Thursday, January 21, 2010

PTFS to Acquire LibLime and Move to Library Systems Premier League

Update Feb.12 - the acquisition is not happening
Update Mar. 16- the acquisition closed after all.

In 2009, the New York Yankees had a payroll almost ten times that of the Florida Marlins. The reason that baseball lives with that disparity is that the financial interests of many owners do not align with their fans- they take in roughly the same amount of money no matter what the team's performance.

It's different in the English Football Leagues. Teams which fall to the bottom of the standings in the Premier League are relegated to the second division, the equivalent of baseball's minor leagues. At the same time, the best teams in the second division are promoted to the Premier League, giving them a chance to make much more money. There is a clear alignment between the interests of the fans and the owners.

The library industry has likewise been troubled by misalignment of interests between the owners of the companies and their customers. That's why it's important for libraries to pay close attention to the frequent mergers and acquisitions of the companies that serve them. These transactions are often announced just before an ALA meeting, and this past weekend's ALA Midwinter Meeting was no exception.

The big story of the weekend was the pending acquisition of Koha support vendor LibLime by PTFS (Progressive Technology Federal Systems, Inc.). (The acquisition is still in the due diligence phase and is expected to close in early February; terms were not disclosed.) The surprising part of the announcement was the sudden emergence of PTFS, which has had a very low profile in the library industry, into the top tier of integrated library system vendors.

Here I must digress to discuss a bit about business models in the library industry. Libraries have traditionally viewed their catalog system vendors as long term partners; the migration of data from one system to another is a major project, not lightly taken, and preferably not attempted more than once a decade. The choice of a new system touches almost all the library's processes, and thus involves many consultations and lengthy RFPs.

From the vendor's point of view, the sales process is very expensive. Promises to customize the system to address customer peculiarities are common, and these add to the cost of system maintenance. Once the system has been sold, a proprietary system vendor has a guarantee of continuing profits from support contracts. Only the vendor has the system knowledge (and sometimes even the system access) to make even the most trivial changes. It's in the support phase that the vendor and customer interests can become misaligned. The vendor has every incentive to do the least work at the highest price possible. The customer is locked into whatever system they have chosen.

Companies with strong cash flow have been attractive acquisition targets for private equity firms. Once acquired the company's new management focuses on eliminating expenses by cutting support staff and cleaning up the balance sheet by offloading liabilities such as unfinished development, thus making the company very profitable. The company can them be resold at a good mark-up. Customers often become very unhappy during the process. The company they "hired" during their system selection process transforms into something different.

The recent popularity of open source library management systems is in large part a search for business models that better align the interests of vendor and customer during the support phase. If the support vendor doesn't perform to the library's expectations, the library can hire a new support vendor without ditching their automation system. If a library wants to add a new feature to their system, or integrate it with a system from another vendor, they can hire a developer based on qualifications rather than access to source. The important thing to the library is not so much the access to source or the cost of the license, it's the absence of vendor lock-in.

The reason that PTFS is not widely known is that it specializes in an obscure segment of the market- it supports libraries predominantly in the government and the military. Founded in 1995, PTFS has been installing ILS systems, doing conversions and supporting systems in the unique security environment of government systems. John Yokley, a co-founder and the CEO of PTFS, spent 13 years as a Sirsi system administrator and programmer at the U.S. Courts, NASA, and University of Virginia Health Sciences Library has spent 20 years, 5 more than the age of PTFS, working in the library industry. Yokley himself worked in a government library for a short period in the early 90’s designing and building virtual library technology.. The company has experienced steady 20% per year growth and today has 120 employees. PTFS is particularly proud of their development of the US Government Printing Office's Federal Digital System (FDsys) which supports over a thousand libraries, but the company also has a library staffing component and a digitization facility.

