Are libraries really of interest to venture capitalists?
Skirting a worrying temptation to wonder why we never specify which kind of new year we’re talking about unless referring to the Chinese one, Happy New (Gregorian?) Year from all at Talis! And now back to the point…
In another interesting post to his Hectic Pace blog, North Carolina State University’s Andrew Pace takes a look at last year’s announcement (PDF) of the proposed sale of the world’s biggest library systems vendor, SirsiDynix, to (relatively!) small San Francisco venture capital firm Vista Equity.
Sat, as I am, within a company owned by its employees and (some) customers, it can be interesting to muse about the different priorities brought about by the various ownership models at play in today’s library marketplace, and maybe I should blog some of our internal discussion around that at a later date. Simplifying greatly, and in the context of the SirsiDynix announcement, I can see four broad types of library systems company;
- ‘membership’ organisations like OCLC, formed at a point in time to address a shared set of problems with and on behalf of that membership. Although clearly important to the sector, even a cursory glance at such things as assets and operating practice quickly shows that the line between ‘magnanimous cooperative’ and ‘evil vendor’ is a somewhat fuzzy one;
- commercial organisations like Talis, owned by some combination of their staff, their management, and third parties (often customers) with a vested interest in the success of both the company and the sector within which it operates;
- commercial organisations like SirsiDynix, Ex Libris, or Endeavor, wholly or largely owned by venture capital firms for the purpose of achieving some short (Seaport Capital, owning about 80% of SirsiDynix ahead of this latest transaction, might fall into this category) or medium term financial return on their investment;
- commercial organisations like Extensity, a small part of some larger organisation with priorities and objectives external to the library sector.
There are, of course, pros and cons to each approach, and libraries should undoubtedly be asking harder questions than some have been when selecting a partner for what will hopefully prove to be a mutually beneficial long term relationship. Switching from one library system to another is a painful, expensive and protracted process, so surely the last thing that any library wants is to go through all of that pain only to see some unexpected merger forcing them down an ‘upgrade’ path to a product that they didn’t select, or to find some promising or essential development project axed by an outside management team parachuted in to maximise the realisation of assets for the latest VCs to pick up the ball.
As Lorcan Dempsey has suggested in the past (and as Andrew picks up on),
“It is surprising to me that there is not more discussion in the library community about the structure of the industry which supports it.”
Turning back to the SirsiDynix move, the ‘interesting’ bit is actually right at the end of their release;
“The deal is expected to become final in mid-January following a regulatory review. Terms of the agreement were not released.”
That final sentence isn’t at all surprising, but it will only be when those terms do begin to become apparent that we’ll really know what this is all about. How many of the current Management team will be allowed to stay? Indeed, how many of the current Management team will be allowed to leave (should they want to) over the next 9-12 months or so? How open will this particular set of VCs be to injecting new resources into the company? Are they in it for the short, medium or long term? Are they after a safe investment, or are they prepared to take some risks? Do they want to grow the business or harvest it? How much day to day control do they want? Do they see synergies with other parts of their portfolio (I can see one or two minor opportunities there)? Are they in a position to arrange a union that capitalises upon broader changes in the education sector, brokering or forcing marriage with a Blackboard or equivalent?
Any of these – and more – are possible. Some are more likely than others, but we really won’t know until some of the dust settles in San Francisco, in Huntsville, and even in Menlo Park.
And, of course, when OCLC buys III all bets are off.
Just to finish off, I found the language used in the press release interesting; “investment partnership” and SirsiDynix’ “agreement to be acquired” are interesting euphemisms for “our current owner just sold us to some new owner, and we hope it’ll be ok”. I hope it’ll be ok, too.
Update: John Fink just posted a link to this graphic to the Web4Lib list. Although clearly US-centric, it visually demonstrates the consolidation in this market. How well, I wonder, do all of the survivors fit my four categories?
