Big is beautiful in the battle for ECM

Supplier consolidation has reached epidemic proportions in the business software industry over the last few years, with giants removing other giants from the scene, the weak falling to the strong, and private companies giving up on feeble prospects of making it to the liquidity of the public markets. Several software sectors have been radically reshaped by the trend but perhaps none more so than enterprise content management (ECM).

Originally conceived as an umbrella term to cover a multitude of related activities, ECM today hardly seems a broad enough description of the market. ECM firms were once defined as companies able to corral the hypergrowth in unstructured data – in effect, anything but numbers, and taking in text, web pages, images, audio and video – by making corporate networks readily searchable.

But since the three-letter abbreviation was coined, ECM suppliers have placed an array of other abilities on top of what were basically suites of sophisticated storage and search tools. ECM systems now typically include web content management, collaboration, regulatory compliance, and document imaging and archiving tools.

Some suppliers see even that extended remit as insufficiently broad and position ECM as just one element in the business software “stack” alongside the operating system, a database, an application server and other components.

In part, the reason for the many changes of ownership in the ECM sector is the battle for survival. Increased demand for supplier rationalisation and the raised stakes in research and development have seen even one-time giants such as Siebel Software in customer relationship management (CRM) and PeopleSoft in enterprise applications give up their independence. Little wonder that the ECM space, dominated until recently by mid-sized suppliers, has shrunk to just a few software behemoths.

The big bang
In ECM, the consolidation trend began in earnest in 2003, when storage supplier EMC agreed a $1.7bn deal to acquire content management supplier Documentum. The pair seemed an unlikely match as EMC was, and is, best known for storage hardware. However, EMC’s justification for the purchase – that content management and storage systems belong together – was one of the first in a run of deals that brought together unlikely bedfellows.

Since then, the larger deals have included IBM buying ECM specialist FileNet, database company Oracle picking up Stellent, and Open Text acquiring German ECM firm Ixos as well as ECM and portal firm Hummingbird and web content management outfit Red Dot.

Remembering who’s who in ECM is a significant challenge but even now the deal-making is not over.

“It’s difficult to imagine that all the unconsolidated players will remain independent and their challenge is in making themselves attractive to buyers,” says Alan Pelz-Sharpe, principal of analyst firm CMS Watch. “But for sure in the next 18 months there will be more consolidation in the middle tier.”

Mike Davis of analyst firm Ovum agrees that the merry-go-round is still in spin, despite the best efforts of some suppliers to stretch themselves beyond the confines of ECM.

“Vignette has done a sterling job in the last six months, repositioning itself from mainstream ECM to high-value services, but it is obviously an acquisition target and has lots of nice bits that would be attractive to other vendors,” he says. “Interwoven is also attempting to reposition itself [and could be a target].”

Charlie Wood, who blogs on enterprise software, adds: “If I were Vignette, I’d be looking hard for a buyer, but the list of possible suitors is growing pretty slim.”

However, Vignette defends its independent position, and says that ind ependent ECM firms have to find their niche. “For example, Vignette is the leader in web content management and portals,” says Vignette’s European marketing director Simon Robinson, “with a significant presence in our core vertical markets of financial services, public sector, telecoms and media.”

Both Pelz-Sharpe and Davis expect software giant SAP to make a strategic move into ECM, although they differ over whether that implies an acquisition and, if so, the identity of the potential target.

“SAP is still wondering what to do and will likely develop its own solution and play catch-up, but could acquire a company such as Saperion, or possibly Open Text, though that is less likely,” says Pelz-Sharpe.

Davis argues: “Open Text, I understand, would be open to offers, and the speculation is that SAP is the one that could go for it. SAP, if it wants to play in the game, has to buy, and the most likely candidate is Open Text.”

With leaders in the ECM competitive landscape boiling down to fewer, larger players, what sort of job are the big boys doing? For some experts, adding hardened enterprise experience is fruitful.

“EMC and IBM with FileNet will do a very good job of ECM in larger enterprises, finally making the ‘E’ in ECM have a valid meaning,” says Pelz-Sharpe. “ECM vendors are bifurcating into two camps, some [such as Open Text and Interwoven] can be neatly identified as business applications, while others [such as Oracle, IBM and EMC] are infrastructure.” He adds that more forward-thinking buyers are already taking those different directions into account in making value judgments.

