Library technology vendors continue to consolidate. Since the mid-2000s, the shape of the library automation industry has changed considerably through a constant stream of mergers and acquisitions. Many smaller companies continue to prosper, serving narrower groups of libraries with specialized products. But a group of large organizations dominate the industry, most involved with libraries as customers in many different parts of the world. This top tier includes nonprofits such as OCLC, as well as Ex Libris Group, SirsiDynix, Innovative Interfaces, Follett Software Company, and Axiell. A middle tier, such as Polaris, VTLS, The Library Corporation, and Auto-Graphics, likewise play an important role, each following different competitive strategies to find their own opportunities to grow to the next level or to even become one the industry giants.
I spend a lot of time and energy tracking companies in the industry. It seems important to gain as much information as possible about organizations with which libraries spend substantial funds. Many of the articles and reports that I produce provide what I hope is useful information on business strategies, product developments, and both short and longer-term roadmaps. I also try to track some operational details, including how many libraries use each of their products, the number of personnel, and their allocation of resources among software development, support, and sales.
Most of these organizations are privately owned and have no obligations to make any of their business details public. I'm generally impressed with how much information most are willing to share. Libraries benefit from this information as they make decisions about the strategic technology products that support their operations and deliver services and content to patrons. In an industry niche as narrow as library technology, it's also possible to compile some of this data through tracking the products implemented by libraries, which is one of the functions of my lib-web-cats database.
The next step of transparency, which is not currently widely practiced, would include more data regarding what libraries pay for their technology products. Business software does not have a one-size-fits-all price tag. We all understand that the amount that a library pays for software is scaled according to its size and complexity of use. I rarely hear complaints about this differential pricing model. Most contracts for big-ticket technology items, however, include non-disclosure terms that prevent libraries from publicly revealing the amount negotiated for software and support fees. The secrecy of pricing terms has been a topic of conversation in the library content arena as well. More knowledge about what peer libraries have paid would place libraries on more level ground as they negotiate their deals. The few times that I have been able to learn something about fees paid, it is not unusual to see libraries with similar characteristics pay vastly different sums for the same software. To negotiate well, libraries need realistic expectations on pricing for highly-complex business software balanced by as much competitive data as possible. As vendors become ever larger through seemingly never-ending industry consolidation, libraries need all the leverage possible. While software pricing among libraries may be a bit uneven, I also think that many libraries under-invest in technology infrastructure, especially in resource management and discovery services, relative to its strategic importance to the organization.
Libraries benefit from the operational scale of these ever larger organizations, such as their software development capacity. I have been relatively optimistic in recent years regarding the innovation of new product genres such as library services platforms and Web-scale discovery services. To a large extent, these innovations were made possible through the investments of large organizations and the efforts of their software engineering teams. Smaller organizations can also be great springs of innovation. The creation of the complex business systems for libraries, however, seems to require substantial investments. Many of these products also include knowledge base or index components that require human as well as technical resources to develop, populate, and maintain.
One of the key dynamics I've noticed in the industry over the years is the vulnerability of companies that don't invest in developing new-generation products as their offerings age and fall below current expectations. The customers of companies offering only legacy products will eventually leave for more forward-looking technologies, or the companies themselves become absorbed through the mergers and acquisitions churn.
The supersizing of library companies has been driven by the external investors, typically private equity firms, which own most of the large library technology companies. Attention by these investors reflects well on the industry given their expectations for long-term growth opportunities. Despite the overall downsizing of the library economy, libraries continue to acquire technologies that enable them to operate efficiently and deliver excellent services for their patrons, providing a stable and even expanding business environment. For companies to succeed, however, they have to deliver compelling products at competitive prices and understand the nature of doing business with mostly non-profit, publicly supported institutions.
In the past few years, a number of companies have changed ownership through acquisitions by private equity investors. While new ownership can result in changes in business strategy, these tend to be relatively non-disruptive events. Mergers that result in consolidating companies tend to have a more dramatic impact. OCLC has contributed to industry consolidation through its acquisition of a number of library technology companies, primarily outside of the US. Last month's issue of Smart Libraries Newsletter covered OCLC's purchase of the Dutch company HCA. Consolidation has taken yet another turn here in the US. In this issue we take a look at the acquisition of EOS International, a major company in the special library sector, by SirsiDynix. It will be interesting to see if these two acquisitions are the beginning of a larger cycle of consolidation in the industry. Should we view these events in isolation, or are we at the beginning a new phase of activity in the history of mergers and acquisitions in the library automation industry? Stay tuned.