Although PTFS has had a strategic partnership with SirsiDynix to market ArchivalWare, a digital content management system that grew out of technology developed for FDsys the Naval Research Laboratories (NRL) TORPEDO project, it found itself hamstrung in supporting its customers because of the lack of access to source code of the proprietary systems it was supporting. About 18 Months ago, PTFS decided that Koha was the Integrated Library System that it could most easily integrate with ArchivalWare, and it began to offer support for Koha. Koha is generally considered to be the first open source integrated library system; it was initially developed in New Zealand by Katipo Communications Ltd. and first deployed in January of 2000 for Horowhenua Library Trust.

LibLime (which is actually a trade name of Columbus, Ohio based Metavore, Inc.) was started in 2005 by Joshua Ferraro, Tina Berger and two others. LibLime has been the hardest-charging and fastest-growing proponent of the Koha Library System in the world. Over the intervening years, LibLime has acquired key Koha-related assets, including the US trademark, copyrights to Koha source code, and the Koha website. The combination of PTFS and LibLime will be supporting 640 installations of Koha under 123 contracts. The combined business will have Koha-related development contracts totaling $1.7 million. Despite the state of the economy, LibLime has actually had an increase in business over the past few months.

Recently, Ferraro and his co-principals at Metavore became very interested and excited by an opportunity outside of the library space. As the LibLime business grew, they recognized that they couldn't pursue both the new opportunity and LibLime, and they began to look for an acquisition partner. PTFS was the first company they went to. Given the reasons for the sale, only Ferraro among the Metavore principals will remain with LibLime; and he will stay only for 18 months to oversee the completion of planned development.

PTFS will keep the LibLime name and fold its own Koha support business into LibLime, which will be run by Patrick Jones. At the press conference held at ALA Midwinter in Boston, PTFS CEO John Yokley indicated that PTFS was committed to the concept of user-driven development and the open source concept, but also emphasized that he was still learning about open source and he was reviewing the LibLime business model; there is much left to be decided about how the LibLime business will move forward.

I spoke with Yokley afterwards. In his conversations with LibLime customers, he has found that their top priority for adopting Koha was to avoid vendor lock-in: their systems should be expandable by LibLime, the library or by another vendor. He sees Koha as a component of a fully capable integrated library system, and vowed that in two years, Koha will be fully capable of running a major academic library. The integration of Koha and ArchivalWare will be only the first phase. Although his team has discussed making ArchivalWare into an open source project, there are issues with third party components used which may prevent that from happening.

Yokley's clarity on avoiding vendor lock-in will be reassuring to customers, particularly with respect to LibLime Enterprise Koha (LLEK), a service announced by LibLime in September of 2009. LLEK is perhaps the most exciting asset being acquired by PTFS, and also the most controversial. The controversy deserves another article entirely, as it represents a break between LibLime and other developers supporting Koha. I plan to write that article in the coming week; please e-mail me if you wish to comment.

LLEK represents the evolution of LibLime's entry into cloud computing (also known as "software-as-a-service". Unlike vendors whose idea of cloud computing is simply to offer fully hosted services, LibLime's implementation of the cloud is more in line with that of modern "lean startups" who don't even own their own servers. By using Amazon EC2, LibLime has access to instantly expandable, low cost computing resources. LibLime is able to provision, configure, and implement a new Koha server in less than an hour. To accomplish this, LibLime has developed sophisticated deployment software (which it does not intend to release).

PTFS is already doing a sort of software-as-a-service, building private clouds for its military customers who don't have the option of going out on the open internet. As Yokley explained to me, "Economies of scale are an interesting thing. We've had a few large customers, but now with LibLime, we can provide services to large numbers of small libraries."

Welcome to the big leagues, PTFS!

This article is the first part of a series. Part 2 is here. Part 3 is here.

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  1. There is an error in your posting where you say "John Yokley, a co-founder and the CEO of PTFS, spent 13 years as a Sirsi system adminstrator and programmer at the U.S. Courts, NASA, and University of Virginia Health Sciences Library." That background is for anohter PTFS staff person (Jane Wagner) and is clearly identified as such in PTFS statements.

  2. David, I checked with John Yokley and made a correction. Thanks!