IBM has announced plans to acquire FileNet in an all cash deal valued at $1.6B. The deal is expected to close sometime in the fourth quarter of 2006.
FileNet is one of the leaders in the enterprise content management (ECM) market. In business since 1984, FileNet predated the Internet boom and has been vital in helping companies digitize their document-intensive processes. Over the course of time, FileNet has expanded its core document repository capabilities, most prominently promoting business process management (BPM) in recent years.
In the ECM space, IBM has been one of FileNet’s most frequent competitors. While it has made numerous acquisitions related to content management in the past, including a July 2003 acquisition of web content management (WCM) vendor Aptrix and an August 2004 acquisition of content integrator Venetica (see “When Little Acquisitions Mean a Lot: IBM Acquires Venetica”), this is by far IBM’s most significant acquisition. In fact, it’s the most significant event in ECM since EMC acquired Documentum in October 2003 (see “Hindsight on Documentum’s Content Management Leadership; Foresight on EMC’s Direction”).
In IBM’s view, content management is becoming more vital as a component of an enterprise IT strategy to support decision making, information analysis and response, and to address issues like compliance, which encompasses every form of information and documentation an organization employs.
The FileNet side
To some extent, this is a far longer story than people think—one about FileNet finding a buyer—sparked by EMC’s Documentum acquisition.
Like its traditional competitors, FileNet has been under pressure to differentiate itself in a market under serious threat of commoditization, especially with the encroachment of the infrastructure heavyweights, Oracle, Microsoft, and of course, IBM, on its market. While its competitors gobbled each other up by amassing loosely related content management categories, FileNet’s growth has been conservative and organic. With a couple of minor distractions, FileNet kept close to its core document management capability, building its own BPM and records management systems to suit customers’ developing needs.
But the constant pressure to differentiate its products to suit specific customer and industry needs against its behemoth competitors may have been forcing FileNet into less fruitful niches. Undoubtedly, FileNet also found it had to embrace rather than work against new competitors like Microsoft, Oracle, and IBM itself, meaning it had to support various infrastructure platforms.
The IBM side
Despite FileNet’s worthy product developments over the past few years, the acquisition is hardly about technology. With the exception of some industry-specific applications built on the FileNet platform, IBM already has all the technology pieces. The motivation for the move is more likely acquiring customers and gaining a better competitive position relative to the ECM market and the enterprise IT market as a whole.
FileNet has a very strong position within its 4,700 customers, treated as a system of record almost as central to the success of document-intensive organizations and industries—banking, insurance, financial services, government, telecommunications, and utilities—as the ERP backbone. IBM will get these valuable customers.
As for the competitive factors within the ECM market, IBM has increasingly found itself vying for deals against FileNet, EMC, and Open Text on the content management front. Taking on FileNet means taking out one of the competitors and gaining an immediate market share boost—to No. 1 by a considerable distance over EMC and Open Text. Moreover, more customers are establishing company-wide standards on ECM, most often on a provider among many providers that they already use in house. So, IBM ensures that it’s called to the table far more often when such a standards decision happens.
As for the broader market, IBM’s competitive focus is on Oracle and Microsoft, both of which have expressed late interest in the ECM market. Simply put, they all realize that their success depends on being able to manage more of your information, with more of it needing to be managed because of compliance regulations and other concerns, and that more of it is not in databases. Moreover, being treated as a central source of information allows IBM to sell additional products and services, to remain entrenched in the business, and to adapt and respond to market demand as it occurs.
Oracle’s approach to content management was only recently rearticulated when it announced, along with numerous complementary content management partners, its newly positioned Oracle Content Database and Oracle Records Database products. While it’s a more definitive and realistic position in the ECM market than Oracle has ever had before, it won’t likely be aggressive enough in light of IBM’s move. An acquisition—think Open Text, Interwoven, or Vignette—is an even more distinct possibility.
While IBM and Oracle have been battling it out at the database or repository level, Microsoft is working the desktop. Introducing ECM to the masses through the Microsoft Office System, and specifically SharePoint, could be the most compelling angle of all.
The customer side
The most loyal and longstanding FileNet customers may feel a sense of relief, or they may feel a sense of fear. Those most fully invested in FileNet as the backbone for vital business processes, and those that have gone through considerable effort to upgrade to FileNet’s modernized P8 architecture, will undoubtedly be worried about the prospect of a rip and replace. IBM has so far been mum on the topic of product rationalization and consolidation, and we won’t hear about specific plans until after the acquisition is complete.
But to speculate on that topic despite the considerable overlap, IBM won’t likely try to merge the product lines for the foreseeable future. A development effort to combine the products would be too expensive for IBM and too disruptive for customers. In the meantime, both companies’ conformance to emerging content management standards and IBM’s Venetica acquisition (remember—“content integration”) should make integration and extension, rather than rip and replace, the direction for the future.
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