Saba Shares More Than Double

By Hal Plotkin
Silicon Valley Correspondent

Shares of Saba Software, Inc. {SABA} more than doubled in initial trading. Analysts say the emerging leader in the online learning market has a unique business primer — ranging from a horde of satisfied customers to an attractive commercial model — to offer potential investors.

“Saba is a winner,” says Clark Aldrich, research director at the Gartner Group, based in Stamford, Connecticut. “It is the first company that has taken an e-commerce approach to e-learning.”

Saba shares traded as high as $41 on Friday morning after opening at $36.50. They settled back a bit to $36.25 near midday, still more than double the $15 initial public offering price.

Saba Software post-IPO stock performance

Redwood Shores, California-based Saba Software, Inc. provides Internet-based training and continuing education services primarily to business customers.

The firm’s current clients include 3Com Corporation {COMS}, General Electric Company {GE}, Cisco Systems, Inc.{CSCO} Ford Motor Company {F}, and Lucent Technologies, Inc.{LU}, among many others. All told, the company claims over two million people have already registered at Saba’s site, where they can select from the roughly 20,000 courses and online training programs now available.

Visit Saba’s web site.

It’s quite common for Internet companies to claim major customers as part of their pre-IPO hype, even if those relationships are in some cases a bit tenuous. But Saba Software has something more going for it: An independent verification of customer satisfaction.

Among several other awards, Saba’s Learning Enterprise offering recently won Open Systems Advisors, Inc.’s Crossroads 2000 award as the year’s “best new technology infrastructure product.”

The Crossroads award is significant because it is based on extensive independent interviews with buyers of information technology products, who gave Saba Software, Inc. the highest marks in its category.

“Saba’s success is not made up. It’s really true,” says Nina Lytton, a former loan officer who is president of Open Systems Advisors, Inc., based in Boston. “What we do is all about due diligence … Customers say Saba is the Cadillac of learning management systems, big and powerful.”

Analysts said the company has deftly capitalized on its popularity with the customers. “Saba has done a remarkable job of building brand awareness and excitement,” says Aldrich, of the Gartner Group. “Everyone knows about them. They have a very high profile in a crowded marketplace.”

Saba’s early lead will likely make a strong difference in a potentially lucrative field, analysts say.

Web-based training programs typically cost far less than half the $3,000 to $5,000 a week businesses now pay for conventional classroom instruction for their employees, showed a recent survey conducted by the trade journal, Information Week. Online learning is expected to capture nearly half the overall business training market by 2003, it added.

In addition, the American Society for Training and Development, based in Alexandria, Virginia, says companies in the U.S. spend more than $50 billion dollars a year on training.

Those expenditures, analysts say, have grown steadily over the past few years fueled, in part, by several studies that show a strong relationship between training, and employee productivity and corporate profitability.

Saba Software, Inc. derives revenues from per-seat fees for each person taking a course through its web site.

“People respond very positively to online learning,” says Ellen Julian, director of training research at International Data Corporation, based in Boston, Massachusetts. “It helps a lot with employee retention. Workers feel like they’re being invested in.”

All but one of 201 business managers recently surveyed by IDC who have experienced Internet-based training (IBT) say they would recommend it to organizations that do not currently use it. What’s more, 60 percent of those managers said they would “strongly recommend” it without any reservations whatsoever.

“These results reflect a high satisfaction rate from IBT users. They indicate that once customers have applied IBT to the right content, they are easily convinced of its benefits,” the IDC report concludes.

That is not to say Saba will not face stiff competition.

A plethora of companies — including Mountain View, California-based Docent, Inc., WBT Systems, Inc., based in Waltham, Massachusetts, Pathlore, based in Columbus, Ohio, Pathware, based in Islip, New York, Click2Learn, Inc., based in Bellevue, Washington, Trainingnet, Inc. based in Billerica, Massachusetts, and, Inc., based in Salt Lake City, Utah — have already lined up their weapons arsenal for a fight.

Analysts say, however, Saba’s early success and solid business model makes the company stand out among other players.

Saba began operations by fashioning custom-made online learning experiences for its clients. More recently, Saba transformed itself into a full-service online learning exchange, which provides trainers access to a larger group of potential students.

In essence, the firm has moved past being an online training enabler to a more promising position as the leading aggregator, or online portal, for those seeking or providing business-relevant training and education.

“I think Saba’s business model definitely has legs,” says Cushing Anderson, program manager at IDC. “The content providers are going to be primarily providing content and the trainers will primarily be providing training. But it expands the reach of the service, both for providers and learners.”

There are several other advantages to Saba’s approach, and to online training in general, particularly in the area of information technology, says Aldrich. Unlike more static classroom-based approaches that frequently rely on out-dated textbooks, for example, online courses often give students access to more current collateral course materials.

“They can do things online that could never be done in a conventional classroom,” says Aldrich. “When the next generation comes to power, they’re not going to be satisfied with a replication of their classroom experiences.”

The challenge confronting Saba Software, Inc., and its legion of competitors, analysts say, will be to “productize” online learning offerings so it’s easier for clients to purchase everything they need, including the widest possible variety of courses and the tools needed to measure the impact of learning on their organizations.

“Right now, the focus in on best-of-breed products,” says Aldrich. “The next phase, starting about the end of 2001, is going to be end-to-end infrastructure.”

“The next killer application for the Internet is going to be education,” said Cisco Systems, Inc. chairman, and Saba Software, Inc. client, John Chambers in a widely quoted remark last January. “Education over the Internet is going to be so big it will make [the market for] email look like a rounding error,” he predicted.

Saba Software, Inc. posted a net loss of $17.6 million on revenues of $5.2 million for the six months ended November 30, 1999, as compared with a net loss of $2.6 million on revenues of $483,000 for the same period one year earlier.

The company offered 4 million shares of its common stock at $15, above the expected price range of $12 to $14. Saba filed for its IPO on January 31, 2000.

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