Following a phase of market fragmentation and gradual product evolution, major business transitions and industry dynamics greatly transformed the library automation marketplace. The changes in company structures broadly fostered more streamlined development of traditional ILS products, as companies focused on products and technologies geared toward helping libraries cope with electronic resources.
The market saw some growth. Total industry revenues in 2005 were about $535 million, up about 6% from our revised 2004 estimate of $505 million. This figure represents total revenues from all the companies that sell library automation products in North America. Total ILS sales were down at least 13% among the high-end systems. Non-ILS sales represent increasing proportions of income among library automation companies. Companies specializing in library technology products that do not offer an ILS, such as WebFeat and Serials Solutions, have become a larger factor.
Competition for ILS sales remained strong, though overall sales volume dipped. SirsiDynix, formed in this year's consolidation, stands as the largest company in the industry by far and ranked at the top in both total sales and in gains of new name clients, with 238 contracts for its dual flagship products Unicorn and Horizon, including 112 sales to new clients. In addition, the company expanded many existing implementations. SirsiDynix characterized its sales performance this year as providing new automation products to 683 unique political entities.
Innovative Interfaces demonstrated strong performance against this new formidable competition. The company's 73 new name sales topped both Unicorn and Horizon individually. Innovative won a major municipal system, the newly amalgamated library system in Montréal; Virginia Tech, the only Association of Research Libraries (ARL) member library out to bid this year, selected Millennium to replace the VTLS system that launched its namesake company. Innovative continued to leverage its head start in the electronic resources management arena, with 94 new licenses this year alone and 180 installed to date. Innovative not only attracted legacy migrations but took away flagship systems from its competitors, including Unicorn, Horizon, The Library Corporation's Carl.Solution, Endeavor's Voyager, and VTLS's Virtua.
Ex Libris continued to dominate in products that support management and delivery of electronic resources. The company held a long lead among the ILS vendors' OpenURL linking and metasearch products. The 178 libraries that licensed the SFX Link Server in 2005 increased its installed base to 905; 59 libraries selected MetaLib as their metasearch platform. At a time when managing electronic content ranks high on the agenda of most academic libraries, Ex Libris enjoys technical prowess and strong sales in a product arena with undoubted growth potential.
In the school market, Follett and Sagebrush dueled for top rank. In terms of the number of libraries automated, the two company's 2005 sales matched almost exactly. Sagebrush sold its new InfoCentre product to 3,541 libraries; Follett sold 273 licenses for Destiny Library Manager for Districts, serving 3180 schools. Sales of the company's other automation systems balanced the scales.
An important component of the sales performance of each company is its ability to migrate the libraries running its legacy system to its current flagship. Innovative continued to be strong in customer loyalty through migration, retaining 37 out of 38 Innopac sites that selected a new system in 2005. Over in Europe, Geac also had a near perfect record in converting Vubis Original to Vubis Smart, as did Ex Libris in converting ALEPH 300 sites to ALEPH 500 in Israel. We counted 124 Dynix sites that chose a new system in 2005 and 73% went to Horizon; of the 53 DRA Classic in play, 52% went to Unicorn. SirsiDynix did well with MultiLIS sites—all but one went to either Unicorn or Horizon.
Migrations winding down
The current round of legacy migrations will play itself out within a few short years. At the end of 2004, 2,983 libraries operated a legacy ILS. This number dwindled to 1,566. NOTIS, INLEX, and Taos are all nearly extinct. DRA, MultiLIS, and VTLS Classic are endangered, with fewer than 50 libraries each. We expect most of these libraries have arrangements in place to migrate within two years. Galaxy, Geac Advance, and PLUS have only slightly higher residual installations. Though the number of libraries using Dynix fell by 60% this year, 768 remain. As we noted last year, Dynix migrations continued to fuel much of the ILS migration economy, but the gas tank will be empty soon.
By about 2009, the vast majority of the public and academic libraries in North America currently running legacy systems will have installed one of today's flagship automation systems, and the ILS market will enter a new phase.
Looking past legacy migration
The next phase of the automation marketplace offers limited opportunities for big-ticket ILS sales, especially in North America. Some of the patterns to expect in this post–legacy migration market include increased activity involving smaller and mid-sized libraries joining a consortium rather than implementing their own independent ILS; greater competition for smaller libraries, including those that have never automated and those with PC-based systems; and increased automation through vendor-hosted ASP (application service provider) offerings. Expect each major ILS vendor to market more aggressively internationally.
From the library perspective, pressure to enhance resource sharing will drive automation decisions. This motivation will speed the movement of individual libraries into consortia and the mergers of consortia and spark investment in technologies that connect ILS systems to facilitate broad-based patron borrowing at costs below current interlibrary loan models.
In the current market, it is rare for a library to make a lateral move from the flagship ILS of one company to one of its competitors. Librarians tend to show loyalty to their vendors. In a consolidated market, however, a library's vendor may not be the one it originally selected. It may be the company that bought the original vendor, twice removed. It's an open question whether traditional vendor loyalty will hold up through the rounds of consolidation.
