Wholly Owned Division of Reed Elsevier plc
Sales: $1.23 billion (1998)
NAIC: 514191 On-Line Information Services
The LEXIS-NEXIS Group, a business division of Reed Elsevier plc, is a major electronic publisher and information provider. It serves customers in more than 60 countries, offering legal, business, government, academic, and financial information through the Web, dial-up online, CD-ROM, and books. LEXIS Publishing combines the company’s legal brands: Lexis-Nexis, Matthew Bender, Shepard’s, Martindale-Hubbell, and Michie. The NEXIS division consists of the NEXIS news and business information service and publisher Congressional Information Service Inc. The LEXIS-NEXIS database contains 2.5 billion searchable documents from nearly 25,000 news, business, and legal sources, with more than 14 million documents added each week.
From Defense Contracting to Legal Research: 1955-67
LEXIS-NEXIS could trace its history to a defense contractor, Systems Development Corporation, which began operations in Dayton, Ohio in 1955. The company later changed its name to Data Corporation and made money primarily from sole source contract work for Wright-Patterson and Rome Air Force bases in Ohio. Its CEO was William L. Gorog.
Wright-Patterson was the Air Force’s principal research center, and one of Data Corporation’s projects there was the development of a program called Recon Central. This was a computer-based system for storing and retrieving information about procurement contracts and worldwide inventories of radar equipment, basically a database of the Air Force’s optical and photographic equipment. Later, the system was used to retrieve aerial reconnaissance photos. Another project was the development of an ink jet printer.
In 1966 the company put the research software created for Recon Central to a civilian use. The Ohio State Bar Association, headed by James Preston, Jr., was looking for a more effective way for its members to conduct legal research. Preston asked Data Corporation to come up with a system that would allow attorneys to use computers to research case law and state statutes. The resulting system, using the Recon Central software, cut research time from days to hours.
A New Owner: 1968-70
While Ohio attorneys were finding citations more quickly, the Mead Corporation, a longtime paper-making company based in Dayton, was deciding that it needed to diversify to counter the cyclical ups and downs of the paper industry. Mead chose to move into high technology and in 1968 paid $6 million for Data Corporation, which it renamed Mead Technology Laboratories. Mead was particularly interested in Data Corporation’s ink jet printer and the Recon Central photo retrieval and storage system.
Gorog stayed with the company, supervising research and development, including the Ohio Bar Association research project. Not knowing quite what to do with the tiny database of Ohio law, in 1969 Mead hired the consulting firm Arthur D. Little, Inc. to analyze the marketing potential of that system. On the consulting team were attorneys H. Donald Wilson and Jerome Rubin.
The team submitted its report to Mead in 1970, finding that existing electronic legal research systems, including the Recon Central system, were inadequate. The major problem was that these systems did not search the text of the documents themselves, but depended on abstracts, indices, and document summaries. The team also found that there was a definite market for a high-quality, national computerized system to store and retrieve legal information. It recommended that Mead invest $20 to $30 million to develop such a system. To the surprise of just about everyone, Mead approved the proposal.
Mead Data Central, Inc.: 1970-73
To undertake the project, in 1970 Mead created a new subsidiary, Mead Data Central, Inc. (MDC), and Wilson and Rubin formed a management partnership to head it. That partnership lasted until September 1971, when Wilson stepped down as president. Jerome Rubin then assumed full control.
As Mark Voorhees wrote in a December 1999 article in the American Lawyer, Rubin faced monumental challenges. “The goal was to launch the service with 2 billion characters of information. An interactive free-text system of that size had never been built.… The world of computing was far different then. One hundred megabytes of computer storage cost nearly $50,000. (Today, a typical personal computer hard drive stores 30 to 40 times that amount and costs less than $200.)”
Over the next 18 months, and after spending $14 million, Rubin and his crew of computer engineers and linguistic specialists found answers to those challenges, even though several of the staff were skeptical of the system’s potential. “The question was whether you could build a service that could support hundreds or even thousands of simultaneous users,” Edward Gottsman told Mark Voorhees. Gottsman, who was Rubin’s chief strategist, also doubted that lawyers would use it.