Technorati Tags: Andrew Pace, Libraries, SirsiDynix, Talis
January 3rd, 2007 at 4:46 pm
Where does something like Koha or Evergreen fit in your broad types of ownership model?
January 3rd, 2007 at 4:58 pm
Kathryn
that’s a good point, and one I really should have covered. The post was, of course, looking at changes in the commercial organisations that provide the majority of library systems in use today, so I could squirm a bit and say that open source projects are therefore out of scope for the typology… but I won’t…
In truth, I’d guess that the various open source projects need to sit in a fifth category of their own. These are certainly doing ground-breaking and innovative work, and they’re being picked up in places where management is willing and able to make a decision to spend their money on (essentially) staff and internal development rather than external support contracts.
I’d suggest, though, that to enter the mainstream, these efforts will end up having to surround themselves with the ‘traditional’ paraphernalia of support teams, etc… and when that happens they’ll become something akin to the early OCLC or the cooperative precursor to Talis, BLCMP.
What do you think?
January 3rd, 2007 at 5:53 pm
Going out on a limb here…Is it possible that within a few years the product that traditional library vendors will be selling won’t be code at all? If you made your proprietary software Open Source, you would still have incredible contacts and networks and (if you’ve done it right) trust from the library world.
By now you should have skills and knowledge about how to make the code jump through the hoops the library world wants. Given the very low number of library folk who can code at all, let alone well, that’s an asset we’d pay you for.
So..traditional library vending companies **should** have a huge, unbeatable, commercially valuable headstart on Open Source. And a chance now to ensure that your owning bodies understand that it’s your skills and contacts that have the economic worth, not the code.
As you say, “Switching from one library system to another is a painful, expensive and protracted process”. But why shouldn’t we pay that price if we can ultimately do it better and cheaper with Open Source?
I think there’s maybe a sixth “ownership model”. That’s the part of the market that can be transferred to coding librarians and what they can do in-house. It’s no threat yet, but if we are considering whether a particular company’s ownership structure makes for a stable and mutually profitable partnership, maybe in the future we’ll be more likely to also weigh up our own in-house resources.
January 3rd, 2007 at 6:24 pm
Hmm. Some interesting points there!
To a degree, we’re embracing some of the direction to which you allude in our work building the Talis Platform. There, we’re seeing a value in facilitating an ecosystem in which others (libraries, vendors, as yet unmet third parties, etc) can play, sharing their data, consuming data from others, and building a set of products (open source or not) that consume the Platform’s data and capabilities, and offer them up to users in a wide variety of ways. Libraries have a wealth of data, much of which is woefully underutilised as it languishes inside the prison that is today’s ILS/LMS.
With such a Platform, *we* can build – and sell or give away – a range of solutions. Others can also build solutions on that same Platform of data and capability, and either sell them or give them away. With the value shifting, and with a common pool of core content upon which anyone can draw, the ‘competition’ shifts away from the routine, away from ‘just’ processing and storing data, and toward the value added end of the spectrum, in which various players can offer competing propositions to the market. In this model, your sixth group is provided with the data, the tools and the apis to compete on a level playing field with commercial vendors, open source community projects, and with anyone else. You really are able to decide which flavour of specialisation works for you, and as so much of the basic capability is potentially able to move – with your permission – to the Platform itself, your switching costs plummet.
I think that there will still be a place for traditional library vendors selling code in a few years, but I’d suggest that they’ll be selling much smaller chunks of code, that they’ll really need to demonstrate far more willingness and ability to permit interaction, and that they’ll be required to become far more nimble and responsive as their customers gain access to increasing choice; choice that technologically makes it much easier for them to consider more rapid replacement cycles for those products that fail to keep up.
January 10th, 2007 at 1:16 pm
When OCLC buys III all bets are off? Do you know something the rest of us do not?
Terry
January 10th, 2007 at 1:43 pm
Terry
I don’t think I know anything here that you don’t. I’m just adding up the pieces and reaching a possible future step.