However, some in the industry expect further repositioning.

“We will start to see the giants specialising in one particular aspect of ECM, be it document management, imaging or knowledge sharing,” says Vignette’s Robinson. “Those that don’t specialise will become a jack-of-all-trades and master of none.”

Although mergers and acquisitions often carry the bogeyman tag of leading to disruption for buyers,

Pelz-Sharpe does not think that information professionals have too much to worry about.

“M&A should actually be a positive thing in the main as the acquirers are firms with huge global support mechanisms,” he says.

Dave Gingell, European marketing vice-president at EMC, says that the level of disruption depends on how strategic ECM is for the acquirer, and how well they manage the acquisition and integrate into their own technology stacks.

Inter-portfolio rivalry
“Clearly, customers of ECM product X might be concerned if rival ECM product Y was acquired by their supplier,” he adds.

But where there is little overlap, benefits can be gleaned from the larger organisation’s support capabilities and ability to integrate products, he argues.

Ovum’s Davis agrees and offers a stout defence for the assembly of software stacks: “It makes sense and the main driver is compliance, whether it’s Sarbanes-Oxley in the US or Mifid in the UK.

“If you’re an IBM shop, you’d like to have one person to shoot if it all goes wrong. The reassuring thing is that we’ve seen good ongoing support [from ECM suppliers that have acquired others]. They’ve given a minimum three-to-five years of ongoing support and product roadmaps. When Open Text bought Hummingbird, for example, there was a clear migration path and there was no rip-and-replace required.”

But not everybody buys into software-stack consolidation. Open Text chief executive officer John Shackleton says he wants his company to be “the Switzerland of ECM”, and argues that best-of-breed specialists are always better placed to form relationships than one-stop-shops.

“We’re doing a lot of strategic partnering with SAP, Microsoft and Oracle, so we can interface with the PeopleSoft and JD Edwards applications,” he says. “Our aim is to grow to over $1bn in revenues.”

He also laughs off the never-ending swirl of merger rumours. “Somebody asked me about a deal with HP and I told them the only person I’d met from HP recently was the guy fixing the printer.”

Also, some ECM suppliers are not tipped to make any strategic purchases at all – and that applies even to the biggest software supplier of them all, Microsoft.

“Microsoft [with SharePoint] is doing a pretty good job of basic document management – and in particular, collaboration,” says Pelz-Sharpe.

Rather than buying one of the surviving big players, Microsoft is more likely to offer its own base services and leave room for resellers to plug in features and, if necessary, work with Open Text, Interwoven or similar as a back-end ECM repository.

Also, experts say that although the top end of the ECM market has shrunk to the domain of a few very large organisations, opportunities remain for others to add capabilities or even to reinvent the sector with new price points, levels of usability and deployment models.

Pelz-Sharpe says that the infrastructure-led approach of Oracle, EMC and IBM will open the market up in other areas.

“The platform approach – along with maturing service-oriented architectures – should provide a fantastic opportunity for smaller niche technology or vertical industry players to feed off,” he adds.

Vignette’s Robinson sees virtue in narrowing in on innovation, “providing next-generation solutions to some of the world’s most cutting-edge companies with truly innovative websites”, and citing BSkyB, NASA and Martha Stewart as examples.

Wood agrees that differentiation is still an open route, noting a small acquisition in March 2007 by customer relationship management provider Salesforce.com.

“The Salesforce acquisition of Koral is very meaningful,” he says. “It marks the entry of a very significant on-demand company into the ECM space and continues a trend started by the industry giants like IBM and Oracle, where content management becomes more of a feature set than an application class.”

For Ovum’s Davis, the open source movement also offers rich prospects, particularly in the form of Alfresco, an ECM company that boasts management with experience from a host of ECM giants.

“The one vendor everyone needs to keep an eye on is Alfresco,” he says. “They have the ambition to make the world’s best ECM platform and a world-class software business based in the UK. They don’t have a bloatware issue and they have learned from previous experience. People need to take notice of them.”

Despite a flood of mergers and acquisitions then, ECM remains a vibrant, changeable market that offers information professionals plenty of options and should ensure that suppliers stick to their support and technology roadmap promises.

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