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State of the Market

Part One: Vendors in transition

Unless you installed a card system in the last calendar year, chances are good that you are not writing checks to the same vendor from which you bought your card system. Turnover has been rampant. But this turnover has not occurred because of campus decisions or technology needs–to the contrary most campuses have simply been along for the ride. The changes have occurred because of a consolidation movement in the market resulting in corporate acquisitions and alliances.

Consider, for example, Weber State University. The institution purchased a card system from a company called Special Teams in 1995. The following year Special Teams was acquired by American Express and Weber’s purchasing department had its second vendor in only one year.

Two years later, College Enterprises, Inc. (CEI) purchased the Special Teams unit from Amex and the third Weber vendor was created. A name change in 1999 from CEI/Special Teams to iCollege created yet another change. Late in 1999, iCollege was sold to Blackboard Inc. and, for the fifth time in as many years, the purchase orders and payments from Weber State were off to another location.

This is certainly not intended to pick on Weber State or Special Teams. In fact, both did an admirable job of maintaining stability through the transitions. The campus continued to enhance the program while the Special Teams staff managed to support, and even grow, the customer base through the transitions.

The Weber State story is not an isolated occurrence. Similar situations have occurred with a number of the key vendors in the campus card market. Why has it happened? Several different schools of thought exist.

  1. The size of the market is simply too small to support the number of vendors competing for the campus card program budgets. Thus a lack of revenue growth causes ownership interest to wane.

  2. Companies that did not understand the dynamics of the market saw the campus card relationships as an easy inroad to more lucrative campus business. When the challenges and realities of the business surfaced, these companies realized that they could not attain their original goals via this avenue.

  3. Low margins, painfully long sales cycles, and a traditional lack of significant recurring revenues make this a business for only the most focused and efficient of companies.

To get a better understanding of our current market conditions, it is important to understand the history. Let’s first focus on industry categories rather than specific company names. Here goes …
In the beginning, there were food service providers. These companies sold mealplansto students and fed them. A key component to their revenues came from missed meals–those paid for by mealplan buyers but not eaten. To maximize these lucrative missed meals, it was imperative to keep strict control of who came and went in the dining halls. If I could pass my mealcard to a friend, he could enjoy the meal that I had paid for but would not be eating. Better controls meant more missed meals–and higher profits.

So more advanced forms of identification and software were desired and companies rose to provide it. The old-fashioned student ID card now had new demands placed upon it. Previously the cards were simply a visual identification device with name, number, and sometimes a photo. Now, methods to expedite the capture of data (e.g. capture card numbers for those entering a dining hall into the mealplan software) and increase the control were needed. Barcodes and magnetic stripes were added to campus ID cards. The early providers of mealplan software found new revenue streams in the issuance of these more advanced ID cards.

In the mid-1990s, a number of peripheral industries took notice of the mealplan/ID card providers. Control of the campus card, it seemed, meant control of the student relationship. A company that could wedge itself into the carding process could win students to its services or products in mass, rather than one by one. Financial institutions and telecommunication companies were among the first to get involved
Access control and security companies saw potential inroads to the campus via the card as well. While it was less the student as a customer than the institution as a customer that they sought, the concept was the same. If a service provider can gain control of the card business that is not central to their normal efforts, they can gain preferential access to sell core products and services.

Between 1994 and 1996, four of the major players among the original mealplan/ID card providers were acquired by external corporate interests in this move by the financial, telecommunication, and security companies. Only a couple remained independent.

Shortly thereafter, a new set of vendors emerged providing a competing technology to the traditional magnetic stripe and or barcoded cards. These new companies began to offer smart cards as the “next generation” of campus cards.

By 1997, the bloom began falling off the rose for the financial institutions and telecom companies that had seen great potential selling services via the campus cards. During the next two years, all but one of the original mealplan companies bought during the rush of the mid-90s was resold. The mass customer acquisitions, it would seem, had either not materialized or had come at too high a cost.

Meanwhile, the rest of the technology world was exploding. The dot com era was in full steam and the campus card market had anew batch of customer-craving companies lining up to grab students in mass.

Several companies rode in on waves of huge stock prices and market caps. Most focused on consumer-centric services–such as payment, merchant loyalty, and discounts–rather than administrative-centric services that had formed the core of the previous campus card companies. Stated another way, previous players had provided administrative services first, seeking to piggy-back consumer services on the earned relationship. The Internet players built consumer services first and sought to formalize the relationship by adding administrative services to their mix.

Smart card technology, while gaining a solid and high-profile foothold in the market place, failed to dismiss the traditional vendors and technology. The field of three providers with live installations and at least four others claiming to be ‘in the smart card market’ has been reduced to only one serious provider of the technology.

The difficult economic conditions that have characterized the start of the new century have taken a toll on the Internet companies in the campus space. Massive layoffs, unanswered phones, and unfulfilled promises have followed the crashing stock prices and capital shortfalls.

Ironically, through all of this amazing microcosm of the American economy during the decade, two of the original mealplan companies that remained independent throughout are still serving the higher education market. With further ownership changes and market consolidation an almost certainty, only time will tell if these ‘throwbacks’ will maintain their independent status. Stay tuned…

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