Beyond Synergy, a Market Trend Toward Consolidation Drove EBSCO-Wilson DealBy Michael Kelley Jun 9, 2011
EBSCO Publishing's acquisition of H.W. Wilson last week for an undisclosed sum was driven in part by the desire of Wilson shareholders to cash in at a good time and also by a trend toward consolidation---needed for companies to compete effectively in the broader search environment. The merger, while providing some undeniable enhancements to EBSCO's products, has also raised some concerns among librarians that the company may be becoming too dominant a presence.
"Consolidation is necessary and it's something we should expect. It's something we are going to see more of," said Ned May, a VP and lead analyst of search aggregation and syndication at Outsell Inc. in Cambridge, MA. "With all the disruption that has occurred as a result of the web and Google, we've seen a tremendous amount of pressure on traditional license aggregators, and this type of deal helps maintain the value that they bring and that they charge for," he said.
For many Wilson shareholders, the time was right to sell.
"A lot of shareholders had been former employees for a long time, so I think there was a desire to get them some liquidity," said Tom O'Connor, the managing director of Berkery Noyes in New York, who handled the transaction on behalf of Wilson. "That's why they did it. The industry itself is consolidating, and it's a good pairing for the two parties for the marketplace. But they've [Wilson] been courted by a lot of these players for years, so there comes a time when they need to sell out to one of these competitors who can do the investing that's needed," he said.
Wilson, which was founded in 1898, was no longer able to compete as effectively from a position seen by many as a niche (subject indexing), one they served well but from which they could not grow sufficiently as costs rose.
"I'm not sure why things fell out the way they did, but they were once the most essential indexing company....but they didn't seem to make the transition into the electronic
era with the kind of market share they once enjoyed," said Barbara Fister, a librarian at Gustavus Adolphus College in St. Peter, MN, and a columnist for the LJ Academic Newswire. "Once they slipped out of first place behind EBSCO, Gale, and ProQuest, they never seemed to have anything like the status they had back in the days of print," she said. Fister was coauthor of a 2008 study on the use of aggregated databases by undergraduate researchers.
Growing market pressures were a challenge for Wilson, including pressures from EBSCO, according to some.
"I believe that as EBSCO, ProQuest, and Gale Cengage were strengthening their position it was putting a real squeeze on Wilson," said George Machovec, associate director for the Colorado Alliance of Research Libraries. "Wilson's strength in recent years has been in the mid- to small-size library market. Larger libraries seemed to use Wilson for either niche products or as undergraduate tools in specialized areas," he said.
EBSCO's exclusive contracts with publishers hampered Wilson's ability to grow, according to Amy Fry, the electronic resources coordinator at the William T. Jerome Library,Bowling Green State University, OH.
"EBSCO also started pursuing a strategy of being the exclusive content provider for some publishers (hence many pullouts from LexisNexis recently, for example), which would prevent competitors like Wilson from adding some new content to its products," she said. "Wilson content growth stalled several years ago, while libraries were moving more and more toward full-text products."
EBSCO was not alone in pursuing exclusive contracts with publishers and such deals did not hurt Wilson, Sam Brooks, EBSCO's senior VP for sales and marketing, said, noting that Wilson's goal was to license full text in specific areas "under the radar of the large aggregators" and not be the overall leading full text provider.
"So, they were able to continue to do what they do well - provide high-end indexes," he said.
While Wilson's subject indexes are widely respected and the company's bread and butter, a wider range of offerings is increasingly important in today's market.
"Wilson was succumbing to the pressure. The timing of this, at the end of two very difficult years, just indicates the pressure that is on this market," May said.
EBSCO, however, said the merger was simply a good fit and in both firms' interest.
"From our perspective, we are able to build on the quality that Wilson brought to the table, and the strong foundation of customers," said Scott Bernier, VP for marketing. "From the Wilson perspective, their strengths can be brought to a larger suite of products and services and their databases can be exposed to additional customers via EBSCO's much larger global sales force," he said.
EBSCO looking to the future
Greg Raschke, the associate director for collections and scholarly communication at North Carolina State University Libraries, said long-term viability required more diversified content, which is a part of EBSCO's rationale in acquiring companies like Wilson and NetLibrary.
"EBSCO has long been pursuing, in my opinion, a pretty smart strategy of diversification in their product offerings and vertical integration," Raschke said.
Although this move will enhance the indexing segment of EBSCO's portfolio and bring an immediate and clear benefit to its customers, Raschke said companies realize there is a risk in too singular a focus on this area.
"In part, I think abstract and indexing databases are most at risk from Google and other web-scale resources, so anyone offering those types of databases as a significant part of their portfolio needs to either pursue mergers or diversification---for example, EBSCO buying NetLibrary or offering web-scale searching---or both," Raschke said. "Discovery services need to offer more than straight abstract and index offerings to compete."
Companies like EBSCO are moving toward being sufficiently broad as both aggregator and discovery tool so that they will be a close proxy to a one-stop shop, or at least close enough for many library budgets.
Bernier said the company is indeed aiming to diversify its product line and establish a wider footprint in new markets, but that the picture of Wilson as struggling for not doing the same was "off base."
"Wilson's approach was more concentrated. They didn't have plans to move in these other directions. Instead they focus on doing what they do well. It still serves them well. They serve many customers. In the end both companies are successful. The reality is that companies that are good with niche resources can be successful," he said.
He cited Hein Online (a legal aggregator), the American Chemical Society, and others as aggregators who succeed while focusing on a single subject area.
