale of content is the primary driver for this license model.  “Product” is a synonym for a course or curriculum that is listed in the LMS catalog and is available for purchase by learners.  In this model, learners are not counted in any way.  There is no way to know in advance if a product-based model will be advantageous for your organization but you can assume that the model works best for organizations offering relatively few courses to many learners.  The more learners the better.

5)  Revenue Share – A revenue share model is a specialized registration model tailored specifically to the sale of content.  It is typically expressed in terms of revenue percentage awarded to the LMS vendor.  Commonly, the vendor will invest upfront services at discounted prices and then take a larger share of subsequent content sales.  The bigger the discount, the higher the revenue share percentage.  Be wary of this type of arrangement.  Compare terms carefully with traditional alternatives.  With lower setup and implementation costs available in 2017, giving away a significant revenue percentage after-the-fact is typically unnecessary.

6)  Unlimited – This “all you can eat” concept is another model that doesn’t count users or usage.  There is a lot of variation with this model because some vendors (particularly those who build on open source platforms) don’t charge user fees, while others offer unlimited “enterprise” pricing after you cross a specified user or revenue threshold.  If your organization serves many learners or is expecting to scale up quickly, this may be your best bet.

Use License Model as a Vendor Qualifier

Don’t be shy with vendors.  It’s a give-and-take relationship.  Ask questions about their license model — the earlier the better.  Here’s a starter discussion guide:

• How do you charge for learners?
• Can you please define “active users”?
• Do I pay for every active learner account even if a learner never logs in?
• During what timeframe do you count users?

Prepare to share detailed information about your business use, audiences, past LMS usage and predicted future usage.  The more accurate your input, the more relevant their pricing should be.  Every vendor will say they are an ideal fit for your needs but it pays to frame their answers in a way that lets you equitably compare the pricing of qualified vendors to your current and future usage predictions to determine the best fiscal deal.

Thanks for reading!

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