Rubin addressed that particular issue by marketing the system to large law firms in New York City, where competition was fierce. On April 2, 1973, with four big firms as the first subscribers, MDC launched the LEXIS legal reference service. LEXIS provided a lawyer with the ability to search the full text of New York and Ohio codes and cases, the federal code, and a federal tax library.
LEXIS was what was known as a “dial up” system. To connect with MDC, a lawyer at a subscribing firm dialed a number and placed the telephone receiver into the cradle of a modem that converted the signals coming from Dayton. Then the lawyer only had to type a question into a custom-designed computer terminal and LEXIS would generate a listing of relevant case law from its database.
A Decade of Growth: 1974-83
Within four years, the LEXIS service was making a profit. In 1979 the company introduced a news and business research service called NEXIS and opened a new computer center to house MDC. Revenues that year reached $22.9 million. NEXIS was packaged free with the LEXIS service and provided law offices with general and business news and current information about companies.
Meanwhile, a competitor appeared on the scene (or screen). In 1975 West Publishing Company entered the electronic legal research business with its Westlaw service. By the late 1970s, recognizing that lawyers comfortable with researching online would be more likely to become customers, both LEXIS and Westlaw began making their online services available free to law students.
By 1983, the LEXIS database had 12.5 million pages, including the full text of federal and state laws, court decisions, and much of British and French law. NEXIS provided access to 160 major newspapers, magazines, newsletters, wire services, and the Encyclopedia Britannica. That year, the company signed a licensing agreement with the New York Times giving MDC exclusive right to the newspaper’s electronic archives. MDC had revenues of approximately $100 million and LEXIS was used by nearly every large law firm, law school, court, and government agency.
In an important step to expand its markets, MDC began allowing access to its databases through personal computers. The company did this by putting the information on computer disks, which it sold in a package with documentation and keyboard templates. At the same time, it signed marketing agreements with IBM and AT& T.
Growth and Consolidation in Electronic Information: 1984-89
More and more entities were seeking ways to provide information electronically. In 1985 the Securities and Exchange Commission started automating the filing and retrieval of companies’ reports through its EDGAR project (Electronic Data Gathering and Retrieval System). MDC performed much of the development work for EDGAR and then was involved in managing the filings and making copies available for dissemination.
During this period, MDC sued West Publishing, challenging West’s system for copyrighting legal citations. The case was settled in 1988, when West agreed to license its citation system to LEXIS for about $3 million a year for ten years.
By 1988, the growth of the electronic information industry had lead to consolidation, with 20 major purchases during the year. A total of 40 percent of these involved foreign companies or their subsidiaries, including the purchase by Reed Publishing Ltd./U.K. of the Cahners publishing business. Maxwell Communication Corp, one of media magnate Robert Maxwell’s companies, bought Macmillan for $2.5 billion and BRS Information Technologies, a bibliographic-based online service, for $25-$30 million, and Knight-Ridder bought Dialog from Lockheed for $353 million.
The company’s mission is to be the preferred provider of decision support information services to professionals in legal, business and government markets.
MDC was also making acquisitions. In December 1988, it completed the purchase of the Michie Company from Macmillan for $226.5 million. Michie published 22 annotated state codes and helped in building the LEXIS database to 50 state statutes. By 1989, MDC’s revenues were expected to reach $400 million, up from $22.9 million in 1979.
Facing Growing Competition: 1990-93
LEXIS dominated the electronic legal information market through the 1980s, but in 1989 the service’s growth began to slow. Initially this happened as a result of the recession, with layoffs and cost cutbacks in legal firms. Then, in the early 1990s, increased competition and changes in technology ate into its market share.
