Automation System Marketplace 2004: Migration Down Innovation Up

See also: Company Profiles

Public funding declined while returns on private endowments slipped--two major factors that limited the growth of the library automation industry in 2003. Libraries itching to migrate from legacy systems or acquire new automation products continue to defer. Despite the economic climate, or maybe owing to it, the top two companies, Innovative Interfaces and Dynix, strengthened their position as market leaders.

Last year saw contraction in several areas. There was a net decrease of 3% in employees in the automation companies. Estimated revenues were down about 5% from 2002, to $500 million, plus or minus $30 million. This figure represents the total revenues of all the companies that participate in the North American library automation market, including domestic and international sales.

There were also fewer contracts in 2003. For companies that sell to midsize to large libraries, contracts were down 15% from 2002, 36% from 2001. Decline in this number also reflects the trend toward fewer but larger contracts as more librarians purchased their integrated library systems (ILS) through consortia.

It is useful to keep in mind that counting contracts is an important measure although a crude one--contract values vary widely. For example, The Library Corporation tends to sell to smaller library systems at an average of $72,000 per contract while Ex Libris sells to large research libraries and consortia with average contract values of over $300,000. Companies like Endeavor land in between at $165,000.

In 2003, companies derived an average of 41% of their revenues from maintenance fees, 38% from new ILS sales, 7% from non-ILS software, 5% from hardware sales, and the remaining 9% from other sources. While new sales can indicate who will be successful in the long term, maintenance income provides ILS companies with the most revenue.

Prospects for growth remain, although not at the levels predicted last year. It is difficult to say when spending might increase, but many libraries have automation needs that cannot be placed on hold much longer.

Librarians are more willing to spend on technologies when it allows them to make savings in other areas. These include creating resource sharing environments to help compensate for reduced collection budgets; supporting RFID products to reduce labor costs and improve the efficiency of circulation operations; and sharing consortial systems and hosted ASP services to save on administrative costs.

Other major factors that will contribute to growth include the very high number of legacy migrations that remain to be captured in the next three to four years; school districts implementing centralized automation systems; and the rising demand for add-on products related to managing electronic collections. Other than the inevitable need to replace legacy systems that are no longer being developed, few administrators or boards will invest in automation software to achieve only incremental improvements. Successful funding of automation projects must be tied to real deliverables such as increased resource sharing or access to electronic information.

The library automation market remains fragmented, with a large number of companies competing for a limited amount of potential business. Market share is drifting toward a few top companies, but the revenues are still distributed among more than 30 companies. No one company is the overall market leader, although several led in key areas in 2003.

Innovative Interfaces beat out the competition in sales to new customers with 96 contracts and ranked second in contracts overall with 144. A higher percentage of new contracts at full price, as opposed to migration pricing, implies a significantly higher level of income from sales.

Dynix led in overall sales with 168 contracts during the year and placed second in new name accounts with 77.

Sirsi was the largest company in the industry when measured by personnel, with 445 employees reported, a net increase of 3% over 2002.

Ex Libris led in the reference linking and metasearch product categories, with 85 contracts for SFX (linking) and 62 for MetaLib (metasearch).

GIS Information Systems continued to maintain the best ratio of customer support staff relative to installed base, with one FTE for 6.9 sites.

Most companies reported the percentage of earnings derived from ILS sales and the number of contracts. But only a subset of the companies makes earnings public. Of the companies that reported revenue, Innovate Interfaces led with earnings of $60-$70 million; Ex Libris followed with $30-$35 million; Endeavor reported $25-$30 million; The Library Coporation, TLC/ CARL came in at $20-$25 million; BiblioMondo totaled $10-$15 million; while Auto-Graphics, Softlink, and VTLS all sat in the $5-$10 million range.

