The creation of a stronger marketplace is considered a good outcome when there is industry consolidation. In the enterprise content management (ECM) space, however, acquisitions are slowing down market development, say some analysts, who also warn that customers should watch out for some of the pitfalls that follow these mergers.
The highly-fragmented ECM space lately has been caught up in consolidation fever, with vendors such as Open Text making a US$485.1 million bid for rival Hummingbird last month, and IBM acquiring FileNet for US$1.6 billion. IBM's purchase is the industry's biggest to date, following storage vendor EMC's US$1.7 billion acquisition of Documentum in 2003.
On news of the FileNet acquisition, Australia-based IT analyst services firm Hydrasight released a commentary stating that it believes ongoing market consolidation in the ECM market is "premature and will slow market development rather than propel it forward".
Hydrasight added in the commentary that: "Longer term, many of these acquired companies and products will either wither under the lack of strong sales support, or [under the rise of] customer confusion with overlapping product offerings."
The company estimates that the global ECM landscape consists of more than 200 vendors, including big ones such as Microsoft, SAP and Oracle, as well as smaller and independent vendors such as Vignette, Interwoven and Autonomy.
What exactly is content management?
Research company IDC defines the content management market as one that builds, organizes, manages and stores collections of digital works in any medium or format. This market encompasses software such as content management, digital or media asset management, and Web content management. According to IDC, content management forms the foundation or the infrastructure for knowledge management. It estimates that the content management market in the Asia-Pacific region, excluding Japan, was worth US$127.6 million in 2005. The market is expected to grow at a compound annual growth rate of 14 percent to reach US$245.3 million by 2010.
In a phone interview with ZDNet Asia last week, John Brand, Hydrasight's research director, observed that the spate of consolidation in the ECM market is "a defensive play" on the part of the acquiring vendors. Even though there may be overlapping products offered by both companies, these vendors buy up smaller players mainly as a move to prevent their competitors from doing the same first.
"The [EMC market] pie is getting bigger, but it's also getting thinner," Brand said.
AMR Research's analyst Jim Murphy, wrote in an research paper published Monday: "The [IBM-FileNet] acquisition is hardly about technology.
"The motivation for the move is more likely [about] acquiring customers and gaining a better competitive position, relative to the ECM market and the enterprise IT market as a whole," he explained.
He noted that FileNet has a very "strong position" in the market within its 4,700 customers in the banking, insurance, financial services, government, telecommunications and utilities industry segments--IBM will now be inheriting these valuable customers.
What's the big deal?
Not surprising, the news of IBM and Open Text's purchase bids have been met with derision from rivals.
In an e-mail interview with ZDNet Asia, Mike DeCesare, senior vice president of worldwide field operations at EMC Software Group, described FileNet as a "slower-growing company with a highly redundant portfolio".
"Frankly, IBM and FileNet will be saddled with rationalizing significant overlaps…This scenario typically results in customer confusion and will take several quarters to sort out," DeCesare said.
In a July interview with ZDNet Asia, Max Carnecchia, Interwoven's global president, dismissed Open Text's takeover of Hummingbird as "an act of desperation".
More importantly, what should ECM customers make of the market activities?
Sharon Tan, senior analyst for IDC Asia-Pacific's enterprise applications research division, does not rule out any further consolidation in the ECM market. She advised customers to consider, before buying any new ECM software, issues such as compatibility, scalability, vendor support and the ability to integrate the software with existing IT investments.
Hydrasight recommends that as ECM market consolidation continues, organizations looking to expand or acquire ECM-related products in the coming 12 to 24 months should now carefully examine other alternatives before making strategic ECM vendor decisions.
"Whether a migration is seriously considered or not, an understanding of the potential alternatives, and the cost-benefit of such, should be top of mind for those looking to spend anticipated ECM budget," said the company.