But Raschke said EBSCO's broader strategy made more long-term sense.
"EBSCO's efforts to add more content, add ebooks, and add products in e-resource management and discovery are, in my opinion, better bets in the long run," he said. "I am sure EBSCO has a firm grasp on which parts of their business are most at risk for revenue decline in the next five years, but I believe A&I databases are on their way out," he said.
In order to generate significant revenue from the institutional market, there may be little choice in the future.
"More scale is required to succeed in content aggregation today," said John Blossom, a senior analyst and the president of Shore Communications in Westport, CT.
"Super databases" coming
EBSCO's Brooks said the Wilson deal will further strengthen EBSCO's "core competency of providing affordable access to highly valuable full-text sources that are not freely available on the web, and high quality subject indexing from extensive controlled vocabularies."
"We see the acquisition as dramatically improving our value proposition in seven subject areas: applied sciences, art, biography, education, humanities, law, and library science," Brooks said. "Both Wilson and EBSCO have products in each of these disciplines, and both sets of databases will continue to be offered, but in addition to those, we will be releasing 'super databases' that combine all content from each company in each subject area," he said.
The "super databases," which will become available early 2012, will include content from full-text journals that have not been previously available via full-text databases.
"These new products will cost more, but they should be very exciting for customers, as they will offer a single, comprehensive source for all EBSCO and Wilson content in each subject area," Brooks said.
The merger will also enhance EBSCO Discovery Service (EDS), Brooks said.
"The automatic searching of 'Use For's' and 'See Also's' from both EBSCO thesauri and Wilson thesauri will be applied to EDS and it will be a major advantage over other discovery services," Brooks said. "Wilson, like the overwhelming majority of aggregators and subject index providers, had decided not to provide metadata to other discovery services, but with the acquisition, all Wilson indexing, abstracts, and full text will become permanently fully searchable via EDS for mutual customers," he said.
Wilson's long tradition of adding good subject headings and being thoughtful about what publications they index will serve EBSCO well, Fister said.
"EBSCO could learn a lot about controlled vocabulary and added value when it comes to making articles more easily discovered from Wilson," she said, adding that she did anticipate a leap in service but would like to see subject headings imported to Academic Search Premier.
Librarians see pluses and minuses in merger
Rick Anderson, the associate director for scholarly resources & collections at the J. Willard Marriott Library at the University of Utah, said his initial reaction was that the benefits of the present deal were mostly "theoretical."
"Maybe, we hope, the two companies will be able to leverage each other's strengths and take a quantum leap in quality of service," he said. "But the fear is that we'll only see a leap in price, now that there are fewer alternatives. But I don't think those fears will hit a fever pitch until we start hearing rumors of EBSCO merging with ProQuest," he said.
Other librarians shared Anderson's concern about the shrinking field of licensed content aggregators.
"EBSCO is becoming not just the gorilla in the room, but King Kong," Fister said. "Monopoly is generally not good for the flow of information, and while it's not yet a monopoly it's getting close, and the integration of their identity as a subscription agent into aggregation gives them even more power over the entire aggregation /full text /publisher relationships landscape," she said. "And the bigger they get, the more essential they become. Smaller databases will be cut first simply because so much of our collection access will depend on EBSCO."
Michael Santangelo, an electronic resources specialist at Brooklyn Public Library, was hopeful that service would be enhanced but agreed that the possible concentration of major content into a few hands was worrisome.
"Gale and ProQuest are the other major aggregators that we feel compete for our budget dollars. As there are only three big aggregators left, it seems logical to say that field is shrinking," he said. "We are, of course, worried about this as it leads to fewer choices for acquiring content and makes negotiation harder. How can you negotiate confidently when only one vendor has access to particular content?" he said.
Bernier said the company has a solid track record of improving and enhancing its services, and that its goal was to keep pricing stable.
"The notion that we would become stagnant or have no incentive to improve is the complete opposite of the way we look at things," he said. "We plan to push forward in the same way we have---to the best of our ability. We want our services to get better and better."
He said there were many options for customers to purchase full-text databases, indexing, and other products and services.
Raschke said the merger would likely lead to a "minor to moderate" improvement in the quality of service but competition would restrain prices.
"The primary advantage is they get rid of a competitor in what is likely a shrinking market," he said. "Pressures from other competitors and the broader search environment will work to keep prices down."
And Anderson emphasized that licensed aggregators continued to provide valuable economies of scale and manageability of content.
"In a perfect world I wouldn't need aggregators for journal content---all articles would be findable on the open web, and then there would be an easy mechanism to allow my library to pay for what the patron needs as soon as he or she finds it. But until that world is achieved, traditional article aggregators are still quite valuable," he said.
"The real competition for giant aggregated databases is Google Scholar," she said. "But if the actual text of the article is found through these aggregated databases using link resolvers, they will continue to be important for libraries even if the search happens at Google," she said.
Consolidation also will affect the companies physical operations, as EBSCO seemed to indicate that the companies' will merge operations in Ipswich, MA, where EBSCO is headquartered, and at least some of Wilson's approximately 200 employees will join EBSCO's 800 plus employees there (EBSCO Industries has about 5500 employees worldwide).
"Bringing together our technology, our operations, and our headquarters provides an efficient and economical way to move ahead with our plans to improve both EBSCO and Wilson resources without large price increases," Brooks said. "EBSCO Publishing's Ipswich, Massachusetts headquarters offers room for expansion and is the logical choice for streamlining physical operations," he said.