Consolidation in the Enterprise Content Management Industry - Who Will Be Next - Autonomy or Open Text? Part I

Since my old company, Document Sciences was bought by EMC, I have been following the Enterprise Content Management market closely; The Fortune 500 have invested billions of dollars in databases and ERP technologies leading to multi-billion dollar franchises such as Oracle, SAP etc. focused on the structured data world. However, the next frontier of productivity will come from the unstructured data that includes your emails, you-tube videos, word document, power point presentations, pictures etc. According to various industry researches, unstructured data accounts for over 80% of corporate information. There are many technologies and tools aimed at finding, storing and managing the unstructured data which has been gaining traction such as enterprise content management, enterprise search, information access, business intelligence to name a few. The Enterprise Content Management (ECM) market for example is about $3.8B growing in low double digits. Thanks to these ECM technologies CIOs now can bridge the structured and the unstructured data to create a Unified Information World (UIW) which can help drive significant productivity gains for knowledge workers. Large IT vendors – IBM, EMC, and Oracle – have been acquiring ECM companies to capitalize on the UIW for some time. For example, EMC bought Document, Legato, Captiva and my old company Document Sciences.

There are two largest, independent ECM vendors – Autonomy and Open Text – consolidating the market trying to reach the billion-dollar mark while also competing with the upcoming versions of Share Point by Microsoft. Microsoft Windows SharePoint Services (WSS) provides rudimentary DM functionality, available with Windows Server at no additional cost. This no-cost option has generated

widespread experimentation with WSS as a DM solution. Commoditization at the low-end of the ECM market by Microsoft has forced my traditional ECM vendors to move toward solutions and industry-specific offerings. Having been a Chief Marketing Officer in the industry, I can honestly say that most of these vendors and their founding CEOs don’t have any interest or appreciation or competency in vertical solutions. Most of them are deeply in love with their technologies proudly broadcasting their specs to CIOs, which don’t really care much about it.

Autonomy, the undisputable technology king of the enterprise search sector has recently bought Interwoven, an ECM vendor for $775M. I already published a detailed analysis on the acquisition and its likely impact on the future of the industry. They have an end-to-end platform to pursue new applications such as meaning-based marketing (Interwoven’s deep strengths in Web content management (WCM) through TeamSite product) and legal and compliance management (Interwoven WorkSite, which according to Forrester is the best-kept secret in document management). Interwoven had merged with iManage, a provider of collaborative document management products, in late 2003. iManage provided Interwoven with not only document management (DM) products but more than 1,300 customers and a strong installed base in law firms. Now Autonomy will target iManage client base with a great value proposition of a more powerful search engine front-end – The Intelligent Data Operating Layer IDOL.

Regulatory is still significant driver in all sectors, including pharmaceuticals, manufacturing, professional services, media and technology leading to Fortune 500 deploying capabilities in archiving, eDiscovery, and information governance. As Regulators keep promising hard hitting new rules and hefty sanctions coupled with increased complexity of rules across multiple jurisdictions, I don’t expect slow-down in sales cycles or pricing or margin pressure.

Accordingly, Autonomy makes an excellent acquisition target due to:

• Attractive profitable revenue run-rate of around $800M
• Superior technology platform that can fill-in gaps of many large IT vendors’ stacks
• Ability to cross-sell into Interwoven and Autonomy blue-chip client bases
• Track-record in selling robust vertical applications and solutions into the enterprise
• Autonomy is the only remaining large independent player after Open Text.

In my opinion, SAP and Microsoft would be most interested in acquiring Autonomy. Microsoft has never made any acquisitions of this size in the past but they had never laid people off or announced the amount of loss as in the last quarter. Autonomy is just too close to Microsoft’s heartland and provides a powerful value proposition to Fortune 500 clients while also marginalizing Google.

SAP on the other hand said ECM would be next in their shopping list following the Business Object acquisition but they are known to have slow, bureaucratic culture. Given their Enterprise Search product is already late, Autonomy’s IDOL product would be a fantastic alternative. We should however never rule out a competitive bid by IBM, HP, Oracle and EMC.

In my next analysis due later this week, I will continue the discussion with Open Text. It is worth noting that in my analysis dated January 31, 2009, I had predicted that Open Text would buy Vignette, which they did in May.