As legacy migration opportunities dwindle, we can expect competition to heat up to woo libraries running the flagship of their opponents. Many of the current flagship systems are already beginning to show their age. Vendors that fail to modernize their core ILS systems increasingly will be vulnerable to defections to competing systems.
This year saw 18 flagship defections, 16 of which were displacements of other vendors' current systems by Millennium. The 49 libraries that comprise the CLAN consortium, for example, will move from their two-year-old Horizon system to Millennium; the Mountain College Library Network consortium will migrate to Millennium from Unicorn; four separate college and university libraries will move from Voyager to Millennium; and one academic library moves from Virtua to Millennium. Polaris took away a Unicorn site, and one library pulled out of a consortium running Millennium to implement its own Library.Solution system.
Diversification and expansion efforts have been underway for some time already. Several companies have ratcheted up their efforts. As sales of its Virtua ILS slow in the broader market, VTLS has concentrated on very large-scale and complex automation projects, including Oxford University in the UK and New York University. The company's business plan includes enhancement and support of open source solutions in the areas of institutional repositories, electronic theses, and dissertations.
More than just about any other company, Innovative Interfaces focuses its efforts on the development and marketing of its Millennium ILS. Outside this sphere, the company has been a leader on the electronic resource management (ERM) front, with four times the installations of its nearest competitor, Serials Solutions. This year Innovative began development of an institutional repository platform called Symposia.
Ex Libris, though its ALEPH 500 ILS is quite successful, has established a strong reputation for its non-ILS products, each focusing on some aspect of electronic content management and access: SFX, MetaLib, Verde, and now Primo. Its market-leading SFX link server has proven to be an effective lever to break into its competitors' client base.
SirsiDynix, in addition to its two flagships, Unicorn and Horizon, offers a wide set of diversified products. Director's Station allows a library to analyze its internal workflow patters, and its Normative Data Project subscription service enables librarians to measure current and potential client use patterns in a larger geographical context. The company's repertoire also includes OpenURL link servers, metasearch applications, digital library products, and portals—with dual Sirsi/Dynix offerings in most cases.
Auto-Graphics relies on ILS for only a minority of its revenues, with more of its efforts focused on large-scale resource sharing systems. Endeavor, with new sales of Voyager declining, now relies on products centered on management and access to digital content, including its new Meridian ERM and its former ENCompass family of products, now revamped and renamed. The company also has moved toward digital archiving as a strategic activity.
The Library Corporation (TLC) extends its reach beyond the traditional ILS by reselling the AquaBrowser and Endeca search interfaces. TLC took a large step out of the ILS bounds into the automated materials handling industry when it acquired TechLogic, which it will operate as an independent company.
Companies such as Follett and Sagebrush come prediversified. In both companies, the library automation division represents only one business activity among others that offer many different products and services to schools.<3>Focus on interfaces and portals
To satisfy increasingly web-savvy users, librarians see the need to offer web interfaces as attractive, sophisticated, and easy-to-use as what's on the commercial web. Librarians expect their online catalog to provide access to all aspects of their increasingly diverse collections, spanning all types of media in addition to print. Simple Google-style search boxes are emerging; delivering well-ranked results remains a challenge. Library OPACs are looking to FRBR (Functional Requirements for Bibliographic Records) as an organizational concept that will help their catalogs intuitively present content delivered in multiple forms.
Innovative's WebPAC Pro and the SirsiDynix Enterprise Portal Solution are examples of integrated OPACS enhanced with portal functionality. The AquaBrowser Library, a search interface that can be used with any of the major automation systems, saw strong sales this year. Medialab Solutions in the Netherlands developed the AquaBrowser technology; TLC markets it in the United States and Canada. Initially available as a replacement interface for library catalogs, the next version of AquaBrowser Library will offer metasearch. Guided Search from Endeca, also marketed by TLC, offers yet another alternative OPAC replacement; early adopters include North Carolina State University Libraries.
Metasearch mandate & ERM excitement
Libraries need the ability to offer simple search interfaces that span ever-growing collections of e-journals and other digital content, and many invested in this technology in 2005. WebFeat, by far, holds the top spot in metasearch, with total sales in 2005 of 651 library clients sold directly (485) or through ILS partners (166). Its WebFeat PRISM service appeals to both public and academic libraries. WebFeat's ILS partners include SirsiDynix, TLC, and EOS International. Only a small number of ILS vendors have developed their own metasearch software. Among these, Ex Libris's MetaLib holds the lead at 508 installations to date, with 58 sold in 2005. Auto-Graphics's AGent portal and ZPORTAL from Fretwell-Downing also developed their own metasearch products. Several ILS companies offer metasearch based on technology from MuseGlobal: SirsiDynix, Mandarin Library Automation, VTLS, and Innovative Interfaces, each of which saw only moderate sales in 2005. This year Endeavor switched allegiance from MuseGlobal to TDNet. In the K-12 market, Follett's One Search and Sagebrush Corporation's Pinpoint both saw strong sales.
