On SkillSoft's (NASDAQ:SKIL) conference calls, it's customary to hear CEO Chuck Moran talk about the challenging environment for his company's e-learning products.

Things have been improving a little bit lately, thanks in part to the company's aggressive investment in research and development. But in this intensely competitive field, SkillSoft still has work to do.

In the first fiscal quarter, revenues increased 3% to $54.7 million, while net income was $4.1 million, or $0.04 per share, up from net income of $2.5 million, or $0.02 per share, in the same period a year ago.

Research and development has averaged about 20% of the company's revenues per year. The result is a comprehensive set of product offerings, including a content library of more than 15,000 titles, which include topics such as Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT) product training, project management, and human resources development.

SkillSoft's SkillPort platform allows for the customization, delivery, and management of its wide-ranging courses, and Dialog allows companies to create their own courses. The Referenceware program, meanwhile, has access to more than 7,000 books.

But despite these extensive product offerings, SkillSoft has had trouble ramping up its growth. Corporate America remains skeptical about the value proposition of e-learning, and the sector is intensely competitive, with major players including IBM, Cisco (NASDAQ:CSCO), Oracle and Microsoft.

SkillSoft focuses on customers in the Global 5000, such as Hewlett-Packard (NYSE:HPQ) and Yahoo! (NASDAQ:YHOO), and they're not easy to snag. What's more, because of the low cost of Internet delivery, more and more educational institutions are jumping into the fray.

It is true that SkillSoft has a high-margin business -- it recorded 88% gross margins in the prior quarter. And additionally, the company's cash balance increased from $78.6 million in January 2006 to $98.1 million as of the end of April. But it hasn't been able to leverage its high margins and cash flow into increased market share.

Then again, the company's strategy of bulking up its offerings might just make itself attractive as a buyout candidate for a larger company. Its extensive product offerings and content library wouldn't hurt, either. Prospective buyers for SkillSoft could include huge software and IT companies such as Microsoft, Oracle, and EDS. There are also pure-play e-learning companies, such as Blackboard (NASDAQ:BBBB), that may want to expand into new markets. Combine this with a strong customer base and the fact that a purchase of SkillSoft would be relatively inexpensive -- especially since the company already generates strong cash flows -- and you have an attractive proposition for a larger IT company.

For a company the size of SkillSoft, it is extremely difficult to fight for customers in the Global 5000 marketplace on its own. Often, it's not the best product that wins but the company with the best distribution, brand, and sales organization.

According to SkillSoft's management, it appears that the company is not only putting many resources into developing its products but also expanding its distribution and sales organization. But these types of investments into its business would likely take many years to build, so investors in SkillSoft should be wary. This is a long-term investment at best, and in such a competitive environment, I would be inclined to take a pass.

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Fool contributor Tom Taulli does not own shares of companies mentioned in this article.