Gaylord Information Systems became GIS Information Systems as a result of changes in its business structure when the holding company for Gaylord sold the furniture and supplies division of the company--along with the name--to competitor Demco. The automation division, renamed GIS Information Systems, became the sole division of the company. Under Gaylord, revenues from the rest of the company subsidized the ILS division. The restructuring resulted in a significant downsizing, with a net 38% decrease in staff relative to 2002. Katherine Blauer, president of Gaylord, was replaced by William Schickling, former VP for research and development. Anita Wagner, former VP of business development, now serves as chief operating officer, and Jim Mieczkowski is chief information officer.

Mandarin Library Automation also saw major change. The Mandarin automation system became part of SIRS Publishing in 1995, with EGEG Holdings Corporation the parent company. In a 2001 internal reorganization, Mandarin separated from SIRS, although it remained part of the same holding company. In June 2003, EGEG sold the SIRS side of the company to ProQuest Information and Learning, leaving Mandarin a standalone firm. The company will continue to operate under the same board of directors and executive management from the same Boca Raton, FL, headquarters.

Corporate Networks acquired Insignia Software, a small Canadian company that sells the Insignia library automation system, in late 2003. Corporate Networks is a Canadian company that specializes in end-to-end information technology solutions for K-12 school libraries and the medium- to small-sized business sector. The company provides complete networking and other enterprise infrastructure. With the acquisition of Insignia, the company extends its interests to library automation and student information software.

Brodart exited the ILS business at the end of 2003. The Automation Division of Brodart sold the Amlib library automation system, targeted to K-12 school and small to medium-sized public libraries and developed by the Australian-based InfoVision Technology. InfoVision has established a U.S. office for sales and support of Amlib with two former Brodart employees. The Brodart Automation Division's key strengths and business interests have long been in bibliographic services and software. The company will continue to offer its cataloging utility, DartClix, and the Media Minder media reservation system.

This was a year for management changes at Ex Libris, both at the worldwide offices and the U.S. subsidiary. Last year we noted the appointment of Sami Kamhi as CEO of Ex Libris, Ltd., the worldwide company. His tenure was short. In May 2003, Matti Shem Tov was appointed as president and CEO. Carl Grant, the president of the U.S. subsidiary of Ex Libris, resigned in May 2003 to move to VTLS as COO of global operations. Ex Libris appointed Bob Walton, former president of CLSI and VP at Innovative, as chair of the board of Ex Libris (USA). Walton's role is primarily advisory as he remains CFO of the College of Wooster, OH. In March 2004, Dan Trajman was named president of Ex Libris (USA). Trajman was previously president of Sapiens Americas, a technology company in the insurance industry.

With Grant now at VTLS, Vinod Chachra will continue as chair and CEO. Other Ex Libris execs who followed Grant to VTLS include Martha Gettys, now VP of sales, and Ron Passmore, director of marketing.

Endeavor began the year with a new president and CEO, Elsevier exec Roland Dietz. Former OCLC VP Donald J. Muccino joined the company as VP of customer service in June 2003 and was named COO in January 2004. Mark Wilson, formerly director of technical resources, is now CIO. In February 2004, Sara Randall was named director of strategic products.

At Sirsi, management changes occurred as Don McCall became the COO; Marty Keeley, formerly of Gaylord, joined the company as VP for strategic initiatives; and Andrew Morrice made a shift to VP of Asia-Pacific operations.

Dynix's Jack Blount enters his second year as president and CEO. In 2003, Julian Critchfield, the company's CTO since 2000, was named COO, making way for Henry 'Ric' Rodriguez to assume the role of CTO and senior VP of engineering. Rodriguez was with Raindance Communications, where Blount was previously COO. Jim Wilson, one of the original cofounders of the company, was brought out of retirement to serve as senior library advisor.

The pace of migrations from legacy systems (see Table 5) remains steady. The base of legacy systems continues to dwindle, though significant numbers remain. Dynix Classic has the largest installed base by far (62%). The product launched in 1983, with an apex of almost 3000 sites in 1997. It wasn't until 2000 that the base began to decrease. If we project the migration from Dynix Classic to near zero in the next five years, migrations will be significantly higher than we have seen in recent years.

