Do you think the increasing consolidation of library automation companies will be met by more independent companies entering the field? Are more mergers in the industry inevitable?
Future events in the companies that comprise the library technology industry naturally cannot be predicted with any certainty. We can, however, observe trends that have helped bring the industry into its current form and suggest possibilities for what may come about in the relatively near future.
The overarching trend that has prevailed for the last two decades or more has been a continuous series of mergers and acquisitions of the companies involved in developing ILSs and related products. As companies strive to grow into more prosperous businesses, there has been tremendous pressure to acquire their direct competitors or be acquired. The finite economy of libraries can only sustain a limited level of revenue for these companies.
In earlier phases of the industry, dozens of companies were founded to develop, market, and support ILSs, each of which at least initially had promising prospects. These companies participated in what can be considered in retrospect to be a fragmented industry where too many competitors offered products that were not well differentiated. Even the largest of the companies had limited resources to develop and enhance products at a pace to fully meet the expectations of libraries. The number of personnel employed by each company needed to develop and market their products were quite high relative to the number of libraries using them, resulting in limited profitability.
Consolidation brought companies together, so that even if they continued to develop and support each incumbent product, they would gain efficiencies in administrative costs, as well as in combined sales, marketing, and support units. Over time, multiple rounds of consolidation have resulted in fewer competitors, though each has more development capacity than any of the antecedent entities. Some of the ILS products of previous eras have fallen way, though it is not clear if they would have survived under their original vendors.
The latest round of business activity impacting the library technology industry has taken a new turn. The acquisition of Ex Libris by ProQuest and the launch of the FOLIO initiative both represent a new phase where the strategic technology products have come directly or indirectly within the sphere of the top tier of companies oriented to libraries. The mergers of ILS companies can be considered a horizonal consolidation among direct competitors. This horizontal consolidation has also become vertical as the large entities offering broad portfolios of products and services to libraries, initially centered on content, now take a new interest in the technology products libraries use to manage and provide access to their collections.
The current state of the library technology industry sets the stage for several different possibilities as its next phase unfolds. Even the largest of the consolidated ILS companies fall well below the capacity of the top tier companies to develop new products that help libraries meet the challenges they face. Collections continue to become more complex and expectations continue to rise for providing access in new ways, requiring management and discovery services with ever more sophisticated capabilities. Libraries also continue to be frustrated with the level of innovations that have been produced, even in this consolidated environment where companies have ample development capacity.
Now that the competitive environment has expanded to the top tier of companies, the stand-alone ILS companies may find themselves in a weaker position. Other large content-centered companies may see similar advantages to add a technology business to their portfolio. It's equally possible that none of the other large content companies will have an appetite for the idiosyncrasies associated with the ILS products.
The vertical consolidation brought about by a strategic acquisition of an ILS company into a larger entity brings a different set of implications than a merger of direct competitors. In a horizontal merger, there is considerable pressure for the incumbent product of one company to eventually arise as dominant and for others to eventually become displaced. In the context of a strategic acquisition, the technology products become part of the product portfolio of a larger entity with greater opportunities for ongoing development and support. The direction of development may be at least partially shaped by the business interests of that larger entity.
Private equity firms own several of the companies in the library technology industry. These ownership arrangements are usually structured for limited duration. As these investments mature, it is possible that the ownership of some may shift to strategic acquisitions by top-tier companies already involved in libraries or adjacent business activities rather than to a new set of financial investors.
The demand for more innovation opens the possibility for new companies to arise in the global library technology industry. Possibilities include companies in other regions that have created products with the potential for global appeal or start-ups with a new product that is able to rapidly scale up to join the competitive arena. New start-ups may well arise to inject innovation into the industry. Even if their products strike a resonant tone to libraries, it is exceedingly difficult for a start-up to grow into a major player in the global library technology industry. A more likely outcome would be for them to become acquired and their products become integrated into the portfolio of an established company. This pattern continually plays out in all technology-oriented business sectors.
Open source software initiatives also have an impact on the library technology industry. So far, that impact has been moderate, with open source products such as Koha and Evergreen gaining a steadily growing number of implementations in libraries, often through support services from commercial entities. FOLIO, with the backing of EBSCO and the development capacity of Index Data, stands as a possible disrupting factor for the industry at large. Many libraries express concern over the ever-narrow options available to them and are willing to consider open source alternatives. Even though it comes with its own set of issues, open source can provide libraries with a sense of control in the context of a business environment viewed as offering limited choices.
The library technology industry has seen few pauses in business activity over the course of its history. It would not be realistic to expect it to hold in its current state indefinitely. Though the specifics are not predictable, some level of change is inevitable.