Among online (dial-up) competitors, West Publishing’s Westlaw was gaining market share. While the two services were about equal in the legal information they offered, Westlaw’s prices were lower, its natural language software was easier to use than that of LEXIS, and it offered gateways to Dialog and Dow Jones News/Retrieval services to provide current news and business information similar to that offered by NEXIS. According to a 1994 article in Legal Publisher, “[LEXIS] has instituted interface and access enhancements only in response to competition and the whole computer system is in need of major upgrading and overhaul.” The result, said Marcia Berss of Forbes, was that LEXIS’s market share dropped from 95 percent in the early 1980s to 60 percent in 1992.
Computer disks (CD-ROMs) containing volumes of works from legal publishers such as Matthew Bender and Martindale-Hubbell were another source of competition. LEXIS offered CD-ROMs of legal information for selected states through the Michie Company, and Micromedex, another MDC subsidiary, used that format for drugs, toxicology, and other information for the health care industry.
Furthermore, desktop computers had become much more powerful and the information industry was trying to determine how to move from its mainframe environment to a client/server setting. In addition, the Internet made it possible for people to search for masses of information and anticipated drops in telecommunications costs would give more people access to that information. Players in the industry were busy developing methods to organize and package information in ways that would be helpful to the user.
As Rod Everhart, CEO of MDC, told Marydee Ojala of Online, “There are oceans of data out there… and MDC is a data packager. We know how to collect it, and how to put it in a form that makes it productive and efficient and effective for the user, and that they will be willing to pay for. If we fail to do that, to add value in that data collection process, then we’re going to have to change our business.”
To accomplish this, MDC grew the business through acquisitions, buying Jurisoft, a legal software publisher, Folio Corporation, a developer of infobase management software that was used by CD-ROMs, and LEXIS Document Services, a retrieval service of public records. The company also made software changes on its LEXIS-NEXIS database, including making it easier to deal with numbers in its company and financial data service, put more resources into NEXIS, and offered more connection options at different prices.
Internationally, consolidation within the information industry continued. In 1993, Reed International plc, a major British publisher with holdings in the United States, and Elsevier NV, a huge Dutch publisher, merged to create Reed Elsevier plc. The new entity became the third largest information company in the world, behind Time Warner Inc. and Bertelsmann A.G.
On the Sales Block: 1994
In May 1994, Mead Corporation announced that it was getting out of the electronic information business to concentrate on making paper and it put MDC on the market. In the previous year, the subsidiary had earnings of $50.4 million on sales of $551 million and accounted for 12 percent of Mead’s total revenues. Analysts’ estimates of the final sales price ranged from $750 million to $2 billion. At the time, LEXIS had 45 specialized libraries and NEXIS contained more than 2,400 full-text sources. By September, three companies were seriously considering the purchase, with bids up to $1 billion: Times Mirror Co. of Los Angeles, Canada’s Thompson Corporation, and the newly formed Anglo-Dutch conglomerate, Reed Elsevier plc.
In October, Reed Elsevier announced that it was buying Mead Data for $1.5 billion. The next day, Reed Elsevier was listed on the New York Stock Exchange. The purchase of MDC signaled the company’s intention to shift from dependence on hard copy publishing to increased use of online information, with electronic publishing expected to double to 20 percent in 1995.
Reed Elsevier was the publisher of more than 1,000 journals and magazines, including Lancet, the British medical journal, Modern Bride, Variety, and various science and computer magazines as well as books and newspapers. It owned the Martindale-Hubbell lawyer directory, British legal publishers Butterwork & Company Ltd., R.R. Bowker, a leading library publisher, and Reed Exhibitions.
- Data Corporation contracts with Ohio Bar Association to create a computerized legal research system.
- The Mead Corporation buys Data Corporation.
- Mead creates Mead Data Central to develop a full-text, national legal research system.
- Four New York law firms are first subscribers to the LEXIS legal information service.
- NEXIS’s news and business information service begins.
- Reed Elsevier plc purchases Mead Data Central and renames it LEXIS-NEXIS.
- Company forms LEXIS Publishing.
