| Evolution of the Earth Information Industry The makeup of the swollen Mississippi River changes continuously as it flows past the Gateway Arch. This thick, muddy soup of silt, soil, water and other material -- gathered from as far away as the mountains of Montana and on through the heartland of America -- is ultimately deposited in the Gulf of Mexico. For centuries, this site has been a witness to change. The nearby burial mounds of the ancient Cahokia people gave way to the fur trading settlement where Lewis and Clark embarked upon their "Voyage of Discovery," and on through Charles Lindbergh's historic "Spirit of St. Louis" flight to what is now the resilient, economically diversified metropolis of a modern-day St. Louis, Mo.
St Louis is a city that has seen old economies change into to new ones: not abandoning the old but rather embracing them as a foundation upon which to build the new. This city, certainly no stranger to change, made a fitting venue for the 2001 ASPRS conference. Change and transformation could easily have been the two buzz words for this year's conference. GeoTechnology companies are transforming their natures to create the capabilities, acquire the assets, and develop the resources to take advantage of the business opportunities yet to be realized. Some major developments came to light at this year's ASPRS meeting in St. Louis, and this editorial will examine several that are expected to have far-reaching implications for this industry.
The biggest news from the ASPRS conference was the announcement that Leica Geosystems signed two monumental agreements: their acquisition of 100 percent of the shares of ERDAS Inc., and simultaneously, their pending acquisition of the remaining 50 percent of the outstanding shares of LH Systems from its joint venture partner, BAE Systems. ERDAS and LH Systems will form the core of Leica Geosystems' new GIS and Mapping Division and provide a platform for growth in the Geographic Information System (GIS) and Remote Sensing (RS) market segments. Leica Geosystems will acquire ERDAS Inc. for approximately US$30 million in cash, plus registered shares of the company. The acquisition of LH Systems will be concluded at a price of US$15 million and will be an all-cash transaction.
Leica Geosystems' CEO Hans Hess explained, "Individually, these two companies bring significant benefits to our company. Through the combination of the two, however, even more synergies should materialize. The fusion of these companies brings together the broadest array of image-based data acquisition and visualization tools in the industry. Our strategic objective of becoming the most comprehensive supplier of modern digital spatial measuring and GIS products is now -- only nine months after going public -- already realized. This gives us a pilot position in Geomatics and allows us to lead the creation of Digital Earth Information Systems (DEIS) by fusing together high precision survey data and mass-data handling technologies."
Said Bob Morris, president of Leica Geosystems' new GIS and Mapping Division, "It is our clear intention to provide the necessary entrepreneurial freedom for these dynamic enterprises to continue their successful history of product innovation in the GIS, remote sensing and photogrammetric markets, and to make the most of their trusted brand identities. In addition we want to achieve synergies between all three companies as appropriate. We value the continuing leadership of the current management teams, and believe that together with Leica Geosystems, the combined entities can fully capitalize on the tremendous opportunities within the GIS and remote sensing arenas."
Under the terms of these agreements, ERDAS Inc. and LH Systems will become wholly owned subsidiaries of Leica Geosystems. During 2000, ERDAS recorded revenues of US$23.5 million and generated an operating profit of more than US$3 million, while LH Systems achieved revenues of US$35 million and generated an operating profit of US$5 million.
Also at ASPRS, LH Systems announced their signing of a letter of intent to acquire the business of Azimuth Corporation, the Westford, Mass., manufacturer of the AeroScan system for airborne laser mapping. Azimuth will become a division of LH Systems, and AeroScan will be enhanced and rebranded as the LH Systems ALS40 Airborne Laser Scanner. ALS40 systems will be supplied on their own or in joint configuration with either the RC30 aerial film camera or ADS40 Airborne Digital Sensor. The ALS40 will include the POS/DG Position and Orientation System from Applanix Corporation.
The most dramatic transmutation taking place in the GeoTechnologies, and possibly even on a global corporate scale, is the transformation of Eastman Kodak from an old-economy film, chemical and manufacturing company to a new-economy digital information company.
Eastman Kodak's Commercial & Government Systems (CG&S) unit provides image information solutions for business and government market needs. New businesses from C&GS reflect Kodak's participation in the emergence of what they call "info-imaging," the moment at which pictures become information. Multiple sources of images -- satellite, aerial, ground, and various supporting data -- are converging to provide greater value to customers than any single, stand-alone image. Kodak claims this larger info-imaging market is a $225 billion market. A piece of that market, information extracted from earth imagery, is growing 10 percent annually and will reach $6.5 billion by 2005, according to the research firm Frost & Sullivan.
The recently formed business unit, Kodak Global Imaging (KGI), will offer information derived from Earth images to such commercial customers as telecommunications firms, insurance companies, and other end-users. To support this initiative, Kodak acquired the Earth image processing, GIS and mapping businesses of Groupe Hauts-Monts Inc., a privately held provider of Earth imagery products and related services. Headquartered in Beauport, Quebec, Canada, Groupe Hauts-Monts is a remote sensing services company, supplying GIS and mapping products and services that includes image scanning, ortho-rectifying, and automated image storage. Omitted from this acquisition is Group Hauts-Monts' aerial image capture business, which that company will continue to operate on its own. In October 2000, Kodak acquired Research Systems Inc., an image processing software company that sells such popular products as IDL and ENVI.
"Kodak is using its heritage as a leading provider of remote sensing products and services to go further into the image information business," said Carl Marchetto, president of Commercial & Government Systems and a senior vice president of the corporation. "By combining the power of images with information technology, we will allow customers to gather more information more quickly, make decisions faster, reduce costs and boost revenue."