In 2005, ERM finally became a mainstream product. Innovative Interfaces, fielding its Electronic Resource Management application since 2003, now has plenty of company. Endeavor's Meridian, Ex Libris's Verde, and VTLS's VERIFY entered the ERM competition. Innovative delivered its second release in May 2005, with version three underway for 2006. Serials Solutions, now owned by ProQuest, launched its ERMs in October 2005. Again, we see non-ILS vendors anxious for a piece of the pie. For now, interest in ERM seems to be limited to academic and research libraries, but as other library types become more heavily invested in electronic content, interest will expand accordingly.
The library automation industry in 2005 saw a major reshuffling of companies. Goodbye to Sirsi, Dynix, GIS Information Systems, and Geac. Hello to SirsiDynix, Polaris Library Systems (leveraging the brand recognition it had built for its flagship product), and a new yet-unnamed company, respectively. OCLC entered the fray in a big way, acquiring Fretwell-Downing, Openly Informatics, and Sisis Informationssysteme.
This year witnessed the beginning of the end for the Geac name, though the company's library products and services remain intact. Golden Gate Capital, a major San Francisco–based investment firm, acquired Geac, now a multinational, diversified company, in a deal valued at just over $1 billion. The Library Solutions division, a relatively small operating unit with the former Geac, will be part of a new company, wholly owned by Golden Gate, to be named and established in 2006. Despite the new ownership, major restructuring, and new branding, operations are expected to continue much as before. In the last few years, Geac's library automation business based on Vubis Smart had found a stronghold in Europe and the UK as its once powerful North American presence based on Advance and PLUS declined.
One of the largest business acquisitions in the history of the industry unfolded this year. SirsiDynix emerged through the June 2005 buyout of Dynix by Sirsi and its chief financial backer Seaport Capital. The previous owners of Dynix, mostly related to Hicks, Muse, Tate & Furst, a Dallas-based investment fund, retain only a small stake in the new company. Patrick Sommers, CEO of Sirsi, heads SirsiDynix. Most of the VP and director-level positions went to former Sirsi execs, though some from the Dynix side of the company also landed top positions.
Prior to the merger, Sirsi ranked third behind Dynix and Innovative; now SirsiDynix looms about 40% larger than Innovative. The new company oversees a wide array of library automation products, including its Unicorn and Horizon flagship systems, and a number of legacy products: DRA Classic, Dynix classic, MultiLIS, and INLEX. As direct competitors for over two decades, the companies had overlapping products in almost all areas.
SirsiDynix faces a huge challenge as it works out its future product strategies. So far, SirsiDynix assures its customers that it will continue development on both Unicorn and Horizon for a number of years. In the shorter term, the company plans to do more consolidated development of front-end interfaces and portals, creating interfaces that will work equally well with both flagship systems. Sales for 2005 largely reflected the sales efforts in place prior to the merger. Key in coming years will be how SirsiDynix positions its products among its existing customer base and as it bids on new business.
OCLC, a member-owned nonprofit with diverse business relationships, went on a buying spree of library automation companies in 2005, both directly and through its European subsidiary OCLC PICA. In addition to many other activities, PICA was involved in the development of library automation software, offering both a union catalog product for consortia and a traditional ILS.
In June 2005, OCLC PICA purchased Sisis Informationssysteme, a German company that offers a library management system called Sunrise, installed in about 150 libraries in Germany and Austria. Sisis was also involved in the development of portal technologies. Six months later, OCLC PICA purchased UK-based Fretwell-Downing. This acquisition brought into the OCLC fold a number of library automation products, including the OLIB7 ILS, deployed mostly in the UK; VDX, a resource sharing environment; the ZPORTAL metasearch environment and CPORTAL, a product for e-government applications; and OL2 an OpenURL-based link resolver.
In January 2006, OCLC purchased the assets of Openly Informatics, a company involved with technologies and data products related to the support of electronic resources. Much of Openly's products were sold through other companies rather than direct to libraries. Openly developed the 1Cate Link Server and created databases that help libraries manage e-journals.
TLC branched out by acquiring Tech Logic Corporation, based in White Bear Lake, MN. Tech Logic specializes in automated materials handling systems and RFID technology. TLC will operate Tech Logic as an independent, wholly owned subsidiary. This event marks the first time TLC has expanded through acquisition since taking in Carl in 2000.
Another business transaction that made headlines involved an aborted IPO attempt by Ex Libris. In a move designed to raise additional capital to fund aggressive development efforts and possible acquisitions, the company staged an initial offering of stock on AIM, a London stock exchange for small cap companies. Finding the valuation of the offering lower than hoped, the company abandoned the effort, choosing instead to rely on ongoing revenues for its development campaign, exploring other options such as bank financing as needed.
We've long expected consolidation in the library automation arena. Though on first blush the year seemed frenetic with business transitions, what played out was one of the more conservative of the potential scenarios. While the competitive arena now includes a giant, the other business transactions are lateral moves that do not significantly reposition the companies involved. Industry fragmentation endures; a large number of companies offer highly overlapping products with marginal differentiation in a limited market. The reshuffling in 2005 may be only an interim stage as the industry reorganizes itself, adjusting to a new balance of library priorities tipping more toward managing electronic content with less emphasis on traditional automation issues.