‘Content management’ (CM) is not generally a term that excites many people in the technology industry. Back in 1999, maybe, when European and US stock markets, along with most venture capital portfolios, sparkled with high-flying suppliers. Then, it was almost impossible to get a salesman to return a call.

But not now. Those same portfolios are littered with CM duds. Even the internationally known companies, such as Vignette and Interwoven, sell far less than they used to, and have valuations that reflect the market’s shattered expectations. That is what makes a recent report from market research company IDC so surprising. In the Western Europe alone, CM software vendors’ revenues will have surged 79% since 2001, reaching $1.14 billion by the end of 2002, says IDC. By 2006, it says, this will have more than doubled to $2.85 billion.

But that’s not all. Executives at leading CM vendors such as FileNet and Documentum have recently been saying that their industry could ultimately become at least twice as big as the relational database market; indeed Documentum’s CEO, Dave De Walt, says that the company could one day “be bigger than Oracle”.

In the same spirit, 12-year-old, loss-making Documentum was even touted as the ‘next Microsoft’ by analysts at market research company Ovum. This is some turnaround; in 2000, one Ovum analyst told Infoconomist that “nobody was interested” in content management.

The performance of a number of vendors reflected this: drastic cost cutting (Vignette, Interwoven, Documentum), cancelled flotations (Mediasurface), and closures (InterX, EBT International, Reef) were commonplace. There is no dramatic change in strategy or technology that points to the rebirth of CM, admit suppliers. Rather, they say, organisations have finally grasped the importance of CM software to their ebusiness architecture, and realised that they need it to increase the effectiveness of their existing technology assets.

CM is increasingly seen as an integration technology and a key part of emerging process architectures. Gartner has coined the term for this – enterprise content management. This represents the supplier’s attempt to reposition CM from its departmental silos and make CM tools accessible across an organisation. “Today’s enterprise content management fervour is built on the concept of leveraging content across multiple applications,” says a recent Gartner report.

Customer relationship management (CRM) software is one area where the addition of CM technology can help existing software investments provide a better return.

“Information [in customer relations] isn’t typically shared in nice little packets. Rather, it comes through conversations, emails, note fields of customer surveys, and other free-form communications,” explains Kevin Scott, an analyst with AMR Research. “Relationships are built on communications, not transactions. The better a company is at understanding what its customers are saying, the better it will be at satisfying their needs.”

Chief information officers (CIOs) have caught on to this message. A recent survey by Gartner found that CM software is second only to IT security on their priorities list.

And, according to a June 2002 survey by Jupiter Media Metrix, 53% of companies said that they will have begun implementing a new document, content or media asset management project by the end of 2002.

Two-speed sector

Analyst optimism doesn’t always translate into sales, however. Documentum might be touted as the next Microsoft, but most vendors in the sector are having a tough time.

Vignette and Interwoven have been hit hard. At their peak, during 2001, both were generating over $200 million in annual revenues. But for each quarter of 2002, these companies’ revenues have fallen by between 30% and 50% over the same quarters in the previous year.

These figures tally with the experience of many of Europe’s smaller CM vendors. In Germany, for example, two prominent vendors, Ceyoniq and SER Systems, have exited the business in 2002. At one time, SER Systems was the third biggest German software vendor after SAP and Software AG. Richly funded Brussels-based Reef Software went into receivership in 2002, and its assets were bought by Mediasurface, a UK-based company, in October 2002.

Interwoven’s vice president of Northern Europe, Bob McNinch, offers his explanation: the market for high-end CM systems is saturated. Customers are now supplementing their original CM platforms with smaller software purchases, he says. But not all suppliers are struggling.

Documentum, FileNet and Open Text have all had their problems, but are all now growing, despite the IT spending downturn. Documentum and FileNet have averaged about 20% growth in new licence revenues year-on-year for each quarter of 2002. Documentum’s growth is strongest: revenues for its most recent third quarter to 30 September 2002 grew by 24% year-on-year, reaching $56.3 million. The emergence of this ‘two-speed market’ supports the argument put forward by Gartner.