Headquartered in Rochester, N.Y., with facilities and corporate resources worldwide, Eastman Kodak's C&GS is determined to transform itself into an Earth imaging juggernaut. It appears that Kodak's objective is to become vertically integrated into every facet of the Earth information business, expanding its information imaging solutions to span the image chain, from acquisition to analysis to answers. Among the products or services provided: aerial film and processing; digital imaging systems for commercial imaging satellites; online Earth image databases, GIS and mapping services; remote sensing image products, services and systems integration; image and data analysis, visualization and application development software; image information solutions using hyperspectral imagery and tools; and 3-D flythrough technology.
It is still early, but Kodak and Leica Geosystems appear to have the winning formula for success within this industry. Spending a fraction of the billions of dollars the satellite companies have spent to become major players in this industry, and thanks to strategic acquisitions of existing, profitable, revenue-generating companies, they are creating multi-tentacled entities capable of feeding at every level of the Earth information industry's food chain.
There is another trend that may appear innocuous, barely discernible, or simply just doesn't appear on the radar screens of most people in this industry. Nonetheless, it could have far-reaching, potentially insidious, implications for the U.S. mapping industry.
An aerial photography company out of Calgary, Alberta, Canada, is flying all of Colorado and other regions of America for the USGS. Another flyer from Quebec is photographing dozens of cities across the United States, one more from France is doing likewise, and there are others as well. The day after the North American Free Trade Act (NAFTA) was ratified, Canadian aerial photography firms were flying and collecting data throughout the United States.
One might say that these are the consequences of free trade. However, the problem remains that this is not a reciprocal situation. Indeed, most Canadian federal, provincial and local government agencies, plus many private companies, have a prejudice against American companies: an unwritten "always buy Canadian" rule. On the other hand, most U.S. organizations are oblivious to this fact. Prejudices aside, there is no doubt that the strong U.S. dollar, the outstanding U.S. economy, and the magnitude of the overall U.S. market makes it the premier target for any foreign mapping concern. When compared to the United States, any other market is paltry and considered unattainable to U.S. concerns. Besides, why go after international business when the low-hanging fruit is right there in one's own back yard? The cost to pursue international opportunities and the time to develop them are so great that American firms cannot see a return on their investments to justify the expense or the effort. And traditionally, American companies have been shortsighted in their business plans, relying on fat domestic government contracts in lieu of any logical foreign policy.
Parallel to the issue of foreign companies mapping in the United States is the disappearance of American-owned mapping companies. American mapping firms are being gobbled-up by foreign concerns faster than dot.coms are being delisted from NASDAQ.
For example, the oldest mapping company in America -- founded in 1866 -- is owned by a British publishing conglomerate. The Sanborn Map Company (Pelham, N.Y.) offers photogrammetric mapping, data conversion and comprehensive GIS services, and is part of the DMG Information group of companies. DMGI has operations in the U.K., U.S.A., Australia and Asia, and is headquartered in Stamford, Conn. Its parent, the Daily Mail & General Trust plc, had revenues of approximately $2.7 billion in fiscal year 2000, and is listed on the London Stock Exchange. Daily Mail and General Trust is one of the longest-established and most successful media companies in the U.K. Its origins date back to the launch in 1896 of the Daily Mail newspaper.
The Sanborn Map Company has acquired Aero-Dynamics Corporation (Charlotte, N.C.), Lockwood Mapping Company (Rochester, N.Y.), Barton Aerial Technologies (Columbus, Ohio), Walker Associates (St. Louis Mo.), and Williams-Stackhouse (San Antonio, Texas). Most recently, they have agreed to acquire the Colorado Springs production facility of Analytical Surveys Inc., and the word on the street at ASPRS is they are in final negotiation to purchase all of ASI, a publicly traded company whose stock has been in distress for quite some time.
It is interesting that the foreign mapping activities in the United States, and the acquisition of American mapping companies by offshore interests, went over as non-issues when I addressed them to a handful of Management Association for Private Photogrammetric Surveyors (MAPPS) executives at a press luncheon at ASPRS. Yet, these same executives admitted a deep concern over the Kodak machinations which have sent e-mail messages ricocheting across the country among MAPPS members like Ping-Pong balls at a Chinese table tennis tournament.
Given MAPPS' purview of lobbying the U.S. government to outsource mapping activities to its private mapping members -- some of which are not even of U.S. origin -- not surprisingly, they wrapped themselves in the mantle of free trade as justification for their lack of concern regarding foreign incursion upon the American mapping industry. This is clearly not MAPPS' mandate, and they have been extremely successful in reaching out to U.S. government agencies, and building partnerships between them and the MAPPS' membership.
So, who is looking out for the best interest of all U.S. mapping companies, and what measures are being taken to ensure the competitiveness of U.S. mapping organizations both at home and on a global scale? Admittedly these are rhetorical questions. We are witnessing the most dramatic changes this industry has ever seen. The evolution of old-world economic powers into new-economy information companies, and the creation of international, multi-faceted GeoTechnology conglomerates, signifies the dynamics of economic Darwinism being playing out in this industry.
Herbert Spencer, a British philosopher and economist, coined the phrase "survival of the fittest" in 1867. He believed that strong competitors naturally and properly drive weaker institutions into extinction. He said that unfettered competition is the only way for economic systems to advance, and that government should not stand in the way of the free market.
The Earth information industry and its markets will evolve based upon external influences and the will and ability of individual organizations to survive and thrive. However, economic Darwinism is not necessarily about being the biggest or strongest, for it was Charles Darwin himself who said, "It is not the strongest of the species that survives, nor the most intelligent, but the one more responsive to change." Until next time...
Cheers!
Roland Mangold
Publisher
E-mail: [email protected] |
