Consolidation has become such a factor in the enterprise content management (ECM) sector that analysts regularly advise potential new buyers of ECM software to consider the likely longevity of any vendor on their shortlist as one of the critical selection criteria. But gauging who will survive – in a market that is still as diverse as it is crowded – is no easy task.

Take, for example, one of the oldest and best known names in software: FileNet. In June 2006, CEO Lee Roberts told delegates at FileNet’s European user conference in Berlin that, as the largest independent vendor in the content management space, it considered only IBM and EMC as its peers. “The reason we don’t sleep is there is IBM with 400,000 employees on one side of us, and EMC with 100,000 employees on the other,” he told FileNet customers.

But clearly he was not sleeping well at that time, because only a matter of weeks later he announced that IBM was to acquire the 26-year-old company for $1.6 billion.

That deal is a watershed for an industry where consolidation to date has largely been within its own ranks. And it underscores the fact that the broad players of the IT industry now see ECM – and the business process management (BPM) associated with it – not as a niche technology targeted at only a handful of vertical sectors (lawyers, publishers, and other large-scale users of documents and records) but as a mainstream technology appropriate for the majority of mid-sized and large, global organisations.

IBM’s deal follows the pattern set by storage systems vendor EMC which surprised many observers back with its acquisition of ECM vendor Documentum in December 2003 and then followed that up with the buy-out of document input management provider Captiva in 2005.

In some respects the sale of FileNet is not unexpected. As Ovum analyst Mike Davis notes: “FileNet has effectively been ‘available’ for a number of years. It was reported that it was approached in 2003 by Oracle, just after EMC had acquired Documentum, but asked for an exorbitant $2 billion.”

Oracle, and other major infrastructure vendors such as Microsoft, have since stayed away from major acquisitions in ECM, instead choosing to grow and develop their own content management capabilities with the help of just a few deals to graft on relevant skills, says Tony Byrne, principle analyst at CMS Watch.

Whether that ensures they will emerge in the top tier of companies remains to be seen. Certainly IBM wants to be there. “It is very clear that the ECM market will have to produce similar players [in terms of size and dominance] as you have in the enterprise resource planning space,” says Michael Kuhn, EMEA portal and content management practice lead at Accenture. He says that is was clear that FileNet needed a partner, as in spite of having a good technology, its ability to grow the business organically was starting to stall.

Document pedigree

FileNet has always been a solid rather than a spectacular performer. It specialises in document management software, with roots dating back to the 1980s, when it was an early leader in the scanning, storage and retrieval of important documents, originally on high capacity optical storage devices. It has a strong customer base in financial services, where long before the days of regulations such as Sarbanes-Oxley, it was essential that original copies of every document were captured and tagged for quick retrieval.

So what will IBM do with FileNet? Although FileNet is often classed as a BPM software provider, with its step-by-step workflow engine built into its document handing, IBM is already overflowing with BPM tools, having made several overlapping acquisitions already.

The FileNet acquisition is more about information management than process management. IBM said in February 2006 that it intended to invest $3 billion in information management, mirroring a similar investment by its IT services rival Accenture. This is part of that initiative. IBM has been in document management since the early 1980s, but it has never secured the market traction that its track record or investment suggest it should have. With FileNet, it is getting customers (4,300 of them), a strong brand, some good technology and a lot of expertise. It also means that it can compete with EMC much more effectively, which is building up from storage into a formidable information and document management company.

“IBM has increasingly found itself vying for deals against FileNet, EMC, and Open Text on the content management front,” observes Jim Murphy, research director at analysts AMR Research. “Taking on FileNet means taking out one of the competitors and gaining an immediate market share boost to number one by a considerable distance over EMC and Open Text.”

For existing ECM vendors to compete against infrastructural vendors such as IBM and EMC, they too have to ‘get big quick’ or find a niche to exploit, as the proposed purchase of content management vendor Hummingbird by rival Open Text highlights. In May 2006, private equity investors Symphony Technology Group saw the opportunity to roll Hummingbird into its portfolio of enterprise applications and agreed a $465 million buyout with the content management vendor.

But Open Text almost immediately launched a hostile rival bid for Hummingbird, offering $489 million – the price its executives felt was necessary if Open Text was to emerge in that top tier alongside EMC, IBM and (at the time) FileNet. And while the deal will give Open Text a significantly larger market footprint, Hummingbird customers face a stark choice, believe Gartner analysts: either migrate to Open Text’s LiveLink platform by 2009 or select another provider.

The current M&A frenzy overshadows many of the literally hundreds of smaller content management companies which specialise in document and image management, web content management, records management or digital asset management. With the ECM market growing at a rate of nearly 10% – a figure well ahead of other parts of the software market – there is still room for some of these specialists in vertical markets and geographical areas.

For the remaining second-tier companies such as Stellent, Interwoven and Vignette, as well as Oracle and Microsoft, the choices are less clear. Watch for a fresh round of acquisitions and consolidations, says Kuhn, as these vendors figure out what to do next.

But in the short term, vendors such as Vignette believe that FileNet’s acquisition gives them some breathing space to continue growing, either organically or through acquiring other businesses. “For now there is less noise and less competition,” says Mike Aviles, Vignette’s CEO. And although it’s not Vignette’s intention to be acquired, there is little that publicly traded ECM companies can do when faced against the “vast scale” of resources that industry giants such as IBM and Oracle have at their disposal, he adds.

This truth may be realised sooner rather than later: Oracle’s newly released Oracle Content Database and Oracle Records Database may give it a more substantial story in the sector, but in light of IBM’s aggressive move on FileNet, says Murphy “an acquisition – think Open Text, Interwoven or Vignette – is an even more distinct possibility.”

Deals that reshaped the sector

Further reading in Information Age

Content's suite spot, July 2006

Taming the record, June 2006

ECM for the masses, March 2006

Elevated status, July 2005 

Further articles can be found in the Information Age Information Management Briefing Room