E-learning and performance-management vendors Docent Inc. and Click2learn Inc. plan to merge by early next year, forming a new company with combined revenue of about $50 million.

The merger, disclosed this week, could be "the first major move toward consolidation in a very fragmented (E-learning) market," predicts IDC analyst Michael Brennan. There are more than 100 companies in the E-learning market, he says, and "I don't expect much consolidation among the content providers, because the barriers to entry into that part of the market are lower, so it'll likely stay fragmented." However, "there's likely to be more consolidation among E-learning infrastructure companies," like Docent and Click2learn, "because infrastructure requires more R&D investments, as well as bigger investments by customers," he says.

Although the combined revenue of Click2learn and Docent is only about $50 million, for the E-learning market, that's not too shabby, Brennan says. "It's a merger of two equals--there are mostly smaller companies in this market," he says. Exceptions include big-name companies such as IBM, Oracle, and PeopleSoft that offer a variety of E-learning-related products and services but that aren't primarily focused on E-learning, he says. Also, vendors such as IBM and IT services firms like Accenture also provide solutions that bundle other vendors' products, he says.

Brennan says the E-learning market will total about $3 billion, and is expected to grow to between $10 billion and $11 billion in 2007.

Neither Docent nor Click2learn are profitable right now, Brennan says. However, the merger will allow the two "to achieve significant efficiencies that will be realized through reduced cost of sales, marketing, services, and operating expenses," according to a statement released by the two vendors.

The statement said the combined company will be led by a management team and board of directors derived from both companies. R. Andrew Eckert, president and CEO of Docent, will be CEO of the combined company. Kevin Oakes, chairman and CEO of Click2learn, will serve as president. Other executive management positions and the board of directors are expected to be announced prior to the closing of the transaction. Under the terms of the merger, both companies will be acquired by a newly formed entity.