IBM's FileNet buy demonstrates ECM consolidation

IBM's bid to buy FileNet on Thursday points to a major shift underway in the enterprise content management (ECM) software market as systems infrastructure companies encroach on pure-play ECM vendors' turf.

"Infrastructure vendors are really taking over all of content management, forcing pure-plays higher up the stack," Barry Murphy, senior analyst at Forrester, said. IBM's announcement of its $1.6 billion bid for FileNet is an indication that the power shift is taking place right now, he said.

FileNet was finding itself in a tough position, according to Melissa Webster, program director, content technologies and digital media at IDC.

Unlike other pure-plays like Open Text, which moved away from generic ECM to tightly integrate their offerings with application providers like Oracle and SAP, FileNet continued to position itself as a more general-purpose platform vendor. At the same time, companies like Oracle and Microsoft have unveiled plans to begin offering basic content management capabilities.

Should IBM's move to acquire FileNet be successful, the company will regain its position as the number-one ECM software vendor in revenue terms, Webster said. According to IDC's figures, the current wearer of that crown is EMC Corp. which bulked up its ECM presence last year with the purchase of Captiva. FileNet and IBM were almost level-pegging in ECM revenue terms, with Open Text in fourth position.

There's plenty of overlap between IBM's and FileNet's offerings, Forrester's Murphy said, particularly in the areas of document imaging, electronic forms, records management and e-mail archiving.

"In the short term, this could be pretty positive for customers, IBM will have more of a menu of options," he added. Going forward, IBM will need to tread cautiously and not try to force customers to adopt particular products.

Ambuj Goyal, general manager for IBM's information management unit, stressed the company's commitment to "preserving and enhancing" both the IBM and FileNet product lines. Once the deal closes, expected in the fourth quarter of this year, then IBM will be able to provide more details on the integration strategy, he said.

Goyal said the acquisition is all about growth and expects the vast majority of FileNet's 1,800 employees to join IBM. "From our point of view, there's nothing but goodness" about the proposed deal for FileNet staff, customers and partners, Lee Roberts, chairman and chief executive officer of FileNet, added.

However, even once IBM closes the acquisition of FileNet, the vendor will still be missing strong Web content management software, according to analyst Murphy. That lack of functionality might lead to IBM looking more closely at other ECM players strong in that area like Interwoven Inc. and Vignette Corp.

It'll also be interesting to see what moves other systems vendors, particularly CA Inc. and SAP and to a lesser extent Hewlett-Packard Co., choose to make around ECM. Murphy positioned CA's recent purchase of software company MDY as a way for the security, storage and systems management vendor to "back into ECM."

In June, Open Text announced a partnership with Oracle which Murphy expects may be indicative of a more substantial future relationship between the two companies. This week, Open Text bought rival player Hummingbird for $489 million, overriding an existing $465 million bid for Hummingbird from the Symphony Technology Group LLC.

Murphy wouldn't be surprised if in a year's time, 80 percent of all content management software was under the control of infrastructure players EMC, IBM, Microsoft and Oracle.

IDC's Webster doesn't expect the consolidation to come that quickly. "The sea change that says content management becomes an integral part of the [systems] architecture is still some ways off," she said.