Table 3 shows the remaining major legacy systems that are licensed through the end of 2003, over 3400 sites. The legacy systems under the ownership of Sirsi--DRA Classic, MultiLIS, INLEX/3000--appear to be closer to the end of their product cycle. Taking a composite of the Sirsi legacy systems, the peak installed base occurred just prior to 2000 at over 1500 library sites. Of this only about 300 remain. Of the major companies with both legacy and current systems, only Sirsi has more current systems than legacy. Dynix, VTLS, GIS, and Geac all support more legacy systems than current systems.

One broad trend is the increase in the number of libraries participating in consortia for the purpose of a shared ILS. The large-scale implementation of a system across multiple libraries results in greater efficiency. Libraries have long banded together in consortia to lower automation costs and gain access to a larger collection of materials. While few new consortia were formed in 2003, a number of libraries have switched from running their own independent system to a shared system. Also, multiple consortia have merged to share a single system.

The move from a standalone implementation to a shared consortial system usually means switching ILS. In some cases, the move is a lateral one: migrating from one viable and current system to another. These moves cannot be taken as signs of dissatisfaction--in most cases the driving force is the need to operate more efficiently through a consortium. 'Our change from Voyager to Millennium had nothing to do with our level of satisfaction or dissatisfaction,' explains Colleen O'Connor of the Saint Francis Seminary Library, WI. 'Instead, our decision was driven by our desire to join a local consortium.... As a small academic institution, we did not have the personnel or financial resources to do many of the technological and collection development initiatives we felt were necessary.'

The school market is increasingly impacted by the transition from discrete library sales to districtwide contracts. Until recently, the school library automation market was measured mostly through library-by-library sales. Over the last three years, the numbers of PC-based systems have dropped dramatically.

This year Follett announced its all-new Destiny product, a completely web-based automation system designed for districtwide automation. Sales of the company's PC-based system, Circulation Plus/Catalog Plus, plunged to 3040 (from 6,275 in 2001). This marks a significant sea change away from PC-based systems.

The PC-based Winnebago Spectrum and Athena systems from rival Sagebrush Corporation saw an aggregate decline of 13%. In 2001, Sagebrush introduced its Accent product for centralized automation. The introduction of Destiny makes Follett more competitive in this category.

Library companies that have not traditionally specialized in the K-12 market are eager to tap it. The Library Corporation, for example, sold its Library.Solution for Schools product to nine major school districts in 2003.

Follett Software Company and Sagebrush Corporation continue to dominate. Follett has traditionally led, but this year Sagebrush advanced to the top, at least when counting contracts. In addition to the sales of Circulation Plus/Catalog Plus, Follett made 25 sales of Destiny. Sagebrush sold a combined total of 3,937 licenses for Winnebago Spectrum and Athena and closed five contracts for Accent. Districtwide contracts are significantly more valuable than each PC-based sale. The 25 Destiny systems, for example, represent 508 individual school libraries.

Public libraries have distinct automation needs and are the most constrained by budget limitations. They are not yet consumers of add-on products such as reference linking, electronic resource management, and metasearch applications. Some larger municipal libraries and library districts have made investments in metasearch environments, but most don't perceive the same need as academic libraries to manage electronic content (see 'Academics: SOS on E-Management,' page 49).

Public libraries focus primarily on access to their physical collections and seek automation products that help them work more efficiently and at lower costs. Participation in consortia and cooperatives climbs steadily, reflecting a trend to gain automation through a shared system. Many high-volume public libraries see RFID technology as improving efficiency, especially through automated check-in and sorting systems, patron self-check, inventory control, and more. Automatic patron notification systems and debt collection services also spark interest.

There is also a higher rate of adoption of ASP (application service providers) by public libraries, where the library relies on the vendor to host the ILS server. The ASP option is most attractive to smaller libraries that may lack technical staff, but some relatively large libraries, like Cobb County Public Library, GA, have chosen this approach.

See also: Company Profiles