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COMMENTARY--On October 14, EMC announced an agreement to acquire Documentum in a stock transaction valued at US$1.7 billion. The acquisition is expected to be completed in the first quarter of 2004, and upon completion, EMC will operate Documentum as a software division of EMC run by Documentum's current management.
Although acquisitions among competitive vendors in the enterprise content management (ECM) market are not unusual (e.g., Open Text and Gauss, Interwoven and iManage/MediaBin, Documentum and Bulldog/TrueArc previously), it is noteworthy that EMC's planned acquisition of Documentum represents an infrastructure-level strategy that could be the beginning of a much larger trend, with potential impact on how enterprises seek to address content, archiving, and storage as a completely synergistic, single-vendor solution.
To be sure, storage hardware companies have been trying to increase revenue and have been commoditising margins through product differentiation via partnerships and integrated offerings on their products. It has also become apparent that storage companies are responding to customer demand for holistic approaches for managing exponentially increasing content through the enterprise and across multiple (often heterogeneous) storage systems, consolidation being the norm.
Furthermore, increasing fervour over technologies behind Sarbanes-Oxley and other regulatory compliance and organizational risks has been driving storage vendors and ECM vendors closer together, if only (thus far) through partnership. Documentum, viewed as one of a very few leaders in the ECM market (e.g., IBM, FileNet, Open Text), exemplifies the central theory behind EMC's acquisition--that enterprise content has emerged as an infrastructure concern to most Global 2000 and regulated organisations, on par with other mission-critical business data, such as databases, ERP, or financials.
By definition, enterprise content management is application software that provides a means to create/capture, manage/secure, store/retain/destroy, publish/distribute, search, personalise, and present/view/print any digital content (i.e., pictures/images, text, reports, video, audio, transactional data, catalog, code). These systems primarily focus on the capture, storage, retrieval, and dissemination of digital files for enterprise use and their life-cycle management.
ECM systems are generally tactical and non-discretionary, but are increasingly being viewed as more infrastructure-like than application-like, as organisations are dealing with accelerating business velocities, consolidation of redundant content management systems, regulatory and compliance issues (mandated or perceived), and business continuity. Indeed, it is the cost avoidance issues that have significantly accelerated the emergence of the ECM market. Fast processing and leveraging of information are key, but hefty fines, criminal prosecution, and litigation costs are recognised at a much higher level in most organisations.
Although technology is still a critical selection driver in ECM, the past gaps among vendor products are beginning to minimise, competition among the larger vendors is increasing, acquisitions to reach relative technology parity are increasing, and support for previously -non-traditional" content types (e.g., e-mail, digital asset management, records management) is now viewed as becoming core to ECM. While this evolution is seen as completely logical in the realm of ECM, what is most noteworthy is that EMC has never been in the non-storage application software space (Legato is the recent exception), and it now appears to be attempting/willing to change the nature of both the storage management and ECM marketplaces.
On the surface, this acquisition represents a synergy of highly in-demand hardware and software components (ECM [Documentum], archiving [Legato], storage management [EMC]), and offers significant up-sell and cross-sell opportunities within the client bases. It also provides Documentum a formidable customer-facing force (sales reps, pre-sales engineers) of approximately 5,600 (only IBM can boast similar numbers in the ECM market).
Yet, key to understanding this acquisition is Joe Tucci's background (EMC's president and CEO)--he ran Wang Software's core imaging and workflow business prior to its sale to Kodak. He possesses experience at a depth critical for success in the ECM market, and this acquisition's chance of success would be far less likely had this not been the case. It will also link core ECM strength with Legato's DiskXtender archiving product line, something Documentum lacked, and EMC's Centera content addressed storage product. Although this combination must still be more integrated than openly available API integration, it should be easily obtainable.
Cultural integration will be another story and will likely take at least as long as deep product integration (18-24 months). In the interim, other ECM vendors will likely seek other fixed content storage options (e.g., Network Appliance's SnapLock).
EMC must also pay specific attention to all components of Documentum's portfolio, as this technology is sold as components or as integrated solutions. For example, we believe that EMC sees benefit in the collaborative aspects of Documentum (eRoom) because the collaborative aspects buttress the Documentum ECM story.
eRoom is a competitive advantage for Documentum, and EMC should keep focus on this product. The latest eRoom release (Version 7) is a very strong one, and current customers should do the upgrade and take a wait-and-see approach. In addition, customers evaluating eRoom should continue to view eRoom outside of the acquisition. Even if eRoom loses 6-12 months in development, it still stays at least on par with the competition (IBM, Microsoft), which usually takes 18 months to offer new revisions.
Beyond these direct implications, the impact and ramifications for both storage management and ECM are far reaching.
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