Established CM vendors, mainly with a document management background, have more sophisticated, broader products that better fulfil what analysts are now calling an ‘Enterprise Content Management’ (ECM) strategy.

“The goal is to think of content as a supply chain from creation to publishing,” explains Nathaniel Martinez, an analyst with IDC. “Companies like Vignette and Interwoven grew up in the mid-nineties by selling web CM tools. But there has been a shift in the market and organisations now realise that they need to have a holistic approach to content.”

A second factor: these companies, through their size and heritage, have gained the trust of wary technology buyers. “In this economy, customers want to deal with as few vendors as possible, and they want to know the company will provide broad functionality for the long-term,” explains Lee Roberts, CEO of FileNet.

These established suppliers can also rely on their large, high-end customer base – an option not always open to those that supplied mostly dot-com companies. Documentum, for example, says 72% its new licence revenues in its third quarter were from sales to existing customers, mostly in pharmaceuticals and financial services.

Enter the giants

CM software is about to become more common, running on smaller and more widely distributed machines; and the big names in software – IBM and Microsoft – want to play a much bigger role.

FileNet’s Roberts agrees that the threat from the likes of IBM and Microsoft worries him most. “If IBM and Microsoft were to train all their guns on our space then we are in trouble,” he admits.

Analysts also believe that Adobe, a company focused on document creation software, with $1.2 billion annual revenues for 2001, is well positioned to dominate the industry.

All of these companies believe that CM software is now ready to escape its high-end, and often vertically focused niche. To date, the big CM vendors have sold increasingly sophisticated and high margin products to very demanding customers.

Analysts’ forecasts of continued and strong growth, however, are in part based on the expectation that well-resourced suppliers, such as Microsoft, will bring CM software right down to desktop or small departmental server. And Documentum, FileNet and others are looking the same way.

Microsoft’s strategy looks particularly threatening to rivals. Although it has offered a Windows server product for the past year (based on its $36 million acquisition of content management vendor NCompass in May 2001), it has not pushed the product heavily. But it is now incorporating a technology called ‘XDocs’ in the beta version of ‘Office 11’, due in 2003. XDocs will enable Office users to create and use XML-based documents, which can be linked to back end systems, and managed through Microsoft’s upcoming Content Management Server 2002 product.

Microsoft’s strategy, significantly, is not based on the mass distribution of low-cost, shrink-wrapped products for desktop computers. This kind of approach, tried by companies such as Verity and Autonomy in the 1990s, requires enormous volumes of buyers and tends towards commoditisation. Microsoft’s server component provides better control and function for customers and better margins for suppliers.

Documentum’s interest in the mass-market opportunity for content management tools is demonstrated through its acquisition of eRoom, a supplier of web-based collaborative project services. Using eRoom, customers join a remote service and make use of tools, without actually installing them. This will enable it to serve low-end users through a services-based approach. Collaboration on content-based projects is seen as an increasingly important growth area for CM suppliers.

It is clear that not all CM vendors have the resources or the vision to survive against such competition; equally, some have the resources and the vision, but need more function. The result will be consolidation. “I think you will see this market moving from between 70 to 40 vendors to about four or five in the next three years,” says Roberts.

The process is well under way. Documentum, for example, has acquired technology to manage rich media from Canadian-based Bulldog technology; it also bought three companies: Boxcar (content distribution technology), eRoom, and most recently TreuArc, an electronic records management company. IBM has also just acquired an electronic records management company called Talarian. In April 2002, FileNet acquired web CM software vendor, eGrail. And in October 2002, Vignette paid $32 million for portal software vendor Epicentric. Much more consolidation is expected, spanning the whole content and knowledge management sector, where dozens of troubled suppliers have already disappeared.

The shape of the new CM market is beginning to emerge. The software, once viewed as specialist and expensive, will be much more widely taken up. But as sales rise, most of the core software licence sales will go to fewer supplies.

Documentum will not be the next Microsoft, but the well-managed company will remain strong; FileNet and OpenText will most likely thrive, too. Microsoft and IBM will take their share. A host of other international and regional vendors – such as Interwoven, Vignette, Broadvision, Mediasurface – have much to do if they are to build profitable, independent long term businesses.