Gradual evolution: migrations take off while the pressures to innovate mount.(Automated System Marketplace 2005)

The integrated library system (ILS) is changing--not dramatically but steadily. Forces at work include an improving economy, pressures to innovate, new products that manage electronic content (see "Trojan Horse," p. 46), and, most of all, mandatory migrations.

Overall industry revenues, estimated at $525 million, grew by almost 5% relative to 2003. This figure represents total revenues of all companies that participate in the North American automation market. Most companies grew their gross earnings, and, in many cases, non-ILS products and sales to non-U.S. clients generated more income than ever before (see Table 3, p. 45).

It was an especially fertile year for migration (see Table 4, p. 46ff.). In 2003 many libraries deferred moving from obsolete systems, creating a pent-up demand that began to break loose in 2004, when migrations increased by 12%. This is an important trend to follow, since to succeed, companies must both attract new accounts and retain current customers. Just signing legacy sites to your flagship product does not increase market share.

Total contracts were down by 2%, though we estimate that far more libraries were represented this year than last, consistent with the trend toward increased numbers of libraries per system implementation. New-name contracts were down by 12%, indicating that more libraries stay with their current vendor as they migrate.

Dynix led in total sales with 193 contracts signed, a record unsurpassed in the last four years by any others--especially impressive since these contracts cover 1640 libraries. In the competition for new clients and market share gains, Innovative Interfaces tied for second with contracts to 76 new-name clients (568 libraries). Sirsi delivered strong sales performance, coming in second in total contracts and tying for second in new-name accounts. For individual libraries, Innovative brought into its fold more than twice that of Sirsi. Dynix leads by far in installed sites, with 3,599 running either Dynix Classic or Horizon.

As the domestic ILS market becomes more highly saturated, companies increasingly rely on international sales, with about 8% more non-U.S, sales in 2004 compared with 2003. International contracts, however, typically represent smaller projects.

Who's up, who's down

Defections from the current flagship system impact market share and reputation. While few libraries switch to competing systems, at least ten this year moved from Sirsi's flagship, Unicorn, to other systems. The demise of the Detroit Area Library Network was painful to Dynix, with both an Association of Research Libraries (ARL) member and a major metropolitan facility abandoning Horizon. These lateral moves continue to be anomalies but might be early indicators of dissatisfaction. When the current cycle of legacy migrations plays out, the next level of competition will be vulnerable accounts running flagship systems. Early battles may have already begun.

It takes multiple measures to assess the gains and losses among vendors. Counting contracts alone doesn't suffice, given variations in the numbers of libraries, differences in collection sizes, and complexity of automation needs. This year, we look deeper than the raw contract counts, factoring in the weight of each according to the number of libraries represented. Share can be understood by the formula: New-Name Sales minus Legacy Losses (plus Flagship Defections) equals Net Gain/Loss.

With the largest market share gain in 2004, Innovative Interfaces worked this formula to its advantage. Only six sites with INNOPAC selected competing systems, and two Millennium sites defected (single libraries in consortia moving to independent implementations). The 76 new accounts minus eight losses means a net gain of 68 accounts (534 libraries.) Innovative scored 13 Dynix accounts (173 libraries).

The Library Corporation (TLC) made net gains of 54 accounts (322 libraries), increasing its overall market share. GIS Information Systems saw a net gain of two accounts (77 libraries). Surprisingly, Dynix's superb sales performance yielded smaller gains in terms of building market share, with a net gain of 13 accounts. The size of some of the Dynix contracts that were lost, as well as Horizon defections, equals a net loss in individual libraries. Sirsi saw a net gain of 26 accounts but a loss in individual libraries--until you consider that 180 libraries joined existing consortia already using the company's products.

Eye on migrations

At least 814 institutions elected to migrate from their legacy system in 2004. The number of first-time automations in the public and academic sector was 58--all smaller libraries.

With 1880 legacy sites remaining, Dynix Classic will fuel the next two years' migration economy. In 2003, Dynix retained 66% of its legacy accounts; in 2004, it retained 77%. If the company sustains this, it is poised for strong sales in 2005. Dynix is betting that aggressive development of Horizon 8.0 will pay off in high retention.

Few other legacy systems remain: DRA Classic and Multi-LIS have dwindled down to about 100 sites each, INLEX/3000 is now three, VTLS Classic is 100, Galaxy numbers 84, Geac Advance is down to 175, and Geac PLUS is 65. Only three NOTIS sites remain. Although the total number of sites running a legacy system numbers about 3000, the number of remaining sales is much less given the lag between selecting a new system and decommissioning the old one.

For Sirsi, 2004 was a key year for migrations--all of its legacy systems are winding down. The choices these libraries make will be important in Sirsi's longer-term market share. Sirsi legacy migrations were mixed in 2004. Of the 63 DRA Classic accounts that inked a deal, 31 went to Unicorn. Two of the six libraries running INLEX/3000 chose Unicorn.

Room for the little guys

In an industry with 33 companies, the ten largest account for over 80% of revenues. Despite this, smaller companies continue to flourish.

Small companies can't compete for large libraries and consortia since they lack the resources for research and development. However, a lot of small …