Monday, April 7, 2014

The library automation company mergers resume.


Many industry observers of the library automation field have long predicted that the industry consolidation of the past would continue.  While there was a bit of a lull over the past couple of years, it has picked up again with SirsiDynix’s acquisition of EOS Intl and this past week’s announcement that Innovative Interfaces had purchased Polaris.

Marshall Breeding has written an excellent article about this most recent transaction and if you haven't already done so, you should read it in order to understand the background, the specifics of the purchase and the history of both firms.

I’d like to add some comments on the business aspects of the transaction.

So what does this transaction mean?  

While this transaction involved one firm buying another, the buying firm is one owned by equity investors and thus, what I’ve said about equity investors in a previous post remains valid and should be considered by the customers of both companies while contemplating their future with Innovative.

What is different about this transaction is that both Innovative and Polaris have customer bases that are running on proven, but what is rapidly growing dated, technology.  Both companies have tried to address the need for a “next-generation” library automation solution by largely moving to cloud based Software-as-a-Service (SaaS) offerings that reuse existing technology, i.e., Innovative with Sierra and Polaris with LEAP.   While that approach is fine for the short-term, in the long run, that solution won’t be sufficient for the newly  combined customer base of Innovative.

Library Journal called and interviewed me after the news was announced and they wrote an article in which I noted that both companies need to get a true library service platform (LSP) on the market.  (If you want an explanation of why and LSP is radically different from an ILS, read this post and this post. By combining companies and resources, Innovative/Polaris will likely be better positioned  to ultimately succeed. 

However, that won’t come without a significant delay and price for the customers.

It is very unlikely that a new platform will happen more quickly and time is of the essence here because other organizations (OCLC, Ex Libris) do have LSP’s available that can be delivered and put into operation today.  However, with Innovative/Polaris being combined, their first goal will be to merge operations, company cultures, customer services and sales.   That involves some serious organizational disruption, overhead and thus time.  Once that is achieved, they’ll start a more serious effort at combining the product plans.  Customers of either company that believe their products of today will live on indefinitely are probably dreaming, although they will continue on for some time.   However, the reality is that company mergers like this are ultimately dependent on re-consolidating the company offerings to one main product offering at some point in the not too distant future.  In this case, that will be a new Library Service Platform, probably a substantially a totally rewritten product that is neither Sierra or LEAP products.  Once the combined resources of these two companies are assembled and applied to this task, the result will appear more quickly. Still, it’s important to note that developing a new LSP from the ground up is no small task, in fact it is a significant task.  ProQuest has been trying to do this for some time now with their product Intota and we’ve seen the release date pushed back numerous times.  This is not unusual, so any release dates announced for a new LSP by Innovative should be viewed and evaluated through the lens of experience.  The questions that must be considered about later entrants in the field are these:  1) Since these systems are cloud-based but not totally truly open to customers of other organizations, the size of the customer base using each respective product will ultimately help determine it’s overall viability. Services based on large aggregates of data, such as analytics and metadata function at a higher level and provide more value when that occurs. So the longer the new product takes to get announced and available to the market and start capturing market share, the less effective some of it’s functionality will ultimately be for the customers, and 2) By the time they do get a totally new product to the market, where will the other organizations be with their products?  When you have competitive platforms released this far apart, the need to leapfrog the competitors becomes even greater.  That too is not an easy task. 

Let's also remember that the customer bases of these two companies bought the chosen products for very distinctive reasons.  Polaris customers were largely tied to Microsoft Windows OS's and valued superior customer service.  Innovative customers valued rich functionality and a reliable offering, although one that was very expensive and one where customer service was good, but not great.  Still, customers can be extremely loyal to their original decisions and thus there will be upset (read the comments on Marshall Breeding’s post above) as a result of  the merger of these two companies.  It’s not unheard for customers to jump ship to another entirely different vendor after feeling abandoned in this type of transaction. That too will diminish the customer base size.   

As I noted in the Library Journal article, I’ve long admired Bill Schickling (CEO of Polaris) and his focus on customer service.  Kim Massana (CEO of Innovative) is a sharp business person and I truly hope that he can successfully keep Bill an active member of the Innovative team and transfer and maintain those customer service capabilities as they merge operations.  It would be a huge benefit for the newly combined customer base.  


This won’t be the last merger/buyout of automation companies serving libraries, I’ve been in the field long enough to see many other companies start up and then disappear.  Polaris was always an interesting firm to watch and thus I’ll miss their being an independent player.  They raised the bar in some important ways.  

At the same time, I wish Innovative, Kim, Bill and the newly combined customer base, every success as well.