In December, Reed Elsevier completed the transaction and announced that although their new holding would remain in Ohio, it would do so under a new name, LEXIS-NEXIS, to take advantage of the well-known brand names. The company also announced a new, ten-year agreement with the New York Times under which LEXIS-NEXIS would have immediate access to Times material but no longer would have exclusive license to the newspaper’s archives.
The Internet and the Web: 1995-97
Reed Elsevier’s purchase of MDC moved the publisher right into the online information business. But major technological changes were occurring that would greatly impact electronic publishing. The Internet and the World Wide Web became more important tools to both searchers for and deliverers of information. Weekly business and news magazines began appearing online. West Publishing put its Legal Directory on its web site. Search engines such as Yahoo, Infoseek, and Lycos made it easier to find sites on the Internet. As the industry continued to consolidate, in 1996 Canadian publisher Thompson Corporation bought West Publishing.
That same year, LEXIS-NEXIS introduced ReQUESTer, an Internet service offering small businesses access to major newspapers from around the world for $59 a month. A year later, LEXIS launched its legal Web service, Xchange. Whereas access to the legal database required a subscription account at costs similar to the company’s traditional service, Xchange also offered current legal news free of charge.
Acquisitions and Competition: 1998-99
During 1998, Reed Elsevier bought legal publisher Matthew Bender and Shepard’s, a legal citation service, from Times Mirror for $1.65 billion. On the news side of the LEXIS-NEXIS business, the company introduced its Web-based Universe service, providing access to a broad range of information at a flat rate rather than its traditional per-article fee. The new service was a big move on the part of the company to attract professional researchers who were not in the legal profession.
But despite these moves, LEXIS-NEXIS was having problems. Free Internet sites were providing stiff competition to NEXIS and other traditional information providers and Thompson’s West Group continued cutting into LEXIS business. During the first half of 1999, LEXIS-NEXIS sales grew only one percent and operating profits dropped 17 percent, not counting acquisitions. Just under half of the sales came from online business and the rest from its Web-browser based products.
Two major shifts occurring in the electronic information industry were affecting LEXIS-NEXIS. One was the movement from proprietary telecommunications software connections to Web-based online searching. The second involved the growing demand for general and business information by an audience much wider than legal professionals.
1999 to the Present
By the end of 1999, LEXIS-NEXIS was moving to differentiate its two main businesses, beginning by calling itself the LEXIS-NEXIS Group. To strengthen its legal products and services, the company combined its five legal brands (LEXIS-NEXIS, Michie, Shepard’s, Matthew Bender, and Martindale-Hubbell) into a separate business unit, called Lexis Publishing. It also introduced lexis.com, a new Web-based search system for legal information that added case synopses and a new, up-to-date legal classification system. In December, the company announced that select offerings, including state and federal court decisions, would be available on a pay-per-use basis on the Web through WinStar Telebase. In January 2000, it offered journalists a “Meet the Experts” database of more than 100 legal authorities.
NEXIS also was undergoing a restructuring, even as it introduced a new product, Company Dossier, offered with Universe. In January, the LEXIS-NEXIS Group bought the Business Information Product unit of England’s Financial Times, and a month later announced an agreement with e-solutions Software to develop a news and information service on the Web for sales professionals.
Crispin Davis, who took over as CEO of Reed Elsevier in September 1999, announced at the end of February 2000 that the company planned to greatly increase its research and development spending, investing $1.2 billion in online activities over the next three years. As he told Raymond Snoddy of The Times (London), the business would focus on providing “solutions, not just information.” For the LEXIS-NEXIS Group, such solutions were expected to include responding to lawyers’ verbal requests made through “a little machine.” As the fight for the legal and business customer continued to intensify, the only sure prediction was that by 2002 the business would look very different.
Principal Operating Units
NEXIS; Martindale-Hubbell; LEXIS Publishing; Matthew Bender; Shepard’s; Michie; Congressional Information Service Inc.
Thomson Corporation; Dialog Corporation; Dow Jones Reuters Business Interactive LLC.
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—Ellen D. Wernick